UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2017March 31, 2021

OR

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                   to                   

Commission File Number:

000-55564

KT HIGH-TECH MARKETING,KULR TECHNOLOGY GROUP, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:408-663-5247

(Former name, former address and former fiscal year, if changed since last report)N/A

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes¨x Nox¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b- 2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ Nox

As of November 16, 2017,May 20, 2021, there were 77,440,00094,247,200 shares of Common Stock, $0.0001 par value, issued and outstanding.

KT HIGH-TECH MARKETING,KULR TECHNOLOGY GROUP, INC. &AND SUBSIDIARY

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017

MARCH 31, 2021

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.Statements

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

KT HIGH-TECH MARKETING, INC. & SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these condensed consolidated financial statements.

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

KT HIGH-TECH MARKETING, INC. & SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

KT HIGH-TECH MARKETING, INC. & SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY) EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017

(Unaudited)(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements. 

KT HIGH-TECH MARKETING, INC. & SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

KT HIGH-TECH MARKETING, INC. & SUBSIDIARYThe accompanying notes are an integral part of these condensed consolidated financial statements.

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)(unaudited)

NOTE 1    ORGANIZATION, NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Organization and Operations

KT High-Tech Marketing,KULR Technology Group, Inc. ("KT High-Tech") was incorporated on December 11, 2015. Prior to the reverse recapitalization discussed below, KT High-Tech was an early-stage company planning to market and distribute technology products and components targeting the energy and consumer electronics industries. KT High-Tech intended to market and sell the products to both the end user and supply chain markets and to seek partnerships in developing and distributing such products. After the reverse recapitalization discussed below, KTHT integrated, through its existing business operations with those of itswholly-owned subsidiary, KULR Technology Corporation.

KULR, a wholly-owned subsidiary of KT High-TechCorporation (collectively referred to as “KULR” or the “Company”), was formed in 2013develops and is based in Santa Clara, California. KULR is primarily focused on commercializing itscommercializes high-performance thermal management technologies infor electronics, batteries, and other components across a range of applications. Currently, the Company is focused on targeting both, high value, high-performance consumer electronicperformance aerospace and energy storage applications. KULR owns proprietary carbon fiber based (Carbon Fiber Velvet or “CFV”) thermal management solutions that it believes are more effective at storing, conducting, and dissipating waste heat generated by an electronic system’s internal components (i.e. semiconductor, integrated circuits “chips”) in comparison to traditional materials, such as copper and aluminum. KULR’s technologies can be applied inside a wide arrayDepartment of electronicDefense (“DOD”) applications, such as mobile devices, cloud computing, virtual reality platforms, satellites, internet of things, drones,satellite communications, directed energy system and connected cars. In additionhypersonic vehicle, and applying them to thermal management of electronic systems, KULR has developed a highly effective, passivemass market commercial applications, such as lithium-ion battery energy storage, solution for lithium ion batteries that has been testedelectrical vehicle, 5G communication, cloud computer infrastructure, consumer and endorsed by the National Aeronautics and Space Administration (“NASA”).

Reverse Recapitalization

On June 8, 2017, KT High-Tech entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with KULR and 100% of the shareholders of KULR (the “KULR Shareholders”). On June 19, 2017 (the “Closing Date”), the Company closed the transaction contemplated by the Share Exchange Agreement. Pursuant to the Share Exchange Agreement, the KULR Stockholders agreed to transfer an aggregate of 25,000,000 shares of KULR’s common stock to the Company in exchange for the Company’s issuance of an aggregate of 50,000,000 shares of the Company’s common stock to the KULR Stockholders (the “Share Exchange”). KULR became a wholly-owned subsidiary of KT High-Tech and the KULR Stockholders now beneficially own approximately 64.57% of KT High-Tech’s common stock on a fully-diluted basis. Upon the closing of the Share Exchange Agreement, a representative of the KULR Stockholders was appointed to be the Company’s second Board Director.industrial devices.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for annual financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of September 30, 2017March 31, 2021 and for the three months ended March 31, 2021 and nine months then ended.2020. The results of operations for the three and nine months ended September 30, 2017March 31, 2021 are not necessarily indicative of the operating results for the full year ending December 31, 20172021 or any other period. These unaudited condensed consolidated financial statements should be read in conjunction with KULR’s and KT High-Tech’sthe Company’s audited financial statements and related disclosures as of December 31, 20162020 and for the year then ended, which are included in the Form 8-K/A and Form 10-Kwere filed with the Securities and Exchange Commission (“SEC”) on JuneForm 10-K on March 19, 2017 and March 30, 2017, respectively.2021.

In March 2020, the World Health Organization declared COVID-19, a novel strain coronavirus, a pandemic. During 2020 and continuing into 2021, the global economy has been, and continues to be, affected by COVID-19. While the Company continues to see signs of economic recovery as certain governments began to gradually ease restrictions, provide economic stimulus and vaccine distribution accelerated, the rate of recovery on a global basis has been affected by resurgence of the virus or its variants in certain jurisdictions. The Company continues to monitor the impact of COVID-19 on its business and operational assumptions and estimates, and determined there were no material adverse impacts on the Company’s results of operations and financial position at March 31, 2021.

The closingfull extent of the Share Exchange Agreement was accounted for asfuture impact of COVID-19 on the Company’s operations and financial condition is uncertain.  Accordingly, COVID-19 could have a reverse recapitalization undermaterial adverse effect on the provisions of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) Topic 805-40. The condensed consolidated statementsCompany’s business, results of operations, herein reflectfinancial condition and prospects during 2021 and beyond, including the historical results of KULR priordemand for its products, interruptions to supply chains, ability to maintain regular research and development and manufacturing schedules as well as the completion of the reverse recapitalization since it was determinedcapability to be the accounting acquirer, andmeet customer demands in a timely manner. The financial statements do not include any adjustments that might result from the historical resultsoutcome of operations for KT High-Tech prior to the completion of the reverse recapitalization. The balance sheet as of December 31, 2016 presented herein reflects the assets and liabilities of KULR. KT High-Tech’s assets and liabilities are consolidated with the assets and liabilities of KULR as of the Closing Date. The number of shares issued and outstanding and additional paid-in capital of KT High-Tech have been retroactively adjusted to reflect the equivalent number of shares issued by KT High-Tech in the Share Exchange, while KULR’s accumulated deficit is being carried forward as the Company’s accumulated deficit. All costs attributable to the reverse recapitalization were expensed.this uncertainty.

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 2       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Since the date of the Annual Report on Form 10-K for the year ended December 31, 2020, there have been no material changes to the Company’s significant accounting policies, except as disclosed in this note.

Use of EstimatesLiquidity

PreparationAs of financial statementsMarch 31, 2021, the Company had cash and working capital of approximately $6.2 million and $4.7 million, respectively. For the three months ended March 31, 2021, the Company incurred a net loss of approximately $1.7 million and used cash in conformityoperations of approximately $1.7 million. On May 20, 2021, the Company raised approximately $6.5 million in connection with U.S. GAAP requires managementa convertible preferred financing agreement. In connection with the closing of the financing, the Company repaid in full its aggregate notes payable obligation of $1,540,000. See Note 10 – Subsequent Events for additional details. While the Company anticipates it will continue to make estimates, judgmentsincur operating losses and assumptionsuse cash in operating activities for the foreseeable future, the Company believes that affect the reported amountsits current working capital is sufficient in comparison to its anticipated cash usage for a period of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notesat least twelve months subsequent to the filing date of these condensed consolidated financial statements. The Company’s significant estimates used in these financial statements include, but are not limited to, stock-based compensation, the collectability of receivables, inventory valuations, the recoverability and useful lives of long-lived assets and the valuation allowance related to the Company’s deferred tax assets. Certain of the Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consisted primarily of cash, accounts receivable, revenue and accounts payable.

Cash Concentrations

A significant portion of the Company’s cash is held at one major financial institution. The Company maintains cash with major financial institutions.has not experienced any losses in such accounts. Cash held in US bank institutions is currently insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 at each institution. There were aggregatewas an uninsured cash balancesbalance of $1,225,642$5,659,918 and $0 at September 30, 2017$8,513,010 as of March 31, 2021 and December 31, 2016,2020, respectively.

During the nine months ended September 30, 2016, 100%Customer and Revenue Concentrations

The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, as follows:

* Less than 10%

There is no assurance the Company will continue to receive significant revenues were generated from Customer A. any of these customers. Any reduction or delay in operating activity from any of the Company’s significant customers, or a delay or default in payment by any significant customer, or termination of agreements with significant customers, could materially harm the Company’s business and prospects. As a result of the Company’s significant customer concentrations, its gross profit and results from operations could fluctuate significantly due to changes in political, environmental, or economic conditions, or the loss of, reduction of business from, or less favorable terms with any of the Company’s significant customers.

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Vendor Concentrations

During the three months ended September 30, 2017, 76% and 24%March 31, 2021, three vendors represented more than 10% of the Company’s revenues were generated from Customer Cpurchases and Customer A, respectively. Duringduring the ninethree months ended September 30, 2017, 44%, 42% and 14%March 31, 2020, four different vendors represented more than 10% of the Company’s revenues were generated from Customer C, Customer B and Customer A, respectively. As of September 30, 2017, receivables from Customer C, Customer B and Customer A comprised 44%, 42%, and 14%, respectively, of the Company’s total accounts receivable. As of December 31, 2016, a receivable from Customer A comprised 100% of the Company’s total account receivable.purchases, as follows:

Inventory

Inventory is comprised of CFVcarbon fiber velvet (“CFV”) thermal managementinterface solutions and heatsinks,internal short circuit batteries, which are available for sale. Inventories are stated at the lower of cost andor net realizable value. Cost is determined by the first-in, first-out method. InventoryThe cost of inventory that is sold to third parties is included within cost of sales and the cost of inventory that is given as samples is included within operating expenses. The Company periodically reviews for slow-moving, excess or obsolete inventories. Products that are determined to be obsolete, if any, are written down to net realizable value. As of September 30, 2017March 31, 2021 and December 31, 2016,2020, the Company’s inventory was comprised solely of finished goods.

Convertible Instruments

The Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for in accordance with ASC Topic 815. The accounting treatment of derivative financial instruments requires that the Company record embedded conversion options and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. Embedded conversion options and any related freestanding instruments are recorded as a discount to the host instrument.

Fair Value of Financial Instruments

The Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

Level 1 — quoted prices in active markets for identical assets or liabilities

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level 3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

The carrying amounts of the Company’s financial instruments, such as cash, accounts receivable and accrued expenses and other current liabilities approximate fair values due to the short-term nature of these instruments. The carrying amounts of the Company’s short–term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates, are comparable to rates of returns for instruments of similar credit risk.

Revenue Recognition

The Company recognizes revenue whenin accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is realized or realizablepossible more judgment and earned. The Company considersestimates may be required within the revenue realized or realizablerecognition process, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and earned when all ofallocating the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the services have been renderedtransaction price to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. Sales are recognized upon shipment to the customer, free on board shipping point, or the point of customer acceptance.each separate performance obligation.

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following five steps are applied to achieve that core principle:

The Company recognizes revenue primarily from the following different types of contracts:

The following table summarizes the Company’s revenue recognized during the three months ended March 31, 2021 and 2020:

As of March 31, 2021 and December 31, 2020, the Company had $20,000 and $20,000 of deferred revenue, respectively, from contracts with customers. The contract liabilities represent payments received from customers for which the Company had not yet satisfied its performance obligation under the contract., or the customers have not officially accepted the goods or services provided under the contract. During the three months ended September 30, 2017March 31, 2021 and 2016,2020, there was no revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods.

As of March 31, 2021 and December 2020, the Company recognized $15,106recorded $63,612 and $0$31,212, respectively, of revenue relateddeferred labor costs, which is included in prepaid expenses and other current assets in the Company’s condensed consolidated balance sheets. Deferred labor costs represent costs to fulfill the saleCompany's contract service revenue. The Company will recognize the deferred labor costs as cost of PCM heat sinks and CFV thermal interfaces, respectively. Duringrevenues at the nine months ended September 30, 2017 and 2016,point in time that the Company recognized $26,006 and $6,900 of revenue related tosatisfies its performance obligation under the sale of PCM heat sinks and CFV thermal interfaces, respectively.respective contract, which is generally at the time the services are fulfilled and/or accepted by the customer.

Research Shipping and DevelopmentHandling Costs

ResearchAmounts billed to a customer in a sales transaction related to shipping and development expenseshandling are charged to operationsrecorded as incurred. During the three months ended September 30, 2017revenue. Costs incurred for shipping and 2016, the Company incurred $196,643 and $105,733, respectively, of research and development expenses. During the nine months ended September 30, 2017 and 2016, the Company incurred $647,328 and $301,874, respectively, of research and development expenses.

Stock-Based Compensation

The Company measures thehandling are included as cost of services received in exchange for an award of equity instruments basedsales on the fair valueaccompanying condensed consolidated statements of the award. For employees, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. The fair value of the Company’s restricted equity instruments was estimated by management based on observations of the cash sales prices of both restricted shares and freely tradable shares. Awards granted to directors are treated on the same basis as awards granted to employees. Upon the exercise of an option or warrant, the Company issues new shares of common stock out of its authorized shares.operations.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Net Loss Per Common Share

Basic net loss per common share is computed by dividing net loss by the weighted average number of vested common shares outstanding during the period. During the three months ended September 30, 2017 and 2016, 596,241 and 1,720,637 weighted average shares of unvested common stock, respectively, were excluded from weighted average common stock outstanding. During the nine months ended September 30, 2017 and 2016, 782,051 and 4,975,441 weighted average shares of unvested common stock, respectively, were excluded from weighted average common stock outstanding. Diluted net loss per common share is computed by dividing net loss by the weighted average number of vested common and dilutive common-equivalent shares plus the net impactoutstanding during each period. Dilutive common-equivalent shares consist of common shares (computed using the treasuryof non-vested restricted stock, method), if dilutive, resulting from the conversion of preferred stock.

Income Taxesnot anti-dilutive. 

The Company recognizes deferred tax assets and liabilities forfollowing shares were excluded from the expected future tax consequencescalculation of items thatweighted average dilutive common shares because their inclusion would have been included or excludedanti-dilutive:

Reclassifications

Certain amounts in the prior period financial statements or tax returns. Deferred tax assets and liabilities are determinedhave been reclassified to conform to the current period presentation. These reclassifications had no effect on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse.

The Company utilizes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s financial statements as of September 30, 2017 and December 31, 2016. The Company does not expect any significant changes in its unrecognized tax benefits within twelve months of the reporting date.

The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as general and administrative expenses in the condensed statements of operations.reported consolidated net loss.

LiquidityRecently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and Management’s Plansalso clarifies and amends existing guidance to improve consistent application. The Company adopted ASU 2019-12 effective January 1, 2021 and its adoption did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures. 

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 3       PREPAID EXPENSES AND OTHER CURRENT ASSETS

As of September 30, 2017, the Company had a cash balance, working capital and an accumulated deficit of $1,653,492, $1,050,984 and $3,691,660, respectively. During the three and nine months ended September 30, 2017, the Company incurred a net loss of $839,252 and $1,757,850 respectively.

As a result of the closing of the Share Exchange, the Company believes it has sufficient cash to sustain its operations for at least a year from the date of this filing.

On June 13, 2017, the Company collected the $85,000 note receivable from KULR’s Chief Executive Officer (“CEO”) in full as well as outstanding accrued interest in the amount of $3,488.

As of September 30, 2017March 31, 2021 and December 31, 2016,2020, prepaid expenses and other current assets consisted of the following:

NOTE 4       ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES 

As of September 30, 2017March 31, 2021 and December 31, 2016,2020, accrued expenses and other current liabilities consisted of the following:

NOTE 5       ACCRUED ISSUABLE EQUITY

A summary of the accrued issuable equity activity during the three months ended March 31, 2021 is presented below. There was no accrued issuable equity during the three months ended March 31, 2020.

AsDuring the three months ended March 31, 2021, the Company entered into certain contractual arrangements for services in exchange for a fixed number of Septembershares of common stock of the Company, having an aggregate grant date value of $121,989. The Company settled certain of its accrued issuable equity obligations through the issuance of an aggregate of 20,000 shares with an aggregate fair value of $49,800.

During the three months ended March 31, 2021, the Company recorded $132,577 of losses related to the change in fair value of accrued issuable equity.

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 6       NOTES PAYABLE

A summary of notes payable activity during the three months ended March 31, 2021 and 2020, is presented below:

During the year ended December 31, 2020, the Company entered into note purchase agreements in the original aggregate principal amount of $4,000,000 (“Principal Amount”) for cash proceeds of $3,710,000. The Notes included an original issue discount of $290,000, which represents the difference between the principal and proceeds received. The original issue discount, along with the $340,000 advisory fees were recorded as a debt discount which are being amortized over the term of the respective Notes using the effective interest rate method.

The Notes bears no coupon interest (original issue discount only). The Company repaid principal $1,550,000 during the year ended December 31, 2020 and repaid additional principal in the amount of $1,050,000 during the three months ended March 31, 2021. Of the $1,400,000 principal balance remaining at March 31, 2021, $525,000 matures on May 31, 2021 and $875,000 matures on June 30, 20172021.

During the three months ended March 31, 2021 and 2020, the Company recorded amortization of debt discount in the amount of $108,124 and $19,220, respectively. Subsequent to March 31, 2021, the Company repaid principal on the Notes in the aggregate amount of $350,000.

NOTE 7     RELATED PARTY TRANSACTIONS

Accounts Payable – Related Party

Accounts payable – related party consists of a liability of $2,628 and $2,628, as of March 31, 2021 and December 31, 2016, accrued expenses and other current liabilities – related parties consisted of the following:

Accrued research and development expenses – related parties consists of (a) a liability of $110,000 and $77,500 as of September 30, 2017 and December 31, 2016, respectively, to the Company’s Chief Technology Officer (“CTO”) in connection with consulting services provided to the Company; and (b) a liability of $397,041 and $274,040 as of September 30, 2017 and December 31, 2016,2020, respectively, to Energy Science Laboratories, Inc. (“ESLI”), a company controlled by the Company’s CTO,Chief Technology Officer (“CTO”), in connection with consulting services provided to the Company associated with the development of the Company’s CFV thermal management solutions.solutions in prior periods.

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

DueNOTE 8      STOCKHOLDERS' EQUITY (DEFICIENCY)

Common Stock Issued upon Conversion of Series B Preferred Stock

During the three months ended March 31, 2021, the Company issued an aggregate of 698,600 shares of common stock upon the conversion of 13,972 shares of Series B Preferred stock, after which there remained no further Series B Preferred Stock outstanding.

Stock-Based Compensation

During the three months ended March 31, 2021 and 2020, the Company recognized stock-based compensation expense of $387,972 and $12,728, respectively, related to common stock and restricted common stock, warrants and stock options, of which $7,405 and $8,112, respectively, is included in research and development expenses and $250,322 and $4,616, respectively, is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

The following table presents information related party consisted of certain amounts owed by KULR to KT High-Tech, which were eliminated in consolidation as a result ofstock-based compensation expense for the reverse recapitalization.three months ended March 31, 2021 and 2020:

Common Stock Issued for Services

On February 26, 2021, the Company issued 20,000 shares of immediately vested common stock with an aggregate grant date value of $49,800 for consulting services provided during January and February 2021.

Restricted Common Stock

During the three months ended March 31, 2021, the Company recorded stock-based compensation of $17,875 in connection with the amortization of restricted stock issued pursuant to consulting agreements during the fourth quarter of 2020.

On March 1, 2021, the Company issued 2,000,000 shares of its common stock (the “COO Shares”) with an aggregate grant date value of $5,220,000 in connection with the appointment of the Company’s Chief Operating Officer (see Note 9 – Commitments and Contingencies). The shares vest in four equal annual installments beginning on March 1, 2022. During March 2021, the Company recorded stock-based compensation of $108,750 related to the amortization of the grant date value of the COO Shares.

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

As of March 31, 2021, there is $5,178,744 of unrecognized stock-based compensation related to restricted stock awards which will be amortized over the remaining vesting period of 3.89 years.

Stock Options

On January 1, 2020, the Company granted five-year options to purchase a total of 10,000 shares of common stock at an exercise price of $0.66 per share to an employee pursuant to the 2018 Plan. One-fourth of the options will vest on the first-year anniversary of the grant date and the remaining options vest monthly over three years. The options had an aggregate grant date value of $3,609 which is recognized over the vesting period.

On March 12, 2021, in connection with the hire of its Senior Director of Product Development, the Company granted a five-year option to purchase 100,000 shares of common stock to its Senior Director of Product Development. pursuant to the 2018 Plan. The option is exercisable at an exercise price of $2.44 per share. One-fourth of the options will vest on the first-year anniversary of the grant date and the remaining options vest monthly over three years. The options had an aggregate grant date value of $57,819 which is recognized over the vesting period.

The Company has computed the fair value of stock options granted using the Black-Scholes option pricing model. In applying the Black-Scholes option pricing model, the Company used the following assumptions:

Option forfeitures are accounted for at the time of occurrence. The expected term used is the estimated period of time that options granted are expected to be outstanding. The Company utilizes the “simplified” method to develop an estimate of the expected term of “plain vanilla” employee option grants. The Company does not yet have a trading history to support its historical volatility calculations. Accordingly, the Company is utilizing an expected volatility figure based on a review of the historical volatility of comparable entities over a period of time equivalent to the expected life of the instrument being valued. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.

The weighted average grant date fair value per share of options granted during the three months ended March 31, 2021 and 2020 was $0.58 and $0.36, respectively.

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

A summary of options activity during the three months ended March 31, 2021 is presented below:

The following table presents information related to stock options as of March 31, 2021:

Market-Based Award

On March 1, 2021, in connection with the appointment of the Company’s COO (see Note 9 – Commitments and Contingencies), the COO is eligible to receive of up to 1,500,000 shares of the Company’s common stock which will be earned based upon achieving certain market capitalization milestones up to $4 billion. The grant date value of this award of $2,911,420 was determined using a Monte Carlo valuation model for market-based vesting awards, and will be amortized over each of the tranches’ prospective derived service period. The following assumptions were used:

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 9      COMMITMENTS AND CONTINGENCIES

Reverse RecapitalizationOperating Lease

See NoteEffective December 22, 2020, the Company entered into a lease addendum to extend the term of its original lease, for space located in San Diego, California used for research and development activities, from December 31, 2020 to June 30, 2021. Monthly rental payments under the renewed lease total $5,127, which is comprised of $4,572 of base rent plus $555 of association fees.

 During the three months ended March 31, 2021 and 2020, operating lease expense was $15,402 and $10,016, respectively. As of March 31, 2021, the Company does not have any financing leases.

Appointment of President and Chief Operating Officer

On January 4, 2021, the Company entered into a consulting agreement with a new Executive Vice President. The consultant provided management and business development services to the Company. In consideration for services provided in January and February 2021, the Company compensated the consultant with $10,000 per month and 10,000 shares of its common stock per month. Effective March 1, - Business Organization, Nature of Operations2021, the Company appointed the consultant as President and Basis of Presentation - Reverse Recapitalization for detailsChief Operating Officer (“COO”) of the Share Exchange.Company, to hold office until the earlier of the expiration of the term of office, a successor is duly elected and qualified, or the earlier of such officer’s death, resignation, disqualification, or removal. In connection with his appointment to COO, the COO received an aggregate of 2,000,000 shares of common stock, which shares will vest in four equal annual installments beginning on March 1, 2022. Additionally, the COO is eligible for incentive-based share grants totaling up to 1,500,000 shares of the Company’s common stock, which will be earned based on achieving certain market capitalization milestones up to $4 billion (see Note 8 – Stockholders Equity (Deficiency).

Director Compensation

On February 2, 2021, the Board of the Company appointed three new directors on the Board, to hold office until the earlier of the expiration of the term of office of the director whom they have replaced, a successor is duly elected and qualified, or the earlier of such director’s death, resignation, disqualification, or removal. The three directors appointment is contingent upon the Company’s common stock being approved for uplisting to a national exchange. Furthermore, once appointed, each director will receive quarterly cash compensation equal to $10,000 and each director will be granted 20,000 shares of common stock, which shares shall vest quarterly in 5,000 share installments with the first installment vesting immediately upon their appointment.

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 10      SUBSEQUENT EVENTS

Technology Development and Sponsorship Agreement

On March 31, 2021, the Company entered into a multi-year technology development and sponsorship agreement, pursuant to which the Company has committed to spend an aggregate of $1,650,000 in three installments which are due April 1, 2021, January 1, 2022, and January 1, 2023.

Operating Lease

On April 5, 2021, the Company entered into an agreement to lease office space for a thirty-six-month period, commencing June 1, 2021. Monthly rental payments under the new lease total $23,787, which are comprised of $18,518 of base rent plus $5,269 for common area costs.

Common Stock

On April 6, 2021, the Company issued 20,000 shares of immediately vested common stock with an aggregate grant date value of $51,000 for legal services. The shares were issued pursuant to the Company’s 2018 Incentive Plan.

During April 2021, the nine months ended September 30, 2017,Company issued an aggregate of 300,000 shares of common stock upon the exercise of outstanding warrants pursuant to which the Company received an aggregate consideration of $32,000 related$375,000 of gross proceeds.

Securities Purchase Agreement

On May 19, 2021, the Company entered into a Securities Purchase Agreement (“SPA”) with an investor, pursuant to certain restrictedwhich the Company agreed to issue to the investor an aggregate of 650 shares of Series D convertible preferred stock (the “Series D Preferred”) pursuant to a new designation of preferred stock, and one-year warrants to purchase 2,600,000 shares of common stock awards that were issued(the “Warrants”) at a price of $2.50 per share, for aggregate gross proceeds of $6,500,000 (the “Offering”). The Company will also pay the investor a commitment fee of 1,300,000 shares of common stock at the closing of the Offering. The closing of the Offering occurred on May 20, 2021. In connection with the closing of the financing, the Company repaid in 2013 and 2014.full its aggregate notes payable obligation of $1,540,000.

DuringThe Series D Preferred will have a fixed conversion price of $2.05, will be convertible into an aggregate of 3,170,732 shares of common stock and will have the three months ended September 30, 2017 and 2016,right to vote on an as-converted basis.  Holders of the Series D Preferred shall be entitled to receive cumulative dividends annually at an annual rate equal to ten percent (10%). Dividends shall be payable in cash or, at the option of the holder of the Series D Preferred, converted into shares of common stock as provided in the certificate of designation for the Series D Preferred. Provided that the shares of common stock issuable upon conversion of the Series D Preferred is registered pursuant to an effective registration statement, the Company recognized stock-based compensation expenseshall have the option, but not the obligation, to redeem, in cash, all or part of $187,023the Series D Preferred.

As a condition to entering into the SPA, the investor agreed that, commencing on the closing date and $8,688, respectively, and duringuntil the nine months ended September 30, 2017 and 2016,earliest of (i) listing of the Company recognized stock-based compensation expense of $411,181 and $23,636 respectively, related to restrictedCompany’s common stock awards which is included within generalon a national exchange or (ii) June 4, 2021, the Series D Preferred and administrative expenses on the condensed statements of operations. As of September 30, 2017, there was $464,846 of unrecognized stock-based compensation expense, of which, $341,520 wasWarrants will be subject to re-measurement, that will be recognized over the weighted average remaining vesting period of 0.6 years.a standard lock-up provision.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.Operations

The following discussion and analysis of the results of operations and financial condition of KT High-Tech Marketing, Inc. ("KT High-Tech" and, including its subsidiary, KULR Technology Corporation (“KULR”), theGroup, Inc. (the “Company”) as of September 30, 2017March 31, 2021 and for the three and nine months ended September 30, 2017March 31, 2021 and 20162020 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis should be read in conjunction with KULR’s and KT High-Tech’sthe Company’s audited financial statements and related disclosures as of December 31, 20162020 and for the year then ended, which are included in the Form 8-K and Form 10-K filed with the Securities and Exchange Commission (“SEC”) on JuneMarch 19, 2017 and March 30, 2017, respectively.2021. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us”, “we”, “our” and similar terms refer to the Company.

Forward-Looking Statements

The information in this report This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. All statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk, uncertainties and other thanfactors. These statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can beoften identified by the use of words such as “believes,” “estimates,” “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “should”“continue,” and similar expressions or variations. Actual results could differ materially because of the factors discussed in “Risk Factors” elsewhere in this Quarterly Report, in our other variations or similar words. No assurancesreports filed with the SEC, and other factors that we may not know.

Overview

 KULR Technology Group, Inc., through our wholly-owned subsidiary KULR Technology Corporation, develops and commercializes high-performance thermal management technologies for batteries, electronics, and other components across an array of battery-powered applications. For aerospace and DOD applications, our solutions target high performance applications in direct energy, hypersonic vehicles and satellite communications. For commercial applications, our main focus is a total solution to battery safety by which we aim to mitigate the effects of thermal runaway propagation. This total battery safety solution can be givenused for electric vehicles, energy storage, battery recycling transportation, cloud computing and 5G communication devices. Our proprietary core technology is a carbon fiber material that provides what we believe to be superior thermal conductivity and heat dissipation for an ultra-lightweight and pliable material. By leveraging our proprietary cooling solutions that have been developed through longstanding partnerships with NASA, the futureJet Propulsion Lab and others, our products and services make commercial battery powered products safer and electronics systems cooler and lighter.

 KULR’s business model continues to evolve from being a component supplier, to providing more design and testing services to our customers. The next step of evolution is to provide total system solutions to address market needs. In order to scale up as a systems provider more quickly and efficiently in (i) the Li-ion battery energy storage and recycling markets, (ii) battery cell design and safety testing, and (iii) advanced thermal management systems, such as hypersonic vehicles, KULR will actively seek partners for joint venture, technology licensing and other strategic partnership models. The goal is to leverage the Company’s thermal design technology expertise to create market leading products, which KULR will take to market directly to capture more value for KULR shareholders.

Recent Developments

 COVID-19

In March 2020, the World Health Organization declared COVID-19, a novel strain coronavirus, a pandemic. During 2020 and continuing into 2021, the global economy has been, and continues to be, affected by COVID-19. While the Company continues to see signs of economic recovery as certain governments began to gradually ease restrictions, provide economic stimulus and vaccine distribution accelerated, the rate of recovery on a global basis has been affected by resurgence of the virus or its variants in certain jurisdictions. The Company continues to monitor the impact of COVID-19 on its business and operational assumptions and estimates, and determined there were no material adverse impacts on the Company’s results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectationsof operations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.financial position at March 31, 2021.

The following discussionfull extent of the future impact of COVID-19 on the Company’s operations and analysis should be readfinancial condition is uncertain.  Accordingly, COVID-19 could have a material adverse effect on the Company’s business, results of operations, financial condition and prospects during 2021 and beyond, including the demand for its products, interruptions to supply chains, ability to maintain regular research and development and manufacturing schedules as well as the capability to meet customer demands in conjunction with oura timely manner. The financial statements included herewith. This discussion shoulddo not be construed to implyinclude any adjustments that might result from the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicativeoutcome of actual operating results in the future. Such discussion represents only the best present assessment of our management.this uncertainty.

OverviewAppointment of Keith Cochran

 KT High-Tech Marketing, Inc.On March 8, 2021, our Board of Directors (the "Company"“Board”) was incorporated on December 11, 2015 under the laws of the State of Delaware,appointed Keith Cochran as President and was formerly known as Grant Hill Acquisition Corporation. In April 2016, the Company implemented a change of control by issuing shares to new shareholders, redeeming shares of existing shareholders, electing new officers and directors and accepting the resignations of its then existing officers and directors. In connection with the change of control, the shareholdersChief Operating Officer of the Company, to hold office until the earlier of the expiration of the term of office, a successor is duly elected and its boardqualified, or the earlier of directors unanimously approvedsuch officer’s death, resignation, disqualification, or removal.

As compensation for his services as President and Chief Operating Officer of the changeCompany, Mr. Cochran will receive: (1) a salary of $250,000 per annum and commensurate benefits; (2) 2,000,000 restricted shares of the Company’s name from Grant Hill Acquisition Corporationcommon stock, which shares shall vest, so long as Mr. Cochran remains employed by the Company, in four (4) equal yearly installments, with the first installment amount to KT High-Tech Marketing, Inc. in April 2016.vest on March 1, 2022 and annually thereafter; and (3) eligibility, also subject to Mr. Cochran’s continued employment with the Company, for incentive based grants of up to 1,500,000 shares, which shall be earned upon the Company achieving certain market capitalization milestones.

Technology Development and Sponsorship Agreement

On June 19, 2017,March 31, 2021, the Company closedentered into a multi-year technology development and sponsorship agreement where the Company has committed to spend an aggregate of $1,650,000 payable in three installments, which are due April 1, 2021, January 1, 2022, and January 1, 2023.

Operating Lease

On April 5, 2021, the Company entered into an agreement to lease office space for a thirty-six-month period, commencing June 1, 2021. Monthly rental payments under the new lease total $23,787, which are comprised of $18,518 of base rent plus $5,269 for common area costs.

Conversion of Series B Preferred Stock

In March 2021, KULR issued an aggregate of 698,600 shares of our common stock upon conversion of 13,972 shares of our Series B Preferred Stock, after which there remained no further Series B Preferred Stock outstanding.

Securities Purchase Agreement

On May 19, 2021, the Company entered into a SPA with an investor, pursuant to which the Company agreed to issue to the investor an aggregate of 650 shares of Series D Preferred pursuant to a new designation of preferred stock, and one-year warrants to purchase 2,600,000 shares of common stock at a price of $2.50 per share, exchange agreement (the “Share Exchange Agreement”) with KULR Technology Corporation,for aggregate gross proceeds of $6,500,000. The Company will also pay the investor a Delaware Corporation (“KULR”), and 100%commitment fee of the shareholders1,300,000 shares of KULR (the “KULR Shareholders”). Uponcommon stock at the closing of the Share Exchange Agreement, KULR becameOffering. The Series D Preferred will have a wholly owned subsidiaryfixed conversion price of the Company. The acquisition$2.05, will be convertible into an aggregate of KULR is treated as a reverse acquisition, and the business of KULR was integrated into the Company (the transaction, the “Reverse Acquisition”).

KULR was formed in 2013 and is based in Santa Clara, California. Since its inception, KULR primarily focused on developing and commercializing its thermal management technologies, which it acquired through assignment from and license with KULR’s co-founder Dr. Timothy Knowles, in the high value, high-performance consumer electronic and energy storage applications. Prior to 2013, the Company’s technologies were used in numerous advanced space and industrial applications for NASA, Boeing, and Raytheon. A few notable achievements were the use of KULR’s technologies in: the Mars Lander/Rover (battery heat sink), X-31 Battery Heat Sink, Mercury Messenger (battery heat sink), and X-51 Scramjet (heat exchanger).

Prior to the Reverse Acquisition, the Company was an early-stage company planning to market and distribute technology products and components targeting the energy and consumer electronics industries. The Company intended to market and sell the products to both the end user and supply chain markets and to seek partnerships in developing and distributing such products.

After the Reverse Acquisition, the Company integrated its existing business operations with those of its subsidiary, KULR. KULR owns proprietary carbon fiber based (Carbon Fiber Velvet or “CFV”) thermal management solutions that it believes are more effective at conducting, dissipating and storing heat generated by an electronic system’s internal components (i.e. semiconductor, integrated circuits “chips”) in comparison to traditional materials, such as copper and aluminum. KULR’s technologies can be applied inside a wide array of electronic applications, such as mobile devices, cloud computing, virtual reality platforms, satellites, internet of things, drones, and connected cars.

Thermal Management Solutions

Three key vectors have driven advancements in semiconductors and electronics systems – performance, power, and size. These vectors, however, often counteract one another. As chip performance increases, power consumption increases and more heat is generated as a byproduct. When chip size reduces, there is an increased potential for a hot spot on the chip, which can degrade system performance. Electronic system components must operate within a specific temperature range on both the high and low end to operate properly. KULR resolves many of the tradeoffs associated with other thermal management materials. KULR’s products improve heat storage and dissipation, rigidity problems and durability. Its products are lightweight and reduce manufacturing complexity associated with traditional thermal management materials.

In addition to thermal management of electronic systems, KULR has developed, in partnership with NASA JSC, a highly effective, lightweight and passive thermal protection technology. Thermal Runaway Shield (TRS) for lithium ion batteries. KULR’s lithium ion battery (Li-B) TRS product prevents a potentially dangerous combustible condition known as thermal runaway from occurring in neighboring Li-B cells by acting as a shield or barrier in between individual Li-B cells in a battery pack. Although rare, incidents of thermal runaway occurring spontaneously in Li-B cargo shipments and inside electronics, including smartphones, hover boards and electric vehicles, are a cause of public concern.

Recent Developments

On June 6, 2017, the Company filed a Certificate of Designation of Series A Voting Preferred Stock with the Secretary of State of the State of Delaware (the “Certificate of Designation”). Pursuant to the Certificate of Designation, the Company designated 1,000,0003,170,732 shares of preferred “A”common stock $0.0001 par value per share (individually or collectively the “Preferred A Stock”). The Preferred A Stock are not convertible into any series or class of stock of the Company. In addition, holders of the Preferred A Stock are not entitled to receive dividends, nor do they have rights to distribution from the assets of the Company in the event of any liquidation, dissolution, or winding up of the Company. Each record holder of Preferred A Stockand will have the right to vote on any matter with holdersan as-converted basis. The closing of the Company’sOffering occurred on May 20, 2021. In connection with the closing of the financing, the Company repaid in full its aggregate notes payable obligation of $1,540,000.

Common Stock

On April 6, 2021, we issued 20,000 shares of immediately vested common stock and other securities entitledwith a grant date value of approximately $51,000 for legal services.

On April 19, 2021, in connection with the appointment of a new Vice President of Operations (the “VPO”) the Board of Directors granted 80,000 restricted shares of our common stock to vote, if any, voting together as one (1) class. Each record holder of Preferred A Stock has that number of votesthe VPO. The shares vest in four equal to one-hundred (100) votes per share of Preferred A Stock held by such holder. The record holdersyearly installments on each anniversary of the Preferred A Stock are entitled to the same noticegrant date.

During April, we issued an aggregate of any regular or special meeting of the shareholders as may or shall be given to holders300,000 shares of common stock entitled to vote at such meetings.

As discussed above, effective on June 19, 2017,in connection with exercises of outstanding warrant pursuant to the Share Exchange Agreement, KULR became a wholly-owned subsidiarywhich we received an aggregate of the Company. Accordingly, the Company, through its subsidiary, KULR, will primarily focus its operations on KULR’s thermal management business.

Upon closing$375,000 of the Share Exchange Agreement on June 19, 2017, the following persons constituted the executive officers and directors of the Company:

* newly appointed as of June 19, 2017gross proceeds.

Results of Operations

The closing ofThree Months Ended March 31, 2021 Compared With the Share Exchange Agreement was accounted for as a reverse recapitalization under the provisions of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) Topic 805-40. The condensed consolidated statements of operations herein reflect the historical results of KULR prior to the completion of the reverse recapitalization since it was determined to be the accounting acquirer, and do not include the historical results of operations for KT High-Tech prior to the completion of the reverse recapitalization.Three Months Ended March 31, 2020

Revenues

RevenuesOur revenues consisted of sales of our CFV thermal management solutionthe following during the three months ended March 31, 2021 and PCM heat sinks.2020:

For the three months ended September 30, 2017March 31, 2021 and 2016,2020, we generated $15,106$417,905 and $0$77,550 of revenues, respectively, representing an increase of $15,106.$340,405, or 439%. Revenue from product sales during the three months ended March 31, 2021 increased by 537% compared to the three months ended March 31, 2020, mainly due to four large contracts received during the three months ended March 31, 2021. Product sales during these periods included sales of our component product, carbon fiber velvet (“CFV”) thermal management solution, ISC battery cells and devices, patented TRS technology, and thermal fiber thermal interface (“FTI”) materials. Our service revenues, which include certain research and development contracts and onsite engineering services, have not been hampered by restrictions arising from working under COVID-19 shelter-in-place regulations.

ForOur customers and prospective customers are large organizations with multiple levels of management, controls/procedures, and contract evaluation/authorization. Furthermore, our solutions are new and do not necessarily fit into pre-existing patterns of purchase commitment. Accordingly, the nine months ended September 30, 2017business activity cycle between expression of initial customer interest to shipping, acceptance and 2016, we generated $26,006billing can be lengthy, unpredictable, and $6,900lumpy, which can influence the timing, consistency and reporting of revenues, an increase of $19,106, or 277%.sales growth.

Cost of Revenues

Cost of revenues consists of research and developmentthe cost of our products as well as labor expenses directly related to product sales as well as the cost of our CFV thermal management solution and PCM heat sinks.or research contract services.

Generally, we earn greater margins on revenue from products compared to revenue from services, so product mix plays an important role in our reported average margins for any period. Also, we are introducing new products at an early stage in our development cycle and the margins earned can vary significantly between period, customers and products, due to the learning process, customer negotiating strengths, and product mix.

For the three months ended September 30, 2017March 31, 2021 and 2016,2020, cost of revenues were $52,384was $275,268 and $0,$30,043, respectively, an increase of $52,384. The increase was due toresearch and development expenses that were attributable to a sales agreement.

For the nine months ended September 30, 2017 and 2016, cost of revenues were $108,579 and $7,749, respectively, an increase of $100,830,$245,225 or 1,301%816%. The increase was primarily due to researchhigher product sales and development expenses that were attributable toservice revenues earned during the three months ended March 31, 2021. The gross margin percentage was 34% and 61% for the three months ended March 31, 2021 and 2020, respectively. The decrease in margins during the first quarter of 2021 is primarily the result of a sales agreement.low 15% margin earned on a single large contract during the first quarter of 2021.

Research and Development

Research and development includesexpenses (“R&D”) include expenses incurred in connection with the research and developmentR&D of our CFV thermal management solution. Research and developmentR&D expenses are expensed as they are incurred.

For the three months ended September 30, 2017, researchMarch 31, 2021 and development2020, R&D expenses increased to $157,876 from $14,090 in the comparable 2016 period,were $122,983 and $111,713, respectively, representing an increase of $143,786,$11,270 or 1,020%10%. The increase is primarily attributabledue to new energy storage development services provided during the period, partially offset by a research consulting agreement which commencedreduction in September 2016R&D salaries and other salary related costs, such as well as new consulting agreementspayroll taxes and service contracts which commenced inother benefits, due to salary reductions implemented at the thirdend of the first quarter of 2017.

For the nine months ended September 30, 2017, research and development expenses increased to $207,504 from $16,173 in the comparable 2016 period, an increase2020 as a result of $191,331, or 1,183%. The increase is primarily attributable to a research consulting agreement which commenced in September 2016 as well as new consulting agreements and service contracts which commenced in the third quarter of 2017.

COVID-19. We expect that our research and developmentR&D expenses will to continue increase in the future.as we expand our future operations.

ResearchSelling, General and Development – Related PartiesAdministrative

ResearchSelling, general and development – related parties includesadministrative expenses associated with the developmentconsist primarily of our CFV thermal management solutions provided by Energy Science Laboratories, Inc. (“ESLI”), a researchtravel, salaries, payroll taxes and development company owned by our Chief Technology Officer (“CTO”)”, as well as services provided from our CTO. Researchother benefits, and development – related parties expenses are expensed as they are incurred.rent expense.

For the three months ended September 30, 2017, researchMarch 31, 2021 and development – related parties decreased by$52,876,2020, selling, general and administrative expenses were $1,492,811 and $465,410, respectively, an increase of $1,027,401 or 58%, to $38,767 from $91,643 in the comparable 2016 period. The decrease is due to a decrease in the amount of work provided by ESLI during the 2017 period as we brought more of our research and development in-house.

For the nine months ended September 30, 2017, research and development – related parties increased by$154,123, or 54%, to $439,824 from $285,701 in the comparable 2016 period.221%. The increase is dueprimarily attributable to an increase inof approximately $486,000 of marketing and advertising expense, an increase of approximately $376,000 of stock-based compensation resulting primarily from the amountissuance of work provided by ESLIrestricted stock upon the appointment of the Company’s Chief Operating Officer (“COO”) and stock granted to consultants during the 2017 period.

We expect that our research and development expenses will continue toperiod, as well as an increase of approximately $87,000 in labor costs as the future.result of four new hires, including the appointment of the COO.

General and AdministrativeOther Expenses

 For the three months ended March 31, 2021 and 2020, other expenses were $241,566 and $20,587, respectively, representing an increase of $220,979. The increase in other expense is primarily due to amortization of debt discount of $108,124 related to the issuance of notes payable and $132,577 of change in fair value of accrued issuable equity during the three months ended March 31, 2021.

General

Liquidity and administrative expenses consist primarilyCapital Resources

As of salaries, payroll taxesMarch 31, 2021 and other benefits, legalDecember 31, 2020, we had cash balances of $6,166,755 and professional fees, stock-based compensation, marketing, travel, rent$8,880,140, respectively, and office expenses.working capital of $4,699,452 and $6,060,695, respectively.

For the three months ended September 30, 2017, generalMarch 31, 2021 and administrative expenses increased by $512,915, or 555%, to $605,273 from $92,358 in the comparable 2016 period. The increase is primarily due to an increase in non-cash stock-based compensation expense of approximately $178,000, increased payroll expenses from the hiring of new employees in the third quarter of 2017, increased marketing expenses as well as increased professional fees related to being a public company.

                For the nine months ended September 30, 2017, general and administrative expenses increased by $720,911, or242%, to $1,019,235 from $298,324 in the comparable 2016 period. The increase is primarily to an increase in non-cash stock-based compensation expense of approximately $388,000, increased payroll expenses from the hiring of new employees in the third quarter of 2017, increased marketing expenses as well as increased professional fees incurred with regards to the Share Exchange and being a public company.

Interest Income – Related Party

Interest income – related party consists of income generated from our loan receivable from our CEO.

For the three months ended September 30, 2017, interest income – related party decreased by $750 to $0 from $750. The decrease was due to the collection of a note receivable in the second quarter of 2017.

For the nine months ended September 30, 2017, interest income – related party decreased by $65 to $1,337 from $1,402. The decrease was due to the collection of a note receivable in the second quarter of 2017.

Interest Expense – Related Party

Interest expense – related party consists of interest on a KT High-Tech promissory note purchased by KULR in 2017. Since the KT High-Tech and KULR reverse recapitalization, all interest expense related to the promissory note has been eliminated in consolidation.

For the nine months ended September 30, 2017, interest expense – related party was $9,593.

Liquidity and Capital Resources

Operating Activities

For the nine months ended September 30, 2017 and 2016,2020, cash used in operating activities was $263,585$1,663,385 and $553,453,$698,110, respectively. Our cash used in operations for the ninethree months ended September 30, 2017March 31, 2021 was primarily attributable to our net loss of $1,757,850,$1,714,723, adjusted for net non-cash expenseexpenses in the aggregate amount of $414,555, partially offset by $1,079,710$633,444, and $582,106 of net cash provided byused to fund changes in the levels of operating assets and liabilities. Our cash used in operations for the ninethree months ended September 30, 2016March 31, 2020 was primarily attributable to our net loss of $600,221,$550,253, adjusted for net non-cash expenseexpenses in the aggregate amount of $24,136, partially offset by $22,632$32,826, and $180,683 of net cash provided byused to fund changes in the levels of operating assets and liabilities.

Investing Activities

For the nine months ended September 30, 2017 and 2016, cash provided by (used in) investing activities was $1,907,990 and $(85,000), respectively. Cash provided by investing activities during the nine months ended September 30, 2017 resulted from $1,859,261 of cash acquired in connection with the Share Exchange as well as $85,000 of proceeds received from the collection of our note receivable from our CEO, partially offset by $36,271 of purchases of property and equipment. Our cash used in investing activities for the nine months ended September 30, 2016 was related to the purchase of a note receivable in the amount of $85,000 from our CEO.

Financing Activities

Net cash provided by financing activities for nine months ended September 30, 2016 was $550,000 which was related to the issuance of an aggregate of 1,833,334 shares of Series A1 convertible preferred stock to investors. There were no cash flows from financinginvesting activities for the ninethree months ended September 30, 2017.March 31, 2021 and 2020.

For the three months ended March 31, 2021 and 2020, cash (used in) provided by financing activities was ($1,050,000) and $1,223,401, respectively. Cash used in financing activities during the three months ended March 31, 2021 represents principal payments on notes payable. The cash provided by financing activities during the three months ended March 31, 2020 primarily represents $1,410,000 of net proceeds from the issuance of a note payable, offset by the payment of $130,000 of debt issuance costs and repayment of notes payable of $50,000.

SummaryIn March 2020, the World Health Organization declared COVID-19, a novel strain coronavirus, a pandemic. During 2020 and continuing into 2021, the global economy has been, and continues to be, affected by COVID-19. While the Company continues to see signs of economic recovery as certain governments began to gradually ease restrictions, provide economic stimulus and vaccine distribution accelerated, the rate of recovery on a global basis has been affected by resurgence of the virus or its variants in certain jurisdictions. The Company continues to monitor the impact of COVID-19 on its business and operational assumptions and estimates, and determined there were no material adverse impacts on the Company’s results of operations and financial position at March 31, 2021.

AsThe full extent of September 30, 2017, we hadthe future impact of COVID-19 on the Company’s operations and financial condition is uncertain.  Accordingly, COVID-19 could have a cash balance, working capitalmaterial adverse effect on the Company’s business, results of operations, financial condition and an accumulated deficitprospects during 2021 and beyond, including the demand for its products, interruptions to supply chains, ability to maintain regular R&D and manufacturing schedules as well as the capability to meet customer demands in a timely manner. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of $1,653,492, $1,050,984 and $3,691,660, respectively. During the three and nine months ended September 30, 2017, we incurred a net loss of $839,252 and $1,757,850, respectively.this uncertainty.

AsDuring the year ended December 31, 2020, we entered into note purchase agreements in the original aggregate principal amount of $4,000,000 for cash proceeds of $3,710,000. Principal in the amount of $1,550,000 was repaid during the year ended December 31, 2020 and principal in the amount of $1,050,000 was repaid during the three months ended March 31, 2021. Of the $1,400,000 principal balance remaining at March 31, 2021, $525,000 matures on May 31, 2021 and $875,000 matures on June 30, 2021.

In April 2020, the Company received a resultloan of $155,226 under the government Small Business Administration (“SBA”) sponsored Payroll Protection Program (“PPP”) to support continuing employment during the COVID-19 pandemic. The PPP Loan (“Note”) and accrued interest may be forgiven as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities and maintains its payroll levels. The amount of forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period. If the PPP Loan is not forgiven, the Company will begin repaying this loan beginning in November 2021. Any unforgiven balance must be repaid in full by its maturity date, February 28, 2022.

Effective February 27, 2020, the Company entered into a twenty-four month Standby Equity Distribution Agreement (“SEDA”) with YAII, pursuant to which the Company may, at its discretion, sell to up to an aggregate of $8,000,000 (subject to YAII’s approval for amounts over $100,000) of shares of the Company’s common stock at a price equal to Company 80% of the lowest daily volume weighted average price for the five days immediately following the date the Company delivers notice requiring YAII to purchase the shares under the SEDA. For each advance, the Company shall have delivered all shares relating to all prior advances, and, unless waived by YAII, at least 5 trading days shall have elapsed from the immediately preceding advance date. Through March 31, 2021 , the Company issued an aggregate of 1,841,548 shares of common stock at prices between $0.73 - $1.65 per share for aggregate proceeds of $2,214,437 in connection with advance notices submitted to YAII under the SEDA, of which $791,000 of the proceeds were applied directly against the principal due under the Notes. Pursuant to a registered public offering on December 31, 2020, the Company may not issue shares involving variable rate transactions (including shares issuable pursuant to the SEDA), so long as warrants issued in connection with the registered public offering remain outstanding.

On May 19, 2021, the Company entered into a SPA with an investor, pursuant to which the Company agreed to issue to the investor an aggregate of 650 shares of Series D Preferred pursuant to a new designation of preferred stock, and one-year warrants to purchase 2,600,000 shares of common stock at a price of $2.50 per share, for aggregate gross proceeds of $6,500,000. The Company will also pay the investor a commitment fee of 1,300,000 shares of common stock at the closing of the Share Exchange,Offering. The Series D Preferred will have a fixed conversion price of $2.05, will be convertible into an aggregate of 3,170,732 shares of common stock and will have the right to vote on an as-converted basis. The closing of the Offering occurred on May 20, 2021. In connection with the closing of the financing, the Company repaid in full its aggregate notes payable obligation of $1,540,000.

We have not yet achieved profitability and expect to continue to incur cash outflows from operations. It is expected that our research and development and general and administrative expenses will continue to increase and, as a result, we will eventually need to generate significant revenues and/or raise additional capital to fund our operations. Although our management believes that we have access to capital resources through various sources, there is no assurance that we will be able to obtain funds on commercially acceptable terms, if at all. Our operating needs include the planned costs to operate our business, including amounts required to fund working capital and capital expenditures. While we believe that we havewill continue to incur operating losses and use cash in operating activities for the foreseeable future, we believe that our current working capital is sufficient in comparison to our anticipated cash to sustain our operationsusage for a period of at least a year from the next twelve months subsequent to the filing date of this filing.these condensed consolidated financial statements.

Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on financial conditions, changes in financial conditions, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

Critical Accounting Policies

There are no material changes from theFor a description of our critical accounting policies, set forthsee Note 2 – Summary of Significant Accounting Policies in “Management’s Discussion and AnalysisPart 1, Item 1 of Financial Condition and Results of Operations” of our Currentthis Quarterly Report on Form 8-K which was filed with the SEC on June 19, 2017. Please refer to that document for disclosures regarding the critical accounting policies related to our business.10-Q.

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.Risk

The Company is a smaller reporting company, as defined by Rule 229.10(f)(1), and is not required to provide the information required by this Item.

Item 4. Controls and Procedures.Procedures

Evaluation of Disclosure Controls and Procedures

Our management, has evaluated, under the supervision and with the participation of our principal executive officer and principal financial officers,officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report, pursuant to Rule 13a-15(b)as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”).Act. Based on thatthis evaluation, our management, with the participation of our principal executive officer and principal financial officersofficer, concluded that, as of the end of the period covered by this report, due to the inadequate recordation of certain transactions and communication of those transactions to those integral to our disclosure procedures, our disclosure controls and procedures were not effective in ensuring that information required to be disclosedat the reasonable assurance level.

During the year ended December 31, 2020, our management identified a material weakness in our Exchange Act reportsinternal control over financial reporting whereas we did not design or maintain effective controls to ensure that there is (1) recorded, processed, summarizedan independent review and reported inapproval of electronic payments (wires, EFT’s, ACH’s and credit card payments) as our policy of providing timely support to ensure completeness and accuracy of the payment was not followed. We are currently implementing a timely manner,detailed plan for remediation of the material weakness, including developing and (2) accumulated and communicatedmaintaining preventative controls around the electronic payment process to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure. ensure proper segregation of duties.

Changes in Internal Control over Financial Reporting

There havehas been no changeschange in our internal control over financial reporting that occurred during the period covered by this reportfirst quarter of 2021 that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations of the Effectiveness of Controls

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. A control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

PART II.II – OTHER INFORMATION

Item 1. Legal Proceedings.Proceedings

None.

Item 1A. Risk Factors.Factors

Not applicable. See, however,There have been no material changes to the risk factors discussed in Item 1A of1A. Risk Factors in our CurrentAnnual Report on Form 8-K,10-K which was filed with the Securities and Exchange CommissionSEC on JuneMarch 19, 2017.2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.Proceeds

None.In the three months ended March 31, 2021, we issued 698,600 shares of common stock upon conversion of 13,972 shares of our Series B Convertible Preferred Stock.

Each of the foregoing transactions was exempt from the registrations requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof. In the alternative, the common stock issued upon the exercise of conversion rights is an exempt security pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended.

Item 3. Defaults Upon Senior Securities.Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.applicable.

Item 5. Other Information.Information

None.

None.

Item 6. Exhibits.Exhibits

*Filed herewith

**Furnished herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this quarterly report to be signed on its behalf by the undersigned hereunto duly authorized.