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. & SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1 Business Organization, Nature of Operations and Basis of Presentation

Organization and Operations

KT High-Tech Marketing, 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 (“KULR”) (collectively, the “Company”), was formed in 2013 and is based in Santa Clara, California. KULR is 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. KULR owns proprietary carbon fiber based (Carbon Fiber Velvet or “CFV”) thermal management solutions that it believes are more effective at storing, conducting, dissipating and dissipating wastestoring 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 where heat is often a problem, such as mobile devices, cloud computing, virtual reality platforms, satellites, internet of things, drones, and connected cars. In addition to thermal management of electronic systems, KULR has developed a highly effective, passive energy storage solution for lithium ion batteries that has been tested 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.

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 condensed consolidated financial statements of the Company as of September 30, 2017March 31, 2018 and for the three and nine months then ended. The results of operations for the three and nine months ended September 30, 2017March 31, 2018 are not necessarily indicative of the operating results for the full year ending December 31, 20172018 or any other period. These 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, 20162017 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 Form 10-K on April 17, 2018.

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 Shareholders 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 Shareholders (the “Share Exchange”). On the Closing Date, KULR became a wholly-owned subsidiary of KT High-Tech, the KULR Stockholders beneficially owned approximately 64.57% of KT High-Tech’s common stock on a fully-diluted basis, KT High-Tech began operating KULR’s business of developing and March 30, 2017, respectively.commercializing its thermal management technologies and a representative of the KULR Stockholders was appointed to be the Company’s second Board Director.

The closing of 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. 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.

Note 2 Going Concern and Management’s Plans

As of March 31, 2018, the Company had cash, working capital and an accumulated deficit of $425,391, $137,547 and $5,105,564, respectively. During the three months ended March 31, 2018 and 2017, the Company incurred net losses of $747,244 and $227,824, respectively. These conditions indicate that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the financial statement issuance date.

Based upon the Company’s forecast for continued operating losses, it expects that the cash it currently has available will fund its operations into the fourth quarter of 2018 while it continues to apply efforts to raise additional capital. Thereafter, the Company will require external funding to sustain operations and to follow through on the execution of its business plan. Although the Company’s management believes that it has access to capital resources, there are currently no commitments in place for new financing at this time and there is no assurance that the Company will be able to obtain funds on commercially acceptable terms, if at all. If the Company is unable to obtain adequate funds on reasonable terms, it may be required to significantly curtail or discontinue operations or obtain funds by entering into financing agreements on unattractive terms. The Company’s operating needs include the planned costs to operate its business, including amounts required to fund working capital and capital expenditures.

Use of Estimates

Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the financial statements. The Company’s significant estimates usedaccounting policies are disclosed in these financial statements include, but are not limited to, stock-based compensation,Note 2 – Summary of Significant Accounting Policies in the collectabilityCompany’s Annual Report on Form 10-K for the year ended December 31, 2017. Since the date of receivables, inventory valuations, the recoverability and useful lives of long-lived assets and the valuation allowance relatedAnnual Report, there have been no material changes 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.significant accounting policies, except as disclosed below.

Concentrations of Credit Risk

The Company maintains cash with major financial institutions. 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 aggregate uninsured cash balances of $1,225,642$91,754 and $0$611,450 at September 30, 2017March 31, 2018 and December 31, 2016,2017, respectively.

During the ninethree months ended September 30, 2016, 100%March 31, 2018, 48% and 47% of the Company’s revenues were generated from Customer A. During the three months ended September 30, 2017, 76%A and 24%Customer B, respectively. As of the Company’s revenues were generatedMarch 31, 2018, receivables from Customer C and Customer A, respectively. During the nine months ended September 30, 2017, 44%, 42% and 14% 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 Bcomprised 26%, 58% and Customer A comprised 44%, 42%, and 14%10%, respectively, of the Company’s total accounts receivable. As of December 31, 2016, a receivable2017, receivables from Customer AD and Customer E comprised 100%43% and 24%, respectively, of the Company’s total accountaccounts receivable.

Inventory

Inventory is comprised of CFV thermal management solutions and heatsinks, which are available for sale. Inventories are stated at the lower of cost and net realizable value. Cost is determined by the first-in, first-out method. Inventory that is sold to third parties is included within cost of sales and 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, 2017 and December 31, 2016, 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

On January 1, 2018, the Company adopted 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 possible more judgment and estimates may be required within the revenue recognition process than required under existing accounting principles generally accepted in the United States of America (“U.S. GAAP”) including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.

The Company adopted ASC 606 for all applicable contracts using the modified retrospective method, which would have required a cumulative-effect adjustment, if any, as of the date of adoption. The adoption of ASC 606 did not have a material impact on the Company's condensed consolidated financial statements as of the date of adoption. As a result, a cumulative-effect adjustment was not required.

The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all ofprimarily from the following criteria are met: (i) persuasive evidencedifferent types of an arrangement exists, (ii) the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. Sales arecontracts:

The following table summarizes our revenue recognized upon shipment to the customer, free on board shipping point, or the pointin our condensed consolidated statements of customer acceptance.operations:

As of March 31, 2018 and December 31, 2017, the Company did not have any contract assets or contract liabilities from contracts with customers. During the three months ended September 30,March 31, 2018 and 2017, and 2016,there was no revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods. As of March 31, 2018, there were no remaining performance obligations that the Company recognized $15,106 and $0 of revenue related to the sale of PCM heat sinks and CFV thermal interfaces, respectively. During the nine months ended September 30, 2017 and 2016, the Company recognized $26,006 and $6,900 of revenue related to the sale of PCM heat sinks and CFV thermal interfaces, respectively.had not satisfied.

Research and DevelopmentReclassifications of Prior Year Presentation

Research and development expenses are charged to operations as incurred. DuringCertain prior year balance sheet amounts have been reclassified for consistency with the three months ended September 30, 2017 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 the cost of services received in exchange for an award of equity instruments basedcurrent year presentation. These reclassifications had no effect on the fair valuereported results 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.

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,March 31, 2018 and 2017, 220,832 and 2016, 596,241 and 1,720,637970,832 weighted average shares of unvested commonnon-vested restricted 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,awards, 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 Taxes

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of items that have been included or excluded in the financial statements or tax returns. Deferred tax assets and liabilities are determined 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.

Liquidity and Management’s Plansanti-dilutive.

As of September 30,March 31, 2018 and 2017, 125,000 and 875,000, respectively, shares of non-vested restricted stock awards were excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive.

Recent Accounting Pronouncements

In May 2017, the Company hadFASB issued ASU No. 2017-09, “Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting,” (“ASU 2017-09”). ASU 2017-09 provides clarity on the accounting for modifications of stock-based awards. ASU 2017-09 requires adoption on 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 interestprospective basis in the amount of $3,488.annual and interim periods for fiscal years beginning after December 15, 2017 for share-based payment awards modified on or after the adoption date. The Company adopted ASU 2017-09 effective January 1, 2018 and its adoption did not have a material impact on the Company’s condensed consolidated financial statements.

Note 4 Prepaid Expenses

As of September 30, 2017March 31, 2018 and December 31, 2016,2017, prepaid expenses consisted of the following:

Note 5 Accrued Expenses and Other Current Liabilities

As of September 30, 2017March 31, 2018 and December 31, 2016,2017, accrued expenses and other current liabilities consisted of the following:

Note 6 Related Party Transactions

Accrued Expenses and Other Current Liabilities

As of September 30, 2017 and December 31, 2016, accruedAccrued expenses and other current liabilities – related parties consisted of the following:

Accrued research and development expenses – related parties consists of (a)consist of: (i) a liability of $110,000$225,844 and $77,500$254,344 as of September 30, 2017March 31, 2018 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, 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; and (ii) a liability of $18,563 and $28,253 as of March 31, 2018 and December 31, 2017, respectively, to the Company’s Chief Executive Officer (“CEO”) in connection with Company-related travel and entertain expenses incurred by the CEO.

DueConsulting Agreements

During the three months ended March 31, 2018 and 2017, the Company recorded aggregate expense of $0 and $39,000 (of which, $19,500 and $19,500 was included within research and development expenses and selling, general and administrative expenses, respectively), respectively, related to related party consisted of certain amounts owed by KULR to KT High-Tech,consulting agreements with its CEO and CTO, which were eliminatedterminated in consolidation as a resultconnection with the closing of the reverse recapitalization.Share Exchange Agreement on June 19, 2017.

During the periods ended March 31, 2018 and 2017, the Company recorded research and development expense of $0 and $111,615 related to consulting services provided to the Company by ESLI associated with the development of the Company’s CFV thermal management solutions. ESLI is controlled by the Company’s CTO.

Note 7 Stockholders' Equity

Reverse Recapitalization

See Note 1 - Business Organization, Nature of Operations and Basis of Presentation -– Reverse Recapitalization for details of the Share Exchange.

Common StockStock-Based Compensation

During the nine months ended September 30, 2017, the Company received aggregate consideration of $32,000 related to certain restricted common stock awards that were issued in 2013 and 2014.

During the three months ended September 30,March 31, 2018 and 2017, and 2016, the Company recognized stock-based compensation expense of $187,023$182,957 and $8,688, respectively, and during the nine months ended September 30, 2017 and 2016, the Company recognized stock-based compensation expense of $411,181 and $23,636$12,011, respectively, related to restricted common stock awards which is included within general and administrative expenses on the condensed consolidated statements of operations. As of September 30, 2017,March 31, 2018, there was $464,846$94,867 of unrecognized stock-based compensation expense, of which, $341,520$94,867 was subject to re-measurement, that will be recognized over the weighted average remaining vesting period of 0.60.1 years.

Note 8 Commitments and Contingencies

Patent License Agreement

On March 21, 2018, the Company entered into an agreement with the National Renewable Energy Laboratory (“NREL”) granting the Company an exclusive license to commercialize its patented Internal Short Circuit technology. The agreement shall be effective for as long as the licensed patents are enforceable, subject to certain early termination provisions specified in the agreement. In consideration, the Company agreed to pay to NREL the following: (i) a cash payment of $12,000 payable over one year, (ii) royalties ranging from 1.5% to 3.75% on the net sales price of the licensed products, as defined in the agreement, with minimum annual royalty payments ranging from $0 to $7,500. In addition, the Company shall use commercially reasonable efforts to bring the licensed products to market through a commercialization program that requires that certain milestones be met, as specified in the agreement. As of the date of filing, there had been no sales of the licensed products, such that no royalties had been earned.

Note 9 Subsequent Events

There have been no events that have occurred subsequent to March 31, 2018 that require disclosure in the condensed consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of 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”), the “Company”) as of September 30, 2017March 31, 2018 and for the three and nine months ended September 30,March 31, 2018 and 2017 and 2016 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, 20162017 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 June 19, 2017 and March 30, 2017, respectively.April 17, 2018. 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 Annual Report, and other variations or similar words. No assurances can be givenfactors that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual resultswe may differ significantly from management’s expectations.

The following discussion and analysis should be read in conjunction with our financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.know.

Overview

 KT High-Tech Marketing, Inc. (the "Company") was incorporated on December 11, 2015 under the laws of the State of Delaware, 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 shareholders of the Company and its board of directors unanimously approved the change of the Company’s name from Grant Hill Acquisition Corporation to KT High-Tech Marketing, Inc. in April 2016.

On June 19, 2017, the Company closed a share exchange agreement (the “Share Exchange Agreement”) with KULR Technology Corporation, a Delaware Corporation (“KULR”), and 100% of the shareholders of KULR (the “KULR Shareholders”). Upon the closing of the Share Exchange Agreement, KULR became a wholly owned subsidiary of the Company. The acquisition 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 where heat is often a problem, 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,Johnson Space Center (“NASA JSC”), a highly effective, lightweight and passive thermal protection technology. Thermal Runaway Shield (TRS)(“TRS”) for lithium ionlithium-ion batteries. KULR’s lithium ionlithium-ion battery (Li-B)(“Li-B”) TRS product prevents a potentially dangerous combustible condition known as thermal runaway propagation 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 propagation occurring spontaneously in Li-B cargo shipments and inside electronics, including hoverboards, smartphones, hover boards and electric vehicles, are a cause of public concern.

As of March 31, 2018, we had cash, working capital and an accumulated deficit of $425,391, $137,547 and $5,105,564, respectively. During the three months ended March 31, 2018 and 2017, we incurred net losses of $747,244 and $227,824, respectively. These factors raise substantial doubt about our ability to continue as a going concern, as expressed in the notes to our condensed consolidated financial statements. Historically, we have been able to raise funds to support our business operations, although there can be no assurance we will be successful.

Recent Developments

On June 6, 2017,In January 2018, we entered into a Product Development Agreement with a top automotive manufacturer to develop a TRS-based solution for their electrical vehicle battery packs. The agreement is milestone-based and while there is no guarantee that KULR TRS products will ever be integrated into our strategic partner’s vehicles, we continue to advance the Company filed a Certificate of Designation of Series A Voting Preferred Stockmilestones.

In March 2018, we entered into an agreement with the Secretary of State of the State of Delaware (the “Certificate of Designation”National Renewable Energy Laboratory (“NREL”). Pursuant granting us an exclusive license to the Certificate of Designation, the Company designated 1,000,000 shares of preferred “A” 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 entitledcommercialize its patented Internal Short Circuit technology. This technology was jointly developed by NREL and NASA 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 Stock have the right to vote on any matter with holders of the Company’s common stock and other securities entitled to vote, if any, voting together as one (1) class. Each record holder of Preferred A Stock has that number of votes equal to one-hundred (100) votes per share of Preferred A Stock held by such holder. The record holders of the Preferred A Stock are entitled to the same notice of any regular or special meeting of the shareholders as may or shall be given to holders of common stock entitled to vote at such meetings.

provide a reliable testing method for lithium-ion battery safety.

As discussed above, effective on June 19, 2017, pursuant to the Share Exchange Agreement, KULR became a wholly-owned subsidiary of the Company. Accordingly, the Company, through its subsidiary, KULR, will primarily focus its operations on KULR’s thermal management business.

Upon closing 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, 2017

Results of Operations

Three Months Ended March 31, 2018 Compared With Three Months Ended March 31, 2017

The closing of the Share Exchange Agreement with KULR on June 19, 2017 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.

Revenues

Revenues consisted of sales of our CFV thermal management solution as well as certain research and PCM heat sinks.development contract services.

For the three months ended September 30,March 31, 2018 and 2017, and 2016, we generated $15,106$228,040 and $0 of revenues, respectively, an increase of $15,106.

For the nine months ended September 30, 2017 and 2016, we generated $26,006 and $6,900 of revenues, an increase of $19,106, or 277%.$228,040. The increase was primarily due to new contracts entered into during 2018. Our revenues consisted of the following types:

Cost of Revenues

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

For the three months ended September 30, 2017 and 2016,March 31, 2018, cost of revenues were $52,384 and $0, respectively, an increasewas $49,346. There was no cost of $52,384.revenues for the three months ended March 31, 2017. 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, or 1,301%. The increase wasprimarily due to research and development expenses that were attributable to a sales agreement.increased labor costs.

Research and Development

Research and development (“R&D”) includes 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.incurred, until such time as management reasonably determines that a commercially viable product is feasible. At this time, future R&D costs will be capitalized until the resulting product is launched, at which time capitalized R&D expenses will be amortized in cost of sales over the expected life of the product or products.

For the three months ended September 30, 2017, research and developmentMarch 31, 2018, R&D expenses increased by $106,504 to $157,876$119,684 from $14,090 in$13,180 for the comparable 2016 period, an increase of $143,786, or 1,020%.three months ended March 31, 2017. 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.

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 increase of $191,331, or 1,183%. Thein salaries and other benefits due to an 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.headcount.

We expect that our research and developmentR&D expenses will continue to continue increase in the future.increase.

Research and Development – Related Parties

Research and development

R&D – related parties includesinclude expenses associated with the development of our CFV thermal management solutions provided by Energy Science Laboratories, Inc. (“ESLI”), a research and developmentR&D company owned by our Chief Technology Officer (“CTO”)”, as well as services provided fromby our CTO. Research and developmentR&D – related parties expenses are expensed as they are incurred.

For the three months ended September 30, 2017, research and developmentMarch 31, 2018, R&D – related parties decreased by$52,876, or 58%, $131,115 to $38,767$0 from $91,643 in$131,115 for the comparable 2016 period.three months ended March 31, 2017. The decrease is due to a decreasereduction in the amount of workR&D services provided by ESLI during the 2017 period as we brought more of our research and development in-house.current period.

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. The increase is due to an increase in the amount of work provided by ESLI during the 2017 period.

We expect that our research and development expenses will continue to increase in the future.

Selling, General and Administrative

GeneralSelling, general and administrative expenses consist primarily of salaries, payroll taxes and other benefits, legal and professional fees, stock-based compensation, marketing, travel, rent and office expenses.

For the three months ended September 30, 2017,March 31, 2018, selling, general and administrative expenses increased by $512,915, or 555%,$724,096 to $605,273$805,840 from $92,358 in$81,744 for the comparable 2016 period.three months ended March 31, 2017. The increase is primarily due to an increase in non-cash stock-based compensation expenseincreased salaries and other benefits of approximately $178,000, increased payroll expenses$221,000 from the hiring of new employees in the third quarter of 2017, increased marketing expensesnon-cash stock-based compensation expense of approximately $183,000 as well as increased professional fees of approximately $125,000 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 PartyOther Expense

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 partyMarch 31, 2018, other expense decreased by $750$1,571 to $0$14 from $750.$1,585 for the three months ended March 31, 2017. The decrease wasin other expense is primarily due to the collection of a note receivable in the second quarter of 2017.

For the nine months ended September 30, 2017, interest income –expense 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 notenotes purchased by KULR in 2017. Since the KT High-Tech and KULR reverse recapitalization in June 2017, 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 ninethree months ended September 30,March 31, 2018 and 2017, and 2016, cash used in operating activities was $263,585$470,370 and $553,453,$158,913, respectively. Our cash used in operations for the ninethree months ended September 30, 2017March 31, 2018 was primarily attributable to our net loss of $1,757,850,$747,244, adjusted for net non-cash expenseexpenses in the aggregate amount of $414,555,$188,578, partially offset by $1,079,710$88,296 of net cash provided by changes in the levels of operating assets and liabilities. Our cash used in operations for the ninethree months ended September 30, 2016March 31, 2017 was primarily attributable to our net loss of $600,221,$227,824 adjusted for net non-cash expenseexpenses in the aggregate amount of $24,136,$12,164, partially offset by $22,632$56,747 of net cash provided by changes in the levels of operating assets and liabilities.

Investing Activities

For the ninethree months ended September 30,March 31, 2018 and 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 propertywas $0 and equipment.$200,000, respectively. Our cash used inprovided by investing activities for the ninethree months ended September 30, 2016March 31, 2017 was related to the purchase of a promissory note receivable in the principal amount of $85,000 from our CEO.$300,000, of which, $200,000 had been received as of March 31, 2017.

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 financing activities for the ninethree months ended September 30,March 31, 2018 and 2017.

Summary

As of September 30, 2017,March 31, 2018, we had a cash, balance, working capital of and an accumulated deficit of $1,653,492, $1,050,984$425,391, $137,547 and $3,691,660,$5,105,564, respectively. During the three and nine months ended September 30,March 31, 2018 and 2017, we incurred net losses of $747,244 and $227,824, respectively. These conditions raise substantial doubt about our ability to continue as a net loss of $839,252 and $1,757,850, respectively.going concern within one year after the date these financial statements are issued.

As a resultBased upon our forecast for continued operating losses, we expect that the cash we currently have available will fund our operations into the fourth quarter of 2018 while we continue to apply efforts to raise additional capital. Thereafter, we will require external funding to sustain operations and to follow through on the closingexecution of the Share Exchange, we believeour business plan. Although management believes that we have sufficient cashaccess to sustaincapital resources, there are currently no commitments in place for new financing at this time and there is no assurance that we will be able to obtain funds on commercially acceptable terms, if at all. If we are unable to obtain adequate funds on reasonable terms, we may be required to significantly curtail or discontinue operations or obtain funds by entering into financing agreements on unattractive terms. Our operating needs include the planned costs to operate our operations for at leastbusiness, including amounts required to fund working capital and capital expenditures.

Our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplate our continuation as a yeargoing concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the condensed consolidated financial statements do not necessarily purport to represent realizable or settlement values. The condensed consolidated financial statements do not include any adjustment that might result from the dateoutcome of this filing.uncertainty.

Critical Accounting Policies

There are no material changes from the critical accounting policies set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our CurrentAnnual Report on Form 8-K10-K which was filed with the SEC on June 19, 2017.April 17, 2018. Please refer to that document for disclosures regarding the critical accounting policies related to our business.

Off Balance Sheet Arrangements

We do not have anyThere are no off-balance sheet arrangements.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.

Item 3. Quantitative and Qualitative Disclosures About Market 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.

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”). Based on thatthis evaluation, our management, with the participation of our principal executive officer and principal financial officers officer, concluded that, as of the end of the period covered byin 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 effective in ensuringto provide reasonable assurance that the information required to be disclosed by us in ourreports that we file or submit under the Exchange Act reports is (1) recorded, processed, summarized, and reported within the time periods specified in a timely manner,SEC rules and (2)forms, and is accumulated and communicated to our management, including our principal executive and financial officers,officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no

Effective January 1, 2018, we adopted Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers”. The new revenue standard will require management to make significant judgments and estimates. As a result, we implemented changes into our internal controlcontrols related to revenue recognition for the quarter ended March 31, 2018. These changes include updated accounting policies affected by ASC 606, redesigned internal controls over financial reporting that occurred duringrelated to ASC 606, expanded data gathering to comply with the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.additional disclosure requirements, and ongoing contract review requirements.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk 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 June 19, 2017.April 17, 2018.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures

Not Applicable.applicable.

Item 5. Other Information.

None.

Item 6. 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.