What changed in this filing

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Item 1. Financial Statements

2020-11-13 compared with 2020-08-14 · 656 added, 567 removed, 505 unchanged (71% of the section changed)

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CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

Current Assets:

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Accrued expenses and other current liabilities - related party

Accrued issuable equity

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

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

Accrued issuable equity, current portion

Notes payable, net of debt discount of $312,687 and $0 at September 30, 2020 and December 31, 2019, respectively

Loans payable, current portion

Line of credit

Deferred revenue

Total Current Liabilities

Accrued issuable equity, non-current portion

Loans payable, non-current portion

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

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

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

13,972 and 14,487 shares issued and outstanding and liquidation preference

of $13,972 and $14,487 at September 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 June 30, 2020 and December 31, 2019

18.90 and 24.01 shares issued and outstanding and liquidation preference of

$189,000 and $240,100 at September 30, 2020 and December 31, 2019

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

83,036,226 and 81,071,831 shares issued and outstanding

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

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

Shares to be issued, common stock;

31,250 and 0 shares at September 30, 2020 and

December 31, 2020, respectively

Additional paid-in capital

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Total Liabilities and Stockholders' Deficiency

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.

CONDENSED CONSOLIDATED STATEMENTS OF

For the Three Months Ended

For the Six Months Ended

For the Three Month s Ended

For the Nine Month s Ended

September 30,

Cost of revenue

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$ (1,012,259 )

$ (1,991,497 )

$ (1,454,643 )

Net Loss Per Share

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- 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.

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CHANGES IN STOCKHOLDERS’

THE SIX MONTHS ENDED JUNE 30, 2020

THE NINE MONTHS ENDED SEPTEMBER 30, 2020

B Convertible

C Convertible

Stockholders'

Balance - January 1,

- January 1, 2020

$ (8,396,312 )

Stock-based compensation:

Common stock issued for

the commitment fee pursuant to the SEDA agreement

Balance - March 31, 2020

compensation:

stock issued for the commitment

fee pursuant to the SEDA agreement

- March 31, 2020

$ (8,946,565 )

$ (1,273,431 )

Stock-based compensation:

Common stock issued pursuant

to the SEDA agreement [1]

Balance - June 30,

compensation:

stock issued pursuant to the

SEDA agreement [1]

- June 30, 2020

$ (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

compensation:

stock issued pursuant to

the SEDA agreement

stock to be issued pursuant to

the SEDA agreement

stock issued upon conversion of

B Convertible Preferred Stock

stock issued upon conversion of

C Convertible Preferred Stock

- September 30, 2020

$ (10,387,809 )

[1] Amount represents gross

proceeds of $757,695 less $78,258 of deferred offering costs.

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

KULR TECHNOLOGY GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

CHANGES IN STOCKHOLDERS’

DEFICIENCY, CONTINUED

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019

Series B Convertible

Series C Convertible

Preferred Stock

Stockholders'

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Stock-based compensation

Common stock issued for

Common stock issued for cash

Balance - March 31, 2019

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Stock-based compensation

Common stock issued for

Common stock issued for cash

Balance - June 30, 2019

$ (7,603,668 )

Stock-based compensation

Common stock issued upon conversion of Series B Convertible Preferred Stock

Series C Convertible Preferred Stock and warrants

issued for cash, net of issuance costs [1]

Forgiveness of accrued expenses by

related party

Balance - September 30, 2019

$ (7,871,202 )

gross proceeds of $186,000, less cash issuance costs of $47,000.

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

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CONDENSED CONSOLIDATED STATEMENTS OF

For the Six Months Ended

For the Nine Months Ended

September 30,

Cash Flows From Operating Activities:

$ (1,991,497 )

$ (1,454,643 )

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

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Prepaid expenses and other current assets

Deferred expenses

Accounts payable

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Proceeds from Paycheck Protection Program loan

Proceeds (repayments) on line of credit, net

Proceeds from sale of Series C Convertible Preferred Stock and warrants

Proceeds from sale of common stock [1]

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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.

[1] For the nine months ended September 30, 2020, the amount represents

gross proceeds of $2,152,695 less $691,000 withheld by the investor to pay down a portion of the note payable held by the same

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

KULR TECHNOLOGY GROUP, INC.

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CASH FLOWS, CONTINUED

For the Six Months Ended

For the Nine Months Ended

September 30,

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 SEDA agreement

Deferred offering costs charged to equity

Original issuance discount on note payable

Accrual of offering costs

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.

Common stock issued upon conversion of Series B Convertible Preferred Stock

Common stock issued upon conversion of Series C Convertible Preferred Stock

Deferred offering costs reclassified to equity

Forgiveness of accrued expenses by related party

Original issuance discount on note payable

Subscriptions

receivable for shares to be issued

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

The 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

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or the “Company”),

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”);

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.

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 both, high performance aerospace and Department of Defense

(“DOD”) applications, such as satellite communications, directed energy system and hypersonic vehicle, and applying

them to mass market commercial applications, such as lithium-ion battery energy storage, electrical vehicle, 5G communications,

cloud computer infrastructure, consumer and industrial devices.

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 S-X.

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

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

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

GAAP for annual financial statements.

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

necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of September 30,

2020 and for the three and nine months ended September 30, 2020 and 2019.

The results of operations for the three and nine months

ended September 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.

NOTE 2 GOING CONCERN AND MANAGEMENT’S PLANS

The Company has not yet achieved profitability

and expects to continue to incur cash outflows from operations.

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

As of September 30, 2020, the Company had cash of $2,809,656 and

a working capital deficit of $404,561.

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

For the nine months ended September 30, 2020 and 2019, the Company incurred net losses of

$1,991,497 and $1,454,643, respectively, and used cash in operations of $2,076,035 and $1,206,135, 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

It is expected

that 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.

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

principal outstanding on notes payable in the amount of $3,150,000 which mature between May 31 and July 20, 2021 and $155,226 of

principal outstanding pursuant to the PPP loan agreement that matures in April 2022.

In January 2020, an outbreak of a

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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.

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”

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.

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.

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 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 (see Note 11 –

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

Additionally, the Company applied for, and in April 2020, received, a loan of $155,226 under the government Small

Business Administration (“SBA”) sponsored Payroll Protection Program (“PPP”) to support continuing employment

during the COVID-19 pandemic.

As of September 30, 2020, the Company had

approximately $5,847,300 available in connection with the SEDA, subject to certain conditions, in order to fund its ongoing operations;

however, 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.

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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

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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 accounts.

The Company has not experienced any losses in such

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 $517,906 as of June 30, 2020 and no uninsured cash

There was an uninsured balance of $2,559,656 as of September 30, 2020 and no uninsured cash

balances as of December 31, 2019.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL

NOTE 3 SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES –

Concentrations of Credit Risk –

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

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Customer and Revenue Concentrations

The Company had certain customers whose

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

represented 10% or more of the Company’s total accounts receivable, as follows:

Accounts Receivable

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30, 2020

December 31, 2019

All other customers

* Less than 10%

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.

Vendor Concentrations

Vendor concentrations are as follows:

As of September 30, 2020 and December 31,

2019, certain vendors represented 10% or more of the Company’s total accounts payable, as follows:

Accounts Payable

June 30, 2020

September 30, 2020

December 31, 2019

All other vendors

* Less than 10%

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL

NOTE 3 SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES –

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.

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

Recognize revenue when the company satisfies a performance obligation.

The Company recognizes

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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.

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.

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.

Revenue is recognized at the point in time that the Company

satisfies its performance obligation under the contract, which is generally at the time the services are fulfilled and/or accepted

by the customer.

The following table summarizes the revenue

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For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

Product sales

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Total revenue

As of June 30, 2020 and December 31,

As of September 30, 2020, and December 31,

2019, the Company had $36,600 and $15,000, respectively, of deferred revenue, from contracts with customers.

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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.

or the customers have not officially accepted the goods or services provided under the contract.

During the nine months ended September

30, 2020, the Company recognized $15,000 of revenues that were included in deferred revenue as of December 31, 2019.

KULR TECHNOLOGY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

NOTE 3 SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES –

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING

POLICIES - CONTINUED

Sequencing Policy

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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.

Pursuant to ASC 815, issuances of securities as compensation in a share-based payment arrangement are not subject to the sequencing

Net Loss Per Common Share

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per common share is computed by dividing net loss by the weighted average number of common shares outstanding, plus the impact

of common share, if dilutive, resulting from the exercise of outstanding stock options and warrants and the conversion of convertible

of common shares, if dilutive, resulting from the exercise of outstanding stock options and warrants and the conversion of convertible

The following shares were excluded from

the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:

For the Three Months Ended

For the Six Months Ended

September 30,

Series B Convertible Preferred Stock

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results of operations or loss per share.

NOTE 4 PREPAID

As of June 30, 2020 and December 31,

NOTE 4 PREPAID EXPENSES

As of September 30, 2020, and December 31,

2019, prepaid expenses consisted of the following:

Professional fees

September 30,

Security deposit

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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:

NOTE 5 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

As of September 30, 2020 and December 31, 2019, accrued

expenses and other current liabilities consisted of the following:

September 30,

Payroll and vacation

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Related Party Transactions

for more information on accrued expenses –

for additional information on accrued expenses –

related party.

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

NOTE 6 ACCRUED ISSUABLE EQUITY

As of September 30, 2020, accrued issuable

equity consists of the following:

September 30,

Accrued issuable equity for services, current portion

Accrued issuable equity for services, non-current portion

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 –

During the three and nine months ended

September 30, 2020, the Company agreed to issue an aggregate of 113,453 and 136,786 shares of common stock to certain consultants

in exchange for services valued at $147,977 and $164,577, respectively.

The shares have not been issued as of September 30, 2020.

The fair value of the accrued but unissued shares as of September 30, 2020 was $183,530.

During the three and nine months ended

September 30, 2020 the Company recorded $9,947 and ($15,853), respectively, of gains (losses) related to the change in fair value

of accrued issuable equity (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 June 30, 2020, the outstanding aggregate principal

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

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 June 30, 2020.

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

NOTE 7 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.

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 September 30, 2020, the outstanding aggregate principal amount on the Line of Credit was

$0 During the three and nine months ended September 30, 2020, the Company recorded interest expense of $114 and $2,292, respectively,

related to the Line of Credit.

There was no accrued interest related to the Line of Credit as of September 30, 2020.

The outstanding

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

NOTE 8 NOTES PAYABLE

On February 27, 2020, the Company

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$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 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 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

KULR TECHNOLOGY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

NOTE 8 NOTES PAYABLE

The Note bears no coupon interest (original

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Stockholders’

Deficiency –

Standby Equity Distribution

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.

Deficiency, Standby Equity Distribution Agreement ).

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 three and nine months ended

September 30, 2020, the Company repaid principal on the Note of $250,000 and $475,000, respectively (of which $250,000 and

$391,000, respectively, was repaid from proceeds from the SEDA).

As of September 30, 2020, the outstanding aggregate principal

balance of the Note was $1,025,000.

During the three and nine months ended September 30, 2020, the Company recognized amortization

of debt discount of $53,709 and $150,620, respectively, related to the Note.

Please see Note 13 –

Subsequent Events for additional information regarding

further repayments of the Note.

Subsequent Events

for additional information regarding further repayments of the Note.

New Note Purchase Agreement and Promissory

The 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”)

for cash proceeds of $2,300,000.

The July 2020 Note included an original issue discount of $200,000, which represents the difference

between the principal and proceeds received.

The original issue discount, along with the $200,000 advisory fee were recorded as

a debt discount, which is being amortized over the term of the July 2020 Note using the effective interest rate method.

The July 2020 Note bears no interest

(original issuance discount only) 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.

pursuant to the terms of the July 2020 Note, the Company may decrease any installment payment by up to 50%, of which the decreased

amount is added to the final installment due on the maturity date.

The Company elected to decrease the monthly

installment payments due during May and August 2020 by an aggregate of $225,000.

The decrease of $225,000 will be added to the

final monthly installment on July 20, 2021.

During the three and nine months ended

September 30, 2020, the Company repaid principal on the July 2020 Note of $375,000 (of which $300,000 was repaid from proceeds

from the SEDA).

As of September 30, 2020, the outstanding aggregate principal balance of the July 2020 Note was $2,125,000.

During the three and nine months ended September 30, 2020, the Company recognized amortization of debt discount of $156,693

related to the July 2020 Note.

See Note 13 –

Subsequent Events for additional information regarding further repayments

KULR TECHNOLOGY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

NOTE 9 LOAN PAYABLE

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”).

$155,226 of cash proceeds pursuant to an unsecured loan (the “PPP”

Loan) provided in connection with the Paycheck Protection

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

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.

or a portion of the PPP Loan.

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.

Company intends to use the proceeds of the PPP Loan for Qualifying Expenses.

However, no assurance is provided that KULR will be

able to obtain forgiveness of the PPP Loan 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 Loan currently has 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 nine months ended September 30, 2020, the Company recognized interest

expense of $387 and $659 respectively in connection with the PPP Loan.

As of September 30, 2020, and December 31, 2019, the

Company’s accrued interest related to the PPP Loan was $659 and $0, respectively.

NOTE 10 RELATED

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related party

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

consists of a liability of $3,454 and $4,253 as of September 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 –

in connection with consulting services provided to the Company associated with the development of the Company’s carbon fiber

velvet (“CFV”) thermal management solutions in prior periods.

During the three and nine months ended September 30,

2020, the Company paid $168 and $799, respectively, of certain bills on behalf of ESLI, which reduced the liability owed to ESLI.

Accrued Expenses and Other Current Liabilities

Related Party

Accrued expenses and other current liabilities

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

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

to Energy Science Laboratories, Inc.

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the Shares under the SEDA is subject to certain conditions, including the Company maintaining the effectiveness of a registration

statement for the securities sold under the SEDA, and subject to the Investor’s approval for amounts over $100,000.

the Company may not request advances if the Shares to be issued would result in the Investor owning more than 4.99% of the Company’s

outstanding Common Stock, with any such request being automatically modified to reduce the advance amount.

The Company shall not

be able to request advances under the SEDA if the Registration Statement is not effective or if any issuances of Common Stock pursuant

to any Advances would violate any rules.

statement for the securities sold under the SEDA, and is subject to the Investor’s approval for amounts over $100,000.

addition, the Company may not request advances if the Shares to be issued would result in the Investor owning more than 4.99% of

the Company’s outstanding Common Stock, with any such request being automatically modified to reduce the advance amount.

The Company shall not be able to request advances under the SEDA if the Registration Statement is not effective or if any issuances

of Common Stock pursuant to any Advances would violate any rules.

The commitment period under the SEDA commenced

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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

Notes Payable).

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.

The Company paid cash of $15,000 and issued

to the Investor 95,847 shares of Common Stock to the Investor and as consideration for entering into the SEDA.

The shares of common

stock issued to the Investor had an issuance date fair value of $63,259.

The aggregate consideration of $78,259 was recorded as

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

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 –

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.

95,847 shares of Common Stock to the Investor as consideration for entering into the SEDA.

The shares of common stock issued to

the Investor had an issuance date fair value of $63,259.

The aggregate consideration of $78,259 was recorded as deferred offering

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

During the three and nine months ended September

30, 2020, the Company recorded $0 and $78,259, respectively, of expense related to the amortization of deferred offering costs.

During the three and nine months ended

September 30, 2020 the Company issued an aggregate of 1,159,449 and 1,721,013 shares of common stock, at prices between $0.73 -

$1.62 and $0.72 - $1.65 per share, for aggregate proceeds of $1,395,000 and $2,152,696, respectively, in connection with notices

submitted to the Investor under the SEDA, of which $550,000 and $691,000 of the proceeds, respectively, were applied directly against

the Notes (see Note 8 –

Notes Payable).

See Note 11 –

Accrued Issuable Equity.

Please see Note 13 –

Subsequent Events

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

Stockholders’

Deficiency - Shares To Be Issued for additional information.

See Note 13 –

Subsequent Events for

additional information regarding the sale of SEDA shares subsequent to September 30, 2020.

KULR TECHNOLOGY GROUP, INC.

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DEFICIENCY - CONTINUED

Series B Convertible Preferred Stock

During the three and nine months ended

September 30, 2020, a holder of 515 shares of Series B Convertible Preferred Stock elected to convert their shares into 25,758

shares of restricted common stock.

Series C Convertible Preferred Stock

During the three and nine months ended

September 30, 2020, certain holders of 5.11 shares of Series C Convertible Preferred stock elected to convert their shares into

an aggregate of 56,777 shares of restricted common stock.

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.

During the three and nine months ended

September 30, 2020, the Company issued an aggregate of 35,000 and 65,000 shares of immediately vested common stock with a grant

date value of $25,000 and $55,000, respectively, for legal and consulting services provided.

During the three and nine months

ended September 30, 2019, the Company issued 160,966 and 185,966 shares of immediately vested common stock with a grant date value

of $117,160 and $133,660, respectively, for legal and consulting services provided.

Stock Options

12 unchanged sentences

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

During the three and nine months ended

September 30, 2020, the Company recognized stock-based compensation expense of $158,014 and $252,831, respectively, related to

restricted common stock and stock options, of which $7,424 and $22,961, respectively, was charged to research and development expense

and $150,590 and $229,870, respectively, was charged to general and administrative expense.

As of September 30, 2020, there was

$66,290 of unrecognized stock-based compensation expense that will be recognized over the weighted average remaining vesting period

of 1.77 years.

During the three and nine months ended

September 30, 2019, the Company recognized stock-based compensation expense of $138,640 and $231,751 (which includes the issuance

of 185,966 shares common stock for $133,660 of services provided as described above), 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.

KULR TECHNOLOGY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

NOTE 11 STOCKHOLDERS’

DEFICIENCY - CONTINUED

Stock-Based Compensation - Continued

Stock-Based Compensation Expense, Continued

The following table presents information

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

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

For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

Common stock (issued)

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Accrued issuable equity (common stock)

Accrued issuable equity (warrants)

NOTE 12 COMMITMENTS AND

CONTINGENCIES

Shares To Be Issued

On September 28, 2020, the Company delivered

a notice requiring the Investor to purchase 31,250 of shares under the SEDA, at $1.28 price per share, which was 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.

The shares were subsequently settled on October 1, 2020 for $40,000 of gross proceeds (see Note

Subsequent Events).

Consulting Agreement

On September 30, 2020, the Company entered

into a 2-year consulting agreement with a contractor to provide services as an Advisory Board Member related to government and

defense acquisitions in exchange for 60,000 shares of restricted common stock.

Pursuant to the consulting agreement, the shares

are subject to the Company’s claw back, based upon the achievement of certain performance obligations.

As of September 30,

2020, the required performance obligations have not been identified, and the restricted common shares were issued on or about November

NOTE 12 COMMITMENTS AND CONTINGENCIES

Operating Lease

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

lease and determined that the short-term exemption available under ASC 842 applies since the lease term is less than 12 months

and the lease does not include a purchase option whose exercise is reasonably certain.

Since the short-term exemption applies,

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

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

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

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 nine months ended September 30, 2020, operating lease expense was $15,616 and $56,414, respectively.

three and nine months ended September 30, 2019, operating lease expense was $41,281 and $121,769, respectively.

The Company evaluated

their operating lease and determined that the short-term exemption available under ASC 842 applies since the lease term is less

than 12 months and the lease does not include a purchase option whose exercise is reasonably certain.

Since the short-term exemption

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

KULR TECHNOLOGY

AND SUBSIDIARY

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 SUBSEQUENT EVENTS

Standby Equity Distribution Agreement and Repayments of the

Notes Payable

Subsequent to September 30, 2020, the Company

received cash of $40,000 in satisfaction of subscriptions receivable as of September 30, 2020 and the Company issued 31,250 shares

of common stock pursuant to the SEDA (see Note 6 –

Accrued Issuable Equity, Accrued Issuable Equity for Subscriptions

Receivable and Note 10 –

Stockholders’

Subsequent to September 30, 2020, the Company

issued an aggregate of 89,285 shares of additional common stock at a price of $1.12 per share pursuant to new advance notices submitted

to the Investor under the SEDA.

The entire proceeds of $100,000 were withheld by YAII to pay down a portion of the Notes (see Note

Stockholders’

Deficiency, Standby Equity Distribution Agreement and Note 8 –

Notes Payable).

Subsequent to September 30, 2020, the Company

made cash payments totaling $250,000 to pay down a portion of the Notes.

Subsequent to September 30, 2020, the Company

issued 76,453 shares of restricted common stock in satisfaction of $100,000 of accrued issuable equity, pursuant to a services

Management’s Discussion and Analysis of Financial

3 unchanged sentences

(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

as of September 30, 2020 and for the three and nine months ended September 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.

25 unchanged sentences

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

is becoming increasingly vital to our world in which battery-operated devices are everywhere.

Lithium ion (“Li-ion”)

batteries are widely used in consumer electronics, aerospace, marine and automotive applications.

In recent months, KULR has developed

a total battery safety solution for its customers that spans a wide array of industries and applications.

KULR has seen great success

in using our patented thermal runaway shield (“TRS”) technology to prevent cell to cell thermal runaway propagation

as well as module to module propagation.

We have designed a total solution for customers from the design stages incorporating our

materials all the way to testing their passive propagation resistant (“PPR”) battery packs.

We are flexible and can

work with different battery pack configurations across various industries.

We developed a PPR reference design for CubeSat battery

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.

For aerospace and

DOD applications, our solutions target high performance applications in direct energy, hypersonic vehicles and satellite communications.

For commercial applications, our main focus is a total solution to battery safety by which we aim to mitigate the effects of thermal

runaway propagation.

This total battery safety solution can be used for electric vehicles, energy storage, battery recycling transportation,

cloud computing and 5G communication devices.

Our proprietary core technology is a carbon fiber material that provides what we

believe to be superior thermal conductivity and heat dissipation for an ultra-lightweight and pliable material.

By leveraging our

proprietary cooling solutions that have been developed through longstanding partnerships with NASA, the Jet Propulsion Lab and

others, our products and services make commercial battery powered products safer and electronics systems cooler and lighter.

KULR’s business

model continues to evolve from being a component supply, to providing more design and testing services to our customers.

step of evolution is to provide total system solution to address market needs.

To scale up as a systems provider more quickly and

efficiently in the directed energy, hypersonic vehicle thermal systems, energy storage and lithium-ion battery recycling markets,

KULR will actively seek partners for joint venture, technology licensing and other strategic partnership models.

The goal is to

leverage the Company’s thermal design technology expertise to create market leading products, which KULR will take to market

directly to capture more value for KULR shareholders.

Our management expects high priority and growth in the aerospace

and defense sectors, specifically in regard to directed energy, hypersonic weapon programs, and space missions.

Directed energy

is currently in the spotlight as experts predict it will greatly impact the future of warfare.

Our CRUX cathode generates powerful

electron pulses by field emission from the tops of our carbon fiber coating which has the potential to further develop the current

Thermal management is another critical component of both hypersonic weapons programs and space missions and is another

area in which our products excel.

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

expect to further develop our relationships with Airforce Research Lab, Naval Research Lab and prime contractors to market our

Battery safety technology is becoming increasingly vital to

our world in which battery-operated devices are everywhere.

Lithium ion (“Li-ion”) batteries are widely used in consumer

electronics, aerospace, marine and automotive applications.

In recent months, KULR has developed a total battery safety solution

for its customers that spans a wide array of industries and applications.

KULR has seen great success in using our patented thermal

runaway shield (“TRS”) technology to prevent cell to cell thermal runaway propagation as well as module to module propagation.

We have designed a total solution for customers from the design stages incorporating our materials all the way to testing their

passive propagation resistant (“PPR”) battery packs.

We are flexible and can work with different battery pack configurations

across various industries.

We developed a PPR reference design for CubeSat battery in December 2019.

Based on this reference

design platform, we were awarded a dual-used technology development agreement from NASA’s Marshall Space Flight Center to

build 3D printed battery systems for manned and robotic space applications in August 2020.

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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bodies to mitigate the dangers of battery fires and TR, we plan to further develop our capabilities in this arena.

Our management projects

high priority and growth in the aerospace and defense sectors, specifically in regard to directed energy, hypersonic weapon programs,

and space missions.

Directed energy is currently in the spotlight as experts predict it will greatly impact the future of warfare.

Our CRUX cathode generates powerful electron pulses by field emission from the tops of our carbon fiber coating which has the potential

to further develop the current technology.

Thermal management is another critical component of both hypersonic weapons programs

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

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.

In addition to evolving

demands led by aerospace and defense, we have observed trending manufacturer-led opportunities in industries such as electric motor

vehicles (“EV”) that have become increasingly more reliant on the Cloud, portability and high-demand processing power.

KULR’s high performance thermal interface materials can be used to accelerate 5G communications development due to our material’s

core properties:

In addition to evolving demands led by aerospace

and defense, we have observed trending manufacturer-led opportunities in industries such as electric motor vehicles (“EV”)

that have become increasingly more reliant on the Cloud, portability and high-demand processing power.

KULR’s high performance

thermal interface materials can be used to accelerate 5G communications development due to our material’s core properties:

high thermal conductivity, light weight, and low contact pressure.

5G is one of the biggest opportunities going

forward for transportation technology and we would like to take part in testing of digital and RF tests for 5G.

Testing is still

in early phases for both digital and RF communication chips, however, we are seeing a big growth opportunity for thermal management

Cloud computing is also an application of interest since high power communications chips and optical communication modules

require cooling.

5G is one of the biggest opportunities going forward for transportation

technology and we plan to take part in testing of digital and RF tests for 5G.

Testing is still in early phases for both digital

and RF communication chips, however, we are seeing a big growth opportunity for thermal management for 5G.

Cloud computing is also

an application of interest since high power communications chips and optical communication modules require cooling.

We have not yet achieved

21 unchanged sentences

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

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

into a Note Purchase Agreement, dated February 27, 2020, with YAII, pursuant to which YAII purchased a full recourse promissory

note (the “Note”) in the original principal amount of $1,500,000 (“Principal Amount”).

In consideration

for the issuance of the Note by the Company, the purchase price of the Note paid by YAII was equal to the Principal Amount minus

an original issue discount equal to 6%.

The Note bears no interest and will become immediately due and payable on May 31,

2021 or upon acceleration, redemption or otherwise upon the occurrence of an event of default, as set forth in the Note.

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.

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

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.

Through September 30, 2020, the Company issued an aggregate of 1,721,013 shares

of common stock at prices between $0.72 - $1.65 per share for aggregate proceeds of $2,152,696 received against advance notices

submitted to YAII under the SEDA, of which $691,000 of the proceeds were applied directly against principal owed under a promissory

note agreement with YAII (see Promissory Note Agreements, below).

Please also refer to Note 7 –

Notes Payable, in the accompanying

financial statements, for more information.

Promissory Note Agreements

We entered into a Note

Purchase Agreement, dated February 27, 2020, with YAII, pursuant to which YAII purchased a full recourse promissory note (the

“Note”) in the original principal amount of $1,500,000 (“Principal Amount”).

In consideration for the issuance

of the Note by the Company, the purchase price of the Note paid by YAII was equal to the Principal Amount minus an original issue

discount equal to 6%.

The Note bears no interest and will become immediately due and payable on May 31, 2021 or upon acceleration,

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

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.

We also entered into

a Note Purchase Agreement, dated July 20, 2020, with YAII, to which YAII purchased a full recourse promissory note (the “July

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

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

purchase price of the July 2020 Note paid by YAII was equal to the Principal Amount minus an original issue discount equal to 8%.

The July 2020 Note was issued under substantially the same terms as the Note.

Through September 30, 2020, we repaid principal on the Note

and July 2020 Note (together, the “Notes) of $850,000 (of which $691,000 was repaid from proceeds from the SEDA).

Subsequent to September 30, 2020, we received

cash of $40,000 in satisfaction of subscriptions receivable as of September 30, 2020 and we issued 31,250 shares of common stock

pursuant to the SEDA.

Subsequent to September

30, 2020, we issued an aggregate of 89,285 shares of additional common stock at a price of $1.12 per share pursuant to new advance

notices submitted to YAII under the SEDA.

The entire proceeds of $100,000 were withheld by YAII to pay down a portion of the Notes.

Subsequent to September

30, 2020, we made cash payments totaling $250,000 to pay down a portion of the Notes.

Common Stock Issuances

Subsequent to September

30, 2020, we issued 76,453 shares of restricted common stock in satisfaction of $100,000 of accrued issuable equity, pursuant to

a services agreement.

Subsequent to September

30, 2020, the Company issued 60,000 shares of common stock to a consultant, which are subject to clawback, at the sole discretion

of our Board of Directors, in the event certain milestones are not achieved.

On July 28, 2020, the

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Results of Operations

Three Months Ended June 30,

2020 Compared With Three Months Ended June 30, 2019

Three and Nine Months Ended September

30, 2020 Compared With Three and Nine Months Ended September 30, 2019

Our revenues consisted

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For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

Product sales

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Total revenue

For the three months

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.

For the three months ended September 30, 2020 and 2019, we generated

$136,849 and $526,722 of revenues, respectively, representing a decrease of $389,873, or 74%.

Revenue from product sales during

the three months ended September 30, 2020 decreased by 71% compared to the three months ended September 30, 2019, mainly due to

a large contract received during the three months ended September 30, 2019.

Product sales during these periods included sales of

our component products, carbon fiber velvet (“CFV”) thermal management solutions, ISC battery cells and devices, patented

TRS technology, and thermal fiber thermal interface (“FTI”) materials.

Contract services during the comparable period

consisted of certain research and development contracts and onsite engineering services.

For the nine months

ended September 30, 2020 and 2019, we generated $415,477 and $777,984 of revenues from 20 and 21 customers, respectively, representing

a decrease of $362,507, or 47%.

Revenue from product sales during the nine months ended September 30, 2019 decreased by 66% compared

to the nine months ended September 30, 2019, mainly due to a large DOD contract of about $355,000 received during the three months

ended September 30, 2019.

The customer has pushed the next shipment of product to 2021.

Product sales during these periods included

sales of our component products, CFV thermal management solutions, ISC battery cells and devices, patented technology, and thermal

FTI materials.

Revenue from services increased by 96% for the nine months ended September 30, 2020 as compared to the nine months

ended September 30, 2019, due to increased project requirements from some of our 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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Generally, we earn

greater margins on revenue from products compared to revenue from services, so product mix plays an important part in our reported

greater margins on revenue from products compared to revenue from services, so product mix plays an important role in our reported

average margins for any period.

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and product mix.

For the three months

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.

For the three

months ended September 30, 2020 and 2019, cost of revenues was $60,967 and $109,051, respectively, a decrease of $48,084 or 44%.

The decrease was primarily due to higher salaries paid and purchase of materials related to higher product sales during the three

months ended September 30, 2019.

The gross margin percentage was 55% and 79% for the three months ended September 30, 2020 and

2019, respectively.

The decrease in margins during 2020 reflects our ongoing efforts to build upon existing customer relationships

over a growing pool of referrals and business development leads.

We are pivoting solutions to cater to the specific needs of existing

customers, which requires a higher up-front cost as compared to the preceding period.

For the nine months

ended September 30, 2020 and 2019, cost of revenues was $128,306 and $199,118, respectively, a decrease of $70,812, or 36%.

decrease was primarily due to reduced costs as a result of reduced revenues.

The gross margin percentage was 69% and 74% for the

nine months ended September 30, 2020 and 2019, respectively.

The decrease in margins during 2020 was primarily the result of an

unfavorable change in product mix and higher up-front costs related to existing customer service contracts.

Research and Development

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For the three months

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.

ended September 30, 2020 and 2019, R&D expenses were $51,820 and $137,970, respectively, representing a decrease of $86,150

The decrease is primarily due 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, as well as a reduction in head count between

the comparable periods.

For the nine months

ended September 30, 2020 and 2019, R&D expenses were $221,524 and $365,709, respectively, representing a decrease of $144,185

The 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, as well as a reduction in head count between

the comparable periods.

We expect that our

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

For the three months

ended September 30, 2020 and 2019, selling, general and administrative expenses were $834,582 and $546,982, respectively, an increase

of $287,600 or 53%.

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.

The increase is primarily attributable to an increase of approximately $215,000 of marketing and advertising

expense, $104,000 of stock-based compensation related to consultants and employees, partially offset by a decrease of $26,000 of

rent expense due to the termination of an operating lease during the end of the fourth quarter of 2019 and a $17,000 decrease in

professional and legal fees.

For the nine months

ended September 30, 2020 and 2019, selling, general and administrative expenses were $1,728,974 and $1,666,735, respectively, an

increase of $62,239, or 4%.

The increase is primarily due to an increase of approximately $260,000 of marketing and advertising

expense, $139,000 of stock-based compensation related to consultants and employees, partially offset by a decrease of $103,000

of travel, meals, and entertainment expense due to COVID-19 restrictions, $78,000 of rent expense due to the termination of an

operating lease during the end of the fourth quarter of 2019, $75,000 of professional fees, $71,000 of payroll and benefits due

to salary reductions implemented during the end of the first quarter of 2020 as a result of COVID-19, and $13,000 of conference

and seminar expenses due to the travel restrictions and stay-at-home orders as a result of COVID-19.

Other Expenses

For the three months

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.

For the three months ended September

30, 2020 and 2019, other expense was $201,739 and $253, respectively, an increase of $201,486.

The increase in other expense is

primarily due to the amortization of debt discount related to the issuance of notes payable.

For the nine months ended September 30,

2020 and 2019, other expense was $328,170 and $1,065, respectively, an increase of $327,105.

The increase in other expense is primarily

due to the amortization of debt discount related to the issuance of notes payable and the change in fair value of accrued issuable

equity during the period.

Liquidity and Capital Resources

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

As of September 30,

2020 and December 31, 2019, we had cash balances of $2,809,656 and $108,857, respectively, and working capital deficits $404,561

and $824,481, 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.

For the nine months

ended September 30, 2020 and 2019, cash used in operating activities was $2,076,035 and $1,206,135, respectively.

Our cash used

in operations for the nine months ended September 30, 2020 was primarily attributable to our net loss of $1,991,497, adjusted for

non-cash expenses in the aggregate amount of $587,503, and $672,041 of net cash used to fund changes in the levels of operating

assets and liabilities.

Our cash used in operations for the nine months ended September 30, 2019 was primarily attributable to

our net loss of $1,454,643, adjusted for non-cash expenses in the aggregate amount of $241,285, partially offset by $7,223 of net

cash provided by changes in the levels of operating assets and liabilities.

For the nine months

ended September 30, 2020 and 2019, cash used in investing activities was $46,087 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 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.

during the nine months ended September 30, 2020 was related to the purchases of equipment.

For the nine months

ended September 30, 2020 and 2019, cash provided by financing activities was $4,822,921 and $1,052,300, respectively.

provided by financing activities for the nine months ended September 30, 2020 was due to $3,710,000 of net proceeds from the issuance

of notes payable, $155,226 of proceeds from the Paycheck Protection Program loan, and $1,461,695 of net proceeds from the sale

of common stock.

These amounts were partially offset by $330,000 for the payment of debt issuance costs, $159,000 for the repayments

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

Cash provided by financing activities during the nine months ended September

30, 2019 consisted of $898,300 of proceeds from the sale of common stock and $169,000 of proceeds from the sale of Series C Convertible

Preferred Stock and warrants, offset by $15,000 cash paid for offering costs.

In January 2020,

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of operations, cash flows, or financial condition .

During the nine months ended September 30,

2020, we received net proceeds of $3,710,000 pursuant to a two Note Purchase Agreements with YAII (the “Notes”).

Notes bear no interest and mature between May 31 through July 20, 2020 and will be paid in monthly installments through the maturity

Additionally, in April

2020, the Company received a loan of $155,226 under the government Small Business Administration (“SBA”) sponsored

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

Effective February 27,

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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).

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.

As of June 30, 2020,

Through September 30, 2020, the

Company issued an aggregate of 1,721,013 shares of common stock at prices between $0.72 - $1.65 per share for aggregate proceeds

of $2,152,696 in connection with advance notices submitted to YAII under the SEDA, of which $691,000 of the proceeds were applied

directly against the principal due under the Notes.

As of September 30,

2020, we had approximately $5,847,300 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

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.

Subsequent to September

30, 2020, we issued an aggregate of 89,285 shares of common stock at a price of $1.12 per share pursuant to advance notices submitted

to the Investor under the SEDA.

The entire proceeds of $100,000 were withheld by the Investor to pay down a portion of the principal

due under the Notes.

Subsequent to September

30, 2020, we made cash payments totaling $250,000 to pay down a portion of the principal due under the Notes.

We have not yet achieved

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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