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

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

(FORMERLY KT HIGH-TECH MARKETING, INC.)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

Organization and Operations

Effective August 30, 2018, KT High-Tech Marketing, Inc. changed its name to KULR Technology Group, Inc. KULR Technology Group, Inc. ("KT High-Tech"KUTG") 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 integratedthrough its existing business operations with those of itswholly-owned subsidiary, KULR Technology Corporation.

KULR, a wholly-owned subsidiary of KT High-TechCorporation (“KTC”) (collectively referred to as “KULR” or 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 KTC’s co-founder Dr. Timothy Knowles, in the high value, high-performance consumer electronic and energy storage applications. KULRKTC 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’sKTC’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, 20172018 and for the three and nine months then ended. The results of operations for the three and nine months ended September 30, 20172018 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 June 19, 2017 and March 30, 2017, respectively.Form 10-K on April 17, 2018.

The closingCompany has not yet achieved profitability and expects to continue to incur cash outflows from operations. It is expected that its research and development and general and administrative expenses will continue to increase and, as a result, the Company will eventually need to generate significant product revenues to achieve profitability. 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.

The Company is currently funding its operations on a month-to-month basis. 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.

The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Share Exchange Agreement was accounted forCompany as a reverse recapitalization undergoing concern and the provisionsrealization of assets and satisfaction of liabilities in the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) Topic 805-40.normal course of business. The condensed consolidated financial 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 any adjustment that might become necessary should the historical results of operations for KT High-Tech priorCompany be unable to the completion of the reverse recapitalization. The balance sheetcontinue 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.a going concern.

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 USU.S. bank institutions is currently insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 at each institution. There werewas an aggregate uninsured cash balancesbalance of $1,225,642 and $0$611,450 at September 30, 2017 and December 31, 2016, respectively.

During the nine months ended September 30, 2016, 100% of the Company’s revenues were generated from Customer A. During the three months ended September 30, 2017, 76% and 24% of the Company’s revenues were generated 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. As2017. There was no uninsured balance as of September 30, 2017, receivables from 2018.

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.concentrations are as follows:

* Less than 10%                      

InventoryDeferred Offering Costs

Inventory is comprisedDeferred offering costs, which primarily consist of CFV thermal management solutions and heatsinks, whichdirect, incremental professional fees incurred in connection with a debt or equity financing, are available for sale. Inventories are stated atcapitalized as non-current assets on the lower of cost and net realizable value. Cost is determined bybalance sheet. Once 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 thatfinancing closes, the Company record embedded conversion options and any related freestanding instruments at their fair valuesreclassifies such costs 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 incomeeither discounts to notes payable 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 resultreduction of events during the period, the contract is reclassified as of the date of the eventproceeds received from equity transactions so that caused the reclassification. Embedded conversion options and any related freestanding instrumentssuch costs are recorded as a discountreduction of additional paid-in capital. If the completion of a contemplated financing was deemed to be no longer probable, 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 thatrelated deferred offering costs would be received for an asset or paidcharged to transfer a liability (an exit price)general and administrative expense 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’scondensed consolidated 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.statements.

Revenue Recognition

On January 1, 2018, the Company adopted ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). The Company recognizescore principle of ASC 606 requires that an entity recognize revenue whento 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 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 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.

During the three months ended September 30, 2017 and 2016, 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.

Research and Development

Research and development expenses are charged to operations as incurred. During 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 Compensationeach separate performance obligation.

The Company measuresadopted ASC 606 for all applicable contracts using the costmodified retrospective method, which would have required a cumulative-effect adjustment, if any, as of services received in exchange for an awardthe date of equity instruments basedadoption. The adoption of ASC 606 did not have a material impact on the fair valueCompany's condensed consolidated financial statements as of the award. For employees,date of adoption. As a result, a cumulative-effect adjustment was not required.

The Company recognizes revenue primarily from the fair valuefollowing different types 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.contracts:

The following table summarizes our revenue recognized in our condensed consolidated statements of operations:

As of September 30, 2018, the Company had $0 and $51,158 contract assets and contract liabilities, 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. As of December 31, 2017, the Company did not have any contract assets or contract liabilities from contracts with customers. During the three and nine months ended September 30, 2018, and 2017, $0 of revenue was recognized from performance obligations satisfied (or partially satisfied) in previous periods.

Reclassifications

Certain prior year balance sheet amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of 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, 2017 and 2016, 596,241 and 1,720,637The following weighted average shares of unvested common stock, respectively, were excluded from basic 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. 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 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.anti-dilutive:

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 PlansRecently Issued Accounting Pronouncements

As of September 30,In May 2017, the FASB 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 prospective basis in the 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 hadadopted ASU 2017-09 effective January 1, 2018 and its adoption did not have a cash balance, working capitalmaterial impact on the Company’s condensed consolidated financial statements.

In June 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-07, “Compensation — Stock Compensation (Topic 718),” (“ASU 2018-07”). ASU 2018-07 is intended to reduce cost and an accumulated deficitcomplexity and to improve financial reporting for nonemployee share-based payments. Currently, the accounting requirements for nonemployee and employee share-based payment transactions are significantly different. ASU 2018-07 expands the scope of $1,653,492, $1,050,984Topic 718, Compensation — Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and $3,691,660, respectively. Duringemployees will be substantially aligned. This ASU supersedes Subtopic 505-50, Equity — Equity-Based Payments to Nonemployees. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within that fiscal year. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers. The Company early adopted ASU 2018-07 effective April 1, 2018. The adoption of this ASU did not have a material impact on the three and nine months ended September 30, 2017, the Company incurred a net loss of $839,252 and $1,757,850 respectively.Company’s condensed consolidated financial statements.

As a resultIn July 2018, the FASB issued ASU No. 2018-09, “Codification Improvements” (“ASU 2018-09”). These amendments provide clarifications and corrections to certain ASC subtopics including the following: Income Statement - Reporting Comprehensive Income – Overall (Topic 220-10), Debt - Modifications and Extinguishments (Topic 470-50), Distinguishing Liabilities from Equity – Overall (Topic 480-10), Compensation - Stock Compensation - Income Taxes (Topic 718-740), Business Combinations - Income Taxes (Topic 805-740), Derivatives and Hedging – Overall (Topic 815-10), and Fair Value Measurement – Overall (Topic 820-10). The majority of the closingamendments in ASU 2018-09 will be effective in annual periods beginning after December 15, 2018. The Company is currently evaluating the impact this guidance will have on its condensed consolidated financial statements.

In July 2018, the FASB issued Accounting Standards Update No. 2018-10, “Codification Improvements to Topic 842, Leases,” (“ASU 2018-10”). The amendments in ASU 2018-10 are to address stakeholders’ questions about how to apply certain aspects of the Share Exchange,new guidance in ASC 842. The clarifications address the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments. The amendments in ASC Topic 842 are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company believes it has sufficient cashis currently in the process of evaluating its lease assets and lease liabilities to sustainbe recorded as of January 1, 2019. The Company continues to evaluate other provisions of the updated guidance and expects to complete its operations for at least a year from the date of this filing.analysis by December 31, 2018.

In July 2018, the FASB issued Accounting Standards Update No. 2018-11, “Leases (Topic 842): Targeted Improvements,” (“ASU 2018-11”). The amendments in ASU 2018-11 related to transition relief on comparative reporting at adoption affect all entities with lease contracts that choose the additional transition method and separating components of a contract affect only lessors whose lease contracts qualify for the practical expedient. The amendments in ASC Topic 842 are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently in the process of evaluating its lease assets and lease liabilities to be recorded as of January 1, 2019. The Company continues to evaluate other provisions of the updated guidance and expects to complete its analysis by December 31, 2018.

On June 13, 2017,In August 2018, the Company collectedFASB issued Accounting Standards Update No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the $85,000 note receivable from KULR’s Chief Executive OfficerDisclosure Requirements for Fair Value Measurement (“CEO”ASU 2018-13”). The amendments in full as well as outstanding accrued interestASU 2018-13 modify the disclosure requirements on fair value measurements based on the concepts in the amountConcepts Statement, including the consideration of $3,488.costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact this guidance will have on its condensed consolidated financial statements.

Note 4 Prepaid Expenses

As of September 30, 20172018 and December 31, 2016,2017, prepaid expenses consisted of the following:

Note 5 Accrued Expenses and Other Current Liabilities

As of September 30, 20172018 and December 31, 2016,2017, accrued expenses and other current liabilities consisted of the following:

The Company has agreed to issue an aggregate of 117,104 shares of common stock for legal and consulting fees. See Note 7 – Stockholders’ Equity – Stock-Based Compensation for details of related expense recognized. As of September 30, 20172018, the shares had not been issued and, December 31, 2016,as a result, $77,289 of accrued issuable equity is included within accrued expenses and other current liabilities.

Note 6 Related Party Transactions

Accrued Expenses and Other Current Liabilities

Accrued 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$142,269 and $77,500$254,344 as of September 30, 20172018 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.

Duesolutions; and (ii) a liability of $61,647 and $28,253 as of September 30, 2018 and December 31, 2017, respectively, to related party consisted of certain amounts owedthe Company’s Chief Executive Officer (“CEO”) in connection with Company-related travel and entertainment expenses incurred by KULR to KT High-Tech, which were eliminated in consolidation as a result of the reverse recapitalization.

Reverse Recapitalization

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

Common StockConsulting Agreements

During the three and nine months ended September 30, 2017, the Company receivedrecorded aggregate considerationexpense of $32,000$0 and $65,000 (of which, $32,500 and $32,500 was included within research and development expenses and selling, general and administrative expenses, respectively), respectively, related to certain restricted common stock awards thatconsulting agreements with its CEO and CTO, which were issuedterminated in 2013connection with the closing of the Share Exchange Agreement on June 19, 2017.

During the three and 2014.nine months ended September 30, 2017, the Company recorded research and development expense of $38,767 and $407,324, respectively, related to consulting services provided to the Company by ESLI associated with the development of the Company’s CFV thermal management solutions. There were no such costs recorded in the three and nine months ended September 30, 2018. ESLI is controlled by the Company’s CTO.

Note 7 Stockholders' Equity

Private Placement of Common Stock

During the three months ended September 30, 20172018, the Company sold an aggregate of 581,819 shares of common stock at $0.66 per share to accredited investors for aggregate gross and 2016,net proceeds of $384,000 and $352,400, respectively. Of the $31,600 of issuance costs, $25,000 were cash costs and $6,600 were non-cash costs.

Stock-Based Compensation

During the three and nine months ended September 30, 2018, the Company recognized stock-based compensation expense of $94,864 and $402,656, respectively, and during the three and nine months ended September 30, 2017, the Company recognized stock-based compensation expense of $187,023 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 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, 2017,2018, there was $464,846 ofno unrecognized stock-based compensation expense,expense.

Equity Incentive Plan

On August 15 and November 5, 2018, the Board of which, $341,520 wasDirectors and a majority of  the Company’s shareholders, respectively, approved the 2018 KULR Technology Group Equity Incentive Plan (the “2018 Plan”). Under the 2018 Plan, 15,000,000 shares of common stock of the Company are authorized for issuance. The 2018 Plan provides for the issuance of incentive stock options, non-statutory stock options, rights to purchase common stock, stock appreciation rights, restricted stock and restricted stock units to employees, directors and consultants of the Company and its affiliates. The 2018 Plan requires the exercise price of stock options to be not less than the fair value of the Company’s common stock on the date of grant.

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 re-measurement,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, and (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 willrequires that certain milestones be recognized overmet, as specified in the weighted average remainingagreement. 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

Shareholder Consent

On November 5, 2018, the Company received a written consent of the stockholders representing 78.4% of the issued and outstanding securities of the Company entitled to vote on matters of the stockholders to take the following actions: (i) to amend the Company’s certificate of incorporation with the Delaware Secretary of State increasing the number of authorized shares of the Company’s common stock from 100,000,000 shares to 500,000,000 shares; (ii) to approve, ratify and adopt the Company’s 2018 Equity Incentive Plan, pursuant to which the Company may award up to 15,000,000 shares of the Company’s common stock to employees, nonemployee officers and directors and consultants for the purpose of, among other things, motivating such persons to put forth their maximum efforts for the Company’s growth, profitability and success; and (iii) to approve and authorize, as a measure to protect the progress of the Company by vesting periodvoting control of 0.6 years.the Company in its Chief Executive Officer, Michael Mo, the issuance of 1,000,000 shares of the Company’s Series A Voting Preferred Stock to Mr. Mo.

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,KULR Technology Group, Inc. ("KT High-Tech"KUTG") and including its wholly-owned subsidiary, KULR Technology Corporation (“KULR”KTC”), (collectively referred to as “KULR” or the “Company”) as of September 30, 20172018 and for the three and nine months ended September 30, 20172018 and 20162017 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 Report, in our other variations or similar words. No assurances can be givenreports filed with the SEC, and other factors 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 tothan 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 National Aeronautics and Space Administration (“NASA”) Johnson Space Center (“NASA JSC,JSC”), a highly effective, lightweight and passive thermal protection technology.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.

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 product revenues to achieve profitability. These conditions indicate that there is substantial doubt about our ability to continue as a going concern within one year after the financial statement issuance date. Historically, we have been able to raise funds to support our business operations, although there can be no assurance we will be successful in raising additional funds in the future.

Recent Developments

On June 6, 2017,In May 2018, we were assigned a trading symbol, “KUTG”, for quotation on 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”). PursuantOTC Markets. In August 2018, we were up-listed to the CertificateOTCQB.

During the three months ended September 30, 2018, we sold an aggregate of Designation, the Company designated 1,000,000581,819 shares of preferred “A”common stock $0.0001 par valueat $0.66 per share (individually or collectivelyto accredited investors for aggregate gross and net proceeds of $384,000 and $352,400, respectively.

On August 15, 2018, the “Preferred A Stock”Board of Directors approved the 2018 KULR Technology Group Equity Incentive Plan (the “2018 Plan”)., subject to approval from a majority of our shareholders. Under the 2018 Plan, 15,000,000 shares of common stock are authorized for issuance. The Preferred A Stock are not convertible into any series or class2018 Plan provides for the issuance of incentive stock of the Company. In addition, holders of the Preferred A Stock are not entitled to receive dividends, nor do they haveoptions, non-statutory stock options, rights to distribution from the assetspurchase common stock, stock appreciation rights, restricted stock and restricted stock units to employees, directors and consultants of the Company inand its affiliates. The 2018 Plan requires the eventexercise price of any liquidation, dissolution, or winding upstock options to be not less than the fair value of the Company. Each record holder of Preferred A Stock have the right to vote on any matter with holders of the Company’sour common stock and other securities entitled to vote, if any, voting together as one (1) class. Each record holderon the date 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.grant.

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

Upon closing of the Share Exchange Agreement on June 19,Three and Nine Months Ended September 30, 2018 Compared With Three and Nine Months Ended September 30, 2017 the following persons constituted the executive officers and directors of the Company:

* newly appointed as of June 19, 2017

Results of Operations

The closing of the Share Exchange Agreementshare exchange agreement with KTC on June 19, 2017 was accounted for as a reverse recapitalization under the provisions of the Financial Accounting Standards Board ("FASB"(“FASB”) Accounting Standards Codification (“ASC”) Topic 805-40. The condensed consolidated statements of operations herein reflect the historical results of KULRKTC 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-TechKUTG prior to the completion of the reverse recapitalization.

Revenues

RevenuesOur revenues consisted of sales of our CFV thermal management solution and PCM heat sinks.the following types:

For the three months ended September 30, 20172018 and 2016,2017, we generated $15,106$482,798 and $0$15,106 of revenues, respectively, an increase of $15,106.$467,692. Our revenues during the three months ended September 30, 2018 consisted of sales of our component product, CFV thermal management solution. Our revenues during the three months ended September 30, 2017 consisted of sales of our Phase Change Material (“PCM”) heat sink. The increase was primarily due to an increase in the volume of product sales to one existing customer.

For the nine months ended September 30, 20172018 and 2016,2017, we generated $26,006$881,929 and $6,900$26,006 of revenues, an increase of $19,106, or 277%.$855,923. Our revenues during the nine months ended September 30, 2018 consisted of sales of our component product, CFV thermal management solution, sales of an Original Equipment Manufacturer (“OEM”) product as well as certain research and development contract services. Our revenues during the nine months ended September 30, 2017 consisted of sales of our PCM heat sink. The increase in revenue was due to new contracts entered into during 2018.

Cost of Revenues and Gross Margins

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.

ForGenerally, we earn greater margins on revenue from products compared to revenue from services, so product mix plays an important part 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.

Our 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 business activity cycle between expression of initial customer interest to shipping, acceptance and billing can be lengthy, unpredictable and lumpy, which can influence the timing, consistency and reporting of sales growth.

Cost of revenue increased by $23,000, or 44%, from $52,384 for the three months ended September 30, 2017 and 2016, cost of revenues were $52,384 and $0, respectively, an increase of $52,384.to $75,384 for the three months ended September 30, 2018. The increase was primarily due toresearch increased volume of contracts in the 2018 period, which required additional labor and development expenses that were attributablematerials. We generated a gross profit of $407,414 for the three months ended September 30 ,2018 as compared to a sales agreement.gross loss of $32,278 for the three months ended September 30, 2017, representing an improvement in gross profit of $444,692, primarily resulting from the increase in product revenue due to new contracts entered into during 2018.

Cost of revenue increased by $150,222, or 138%, from $108,579 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%.to $258,801 for the nine months ended September 30, 2018. The increase was primarily due to researchincreased volume of contracts in the 2018 period, which required additional labor and development expenses that were attributablematerials. We generated a gross profit of $623,128 for the nine months ended September 30 ,2018 as compared to a sales agreement.gross loss of $82,573 for the nine months ended September 30, 2017, representing an improvement in gross profit of $705,701, primarily resulting from the increase in product revenue due to new contracts entered into during 2018.

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.

For the three months ended September 30, 2017, research and development2018, R&D expenses increased by $3,318, or 2%, to $161,194 from $157,876 from $14,090 infor the comparable 2016 period, an increase of $143,786, or 1,020%.three months ended September 30, 2017. The increase is primarily attributable to a research consulting agreement which commencedan increase in September 2016 as well as new consulting agreementssalaries and service contracts which commencedother benefits due to an increase in the third quarter of 2017.headcount.

For the nine months ended September 30, 2017, research and development2018, R&D expenses increased by $192,380, or 93%, to $399,884 from $207,504 from $16,173 infor the comparable 2016 period, an increase of $191,331, or 1,183%.nine months ended September 30, 2017. The increase is primarily attributable to a research consulting agreement which commencedan increase in September 2016 as well as new consulting agreementssalaries and service contracts which commencedother benefits due to an increase in the third quarter of 2017.headcount.

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

Research and Development – Related Parties

Research and developmentR&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 partiesparties’ expenses are expensed as they are incurred.

For the three months ended September 30, 2017, research and development2018, R&D – related parties decreased by$52,876, $38,767, or 58%100%, to $0 from $38,767 from $91,643 infor the comparable 2016 period.three months ended September 30, 2017. The decrease is due to a decreasereduction in the amount of workR&D services provided by ESLI during the 2017current period, as we brought more of ourwhich resulted from the Company hiring its own research and development in-house.staff in 2017.

For the nine months ended September 30, 2017, research and development2018, R&D – related parties increaseddecreased by$154,123, $439,824, or 54%100%, to $0 from $439,824 from $285,701 infor the comparable 2016 period.nine months ended September 30, 2017. The increasedecrease is due to an increasea reduction in the amount of workR&D services provided by ESLI during the 2017 period.

We expect that ourcurrent period, which resulted from the Company hiring its own research and development expenses will continue to increasestaff in the future.2017.

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, 2017,2018, selling, general and administrative expenses decreased by $144,096, or 24%, to $461,377 from $605,473 for the three months ended September 30, 2017. The decrease is primarily due to decreased non-cash stock-based compensation expense of $186,771 due to awards becoming fully vested in the second quarter of 2018, partially offset by increased salaries and other benefits of approximately $74,000 and professional fees of approximately $55,000 resulting from entering into new consulting agreements.

For the nine months ended September 30, 2018, selling, general and administrative expenses increased by $512,915,$888,800, or 555%87%, to $605,273$1,908,635 from $92,358 in$1,019,835 for the comparable 2016 period.nine months ended September 30, 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$233,000 from the hiring of new employees in the third quarter of 2017, increased marketing expenses as well as increased professional fees relatedof approximately $501,000 resulting from entering into new consulting agreements, increased travel expenses of approximately $78,000 and increased rent expense of approximately $72,000 due to beingentering into a public company.

                For the nine months ended September 30, 2017, general and administrative expenses increasednew lease agreement, partially offset by $720,911, or242%, to $1,019,235 from $298,324 in the comparable 2016 period. The increase is primarily to an increase indecreased non-cash stock-based compensation expense of approximately $388,000, increased payroll expenses from the hiring of new employees$103,000 due to awards becoming fully vested in the thirdsecond quarter of 2017, increased marketing expenses as well as increased professional fees incurred with regards to the Share Exchange and being a public company.

2018.

InterestOther Income – Related Party(Expense)

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

For the three months ended September 30, 2017, interest2018, other income – related party decreasedincreased by $750$23,764 to $0$23,906 from $750.$142 for the three months ended September 30, 2017. The decrease wasincrease is primarily due to the collection of a note receivablegain in the second quarterchange in fair value of 2017.accrued issuable equity of $24,175, which is related to a decrease in the fair value of our common stock.

For the nine months ended September 30, 2017, interest2018, other income – related party decreased(expense) increased by $65$31,787 to $1,337$23,673 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$(8,114) for the nine months ended September 30, 2017, interest expense –2017. The increase is primarily due to a gain in the change in fair value of accrued issuable equity of $24,175, which is related party was $9,593.to a decrease in the fair value of our common stock.

Liquidity and Capital Resources

Operating Activities

For the nine months ended September 30, 20172018 and 2016,2017, cash used in operating activities was $263,585$1,064,935 and $553,453,$263,585, respectively. Our cash used in operations for the nine months ended September 30, 2018 was primarily attributable to our net loss of $1,661,718, adjusted for non-cash expenses in the aggregate amount of $390,305, partially offset by $206,478 of net cash provided by changes in the levels of operating assets and liabilities. Our cash provided by operations for the nine months ended September 30, 2017 was primarily attributable to our net loss of $1,757,850, adjusted for net non-cash expense in the aggregate amount of $414,555, partially offset by $1,079,710 of net cash provided by changes in the levels of operating assets and liabilities. Our cash used in operations for the nine months ended September 30, 2016 was primarily attributable to our net loss of $600,221, adjusted for net non-cash expense in the aggregate amount of $24,136, partially offset by $22,632 of net cash provided by changes in the levels of operating assets and liabilities.

Investing Activities

For the nine months ended September 30, 2018 and 2017, and 2016, cash (used in) provided by (used in) investing activities was $(15,476) and $1,907,990, and $(85,000), respectively. Cash used in investing activities during the nine months ended September 30, 2018 was due to purchases of equipment. 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 Exchangeshare 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

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

Net2018 and 2017, 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$359,000 and $0, respectively. Cash provided by financing activities forduring the nine months ended September 30, 2017.2018 was due to the sale of common stock in our private placement.

SummaryWe 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 product revenues and/or raise additional capital to fund our operations. These conditions indicate that there is substantial doubt about our ability to continue as a going concern within one year after the financial statement issuance date.

As of September 30, 2017,We are currently funding our operations on a month-to-month basis. Although our management believes that we had a cash balance,have access to capital 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 business, including amounts required to fund working capital of 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, we incurred a net loss of $839,252 and $1,757,850, respectively.capital expenditures.

As a result of the closing of the Share Exchange, we believe we have sufficient cash to sustain our operations for at least a year from the date ofOur condensed consolidated financial statements included elsewhere in this filing.

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 CurrentQuarterly Report on Form 8-K10-Q have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which was filed withcontemplate our continuation as a going concern and the SEC on June 19, 2017. Please referrealization 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 document for disclosures regardingmight result from the critical accounting policies related to our business.outcome of this uncertainty.

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.

Critical Accounting Policies

For a description of our critical accounting policies, see Note 3 – Summary of Significant Accounting Policies in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

Recently Adopted Accounting Pronouncements

For a description of recently adopted accounting pronouncements, including adoption dates and estimated effects, if any, on our condensed consolidated financial statements, see Note 3 – Summary of Significant Accounting Policies in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

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”).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 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 not 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.

The following material weakness in our internal control over financial reporting were identified as of September 30, 2018 in the normal course:

A material weakness is a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard AS 2201, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

We intend to address the weakness identified above by increasing the internal controls over the (a) vendor management process and (b) purchase to pay process.

Notwithstanding the assessment that our disclosure controls and procedures and our internal controls over financial reporting were not effective and that there is a material weakness as identified herein, we believe that our condensed consolidated financial statements contained in this Quarterly Report fairly present our financial position, results of operations and cash flows for the periods covered thereby in all material respects.

Changes in Internal Control over Financial Reporting

There have been no changes inExcept as disclosed above, our internal control over financial reporting that occurreddid not change during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.three months ended September 30, 2018.

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.During the three months ended September 30, 2018, we sold an aggregate of 581,819 shares of common stock at $0.66 per share to certain accredited investors in aggregate gross and net proceeds of $384,000 and $352,400, respectively, which proceeds will be used for general corporate expenses and other research and development expenses. The issuances of securities were made pursuant to the exemption from registration under Section 4(a)(2) and Rule 506 of Regulation D under the Securities Act for transactions not involving a public offering and transactions with “accredited investors” as defined under the Securities Act. 

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety DisclosuresDisclosures.

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.