What changed in this filing

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Item 1. Financial Statements

2020-08-14 compared with 2020-06-25 · 684 added, 531 removed, 388 unchanged (76% of the section changed)

1 unchanged sentence

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS

Current Assets:

Accounts receivable

Prepaid expenses

Other current assets

Subscription receivable

Prepaid expenses and other current assets

Total Current Assets

Property and equipment, net

Deferred offering costs

Liabilities and Stockholders' Deficiency

4 unchanged sentences

Accrued expenses and other current liabilities - related party

Current portion of notes payable, net of debt discount of $166,163 and $0 at March 31, 2020 and December 31, 2019, respectively

Accrued issuable equity

Notes payable, net of debt discount of $123,089 and $0

at June 30, 2020 and December 31, 2019, respectively

Loans payable, current portion

Line of credit

1 unchanged sentence

Total Current Liabilities

Notes payable, non-current portion, net of debt discount of $34,617 and $0 at March 31, 2020 and December 31, 2019, respectively

Loans payable, non-current portion

Total Liabilities

3 unchanged sentences

Series A Preferred Stock, 1,000,000 shares designated;

none issued and outstanding at March 31, 2020 and December 31, 2019

none issued and outstanding at June 30, 2020 and December 31, 2019

Series B Convertible Preferred Stock, 31,000 shares designated;

14,487 shares issued and outstanding and liquidation preference of $14,487 at March 31, 2020 and December 31, 2019

14,487 shares issued and outstanding and liquidation preference of $14,487

at June 30, 2020 and December 31, 2019

Series C Preferred Stock, 400 shares designated;

24.01 shares issued and outstanding and liquidation preference of $240,100 at March 31, 2020 and December 31, 2019

24.01 shares issued and outstanding and liquidation preference of $240,100

at June 30, 2020 and December 31, 2019

Common stock, $0.0001 par value, 500,000,000 shares authorized;

81,167,678 and 81,071,831 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

81,759,242 and 81,071,831 shares issued and outstanding

at June 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

Accumulated deficit

Total Stockholders’

Total Liabilities and Stockholders’

The accompanying notes are an integral

part of these condensed consolidated financial statements.

Total Stockholders' Deficiency

Total Liabilities and Stockholders' Deficiency

The accompanying

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

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF

For the Three Months Ended

For the Six Months Ended

Cost of revenue

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Loss From Operations

Other Expenses:

Interest expense, net

Amortization of debt discount

Change in fair value of accrued issuable equity

Total Other Expenses

$ (1,187,109 )

Net Loss Per Share

- Basic and Diluted

Weighted Average Number of

Common Shares Outstanding

Weighted Average Number of Common Shares Outstanding

- Basic and Diluted

The accompanying notes are an integral part of these condensed

consolidated financial statements.

The accompanying notes are an integral part

of these condensed consolidated financial statements.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF

CHANGES IN STOCKHOLDERS’

THE THREE MONTHS ENDED MARCH 31, 2020

Series B Convertible

Series C Convertible

THE SIX MONTHS ENDED JUNE 30, 2020

Stockholders'

2 unchanged sentences

Stock-based compensation:

Common stock issued as a commitment fee for the

Standby Equity Distribution Agreement

Common stock issued for

the commitment fee pursuant to the SEDA agreement

Balance - March 31, 2020

1 unchanged sentence

$ (1,273,431 )

THE THREE MONTHS ENDED MARCH 31, 2019

Series B Convertible

Stock-based compensation:

Common stock issued pursuant

to the SEDA agreement [1]

Balance - June 30,

$ (9,375,550 )

[1] Amount represents gross proceeds of $757,695 less $78,258 of

amortized deferred offering costs.

THE SIX MONTHS ENDED JUNE 30, 2019

Stockholders'

2 unchanged sentences

Stock-based compensation

Common stock issued for cash

Common stock issued for

Balance - March 31, 2019

$ (6,982,252 )

The accompanying notes are an integral

part of these condensed consolidated financial statements.

Stock-based compensation

Common stock issued for

Balance - June 30,

$ (7,603,668 )

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

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF

For the Three Months Ended

For the Six Months Ended

Cash Flows From Operating Activities:

$ (1,187,109 )

Adjustments to reconcile net loss to net cash used in operating activities:

3 unchanged sentences

Write-down of inventory

Change in fair value of accrued issuable equity

Stock-based compensation

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Accounts receivable

Prepaid expenses

Other current assets

Prepaid expenses and other current assets

Deferred expenses

Accounts payable

Accounts payable - related party

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities - related party

Deferred revenue

1 unchanged sentence

Net Cash Used In Operating Activities

Cash Flows From Investing Activities:

Purchase of property and equipment

Net Cash Used In Investing Activities

Cash Flows from Financing Activities:

Proceeds from note payable

Payment of debt issuance costs

Repayments of note payable

Proceeds from line of credit

Repayments of line of credit

Payment of debt issuance costs

Proceeds from Paycheck Protection Program loan

Proceeds (repayments) on line of credit, net

Proceeds from sale of common stock [1]

Payment of financing costs on equity line of credit

Payment of offering costs

Net Cash Provided By Financing Activities

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Cash - End of Period

the six months ended June 30, 2020, the amount represents gross proceeds of $757,695 less $141,000 withheld by the investor

to pay down a portion of the note payable held by the same investor.

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

KULR TECHNOLOGY GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

CASH FLOWS, CONTINUED

For the Six Months Ended

Supplemental Disclosures of Cash Flow Information:

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Non-cash investing and financing activities:

Value of common stock issued as a commitment fee for the Standby Equity Distribution Agreement

Value of common stock issued as a commitment fee for the SEDA agreement

Deferred offering costs charged to equity

Original issuance discount on note payable

The accompanying notes are an integral

part of these condensed consolidated financial statements.

KULR TECHONOLOGY GROUP, INC.

Common stock issued for repayment of note payable

Subscriptions receivable for accrued issuable equity

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

KULR TECHNOLOGY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

NOTE 1 BUSINESS ORGANIZATION AND NATURE OF OPERATIONS

NOTE 1 BUSINESS

ORGANIZATION AND NATURE OF OPERATIONS

Organization and Operations

KULR Technology Group, Inc., through its

wholly-owned subsidiary, KULR Technology Corporation (collectively referred to as “KULR”

KULR Technology Group, Inc., through

its wholly-owned subsidiary, KULR Technology Corporation (collectively referred to as “KULR”

or the “Company”),

develops and commercializes high-performance thermal management technologies for electronics, batteries, and other components across

a range of applications.

develops and commercializes high-performance thermal management technologies for electronics, batteries, and other components

across a range of applications.

Currently, the Company is focused on targeting the following applications:

electric vehicles and autonomous

driving systems (collectively referred to herein as “E-Mobility”);

electric vehicles and

autonomous driving systems (collectively referred to herein as “E-Mobility”);

artificial intelligence and Cloud computing;

energy storage;

and 5G communication technologies.

KULR provides heat management solutions to enhance the performance and safety of battery

packs used in electric vehicles, communication devices, and aerospace and defense applications.

KULR provides heat management solutions to enhance the performance and safety

of battery packs used in electric vehicles, communication devices, and aerospace and defense applications.

Basis of Presentation

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financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America

GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation

GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of

Regulation S-X.

Accordingly, they do not include all of the information and disclosures required by U.S.

GAAP for annual financial statements.

In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered

necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of March 31, 2020

and for the three months ended March 31, 2020 and 2019.

The results of operations for the three months ended March 31, 2020 are

not necessarily indicative of the operating results for the full year ending December 31, 2020 or any other period.

These unaudited

condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements

and related disclosures as of December 31, 2019 and for the year then ended, which were filed with the Securities and Exchange

Commission (“SEC”) on Form 10-K on May 14, 2020.

NOTE 2 GOING CONCERN AND MANAGEMENT’S PLANS

GAAP for annual financial

In the opinion of management, such statements include all adjustments (consisting only of normal recurring items)

which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company

as of June 30, 2020 and for the three and six months ended June 30, 2020 and 2019.

The results of operations for the

three and six months ended June 30, 2020 are not necessarily indicative of the operating results for the full year ending

December 31, 2020 or any other period.

These unaudited condensed consolidated financial statements should be read in conjunction

with the Company’s audited financial statements and related disclosures as of December 31, 2019 and for the year then

ended, which were filed with the Securities and Exchange Commission (“SEC”) on Form 10-K on May 14, 2020.

CONCERN AND MANAGEMENT’S PLANS

The Company has not yet achieved profitability

and expects to continue to incur cash outflows from operations.

As of March 31, 2020, the Company had cash of $634,148 and a working

capital deficit of $1,163,280.

For the three months ended March 31, 2020 and 2019, the Company incurred net losses of $550,253

As of June 30, 2020, the Company had cash of $767,906 and

a working capital deficit of $931,889.

For the six months ended June 30, 2020 and 2019, the Company incurred net losses of

$979,238 and $1,187,109, respectively, and used cash in operations of $1,267,427 and $968,882, respectively.

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 revenues to achieve profitability.

Further, as of March 31, 2020, the Company has debt principal in

the amount of $1,450,000 which matures on May 31, 2021.

2020, an outbreak of a new strain of coronavirus, COVID-19, was identified in Wuhan, China.

Through the first quarter of 2020,

the disease became widespread around the world, and on March 11, 2020, the World Health Organization declared a pandemic.

is dependent on developing new markets and new products to be used on a global basis, thus restrictions on travel could lead to

reduced demand for our products and interruptions to supply chains.

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 revenues to achieve profitability.

Further, as of June 30, 2020, the Company has debt

principal (excluding Paycheck Protection Program loans) in the amount of $1,275,000 which matures on May 31, 2021.

In January 2020, an outbreak of a

new strain of coronavirus, COVID-19, was identified in Wuhan, China.

Through the first quarter of 2020, the disease became widespread

around the world, and on March 11, 2020, the World Health Organization declared a pandemic.

Our business is dependent on

developing new markets and new products to be used on a global basis, thus restrictions on travel could lead to reduced demand

for our products and interruptions to supply chains.

Also, the local regulations such as “Shelter in Place”

will affect our ability to maintain regular R&D and manufacturing schedules as well as the capability to meet customer demands

in a timely manner.

Given the uncertainty around the extent and timing of the potential future spread or mitigation of the Coronavirus

and around the imposition or relaxation of protective measures, we cannot reasonably estimate the impact to our future results

of operations, cash flows, or financial condition

NOTE 2 GOING CONCERN AND MANAGEMENT’S PLANS –

Effective February 27, 2020, the Company

entered into a twenty-four month Standby Equity Distribution Agreement (“SEDA”) with an Investor, pursuant to which

the Company may, at its discretion, sell to up to an aggregate of $8,000,000 (subject to the Investor’s approval for amounts

over $100,000) of shares of the Company’s common stock at a price equal to Company 80% of the lowest daily volume weighted

average price for the five days immediately following the date the Company delivers notice requiring the Investor to purchase the

shares under the SEDA.

For each advance, the Company shall have delivered all shares relating to all prior advances, and, unless

waived by the Investor, at least 5 trading days shall have elapsed from the immediately preceding advance date.

See Note 9 –

Stockholder Deficiency for additional details.

Additionally, the Company applied for, and in April 2020, received, a loan of $155,000

under the government Small Business Administration (“SBA”) sponsored Payroll Protection Program (“PPP”)

to support continuing employment during the COVID-19 pandemic (see Note 11 –

Subsequent Events).

The Company currently has $8,000,000 available

in connection with the SEDA, in order to fund its ongoing operations;

however, there can be no assurance that the Company will

be able to continue sell common shares pursuant to the SEDA at an acceptable price, or without causing undue dilution to existing

investors beyond what the Company sold subsequent to March 31, 2020.

Further, there is also no assurance that the Company will

be able to continue to obtain additional 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.

our ability to maintain regular R&D and manufacturing schedules as well as the capability to meet customer demands in a timely

Given the uncertainty around the extent and timing of the potential future spread or mitigation of the Coronavirus and

around the imposition or relaxation of protective measures, we cannot reasonably estimate the impact to our future results of

operations, cash flows, or financial condition.

KULR TECHNOLOGY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

CONCERN AND MANAGEMENT’S PLANS –

Effective February 27, 2020, the

Company entered into a twenty-four month Standby Equity Distribution Agreement (“SEDA”) with an Investor, pursuant

to which the Company may, at its discretion, sell up to an aggregate of $8,000,000 (subject to the Investor’s approval for

amounts over $100,000) of shares of the Company’s common stock at a price equal to 80% of the lowest daily volume weighted

average price for the five days immediately following the date the Company delivers notice requiring the Investor to purchase

the shares under the SEDA.

For each advance, the Company shall have delivered all shares relating to all prior advances, and,

unless waived by the Investor, at least 5 trading days shall have elapsed from the immediately preceding advance date.

Stockholders’

Deficiency for additional details.

Additionally, the Company applied for, and in April 2020,

received, a loan of approximately $155,000 under the government Small Business Administration (“SBA”) sponsored Payroll

Protection Program (“PPP”) to support continuing employment during the COVID-19 pandemic.

As of June 30, 2020, the Company had approximately

$7,242,300 available in connection with the SEDA, subject to certain conditions, in order to fund its ongoing operations;

there can be no assurance that the Company will be able to continue to sell common shares pursuant to the SEDA at an acceptable

price, or without causing undue dilution to existing investors.

Further, there is also no assurance that the Company will be able

to continue to obtain additional 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,

9 unchanged sentences

Company be unable to continue as a going concern.

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 3 SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES

Since the date of the Annual Report on

Form 10-K for the year ended December 31, 2019, there have been no material changes to the Company’s significant accounting

policies, except as disclosed in this note.

Form 10-K for the year ended December 31, 2019, there have been no material changes to the Company’s significant

accounting policies, except as disclosed in this note.

Concentrations of Credit Risk

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portion of the Company’s cash is held at one major financial institution.

The Company has not experienced any losses in such

The Company has not experienced any losses in

such accounts.

Cash held in US bank institutions is currently insured by the Federal Deposit Insurance Corporation (“FDIC”)

up to $250,000 at each institution.

There was an uninsured balance of $376,359 and no uninsured cash balances as of March 31, 2020

and December 31, 2019, respectively.

Customer concentrations are as follows:

Accounts Receivable

For the Three Months Ended

March 31, 2020

December 31, 2019

* Less than 10 %

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES –

There was an uninsured balance of $517,906 as of June 30, 2020 and no uninsured cash

balances as of December 31, 2019.

KULR TECHNOLOGY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

NOTE 3 SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES –

Concentrations of Credit Risk –

There is no assurance the Company will

continue to receive significant revenues from any of these customers.

Any reduction or delay in operating activity from any of

the Company’s significant customers, or a delay or default in payment by any significant customer, or termination of agreements

with significant customers, could materially harm the Company’s business and prospects.

As a result of the Company’s

significant customer concentrations, its gross profit and results from operations could fluctuate significantly due to changes

in political, environmental, or economic conditions, or the loss of, reduction of business from, or less favorable terms with any

of the Company’s significant customers.

The Company had certain customers whose revenue individually

represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10%

or more of the Company’s total accounts receivable, as follows:

For the three months ended June 30,

2020 two customers accounted for 44% and 25% of revenues.

For the six months ended June 30, 2020, the same two customers accounted

for 48% and 18% of revenues.

For the three months ended June 30, 2019, three customers accounted for 17%, 18%, and 64% of

For the six months ended June 30, 2019 one of the same customers accounted for 14% and another customer accounted

for 47% of revenues.

As of June 30, 2020 three customers

accounted for 58%, 14%, and 27% of accounts receivable.

The customer which accounted for 58% of account receivable as of June 30,

2020 accounted for 25% and 18% of revenues during the three and six months ended June 30, 2020.

As of December 31, 2019,

four customers accounted for 33%, 17%, 20%, and 19% of accounts receivable.

There is no assurance the Company will continue to receive

significant revenues from any of these customers.

Any reduction or delay in operating activity from any of the Company’s

significant customers, or a delay or default in payment by any significant customer, or termination of agreements with significant

customers, could materially harm the Company’s business and prospects.

As a result of the Company’s significant customer

concentrations, its gross profit and results from operations could fluctuate significantly due to changes in political, environmental,

or economic conditions, or the loss of, reduction of business from, or less favorable terms with any of the Company’s significant

Vendor Concentrations

Vendor concentrations are as follows:

Accounts Payable

March 31, 2020

June 30, 2020

December 31, 2019

* Less than 10%

Deferred Offering Costs

Deferred offering costs, which consist

of direct, incremental professional fees incurred in connection with closing the SEDA for a potential sale of the Company’s

equity securities (as described in Note 9 –

Stockholders’

Deficiency), are capitalized as non-current assets on the

balance sheet.

Upon continued utilization of the SEDA, the deferred offering costs will be offset against the equity offering proceeds.

As of March 31, 2020, the Company incurred deferred offering costs in the amount of $78,259.

See Note –

9 Stockholders’

Deficiency, Standby Equity Distribution Agreement for more information.

KULR TECHNOLOGY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

NOTE 3 SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES –

Revenue Recognition

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Identify the contract with the customer;

Identify the performance obligations in the contract;

Identify the performance obligations

in the contract;

Determine the transaction price;

Allocate the transaction price to the performance obligations in the contract;

Recognize revenue when the company satisfies a performance obligation.

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES –

Allocate the transaction price to

the performance obligations in the contract;

Recognize revenue when the company

satisfies a performance obligation.

The Company recognizes

revenue primarily from the following different types of contracts:

Product sales –

sales –

Revenue is recognized at the point in time the customer obtains control

of the goods and the Company satisfies its performance obligation, which is generally at the time it ships the product to the customer.

Contract services –

of the goods and the Company satisfies its performance obligation, which is generally

at the time it ships the product to the customer.

services –

Revenue is recognized at the point in time that the Company satisfies

its performance obligation under the contract, which is generally at the time it delivers a report to the customer.

The following table summarizes our revenue

recognized in our unaudited condensed consolidated statements of operations:

its performance obligation under the contract, which is generally at the time it delivers

a report to the customer.

The following table summarizes the revenue

recognized in the unaudited condensed consolidated statements of operations:

For the Three Months Ended

For the Six Months Ended

Product sales

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Total revenue

As of March 31,

2020 and December 31, 2019, the Company had $47,000 and $15,000 of deferred revenue, respectively, from contracts with customers.

The contract liabilities represent payments received from customers for which the Company had not yet satisfied its performance

obligation under the contract.

During the three months ended March 31, 2020 and 2019, there was no revenue recognized from performance

obligations satisfied (or partially satisfied) in previous periods.

As of June 30, 2020 and December 31,

2019, the Company had $0 and $15,000, respectively, of deferred revenue, 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.

During the three and six months ended June 30, 2020, there was $15,000 of revenue recognized from performance obligations

satisfied (or partially satisfied) in previous periods.

KULR TECHNOLOGY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

NOTE 3 SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES –

Sequencing Policy

Under ASC 815-40-35 (“ASC 815”),

the Company has adopted a sequencing policy, whereby, in the event that reclassification of contracts from equity to assets or

liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares

as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of

the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares.

Pursuant to ASC 815, issuances of securities to the Company’s employees and directors, or to compensate grantees in a share-based

payment arrangement, are not subject to the sequencing policy.

Net Loss Per Common Share

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For the Three Months Ended

For the Six Months Ended

Series B Convertible Preferred Stock

Series C Convertible Preferred Stock

Total potentially dilutive shares

Reclassification

Reclassifications

Certain prior period balances have been

2 unchanged sentences

results of operations or loss per share.

NOTE 4 PREPAID EXPENSES

As of March 31, 2020 and December 31,

NOTE 4 PREPAID

As of June 30, 2020 and December 31,

2019, prepaid expenses consisted of the following:

Travel expenses

Research and development services

Professional fees

Security deposit

Total prepaid expenses

NOTE 5 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

As of March 31, 2020 and December 31, 2019,

KULR TECHNOLOGY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

NOTE 5 ACCRUED

EXPENSES AND OTHER CURRENT LIABILITIES

As of June 30, 2020 and December 31,

2019, accrued expenses and other current liabilities consisted of the following:

1 unchanged sentence

Legal and professional fees

Credit card payable

Travel expenses

Total accrued expenses and other current liabilities

3 unchanged sentences

related party.

NOTE 6 LINE OF CREDIT

On February 18, 2020, the Company entered

into a financing agreement (the “Line of Credit”) wherein it may borrow up to $10,000.

The repayment terms (interest

rate, repayment amount and number of consecutive weekly periodic installments) are determined at the time the Company borrows proceeds

under the Line of Credit.

NOTE 6 ACCRUED

ISSUABLE EQUITY

As of June 30, 2020, accrued issuable equity

consists of the following:

Accrued issuable equity for services

Accrued issuable equity for subscriptions receivable

Accrued Issuable Equity for Services

During the three and six months ended June

30, 2020, the Company agreed to issue 55,000 and 58,333 shares of common stock to vendors in exchange for services valued at $42,500

and $44,700, respectively (see Note 11 –

Stockholders’

Deficiency, Stock-Based Compensation).

The shares have not been

issued as of June 30, 2020.

The fair value of the unissued shares as of June 30, 2020 was $70,500;

accordingly, the Company recorded

a change in the fair value of accrued issuable equity related to these shares of $25,800 for the six months ended June 30, 2020.

Accrued Issuable Equity for Subscriptions

Between June 29, 2020 and June 30, 2020,

the Company delivered notices requiring the Investor to purchase $220,000 of shares under the SEDA, at a price per share equal

to 80% of the lowest daily volume weighted average price at which the shares are traded for the five days immediately following

the date the Company delivered such notice.

On February 18, 2020, the Company

entered into a financing agreement (the “Line of Credit”) wherein it may borrow up to $10,000.

The repayment terms

(interest rate, repayment amount and number of consecutive weekly periodic installments) are determined at the time the Company

borrows proceeds under the Line of Credit.

On February 19, 2020, the Company

borrowed and received gross proceeds of $10,000 under the Line of Credit for its working capital needs, which is being repaid

weekly for the next 26 weeks at a weekly interest rate of 1.7%.

As of March 31, 2020, the outstanding aggregate principal

As of June 30, 2020, the outstanding aggregate principal

amount on the Line of Credit was $3,555.

During the three months ended March 31, 2020 and 2019, the Company recorded interest

During the three and six months ended June 30, 2020, the Company recorded interest

expense of $1,382 and $2,178, respectively, related to the Line of Credit.

There was no accrued interest related to the Line of

Credit as of March 31, 2020.

NOTE 7 NOTE PAYABLE

On February 27, 2020, the Company entered

into a note purchase agreement with the YAII PN, Ltd., a Cayman Island exempt limited partnership (the “Investor”),

Credit as of June 30, 2020.

The outstanding balance of the line of credit was paid off in July 2020.

On February 27, 2020, the Company

entered into a note purchase agreement with the YAII PN, Ltd., a Cayman Island exempt limited partnership (the “Investor”),

pursuant to which the Investor purchased a full recourse promissory note (the “Note”) in the original principal amount

2 unchanged sentences

$90,000, which represents the difference between the principal and proceeds received.

The original issue discount, along with the

$130,000 advisory fee were recorded as a debt discount and contra liability and is being amortized over the term of the Note using

the effective interest rate method.

NOTE 7 NOTE PAYABLE –

The original issue discount, along with

the $130,000 advisory fee were recorded as a debt discount which is being amortized over the term of the Note using the effective

interest rate method.

KULR TECHNOLOGY

AND SUBSIDIARY

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

PAYABLE –

The Note bears no coupon interest (original

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Standby Equity Distribution

Agreement for additional details).

The Company will repay the Principal Amount in monthly installments as set forth in the Note.

The Company may, at its discretion, prepay any installment amount or the principal amount, subject to a payment premium equal to

the 10% of the amount being prepaid.

During the three months ended March 31, 2020, the Company repaid principal on the Note of

$50,000, and as of March 31, 2020, the outstanding aggregate principal balance of the Note was $1,450,000.

During the three months

ended March 31, 2020, the Company recognized amortization of debt discount of $19,220 related to the Note.

NOTE 8 RELATED PARTY TRANSACTIONS

Agreement for additional information).

The Company is required to repay the Principal Amount in monthly installments as set forth

in the agreement.

The Company may, at its discretion, prepay any installment amount or the principal amount, subject to a payment

premium equal to the 10% of the amount being prepaid.

During the six months ended June 30, 2020, the Company

repaid principal on the Note of $225,000.

As of June 30, 2020, the outstanding aggregate principal balance of the Note was

During the three and six months ended June 30, 2020, the Company recognized amortization of debt discount of $77,691

and $96,911, respectively, related to the Note.

Please see Note 13 –

Subsequent Events for additional information regarding

further repayments of the Note.

On April 27, 2020, the Company received

approximately $155,000 of cash proceeds pursuant to an unsecured loan provided in connection with the Paycheck Protection Program

(“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act and applicable regulations (“CARES Act”).

Under the terms of the CARES Act, as amended

by the Paycheck Protection Program Flexibility Act of 2020, the Company is eligible to apply for and receive forgiveness for all

or a portion of their respective PPP Loans.

Such forgiveness will be determined, subject to limitations, based on the use of the

loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to, payroll costs (as defined

under the PPP) and mortgage interest, rent or utility costs (collectively, “Qualifying Expenses”) incurred during

the 24 weeks subsequent to funding, and on the maintenance of employee and compensation levels, as defined, following the funding

of the PPP Loan.

The Company intends to use the proceeds of their PPP Loans for Qualifying Expenses.

However, no assurance is

provided that KULR will be able to obtain forgiveness of the PPP Loans in whole or in part.

Any amounts not forgiven incur interest

at 1.0% per annum and monthly repayments of principal and interest are deferred until the Small Business Administration decides

on forgiveness.

While the Company’s PPP loans currently have a two-year maturity, the amended law will permit the Company

to request a five-year maturity, subject to the approval of the counterparty.

During the three and six months ended June 30,

2020, the Company recognized interest expense of $272.

As of June 30, 2020 and December 31, 2019, the Company’s

accrued interest related to the loan was $272 and $0, respectively.

NOTE 10 RELATED

PARTY TRANSACTIONS

Accounts Payable –

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related party

consists of a liability of $3,622 and $4,253 as of March 31, 2020 and December 31, 2019, respectively, to Energy Science Laboratories,

(“ESLI”), a company controlled by the Company’s 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 in prior periods.

Accrued Expenses and Other Current Liabilities

consists of a liability of $3,622 and $4,253 as of June 30, 2020 and December 31, 2019, respectively, to Energy Science

Laboratories, Inc.

(“ESLI”), a company controlled by the Company’s 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 in prior periods.

Accrued Expenses and Other Current

Liabilities –

Related Party

Accrued expenses and other current liabilities

related parties consist of a liability of $0 and $10,419 as of March 31, 2020 and December 31, 2019, respectively, to

Energy Science Laboratories, Inc.

(“ESLI”), a company controlled by the Company’s Chief Technology Officer (“CTO”),

in connection with consulting services provided by ESLI to the Company associated with the development of the Company’s

CFV thermal management solutions.

related party consist of a liability of $0 and $10,419 as of June 30, 2020 and December 31, 2019, respectively,

to Energy Science Laboratories, Inc.

(“ESLI”), a company controlled by the Company’s Chief Technology Officer

(“CTO”), in connection with consulting services provided by ESLI to the Company associated with the development of

the Company’s CFV thermal management solutions.

KULR TECHNOLOGY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

NOTE 11 STOCKHOLDERS’

Standby Equity Distribution Agreement

On February 27, 2020, KULR Technology Group,

entered into a SEDA with the Investor, pursuant to which the Company may, at its discretion, sell to the Investor up to $8,000,000

of shares of the Company’s common stock (the “Offering”), par value $0.0001 per share (the “Common Stock”).

For each share of Common Stock purchased under the SEDA (the “Shares”), the Investor will pay the Company 80% of the

lowest daily volume weighted average price of the Common Stock on the OTC Markets OTCQB or other principal market on which the

Common Stock is traded for the five days immediately following the date the Company delivers notice requiring the Investor to purchase

the Shares under the SEDA.

See Note 7 –

Note Payable.

On February 27, 2020, KULR Technology

entered into a SEDA with the Investor, pursuant to which the Company may, at its discretion, sell to the Investor

up to $8,000,000 of shares of the Company’s common stock (the “Offering”), par value $0.0001 per share (the “Common

Stock”).

For each share of Common Stock purchased under the SEDA (the “Shares”), the Investor will pay the Company

80% of the lowest daily volume weighted average price of the Common Stock on the OTC Markets OTCQB or other principal market on

which the Common Stock is traded for the five days immediately following the date the Company delivers notice requiring the Investor

to purchase the Shares under the SEDA.

The Investor’s obligation to purchase

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The commitment period under the SEDA commenced

on February 27, 2020 (the “Effective Date”) and expires on the earliest to occur of (i) first day of the month following

the twenty-four months after the Effective Date, (ii) on which the Investor has purchased an aggregate amount of $8,000,000 of

Shares under the SEDA, or (iii) the date the SEDA is earlier terminated.

on February 27, 2020 (the “Effective Date”) and expires on the earliest to occur of (i) first day of the

month following the twenty-four months after the Effective Date, (ii) the date on which the Investor has purchased an aggregate

amount of $8,000,000 of Shares under the SEDA, or (iii) the date the SEDA is earlier terminated.

The SEDA contains customary representations,

warranties and agreements of the Company and the Investor, indemnification rights and other obligations of the parties.

has the right to terminate the SEDA at any time upon prior written notice, at no cost to the Company, provided that (i) there are

no outstanding advances which have yet to be issued and (ii) the Company has paid all amounts owed to the Investor, including amounts

borrowed under the Note (see Note 7 –

Note Payable for additional details).

The Investor has covenanted not to cause or engage

in any manner whatsoever, any direct or indirect short selling or hedging of the Company’s shares of Common Stock.

NOTE 9 STOCKHOLDERS’

DEFICIENCY –

Standby Equity Distribution Agreement

has the right to terminate the SEDA at any time upon prior written notice, at no cost to the Company, provided that (i) there

are no outstanding advances which have yet to be issued and (ii) the Company has paid all amounts owed to the Investor, including

amounts borrowed under the Note (see Note 8 –

Note Payable for additional information).

The Investor has covenanted not to

cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the Company’s shares of Common

The Company paid cash of $15,000 and issued

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deferred offering costs and additional paid in capital on the condensed consolidated balance sheet.

The Company did not sell any Shares pursuant

to the SEDA during the three months ended March 31, 2020.

During the three and six months

ended June 30, 2020, the Company recorded $78,259 of amortization expense related to deferred offering costs.

During the three and six months ended June 30, 2020 the

Company issued an aggregate of 561,564 shares of common stock at prices between $0.72 - $1.62 per share for aggregate proceeds

of $757,695 received against advance notices submitted to the Investor under the SEDA, of which $141,000 of the proceeds were applied

directly against the note payable.

Please see Note 8 –

Subsequent Events for additional details regarding

the sale of Shares subsequent to March 31, 2020.

Note Payable for more information.

Between June 29, 2020 and June 30, 2020,

the Company delivered notices requiring the Investor to purchase under the SEDA $220,000.

The shares had not been issued as of

June 30, 2020.

The value of the shares to be delivered pursuant to these notices is recorded as subscriptions receivable and accrued

issuable equity on the accompanying condensed consolidated balance sheet.

See Note 6 –

Accrued Issuable Equity.

Please see Note 13 –

Subsequent Events

for additional information regarding the sale of Shares subsequent to June 30, 2020.

KULR TECHNOLOGY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

NOTE 11 STOCKHOLDERS’

DEFICIENCY - CONTINUED

Stock-Based Compensation

During the six months ended June 30, 2020,

the Company issued 30,000 shares of common stock that vested immediately with a grant date value of approximately $30,000 related

to consulting services provided.

During the six months ended June 30, 2019, the Company issued 25,000 shares with a grant

date value of $36,060 for legal fees.

Stock Options

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and (e) a dividend rate of 0.0%.

Stock-Based Compensation

During the three months ended March 31,

2020 and 2019, the Company recognized stock-based compensation expense of $12,728 and $47,940 (which includes the issuance of 25,000

shares of immediately-vested common stock for legal fees), respectively, related to restricted common stock and stock options,

of which $8,112 and $16,300, respectively was charged to research and development expense and $4,616 and $31,640, respectively

was charged to general and administrative expense.

As of March 31, 2020, there was $85,917 of unrecognized stock-based compensation

expense that will be recognized over the weighted average remaining vesting period of 2.22 years.

Stock-Based Compensation Expense

During the three and six months ended June 30,

2020, the Company recognized stock-based compensation expense of $82,088 and $94,816, respectively, related to restricted common

stock and stock options, of which $2,163 and $10,275, respectively was charged to research and development expense and $79,925

and $84,541, respectively was charged to general and administrative expense.

As of June 30, 2020, there was $76,329 of unrecognized

stock-based compensation expense that will be recognized over the weighted average remaining vesting period of 2.0 years.

During the three and six months ended June 30,

2019, the Company recognized stock-based compensation expense of $45,171 and $93,111, respectively, related to restricted common

stock, stock options and warrants, which are included within general and administrative expenses on the condensed consolidated

statements of operations.

The following table presents information

related to stock-based compensation for the three months ended March 31, 2020 and 2019:

related to stock-based compensation for the three and six months ended June 30, 2020 and 2019:

For the Three Months Ended

For the Six Months Ended

Common stock (issued)

Stock options

NOTE 10 COMMITMENTS AND CONTINGENCIES

Accrued issuable equity (common stock)

Accrued issuable equity (warrants)

NOTE 12 COMMITMENTS AND

CONTINGENCIES

Operating Lease

On January 1, 2020, KULR Technology Group,

renewed a lease agreement for the 5,296 square feet of space located in San Diego, California under a six-month lease agreement

ending June 30, 2020.

The base rent was increased to $4,552 per month plus association fees of $555 per month.

For the three months

ended March 31, 2020 and 2019, operating lease expense was $10,016 and $40,385, respectively.

On June 15, 2020, the Company entered

into an agreement to extend the term of its original lease from June 30, 2020 to December 31, 2020.

Monthly rental payments

under the renewed lease total $5,107, which are comprised of $4,552 of base rent plus $555 of association fees.

For the three and

six months ended June 30, 2020, operating lease expense was $17,200 and $27,216, respectively.

For the three and six months

ended June 30, 2019, operating lease expense was $40,103 and $80,488, respectively.

The Company evaluated their operating

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lease payments are recognized as expense and no right of use asset or lease liability is recorded.

SUBSEQUENT EVENTS

Subsequent to March 31, 2020, the Company

issued an aggregate of 421,197 shares of common stock at prices between $0.72 - $1.53 per share for aggregate proceeds of $526,000

received against advance notices submitted to the Investor under the SEDA.

On June 12, 2020, the Company issued 30,000

shares of common stock that vest immediately with a grant date value of approximately $30,000 related to consulting services provided.

Note Purchase Agreement and Promissory

Subsequent to March 31, 2020, and pursuant

to the terms of the Note, the Company repaid an aggregate of $175,000 against the Principal Amount.

Paycheck Protection Program Loan

On April 27, 2020, the Company received

approximately $155,000 of cash proceeds pursuant to an unsecured loan provided in connection with the Paycheck Protection Program

(“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act and applicable regulations (“CARES Act”).

Under the terms of the CARES Act, as amended

by the Paycheck Protection Program Flexibility Act of 2020, the Company is eligible to apply for and receive forgiveness for all

or a portion of their respective PPP Loans.

Such forgiveness will be determined, subject to limitations, based on the use of the

loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to, payroll costs (as defined

under the PPP) and mortgage interest, rent or utility costs (collectively, “Qualifying Expenses”) incurred during the

24 weeks subsequent to funding, and on the maintenance of employee and compensation levels, as defined, following the funding of

the PPP Loan.

The Company intends to use the proceeds of their PPP Loans for Qualifying Expenses.

However, no assurance is provided

KULR will be able to obtain forgiveness of the PPP Loans in whole or in part.

Any amounts not forgiven incur interest at 1.0% per

annum and monthly repayments of principal and interest are deferred until the Small Business Administration decides on forgiveness.

While the Company’s PPP loans currently have a two-year maturity, the amended law will permit the Company to request a five-year

Operating Lease Renewal

On June 15, 2020, the Company entered into

an agreement to extend the term of its original lease from June 30, 2020 to December 31, 2020.

Monthly rental payments under the

renewed lease total $5,107, which comprises of $4,552 of base rent plus $555 of association fees.

KULR TECHNOLOGY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

NOTE 13 SUBSEQUENT

On July 1, 2020, the Company issued 35,000

shares of immediately vested common stock with a grant date value of approximately $25,000 for legal fees.

Standby Equity Distribution Agreement

and Repayments of the Note Payable

Subsequent to June 30, 2020, the Company

received cash of $220,000 in satisfaction of subscriptions receivable as of June 30, 2020.

See Note 6 –

Accrued Issuable

Equity, Accrued Issuable Equity for Subscriptions Receivable.

Subsequent to June 30, 2020, the Company

issued an aggregate of 771,159 shares of common stock at prices between $0.96 - $1.65 per share for aggregate net proceeds of $745,000

received against advance notices submitted to the Investor under the SEDA, which consists of gross proceeds of $915,000 less $170,000

withheld by the Investor to pay down a portion of the Note.

See Note 11 Stockholders’

Deficiency –

Standby Equity Distribution

Agreement and Note 8 –

Note Payable.

New Note Purchase Agreement and Promissory

Company also entered into a Note Purchase Agreement, dated July 20, 2020, with the Investor, pursuant to which the Investor

purchased a full recourse promissory note (the “

July 2020 Note”) in the original principal amount of $2,500,000

(“July 2020 Principal Amount”).

In consideration for the issuance of the July 2020 Note by the Company, the

purchase price of the Note paid by the Investor was equal to the July 2020 Principal Amount minus an 8% commitment fee and

a $10,000 structuring fee.

July 2020 Note bears no interest and will become immediately due and payable on July 20, 2021 or upon acceleration,

redemption or otherwise upon the occurrence of an event of default, as set forth in the July 2020 Note.

The Company will repay

the July 2020 Principal Amount in monthly installments as set forth in the July 2020 Note.

The Company may, at its discretion,

prepay any installment amount or the principal amount, subject to a payment premium equal to the 10% of the amount being prepaid.

Company paid a financial advisor a $200,000 advisory fee in connection with the July 2020 Note Purchase Agreement and

Management’s Discussion and Analysis of Financial

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and analysis of the results of operations and financial condition of KULR Technology Group, Inc.

(the “Company”) as

of March 31, 2020 and for the three months ended March 31, 2020 and 2019 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 the Company’s audited financial statements and related disclosures as of

December 31, 2019 and for the year then ended, which are included in the Form 10-K filed with the Securities and Exchange Commission

(“SEC”) on May 14, 2020.

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.

This Management’s

Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking.

These statements

are based on current expectations and assumptions that are subject to risk, uncertainties and other factors.

These statements are

often identified by the use of words such as “may,”

(the “Company”)

as of June 30, 2020 and for the three and six months ended June 30, 2020 and 2019 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 the Company’s audited financial statements and related disclosures

as of December 31, 2019 and for the year then ended, which are included in the Form 10-K filed with the Securities and

Exchange Commission (“SEC”) on May 14, 2020.

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.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements

that are forward-looking.

These statements are based on current expectations and assumptions that are subject to risk, uncertainties

and other factors.

These statements are often identified by the use of words such as “may,”

“will,”

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or “continue,”

expressions or variations.

and similar expressions or variations.

Actual results could differ materially because of the factors discussed in “Risk Factors”

elsewhere in this Quarterly Report, in our other reports filed with the SEC, and other factors that we may not know.

KULR Technology Group,

Inc., through our wholly-owned subsidiary KULR Technology Corporation, develops and commercializes high-performance thermal management

technologies for batteries, electronics, and other components across an array of applications.

Currently, our main focus is a total

solution to battery safety by which we aim to mitigate the effects of thermal runaway propagation.

We also target and provide thermal

solutions for the following applications:

electric vehicles, cloud computing, 5G communication technologies, and energy storage

for commercial markets as well as directed energy weapons and high-power missile programs for aerospace and defense.

Our proprietary,

core technology is a carbon fiber material that provides what we believe to be superior thermal conductivity and heat dissipation

for an ultra-lightweight and pliable material.

By leveraging our proprietary cooling solutions that have been developed through

longstanding partnerships with NASA, the Jet Propulsion Lab and others, our products and services make commercial battery powered

products safer and electronics systems cooler and lighter.

KULR Technology Group, Inc.,

through our wholly-owned subsidiary KULR Technology Corporation, develops and commercializes high-performance thermal management

technologies for batteries, electronics, and other components across an array of battery-powered applications.

Currently, our main

focus is a total solution to battery safety by which we aim to mitigate the effects of thermal runaway propagation.

We also target

and provide thermal solutions for the following applications:

electric vehicles, cloud computing, 5G communication technologies,

and energy storage for commercial markets as well as directed energy weapons and high-power missile programs for aerospace and

Our proprietary core technology is a carbon fiber material that provides what we believe to be superior thermal conductivity

and heat dissipation for an ultra-lightweight and pliable material.

By leveraging our proprietary cooling solutions that have been

developed through longstanding partnerships with NASA, the Jet Propulsion Lab and others, our products and services make commercial

battery powered products safer and electronics systems cooler and lighter.

Battery safety technology

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in December 2019.

Our research and testing, as well as working alongside battery experts at NASA Johnson Space Center, has positioned

us for further advancements at the forefront of battery safety.

Our research and testing, as well as working alongside battery experts at NASA Johnson Space Center, has

positioned us for further advancements at the forefront of battery safety.

Hundreds of millions

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As part of our total

battery safety solution, we have designed a bag out of our TRS material to quench the flames and prevent the TR event.

battery safety solution, we have designed a bag out of our TRS material to suppress the flames and prevent the TR event.

placed, the TRS provides a means of protection not only from adjacent batteries but also outside fires of arbitrary origin.

at NASA’s Propulsion & Power Division found our TRS successful at extinguishing the fire generated by cells when they

intentionally triggered the batteries into dangerous failures.

Our TRS bag is currently being used on the International Space Station

(“ISS”) through a project with Leidos, for storing laptop batteries in order to reduce the risk of TR.

at NASA’s Propulsion & Power Division found our TRS successful at extinguishing the fire generated by cells when

they intentionally triggered the batteries into dangerous failures.

Our TRS bag is currently being used on the International Space

Station (“ISS”) through a project with Leidos, for storing laptop batteries in order to reduce the risk of TR.

Another key element

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that within commercial markets, aerospace and defense, and high-value applications, cell testing and screening has become a topic

Therefore, we plan to expand our capabilities to include full battery screening and testing as outlined by NASA Johnson

Therefore, we plan to expand our capabilities to include full battery analysis and testing as outlined by NASA Johnson

Space Center.

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and space missions and is another area in which our products excel.

Our carbon fiber velvets are used for thermal management in

missile defense programs and are particularly effective because of their survivability at very high temperatures.

Our carbon fiber solutions are used for thermal management

in missile defense programs and are particularly effective because of their survivability at very high temperatures.

They are also

very effective at transferring heat and mitigate the risk of overheating in such high-risk environments.

Historically we have

provided value to this sector and we look forward to further developing our relationships with Airforce Research Lab, Naval Research

Lab and prime contractors to market our solutions.

Historically we have provided

value to this sector and we look forward to further developing our relationships with Airforce Research Lab, Naval Research Lab

and prime contractors to market our solutions.

In addition to evolving

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require cooling.

management’s growth strategy has put particular focus on targeting E-Mobility applications for its core technology.

we are well-positioned to provide a broad range of E-mobility solutions, and intend to expand our business through internal growth

and acquisition.

In the case of potential acquisitions, we seek to acquire businesses in related markets that are synergistic to

our existing operations, technologies, and management experience.

This focus will highlight markets in which we can:

(1) integrate

our existing technology into the acquiree’s product offerings or simultaneously offer our products and services through the

acquiree’s customer base and channels;

(2) gain a leading market position and provide vertically integrated services where

we can secure economies of scale, premium market positioning, and operational synergies;

and/or (3) establish a leading position

in selected markets and channels of the acquiree through a joint broad-based, hi-tech, E-Mobility branding campaign.

We have developed

an acquisition discipline based on a set of financial, market and management criteria to evaluate opportunities.

To date, we have

evaluated two acquisition opportunities under such criteria and, together with the management of the potential target, determined

that the anticipated synergies would not be realized in the anticipated timetable.

If we were to successfully close an acquisition,

we would seek to integrate it while minimizing disruption to our existing operations and those of the acquired business, while

exploiting the technical and managerial synergies from integration.

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

profitability and expect to continue to incur cash outflows from operations, as a result, we will eventually need to generate significant

revenues to achieve profitability.

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Historically, we have been able to raise funds to support

our business operations, although there can be no assurance that we will be successful in raising additional funds in the future.

Furthermore, as described below, we remain focused on growing our operations in order to limit cash outflows and eventually achieve

our business operations, although there can be no assurance, even with the support of borrowing under the SEDA, that we will be

successful in raising additional funds in the future.

Furthermore, we remain focused on growing our operations and eventually achieving

profitability, although no assurances can be made that we will achieve such goals.

Recent Developments

In January 2020, an

outbreak of a new strain of coronavirus, COVID-19, was identified in Wuhan, China.

In January 2020,

an outbreak of a new strain of coronavirus, COVID-19, was identified in Wuhan, China.

Through the first quarter of 2020, the disease

became widespread around the world, and on March 11, 2020, the World Health Organization declared a pandemic.

Our business is dependent

on developing new markets and new products to be used on a global basis, thus restrictions on travel could lead to reduced demand

for our products and interruptions to supply chains.

is dependent on developing new markets and new products to be used on a global basis, thus restrictions on travel could lead to

reduced demand for our products and interruptions to supply chains.

Also, the local regulations such as “Shelter in Place”

our ability to maintain regular R&D and manufacturing schedules as well as the capability to meet customer demands in a timely

Given the uncertainty around the extent and timing of the potential future spread or mitigation of the Coronavirus and

around the imposition or relaxation of protective measures, we cannot reasonably estimate the impact to our future results of operations,

cash flows, or financial condition.

Decontamination Solutions

In response to the

unprecedented demand for solutions to combat the spread of COVID-19 (and other viruses) and in response to an opportunity that

arose out of the recognition of our technical and thermal expertise by our governmental clients, we recently explored the launch

of a suite of products that utilize a Hypochlorous-Acid based microbial decontamination liquid.

Although no assurance can be made

that we will be able to commercialize these decontamination products or that there will be demand for such products, we believe

that we are capable of producing or acquiring substantial quantities of the decontamination liquid to deploy in a suite of decontamination

delivery products and technology that we are actively developing.

In order to advance these efforts and to test the efficacy of

the decontamination liquid, we engaged an independent lab to test our solution, but we do not yet have any lab results.

Paycheck Protection Program Loan

On April 27, 2020,

the Company received approximately $155,000 of cash proceeds pursuant to an unsecured loan provided in connection with the Paycheck

Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act and applicable regulations

(“CARES Act”).

Under the terms of

the CARES Act, as amended by the Paycheck Protection Program Flexibility Act of 2020, the Company is eligible to apply for and

receive forgiveness for all or a portion of their respective PPP Loans.

Such forgiveness will be determined, subject to limitations,

based on the use of the loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to,

payroll costs (as defined under the PPP) and mortgage interest, rent or utility costs (collectively, “Qualifying Expenses”)

incurred during the 24 weeks subsequent to funding, and on the maintenance of employee and compensation levels, as defined, following

the funding of the PPP Loan.

The Company intends to use the proceeds of their PPP Loans for Qualifying Expenses.

However, no assurance

is provided KULR will be able to obtain forgiveness of the PPP Loans in whole or in part.

Any amounts not forgiven incur interest

at 1.0% per annum and monthly repayments of principal and interest are deferred until the Small Business Administration decides

on forgiveness.

While the Company’s PPP loans currently have a two-year maturity, the amended law will permit the Company

to request a five-year maturity.

will affect our ability to maintain regular R&D and manufacturing schedules as well as the capability to meet customer demands

in a timely manner.

Given the uncertainty around the extent and timing of the potential future spread or mitigation of the Coronavirus

and around the imposition or relaxation of protective measures, we cannot reasonably estimate the impact to our future results

of operations, cash flows, or financial condition.

On July 1, 2020, we

issued 35,000 shares of immediately vested common stock with a grant date value of approximately $25,000 related to legal services

Standby Equity Distribution Agreement,

On February 27, 2020,

we entered into a Standby Equity Distribution Agreement (“SEDA”) with YAII PN, Ltd., a Cayman Island exempt limited

partnership (“YAII”), pursuant to which the Company may, at its discretion, subject to certain conditions, sell to

YAII up to $8,000,000 of shares common stock.

For each share of common stock purchased under the SEDA (the “Shares”),

YAII will pay the Company 80% of the lowest daily volume weighted average price of the common stock on the OTC Markets OTCQB or

other principal market on which the common stock is traded for the five days immediately following the date the Company delivers

notice requiring YAII to purchase the Shares under the SEDA.

For each advance, the Company shall have delivered all shares relating

to all prior advances, and, unless waived by the Investor, at least 5 trading days shall have elapsed from the immediately preceding

advance date.

The Company agreed to issue, without receiving additional consideration, to YAII 95,847 shares of common stock as

commitment shares in consideration for entering into the SEDA.

Subsequent to the three

months ended March 31, 2020, we issued an aggregate of 421,197 shares of common stock at a price between $0.72 - $1.53 per share

for $526,000 of proceeds received against advance notices submitted to YAII under the SEDA.

Note Purchase Agreement and Promissory

Note Purchase Agreement, and Promissory Note

February 27, 2020, we entered into a Standby Equity Distribution Agreement (“SEDA”) with YAII PN, Ltd.,

a Cayman Island exempt limited partnership (“YAII”), pursuant to which the Company may, at its discretion,

subject to certain conditions, sell to YAII up to $8,000,000 of shares common stock.

For each share of common stock purchased

under the SEDA (the “Shares”), YAII will pay the Company 80% of the lowest daily volume weighted average price of

the common stock on the OTC Markets OTCQB or other principal market on which the common stock is traded for the five days

immediately following the date the Company delivers notice requiring YAII to purchase the Shares under the SEDA.

advance, the Company shall have delivered all shares relating to all prior advances, and, unless waived by YAII, at least 5

trading days shall have elapsed from the immediately preceding advance date.

The Company agreed to issue, without receiving

additional consideration, to YAII 95,847 shares of common stock as commitment shares in consideration for entering into the

Through June 30, 2020, the Company issued an aggregate of 561,564 shares of common stock at prices between $0.72 -

$1.62 per share for aggregate proceeds of $757,695 received against advance notices submitted to YAII under the SEDA, of

which $141,000 of the proceeds were applied directly against the note payable.

Please see Note 8 –

Note Payable for

more information.

The Company also entered

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installment amount or the principal amount, subject to a payment premium equal to the 10% of the amount being prepaid.

During the three months

ended March 31, 2020, the Company repaid $50,000 of the Principal Amount on the Note.

Subsequent to March 31, 2020, and pursuant

to the terms of the Note, we repaid an aggregate of $175,000 against the Principal Amount.

PPR Product License and Supply Agreement

- Americase’s Battery Bag

On April 13, 2020,

we announced that we entered into a license and supply agreement with Americase, LLC, granting a license for Americase’s

use of our passive propagation resistant (PPR) technology and agreeing to supply our PPR materials for Americase’s “Battery

On June 12, 2020, we

issued 30,000 shares of common stock that vest immediately with a grant date value of approximately $30,000 related to consulting

services provided.

Operating Lease Renewal

On June 15, 2020, we

entered into an agreement to extend the term of our original lease from June 30, 2020 to December 31, 2020.

Monthly rental payments

under the renewed lease total $5,107, which comprises of $4,552 of base rent plus $555 of association fees.

June 30, 2020, the Company repaid principal on the Note of $225,000.

Subsequent to June 30,

2020, the Company issued an aggregate of 771,159 shares of common stock at prices between $0.96 - $1.65 per share for aggregate

proceeds of $745,000 received against advance notices submitted to YAII under the SEDA, which consists of gross proceeds of $915,000

less $170,000 withheld by YAII to pay down a portion of the Note.

New Promissory Note Agreement

The Company also entered

into a Note Purchase Agreement, dated July 20, 2020, with YAII, pursuant to which YAII purchased a full recourse promissory

note (the “July 2020 Note”) in the original principal amount of $2,500,000 (“July 2020 Principal Amount”).

In consideration for the issuance of the July 2020 Note by the Company, the purchase price of the July 2020 Note paid

by YAII was equal to the July 2020 Principal Amount, minus an 8% commitment fee and a $10,000 structuring fee.

The July 2020

Note bears no interest and will become immediately due and payable on July 20, 2021 or upon acceleration, redemption or otherwise

upon the occurrence of an event of default, as set forth in the July 2020 Note.

The Company will repay the July 2020

Principal Amount in monthly installments as set forth in the July 2020 Note.

The Company may, at its discretion, prepay any

installment amount or the principal amount, subject to a payment premium equal to the 10% of the amount being prepaid.

The Company paid a

financial advisor a $200,000 advisory fee in connection with the July 2020 Note Purchase Agreement and Note.

On July 28, 2020, the

Patent and Trademark Office has issued patent No.

10727462 covering the Company’s thermal runaway shield technology.

On August 4, 2020,

Patent and Trademark Office has issued patent No.

10734302 covering the Company’s fiber thermal interface technology.

Results of Operations

Three Months Ended March 31, 2020

Compared With Three Months Ended March 31, 2019

Three Months Ended June 30,

2020 Compared With Three Months Ended June 30, 2019

Our revenues consisted

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For the Three Months Ended

For the Six Months Ended

Product sales

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For the three months

ended March 31, 2020 and 2019, we generated $77,500 and $194,952 of revenues, a decrease of $117,452, or 60%.

The decrease in product

shipments in 2019 was primarily due to the impact of COVID-19 related shut-downs by us, and by our clients, which restricted decisions

on the timing of shipments.

Because our service based revenue was not restricted by physical shipment issues, we were actually

able to increase service revenues.

Our revenues during

the three months ended March 31, 2020 and 2019 consisted of sales of our component product, CFV thermal management solution, ISC

battery cell products, as well as certain research and development contract services.

ended June 30, 2020 and 2019, we generated $201,128 and $56,310 of revenues, respectively, representing an increase of $144,818,

The increase in revenue was mainly due to a number of new customers who came on stream or ramped up their level of business

during the three months ended June 30, 2020.

We had sales transactions with 10 customers in the three months ended June 30,

2020 compared to 4 in the three months ended June 30, 2019, reflecting the Company’s ongoing efforts to build new customer

relationships over a growing pool of referrals and business development leads.

Typically, a customer relationship begins with service

projects to research customer problems and design relevant solutions, followed by product deliveries once the proposed solutions

are tested and accepted.

Our service revenues, which include certain research and development contracts and onsite engineering

services, were not hampered by restrictions arising from working under COVID-19 shelter-in-place regulations.

Product sales during

these periods included sales of our component product, CFV thermal management solution, and ISC battery cell products.

in product sales between the three months ended June 30, 2019 and June 30, 2020 was approximately 36%, not as high as

for services, due to a combination of limitations of physical product movements, and the early development stage of many of the

newer customers.

the six months ended June 30, 2020 and 2019, we generated $ 278,628 and $251,262 of revenues, from 14 and 13 customers,

respectively, representing an increase of $27,366, or 11%.

Revenue from product sales decreased by 55% compared to the six months

ended June 30, 2019, partly due to the result of physical shipment delays under the impact of the COVID-19 related shut downs,

and partly due to the timing of product orders from customers.

Product sales during these periods included sales of our component

product, CFV thermal management solution, and ISC battery cell products.

Revenue from services sales increased by 508% between

the six months ended June 30, 2019 and June 30, 2020 as a result of increased project requirements from some of the Company’s

new and existing customers.

Our service revenues, which include certain research and development contracts and onsite engineering

services, were not hampered by restrictions arising from working under COVID-19 shelter-in-place regulations.

Our customers and prospective

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For the three months

ended March 31, 2020 and 2019, cost of revenues was $25,926 and $61,517, respectively.

The decrease was primarily due to lower

sales of products.

We generated a gross

profit of $51,574 for the three months ended March 31, 2020 as compared to a gross profit of $133,435 for the three months ended

March 31, 2019, representing a decrease in gross profit of $81,861, or 61%.

The gross margin percentage was 67% and 68% for the

three months ended March 31, 2020 and 2019, respectively.

The decrease during the three months ended March 31, 2020 is attributable

to the change of product mix.

ended June 30, 2020 and 2019, cost of revenues was $41,413 and $28,550, respectively, an increase of $12,863, or 45%.

increase was primarily due to higher salaries paid during the three months ended June 30, 2020.

The gross margin percentage

was 79% and 49% for the three months ended June 30, 2020 and 2019, respectively.

The increase in margins during 2020 was primarily

due to an increase in sales of higher margin products as compared to the prior period as well as a result of a difference in product

mix between the comparable periods and sale of services to a major new customer.

For the six months

ended June 30, 2020 and 2019, cost of revenues was $67,339 and $90,067, respectively, a decrease of $22,728, or 25%.

was primarily due to a more favorable product mix being sold as compared to the prior period.

The gross margin percentage was 76%

and 64% for the six months ended June 30, 2020 and 2019, respectively.

The improvement in margins during 2020 was primarily

the result of both change in product mix and the sale of services to a major new customer.

Research and Development

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For the three months

ended March 31, 2020, R&D expenses decreased by $17,779 or 14%, to $129,492 from $113,192, for the three months ended March

The decrease is primarily due to $7,000 of patent costs and $8,000 of stock-based compensation.

We expect that our R&D expenses will increase as we expand our future operations.

ended June 30, 2020 and 2019, R&D expenses were $57,991 and $114,547, respectively, a decrease of $56,556 or 49%.

decrease is primarily due to reductions in salaries and other salary related costs, such as payroll taxes and other benefits, as

a result of COVID-19.

For the six months

ended June 30, 2020 and 2019, R&D expenses were $169,704 and $227,739, respectively, a decrease of $58,035 or 25%.

decrease is attributable to reductions in salaries and other salary related costs, such as payroll taxes and other benefits, implemented

during the end of the first quarter of 2020 due to COVID-19.

We expect that our

R&D expenses will increase as we expand our future operations.

Selling, General and Administrative

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administrative expenses consist primarily of travel, salaries, payroll taxes and other benefits, and rent expense.

For the three months

ended March 31, 2020, selling, general and administrative expenses decreased by $99,664 or 18%, to $469,527 from $569,191 for the

three months ended March 31, 2019.

The decrease is primarily due to an approximate $43,000 decrease in travel expenses, $29,000

decrease in rent expense due to the termination of an operating lease during the end of fourth quarter of 2019, and $20,000 decrease

in salaries and other benefits due to the salary cuts implemented during the end of the current quarter due to COVID-19.

Other Expense

the three months ended June 30, 2020 and 2019, selling, general and administrative expenses were $424,865 and $534,262, respectively,

a decrease of $109,397 or 20%.

The decrease is primarily due to a $24,000 decrease in rent expense due to the termination

of an operating lease during the end of the fourth quarter of 2019, a $115,000 decrease in contract labor, salaries and other benefits

due to the salary reductions implemented during the three months ended March 31, 2020 and a $44,000 decrease in travel expenses

due to decreased travel as a result of COVID-19, partially offset by an increase in stock-based compensation of $51,000 and marketing

expenses of $32,000.

For the six months

ended June 30, 2020 and 2019, selling, general and administrative expenses were $894,392 and $1,119,753, respectively, a decrease

of $225,361, or 20%.

The decrease is primarily due to a decrease of approximately $87,000 of travel expense resulting from decreased

travel due to COVID-19 restrictions, $86,000 of payroll and benefits due to salary reductions implemented as a result of COVID-19,

$53,000 of rent expense resulting from the termination of an operating lease in the fourth quarter of 2019, partially offset by

an increase of approximately $35,000 of stock-based compensation expense.

Other Expenses

For the three months

ended March 31, 2020, other expense increased by $20,142 to $20,587 from $445 for the three months ended March 31, 2019.

in other expense is primarily due to the amortization of debt discount related to the issuance of a note payable during the current

ended June 30, 2020 and 2019, other expense was $105,844 and $367, respectively, an increase of $105,477.

The increase in

other expense is primarily due to the amortization of debt discount related to the issuance of a note payable and the change in

fair value of accrued issuable equity during the current quarter.

For the six months

ended June 30, 2020 and 2019, other expense was $126,431 and $812, respectively, an increase of $125,619.

The increase in

other expense is primarily due to the amortization of debt discount related to the issuance of a note payable and the change in

fair value of accrued issuable equity during the current quarter.

Liquidity and Capital Resources

As of March 31, 2020

As of June 30,

2020 and December 31, 2019, we had cash balances of $767,906 and $108,857, respectively, and working capital deficits of $931,889

and $824,481, respectively.

For the three months

ended March 31, 2020 and 2019, cash used in operating activities was $698,110 and $286,420, respectively.

Our cash used in operations

for the three months ended March 31, 2020 was primarily attributable to our net loss of $550,253, adjusted for non-cash expenses

in the aggregate amount of $32,826, and $180,683 of net cash used in the levels of operating assets and liabilities.

Our cash used

in operations for the three months ended March 31, 2019 was primarily attributable to our net loss of $565,693, adjusted for non-cash

expenses in the aggregate amount of $51,030, partially offset by $228,243 of net cash provided by changes in the levels of operating

assets and liabilities.

There were no cash

flows from investing activities for the three months ended March 31, 2020 and 2019.

For the three months

ended March 31, 2020 and 2019, cash provided by financing activities was $1,223,401 and $155,000, respectively.

For the six months

ended June 30, 2020 and 2019, cash used in operating activities was $1,267,427 and $968,882, respectively.

Our cash used in

operations for the six months ended June 30, 2020 was primarily attributable to our net loss of $979,238, adjusted for non-cash

expenses in the aggregate amount of $223,994, and $512,183 of net cash used to find changes in the levels of operating assets and

Our cash used in operations for the six months ended June 30, 2019 was primarily attributable to our net loss

of $1,187,109, adjusted for non-cash expenses in the aggregate amount of $99,234, partially offset by $118,993 of net cash provided

by changes in the levels of operating assets and liabilities.

For the six months

ended June 30, 2020 and 2019, cash used in investing activities was $30,000 and $0, respectively.

Cash used in investing activities

during the six months ended June 30, 2020 was due to purchases of equipment.

For the six months

ended June 30, 2020 and 2019, cash provided by financing activities was $1,956,476 and $883,300, respectively.

Our cash provided

by financing activities for the three months ended March 31, 2020 was due to $1,410,000 of net proceeds from the issuance of a

note payable, offset by the payment of debt issuance costs and a debt repayment.

The cash provided from financing activities during

the three months ended March 31, 2019 was proceeds from the sale of common stock.

We have not yet achieved

profitability and expect to continue to incur cash outflows from operations.

It is expected that our research and development and

general and administrative expenses will continue to increase and, as a result, we will eventually need to generate significant

revenues and/or raise additional capital to fund our operations.

Further, as of March 31, 2020, there is outstanding debt principal

in the amount of $1,450,000 which matures on May 31, 2021.

In January 2020, an

outbreak of a new strain of coronavirus, COVID-19, was identified in Wuhan, China.

by financing activities for the six months ended June 30, 2020 was due to $1,410,000 of net proceeds from the issuance of

a note payable, $155,226 of proceeds from the Paycheck Protection Program loan, and $616,695 of net proceeds from the sale of common

These amounts were partially offset by $130,000 for the payment of debt issuance costs, $84,000 for the repayments on notes

and $15,000 of cash paid in offering costs.

Cash provided by financing activities during the six months ended June 30, 2019

consisted of $898,300 of proceeds from the sale of common stock offset by $15,000 cash paid for offering costs.

In January 2020,

an outbreak of a new strain of coronavirus, COVID-19, was identified in Wuhan, China.

Through the first quarter of 2020, the disease

became widespread around the world, and on March 11, 2020, the World Health Organization declared a pandemic.

Our business is dependent

on developing new markets and new products to be used on a global basis, thus restrictions on travel could lead to reduced demand

for our products and interruptions to supply chains.

is dependent on developing new markets and new products to be used on a global basis, thus restrictions on travel could lead to

reduced demand for our products and interruptions to supply chains.

Also, the local regulations such as “Shelter in Place”

our ability to maintain regular R&D and manufacturing schedules as well as the capability to meet customer demands in a timely

Given the uncertainty around the extent and timing of the potential future spread or mitigation of the Coronavirus and

around the imposition or relaxation of protective measures, we cannot reasonably estimate the impact to our future results of operations,

cash flows, or financial condition.

will affect our ability to maintain regular R&D and manufacturing schedules as well as the capability to meet customer demands

in a timely manner.

Given the uncertainty around the extent and timing of the potential future spread or mitigation of the Coronavirus

and around the imposition or relaxation of protective measures, we cannot reasonably estimate the impact to our future results

of operations, cash flows, or financial condition.

Effective February 27,

27, 2020, the Company entered into a twenty-four month Standby Equity Distribution Agreement (“SEDA”) with an Investor,

pursuant to which the Company may, at its discretion, sell to up to an aggregate of $8,000,000 (subject to the Investor’s

approval for amounts over $100,000) of shares of the Company’s common stock at a price equal to Company 80% of the lowest

daily volume weighted average price for the five days immediately following the date the Company delivers notice requiring the

Investor to purchase the shares under the SEDA.

For each advance, the Company shall have delivered all shares relating to all prior

advances, and, unless waived by the Investor, at least 5 trading days shall have elapsed from the immediately preceding advance

See Note 9 –

2020, the Company entered into a twenty-four month Standby Equity Distribution Agreement (“SEDA”) with YAII, pursuant

to which the Company may, at its discretion, sell to up to an aggregate of $8,000,000 (subject to YAII’s approval for amounts

over $100,000) of shares of the Company’s common stock at a price equal to Company 80% of the lowest daily volume weighted

average price for the five days immediately following the date the Company delivers notice requiring YAII to purchase the shares

under the SEDA.

For each advance, the Company shall have delivered all shares relating to all prior advances, and, unless waived

by YAII, at least 5 trading days shall have elapsed from the immediately preceding advance date.

Through June 30, 2020, we issued

an aggregate of 561,564 shares of common stock at prices between $0.72 - $1.62 per share for aggregate proceeds of $757,695 received

against advance notices submitted to YAII under the SEDA, of which $141,000 of the proceeds were applied directly against the note

payable (see Note 9 –

Stockholder Deficiency for additional details).

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received, a loan of $155,000 under the government Small Business Administration (“SBA”) sponsored Payroll Protection

Program (“PPP”) to support continuing employment during the COVID-19 pandemic (see Note 11 –

Subsequent Events).

The Company currently

has $8,000,000 available in connection with the SEDA, in order to fund its ongoing operations;

however, there can be no assurance

that the Company will be able to continue sell common shares pursuant to the SEDA at an acceptable price, or without causing undue

dilution to existing investors beyond what the Company sold subsequent to March 31, 2020.

Further, there is also no assurance that

the Company will be able to continue to obtain additional 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.

management believes that we have access to capital resources through the SEDA or other sources, 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 and capital expenditures.

The conditions outlined above indicate that there is

substantial doubt about our ability to continue as a going concern within one year after the financial statement issuance

Program (“PPP”) to support continuing employment during the COVID-19 pandemic.

As of June 30, 2020,

we had approximately $7,242,300 available in connection with the SEDA, in order to fund our ongoing operations;

however, there

can be no assurance that we will be able to continue sell common shares pursuant to the SEDA at an acceptable price, or without

causing undue dilution to our existing investors.

Subsequent to June 30, 2020, we issued an aggregate of 771,159 shares of common

stock at prices between $0.96 - $1.65 per share for aggregate proceeds of $745,000 received against advance notices submitted to

YAII under the SEDA, which consists of gross proceeds of $915,000 less $170,000 withheld by YAII to pay down a portion of the Note.

During July 2020, we

also received net proceeds of $2,090,000 pursuant to a Note Purchase Agreement with YAII (the “July 2020 Note”).

July 2020 Note bears no interest, matures on July 20, 2021, and will be paid in monthly installments through the maturity date.

We have not yet achieved

profitability and expect to continue to incur cash outflows from operations.

It is expected that our research and development and

general and administrative expenses will continue to increase and, as a result, we will eventually need to generate significant

revenues and/or raise additional capital to fund our operations.

Although our management believes that we have access to capital

resources through the SEDA or other sources, 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 and capital expenditures.

The conditions

outlined above indicate that there is substantial doubt about our ability to continue as a going concern within one year after

the financial statement issuance date.

Our unaudited 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 going concern and the realization of assets and satisfaction of liabilities in the normal course of business.

amounts of assets and liabilities presented in the consolidated financial statements do not necessarily purport to represent realizable

or settlement values.

The unaudited condensed consolidated financial statements do not include any adjustment that might result

from the outcome of this uncertainty.

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 going 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 unaudited condensed consolidated financial statements do not necessarily

purport to represent realizable or settlement values.

The unaudited condensed consolidated financial statements do not include

any adjustment that might result from the outcome of this uncertainty.

Off-Balance Sheet Arrangements

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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.

Quantitative and Qualitative Disclosures About

Summary of Significant Accounting Policies in Part 1, Item 1 of

this Quarterly Report on Form 10-Q.

Quantitative and Qualitative Disclosures About Market

The Company is a smaller

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements