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Item 7. Management’s Discussion and Analysis

2021-03-19 compared with 2020-05-14 · 284 added, 338 removed, 43 unchanged (94% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN

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

("KULR")

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

or the “Company”) as of and for the years ended December 31, 2019 and 2018 should be read in conjunction with our consolidated

financial statements and the notes to those consolidated financial statements that are included elsewhere in this Annual Report.

References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us”,

“we”, “our” and similar terms refer to the Company.

This Management’s Discussion and Analysis of

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

These statements are based on current

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

These statements are often identified by

the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,”

“intend,” “could,” “estimate,” or “continue,” and similar expressions or variations.

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

Report, and other factors that we may not know.

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

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

Currently, we

are 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.

Our proprietary core technology is a carbon fiber material, with roots in aerospace and defense, which provides what we believe

to be superior thermal conductivity and heat dissipation in 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 E-Mobility battery powered products safer and more stable.

management believes that the E-Mobility industry has created and will create significant new opportunities for the

application of our technology and know-how.

We believe these new opportunities will be further driven by certain changing

preferences that we have observed in younger generations that must increasingly cope with higher population density, global

warming, and the rapidly evolving communications and computing needs of their personal devices and the surrounding

infrastructure.

As a result, we predict that the younger generations will increasingly prefer to attend meetings by video

rent a car, bike, or scooter, or call an app-based car service instead of owning a vehicle;

and leverage the

Cloud to perform tasks traditionally done in person, such as shopping for lunch, clothes, electronics and other consumer

goods that also leverages an expanding E-Mobility delivery network.

addition to evolving demands led by consumer-preferences, we have observed trending manufacturer-led opportunities in industries

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

For example, car manufacturers

are increasingly providing options that take over the responsibility for driving, diagnosing its own service requirements and analyzing

on-board systems data and efficiency.

The communications and entertainment industries are leveraging increasingly more powerful

and portable devices to deliver live and high-definition content and experiences.

These innovations will require high bandwidth

communication devices that can handle the power drain and computational requirements to keep up with the sophisticated security

and software tools that will power these advanced product offerings.

As a result of these manufacturer and consumer trends, we

believe that the new generations of high-powered, small form-factor semiconductors are out-pacing the ability to control unwanted

heat generation in lithium ion batteries.

The above-described advances in micro technology,

portable power, and compact energy efficient devices linked to an ever-widening Internet of Things (“IoT”) via the

Cloud are driving opportunities that form the focus of the Company’s business development plan.

We believe that our

core technology and historical development focus on improving lithium-ion battery performance and safety, positions us in a competitively

advantageous position to enhance key components to the evolving mobile applications for a wide range of consumer products and IoT.

We have found that as chip performance increases, power consumption increases, and more heat is generated as a byproduct.

When chip size reduces, there is an increased potential for a hot spot on the chip, which can degrade system performance, or even

cause spontaneous combustion.

However, electronic system components must operate within a specific temperature range on both the

high and low end to operate properly.

After strenuous testing, we believe we have developed heat management solutions that significantly

improve upon traditional heat storage and dissipation solutions and improve upon their rigidity and durability.

We also believe

that the traditional solutions are not equipped to handle the evolving marketplace.

However, through a combination of custom design

services and provision of proprietary hardware solutions, our products reduce manufacturing complexity and provide a lighter weight

solution than traditional thermal management materials and, we believe, can meet the heat management demands of components and

batteries being designed into the newest mobile technologies and applications.

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

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

and acquisition.

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

operations, technologies, and management experience.

This focus will highlight markets in which we can:

(1) integrate our existing

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

customer base and channels;

(2) gain a leading market position and provide vertically integrated services where we can secure economies

of scale, premium market positioning, and operational synergies;

and/or (3) establish a leading position in selected markets and

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

We have developed an acquisition discipline

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

To date, we have evaluated two acquisition

opportunities under such criteria and, together with the management of the potential target, determined that the anticipated synergies

would not be realized in the anticipated timetable.

If we were to successfully close an acquisition, we would seek to integrate

it while minimizing disruption to our existing operations and those of the acquired business, while exploiting the technical and

managerial synergies from integration.

DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discussion

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

("KULR") and its wholly-owned

subsidiary, KULR Technology Corporation (“KTC”) (collectively referred to as “KULR” or the “Company”)

as of and for the years ended December 31, 2020 and 2019 should be read in conjunction with our consolidated financial statements

and the notes to those consolidated financial statements that are included elsewhere in this Annual Report.

References in this

Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us”, “we”,

“our” and similar terms refer to the Company.

This Management’s Discussion and Analysis of Financial Condition

and Results of Operations contains statements that are forward-looking.

These statements are based on current expectations and

assumptions that are subject to risk, uncertainties and other factors.

These statements are often identified by the use of words

such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,”

“could,” “estimate,” or “continue,” and similar expressions or variations.

Actual results

could differ materially because of the factors discussed in “Risk Factors” elsewhere in this Annual Report, and other

factors that we may not know.

KULR Technology Group, Inc.,

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

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

For aerospace and

Department of Defense (“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 and sustainability

by which we aim to mitigate the effects of thermal runaway propagation which has been known to cause random fires in lithium-ion

(“Li-ion”) batteries.

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 advanced technology

users like 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 supplier, to providing more design and testing services to our customers.

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

In order to scale up as a systems provider

more quickly and efficiently in (i) the Li-ion battery energy storage and recycling markets, (ii) battery cell design and safety

testing, and (iii) advanced thermal management systems, such as hypersonic vehicles, KULR will actively seek partners for joint

venture, technology licensing and other strategic partnership models.

The goal is to leverage the Company’s thermal design

technology expertise to create market leading products, which KULR will take to market directly to capture more value for KULR

shareholders.

We have not yet achieved

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

It is expected that our research and development and

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

product revenues to achieve profitability.

These conditions indicate that there is substantial doubt about our ability to continue

as a going concern within one year after the financial statement issuance date.

Historically, we have been able to raise funds

to support our business operations, although there can be no assurance that we will be successful in raising additional funds in

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

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

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

significant revenues to achieve profitability.

Until that time we shall have to continue to raise cash as and when required through

the sale of stock.

Recent Developments

In January 2020, an

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

Through the first quarter of 2020, the disease

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

Our business is dependent

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

for our products and interruptions to supply chains.

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

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

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

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

cash flows, or financial condition.

Decontamination Solutions

In response to the

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

arose in connection with our ongoing customer engagements and strategic relationships, we recently explored the launch of a suite

of commercial and consumer products that utilize a Hypochlorous-Acid based microbial decontamination liquid.

assurance can be made that we will be able to commercialize these decontamination products or that there will be demand for such

products, we believe that we are capable of producing or acquiring substantial quantities of the decontamination liquid to deploy

in a suite of decontamination delivery products and technology that we are actively developing.

In order to advance these

efforts and to test the efficacy of the decontamination liquid, we engaged an independent lab to test our solution but we do not

yet have any lab results.

Paycheck Protection Program Loan

On April 27, 2020,

we received the proceeds of a $155,226 loan in connection with the CARES Act Paycheck Protection Program (PPP) being administered

On April 27, 2020, we

received the proceeds of a $155,226 loan in connection with the CARES Act Paycheck Protection Program (PPP) being administered

by the Small Business Administration.

The Company believes that it will qualify for loan forgiveness under the terms of the PPP

In January 2020,

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

Through the first quarter of 2020, the disease

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

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

demand for our products and interruptions to supply chains.

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

affected 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.

Standby Equity Distribution Agreement

and Notes Payable

On February 27, 2020,

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

pursuant to which the Company may, at its discretion, periodically sell to YAII up to $8,000,000 of shares Common Stock.

share of Common Stock purchased under the Standby Equity Distribution Agreement (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 Standby Equity Distribution Agreement.

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 Standby Equity

Distribution Agreement.

Note Purchase Agreement and Promissory

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.

PPR Product License and Supply Agreement

- Americase’s Battery Bag

On April 13, 2020, we announced that it

entered into a license and supply agreement with Americase, LLC, granting a license for Americase’s use of our passive propagation

resistant (PPR) technology and agreeing to supply our PPR materials for Americase’s “Battery Bag”

During the year ended December 31, 2019,

we sold an aggregate of 1,361,059 shares of common stock at $0.66 per share to accredited investors for aggregate gross cash proceeds

During the year ended December 31, 2019,

16,371 shares of the Series B Convertible Preferred Stock, were converted into 818,550 shares of common stock.

Customer Engagements

During the year ended

December 31, 2019, we successfully added to our list of active customers and continue to expand our relationships with prospective

Typically, a new customer engagement starts out with initial service projects that include the analysis of customer

heat management challenges, evaluation of potential solutions and designs, and selection of solutions that may be addressed by

our existing product or that require new designs and features, leading to new general or custom products.

The process of designing

next generation products for prospective customers is lengthy.

However, we believe we have made significant progress working with

existing and prospective customers on developing product solutions.

Once customer solutions are identified and developed, we expect

the customer to submit product purchase orders.

Although no assurances can be made that such purchase orders would be placed, such

orders could not only lead to higher-volume production sales but could (i) generate significantly higher gross margins as compared

to the earlier engagement stage service projects, and (ii) provide greater prospects for scaling.

Active Development Projects

As we continue to advance

our new customer engagements and submit our solutions against competitor solutions in various independent and customer testing,

we believe our carbon-fiber based electronics and battery cooling technologies are superior to traditionally used heat sinks (such

as aluminum and copper heat sinks) and thermal interface materials (such as thermal gels and pads).

We believe that our solutions

are not only generally more thermally conductive, but also lighter in weight and in many cases offer product design flexibility.

For instance, our HYDRA TRS products have been independently tested to show that they have outperformed our competitors’

solutions in preventing cell-to-cell thermal runaway propagation and requiring higher trigger temperatures at which the thermal

runaway event occurs.

Our TRS battery storage bags were selected by the U.S.

government’s NASA to transport and store laptop

batteries aboard the International Space Station.

Additionally, we are currently working with top tier companies in the medical

device, electric aircraft, and global automaker industries on designing safer, more effective battery heat sink solutions.

No assurances

can be made, however, that any of our active development projects will result in continued or future sales revenues.

Standby Equity Distribution Agreement

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

partnership (“YAII”).

Under the terms of this Agreement, the Company raised an aggregate of $2,292,695 from the facility.

As of December 31, 2020, the Company had approximately $5,707,305 available in connection with the SEDA, however, so long as warrants

issued on December 31, 2020 in an unrelated transaction remain outstanding, the Company may not issue shares in connection with

variable rate transactions.

During the year ended December 31, 2020, the Company issued notes to YAII in the aggregate amount

of $4,000,000, of which the Company repaid principal on the notes in the aggregate amount of $1,550,000 ($791,000 was repaid from

proceeds from the SEDA).

Subsequent to December 31, 2020, the Company repaid principal on the notes in the aggregate amount of

Registered Direct Offering

On December 31, 2020, we closed a registered

direct offering conducted pursuant to a securities purchase agreement (“Purchase Agreement”) with the purchasers set

forth on the signature page thereto (the “Purchasers”) for the purchase and sale of an aggregate of 6,400,001 shares

of our common stock (the “Shares”), and warrants to purchase an aggregate of up to 6,400,001 shares of common stock

(“Warrants”), at a combined purchase price of $1.25 per Share and Warrant.

The aggregate gross proceeds to us were

equal to approximately $8 million.

The Warrants are immediately exercisable and may be exercised at any time until December 31,

2025, at an exercise price of $1.25 per share.

Lake Street Capital Markets, LLC and Maxim Group LLC acted as co-placement agents

in connection with the registered direct offering.

We paid the co-placement agents a cash fee of 7.0% of the gross proceeds we

received under the Purchase Agreement.

We also reimbursed the co-placement agents for certain out-of-pocket accountable expenses

incurred by them in connection with this offering of $50,000.

We paid total approximate offering expenses, other than the placement

agent fees, of approximately $170,000, which includes the co-placement agents’ reimbursable expenses, legal, financial advisory

fees, accounting, printing costs, listing fees, and various other expenses associated with registering and issuing the shares.

We intend to use the net proceeds from this offering for capital expenditures, as well as for working capital and general corporate

The Shares and Warrants (and underlying shares)

were offered, and will be issued, pursuant to the Prospectus Supplement, dated December 29, 2020, to the Prospectus included in

our Registration Statement on Form S-3 (Registration No.

333- 232614) filed with the Securities and Exchange Commission on July

11, 2019 and declared effective on August 1, 2019.

Appointment of Keith Cochran

On March 8, 2021, our

Board of Directors (the “Board”) appointed Keith Cochran as President and Chief Operating Officer of the Company,

to hold office until the earlier of the expiration of the term of office, a successor is duly elected and qualified, or the earlier

of such officer’s death, resignation, disqualification, or removal.

As compensation for his

services as President and Chief Operating Officer of the Company, Mr.

Cochran will receive:

(1) a salary of $250,000 per annum

and commensurate benefits;

(2) 2,000,000 restricted shares of the Company’s common stock, which shares shall vest, so long

Cochran remains employed by the Company, in four (4) equal yearly installments, with the first installment amount to vest

on March 1, 2022 and annually thereafter;

and (3) eligibility, also subject to Mr.

Cochran’s continued employment with the

Company, for incentive based grants of up to 1,500,000 shares, which shall be earned upon the Company achieving certain market

capitalization milestones.

Appointment of Independent Directors

On February 20, 2021,

the Company entered into a Standby Equity Distribution Agreement with YAII PN, Ltd., a Cayman Island exempt limited partnership

(the “Investor”), pursuant to which the Company may, at its discretion, periodically sell to Investor up to $8,000,000

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

For each share of Common

Stock purchased under the Standby Equity Distribution Agreement (the “Shares”), the Investor will pay the Company

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

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

to purchase the Shares under the Standby Equity Distribution Agreement.

The Investor’s

obligation to purchase the Shares under the Standby Equity Distribution Agreement is subject to certain conditions, including

the Company maintaining the effectiveness of a registration statement for the securities sold under the Standby Equity Distribution

Agreement, and is limited to $100,000 per advance.

In 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 commitment period under the Standby Equity Distribution

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

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

of $8,000,000 of Shares under the Standby Equity Distribution Agreement, or (iii) the date the Standby Equity Distribution Agreement

is earlier terminated.

The Standby Equity

Distribution Agreement contains customary representations, warranties and agreements of the Company and the Investor, indemnification

rights and other obligations of the parties.

The Company has the right to terminate the Standby Equity Distribution Agreement at

any time upon prior written notice, at no cost to the Company, provided that (i) there are no outstanding advances which have yet

to be issued and (ii) the Company has paid all amounts owed to the Investor.

The Company agreed

to issue to the Investor 95,847 shares of Common Stock as commitment shares in consideration for entering into the Standby Equity

Distribution Agreement.

The Company will not receive any cash proceeds from the issuance of these commitment shares.

The Offering will

be made pursuant to the Company’s shelf registration statement on Form S-3 (File No.

333-232614), filed with the Securities

Exchange Commission on July 11, 2019, and pursuant to a prospectus supplement or prospectus supplements or successor registration

statements, or otherwise, under Section 5 of the Securities Act of 1933, as amended, and the rules and regulations promulgated

thereunder (the “Securities Act”).

The Company expects to use the proceeds from the Offering for

working capital and other corporate purposes, including the repayment of any outstanding debt.

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

In connection with the Offering, the Company paid the Investor a structuring fee equal to $15,000 and agreed to pay a financial

advisor an 8% fee on any aggregate gross proceeds of each Offering received by the Company from the sale of Shares that exceeds

Note Purchase Agreement and Promissory

The Company also entered

into a Note Purchase Agreement, dated February 27, 2020, with the Investor, pursuant to which the Investor 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 the Investor 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

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 $130,000 advisory fee in connection with the Note Purchase Agreement and Note.

the Board, contingent upon the Company’s common stock being approved for uplisting to a national exchange, approved the

appointment of Morio Kurosaki as an independent member of the Board.

Kurosaki will also serve as chair of the Audit Committee.

As such, the Board has determined that Mr.

Kurosaki is a financial expert within the meaning of SEC regulations.

Additionally,

Kurosaki will serve as a member of both the Compensation Committee and the Nominating and Governance Committee.

In connection with his

appointments, Mr.

Kurosaki will be compensated (1) $10,000 per quarter, beginning on and subject to approval for uplisting, and

(2) 20,000 restricted shares of the Company’s common stock, which shares shall vest equally in 5,000 share increments per

quarter beginning on and subject to approval for uplisting.

On February 20, 2021,

the Board, contingent upon the Company’s common stock being approved for uplisting to a national exchange, approved the

appointment of Stayce D.

Harris as an independent member of the Board.

Harris will also serve as chair of the Compensation

Additionally, Ms.

Harris will serve as a member of both the Audit Committee and the Nominating and Governance Committee.

In connection with her

appointments, Ms.

Harris will be compensated (1) $10,000 per quarter, beginning on and subject to approval for uplisting, and

(2) 20,000 restricted shares of the Company’s common stock, which shares shall vest equally in 5,000 share increments per

quarter beginning on and subject to approval for uplisting.

On February 20, 2021,

the Board, contingent upon the Company’s common stock being approved for uplisting to a national exchange, approved the

appointment of Joanna D.

Massey as an independent member of the Board.

Massey will also serve as chair of the Nominating and

Governance Committee.

Additionally, Ms.

Massey will serve as a member of both the Audit Committee and the Compensation Committee.

In connection with her

appointments, and subject to the receipt of her acknowledgment of the same, Ms.

Massey will be compensated (1) $10,000 per quarter,

beginning on and subject to approval for uplisting, and (2) 20,000 restricted shares of the Company’s common stock, which

shares shall vest equally in 5,000 share increments per quarter beginning on and subject to approval for uplisting.

Conversion of Series C Preferred Stock

During the year ended

December 31, 2020, KULR issued an aggregate of 56,778 shares of our common stock upon voluntary conversions of 5.11 shares of

our Series C Preferred Stock.

Effective as of December

31, 2020, KULR issued an aggregate of 177,885 shares of our common stock and warrants to purchase an aggregate of 177,885 shares

of our common stock at an exercise price of $1.25 per share, upon a deemed automatic conversion of 18.90 shares of our Series

C Preferred Stock, after which there remained no further Series C Preferred Stock outstanding.

Although the conversion shares

were issued subsequent to the deemed automatic conversion, in connection with a registered direct offering that closed on December

31, 2020, the conversions were made effective as of December 31, 2020 pursuant to an automatic conversion feature of the Series

C Preferred Stock under which the stated value of each share was converted into the same securities issued in the registered direct

offering at an effective conversion price of 85% of the aggregate purchase price of such securities.

Conversion of Series B Preferred Stock

During the year ended

December 31, 2020, KULR issued an aggregate of 25,758 shares of our common stock upon conversion of 515 shares of our Series B

Preferred Stock.

Subsequent to the year

ended December 31, 2020, KULR issued an aggregate of 698,600 shares of our common stock upon conversion of 13,972 shares of our

Series B Preferred Stock, after which there remained no further Series B Preferred Stock outstanding.

Consolidated Results of Operations

7 unchanged sentences

Total revenue

For the years ended

December 31, 2019 and 2018, we generated $830,398 and $1,274,028 of revenues, a decrease of $443,630, or 35%.

Our revenues during

the year ended December 31, 2019 consisted of sales of our component product, CFV thermal management solution, sales of an Original

Equipment Manufacturer (“OEM”) product as well as certain research and development contract services.

during the year ended December 31, 2018 consisted of sales of our component product, CFV thermal management solution, sales of

an Original Equipment Manufacturer (“OEM”) product as well as certain research and development contract services.

are still in the early stages of business growth and development of customer relationships which typically begin on a project by

project basis, leading to limited volume trials and eventually, product sales.

As a result, in the absence of a large installed

customer base, our sales can be lumpy and vary from one period to another.

The decrease in revenue in 2019 was due to contracts

that ended during 2018.

Our revenue for the year ended December 31, 2019 and 2018 was generated from 27 and 13 different customers,

respectively.

Cost of Revenues and Gross Margins

Cost of revenues consists

For the years ended December

31, 2020 and 2019, we generated $623,965 and $830,398 of revenues from 25 and 27 customers, respectively, representing a decrease

of $206,433, or 25%.

Revenue from product sales during the year ended December 31, 2020 decreased by 45% compared to the year

ended December 31, 2019, primarily due to a large DOD contract of about $355,000 received during the year ended December 31, 2019.

The customer has pushed its 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.

from services increased by 131% for the year ended December 31, 2020 as compared to the year ended December 31, 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

We are still in the early

stages of business growth and development of customer relationships which typically begin on a project-by-project basis, leading

to limited volume trials and eventually, product sales.

As a result, in the absence of a large installed customer base, our sales

can be lumpy and vary from one period to another.

Cost of Revenue and Gross Margin

Cost of revenues consisted

of the cost of our products as well as labor expenses directly related to product sales or research contract services.

Generally, we earn

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

Generally, we earn greater

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

average margins for any period.

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Furthermore, our solutions are new and do not necessarily fit into pre-existing patterns of purchase commitment.

Accordingly, the

business activity cycle between expression of initial customer interest to shipping, acceptance and billing can be lengthy, unpredictable

and lumpy, which can influence the timing, consistency and reporting of sales growth.

For the years ended

December 31, 2019 and 2018, cost of revenues was $226,505 and $336,654, respectively, a decrease of $110,149, or 33%.

was primarily due to decreased volume of contracts in the 2019 period, which required less labor and materials.

We generated a

gross profit of $603,893 and $937,374 for the years ended December 31, 2019 and 2018, respectively.

This represents a decrease

in gross profit of $333,841, primarily resulting from the decrease in product revenue due to contracts that ended during 2018.

Our gross profit on sales is broadly similar in both periods at 73% for the year ended December 31, 2019 compared to 74% for the

year ended December 31, 2018.

the business activity cycle between expression of initial customer interest to shipping, acceptance and billing can be lengthy,

unpredictable and lumpy, which can influence the timing, consistency and reporting of sales growth.

For the years ended December

31, 2020 and 2019, cost of revenues was $169,016 and $226,505, respectively, representing a decrease of $57,489, or 25%.

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

The gross margin percentage was 73% for both of the years

ended December 31, 2020 and 2019.

Research and Development

Research and development

(“R&D”) include expenses incurred in connection with the R&D of our CFV thermal management solution and non-cash

(“R&D”) included expenses incurred in connection with the R&D of our CFV thermal management solution and non-cash

stock-based compensation expenses.

R&D expenses are expensed as they are incurred.

the year ended December 31, 2019, R&D expenses decreased by $ 5,919, or 1% to $502,225 from $508,144 for the year ended

December 31, 2018.

For the years ended December

31, 2020 and 2019, R&D expenses were $289,772 and $502,225, respectively, representing a decrease of $212,453 or 42%.

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 R&D

expenses will increase as we expand our future operations.

Selling, General and Administrative

Selling, general and

administrative expenses consist primarily of salaries, payroll taxes and other benefits, legal and professional fees, stock-based

compensation, marketing, travel, rent and office expenses.

the year ended December 31, 2019, selling, general and administrative expenses decreased by $ 429,877, or 17% to $2,080,941

from $2,510,818 for the year ended December 31, 2018.

The decrease is primarily due to decreased non-cash stock-based compensation

expense of approximately $221,000 due to certain awards becoming fully vested in the second quarter of 2018, decreased salaries

and other benefits of approximately $78,000 due to lower headcount, decreased professional fees of approximately $101,000 partially

offset by increased rent expense of approximately $35,000 due to entering into a new lease agreement in May 2018.

Other Income (Expense)

For the year ended

December 31, 2019, other income (expense) decreased by $23,829 to $(480) from $23,349 for the year ended December 31, 2018.

decrease is primarily due to other income recognized during the year ended December 31, 2018 as a result of changes in the changes

in the fair value of accrued issuable equity.

Selling, general and administrative

expenses consisted primarily of salaries, payroll taxes and other benefits, legal and professional fees, stock-based compensation,

marketing, travel, rent and office expenses.

For the years ended December

31, 2020 and 2019, selling, general and administrative expenses were $2,505,609 and $2,080,941, respectively, an increase of $424,668,

The increase is primarily due to increases of approximately $529,000 for marketing and advertising expense and $262,000

for stock-based compensation related to consultants and employees, partially offset by decreases of approximately $116,000 of

travel, meals, and entertainment expense due to COVID-19 restrictions, $99,000 of rent expense due to the termination of an operating

lease during the end of the fourth quarter of 2019, $30,000 of professional fees, $98,000 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 $17,000 of conference and seminar

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

Other (Expenses) Income

For the years ended December

31, 2020 and 2019, other expenses were $509,664 and $480, respectively, representing an increase of $509,184.

The increase is

primarily attributable to the amortization of debt discount recorded in connection with notes payable issued in 2020.

Liquidity and Capital Resources

For the years ended

December 31, 2019 and 2018, cash used in operating activities was $1,188,339 and $1,359,114, respectively.

As of December 31, 2020

and 2019, we had cash balances of $8,880,140 and $108,857, respectively, and working capital (deficit) of $6,202,985 and $(824,481),

respectively.

For the years ended December

31, 2020 and 2019, cash used in operating activities was $2,730,253 and $1,188,339, respectively.

Our cash used in operations

for the year ended December 31, 2019 was primarily attributable to our net loss of $1,979,753, adjusted for non-cash expenses in

the aggregate amount of $237,990, as well as $553,424 of net cash provided by changes in the levels of operating assets and liabilities.

Our cash used in operations for the year ended December 31, 2018 was primarily attributable to our net loss of $2,058,239, adjusted

for net non-cash expenses in the aggregate amount of $453,022, as well as $246,103 of net cash provided by changes in the levels

of operating assets and liabilities.

For the year ended

December 31, 2019, cash used in investing activities was $0 compared to cash used in investing activities of $16,609 during the

year ended December 31, 2018.

Cash used in investing activities during the year ended December 31, 2018 was due to purchases of

For the years ended

December 31, 2019 and 2018, cash provided by financing activities was $1,067,300 and $709,858, respectively.

for the year ended December 31, 2020 was primarily attributable to our net loss of $2,850,096, adjusted for non-cash expenses

in the aggregate amount of $864,929, as well as $754,086 of net cash used to fund changes in the levels of operating assets and

Our cash used in operations for the year ended December 31, 2019 was primarily attributable to our net loss of $1,979,753,

adjusted for non-cash expenses in the aggregate amount of $237,990, as well as $553,424 of net cash provided by changes in the

levels of operating assets and liabilities.

For the years ended December

31, 2020 and 2019, cash used in investing activities was $46,087 and $0, respectively.

Cash used in investing activities during

the year ended December 31, 2020 was related to the purchases of equipment.

For the years ended December

31, 2020 and 2019, cash provided by financing activities was $11,547,623 and $1,067,300, respectively.

Cash provided by financing

activities during the year ended December 31, 2019 was due to the gross proceeds of common stock offering of $898,300 and proceeds

from the issuance of our Series C Convertible Preferred Stock of $184,000, partially offset by cash offering cost paid of $15,000.

Cash provided by financing activities during the year ended December 31, 2018 was due to the net proceeds of common stock offering

of $679,000 and proceeds from the issuance of our Series B Convertible Preferred Stock of $30,858.

activities during the year ended December 31, 2020 was due to the net proceeds from notes payable of $3,710,000, proceeds from

the Paycheck Protection Program loan of $155,226, proceeds from the sale of our common stock pursuant to the SEDA agreement of

$1,501,696, and proceeds from the sale of common stock and warrants received in a public offering of $8,000,001.

These amounts

were partially offset by $340,000 for the payment of debt issuance costs, $759,000 for the repayments on notes and $720,300 of

cash paid in offering costs related to sale of our equity securities.

Cash provided by financing activities during the year ended

December 31, 2019 was due to the gross proceeds of common stock offering of $898,300 and proceeds from the issuance of our Series

C Convertible Preferred Stock of $184,000, partially offset by cash offering costs paid of $15,000.

Subsequent to December

31, 2020, we made cash payments totaling $1,050,000 to pay down a portion of the outstanding principal due under our notes payable.

We have not yet achieved

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

It is expected that our research and development and

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

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

These conditions indicate that there is substantial doubt

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

Through December 31, 2019 we funded our operations on a month-to-month basis through the issuance of equity securities.

to year end, on February 27, 2020, we entered into a Standby Equity Distribution Agreement (“SEDA”), as described

in Note 11 to these consolidated financial statements, as a result of which we drew down a note for $1,500,000 and established

an equity based line of credit of up to an additional $6,500,000 to fund our ongoing business cash needs.

It is expected that our research and development

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

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

Although our management believes our current cash on hand is

sufficient to meet our operating and capital requirements for at least the next twelve months from the date these financial statements

are issued, there is no assurance that we will be able to obtain funds on commercially acceptable terms, if at all, on a go-forward

If we are unable to obtain adequate funds on reasonable terms, we may be required to significantly curtail or discontinue

operations or obtain funds by entering into financing agreements on unattractive terms.

Our operating needs include the planned

costs to operate our business, including amounts required to fund working capital and capital expenditures.

Our consolidated financial

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accepted in the United States of America (“U.S.

GAAP”), which contemplate our continuation as a going concern and the

realization of assets and satisfaction of liabilities in the normal course of business.

The carrying amounts of assets and liabilities

presented in the consolidated financial statements do not necessarily purport to represent realizable or settlement values.

consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.

GAAP”), which contemplate our continuation as a going concern and

the realization of assets and satisfaction of liabilities in the normal course of business.

The carrying amounts of assets and

liabilities presented in the consolidated financial statements do not necessarily purport to represent realizable or settlement

Off-Balance Sheet Arrangements

There are no off-balance

sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on financial

conditions, changes in financial conditions, revenues or expenses, results of operations, liquidity, capital expenditures or capital

resources that is material to stockholders.

Critical Accounting Policies

Summary of Significant Accounting Policies of our consolidated financial statements included within this Annual Report for our

sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on

financial conditions, changes in financial conditions, revenues or expenses, results of operations, liquidity, capital expenditures

or capital resources that is material to stockholders.

Critical Accounting Policies

See Note 2 – Summary

of Significant Accounting Policies of our consolidated financial statements included within this Annual Report for our critical

accounting policies.

Recently Issued Accounting Pronouncements

Summary of Significant Accounting Policies of our consolidated financial statements included within this Annual Report for a summary

of recently issued and adopted accounting pronouncements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

See Note 2 – Summary

of Significant Accounting Policies of our consolidated financial statements included within this Annual Report for a summary of

recently issued and adopted accounting pronouncements.

QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting

company, as defined by Rule 229.10(f)(1) and are not required to provide the information required by this Item.

FINANCIAL STATEMENTS AND SUPPLEMENTARY

See “Index to Consolidated

Financial Statements” which appears on page F-1 of this Annual Report on Form 10-K.

CHANGES IN AND DISAGREEMENTS

WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 7. Management’s Discussion and Analysis