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Item 9A. Controls and Procedures

2021-03-19 compared with 2020-05-14 · 1293 added, 1060 removed, 550 unchanged (81% of the section changed)

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and

As of the end of the

period covered by this Annual Report on Form 10-K, we carried out an evaluation, under the supervision and with the participation

of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design

Evaluation of Disclosure Controls and Procedures

As of the end of the period

covered by this Annual Report on Form 10-K, we carried out an evaluation, under the supervision and with the participation of

our management, including our principal executive officer and principal financial officer, of the effectiveness of the design

and operation of our disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) (the “Exchange

Based on the foregoing evaluation, our principal executive officer and principal financial officer concluded that,

as of December 31, 2019, our disclosure controls and procedures were effective at the reasonable assurance level.

as of December 31, 2020, our disclosure controls and procedures were not effective at the reasonable assurance level because of

the material weakness discussed below.

A material weakness is

a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable

possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a

timely basis.

During the year ended December 31, 2020, we did not design or maintain effective

controls to ensure that there is an independent review and approval of electronic payments (wires, EFT’s, ACH’s and

credit card payments) as our policy of providing timely support to ensure completeness and accuracy of the payment was not followed.

We are in the process

of developing a detailed plan for remediation of the material weakness, including developing and maintaining preventative controls

around the electronic payment process to ensure proper segregation of duties.

In addition, subsequent to December 31, 2020, we

hired a Chief Operating Officer (“COO”) that will assist in providing additional segregation of duties and independent

reviews of the internal controls over financial reporting.

The COO will provide the leadership and organizational experience necessary

to ensure we have proper operational controls and procedures in place to effectively manufacture and automate on a mass scale

with sound operating efficiency.

We will continue to assess the design and effectiveness of our remediation efforts in connection

with our future assessments of internal control over financial reporting.

Notwithstanding the material

weakness in internal control over financial reporting described above, our management has concluded that our consolidated financial

statements included in the Annual Report on Form 10-K are fairly stated in all material respects in accordance with accounting

principles generally accepted in the United States of America.

Management's Report on Internal Control Over Financial Reporting

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Based on this evaluation under the 2013 Framework, our principal executive officer and principal financial officer

have concluded that our internal control over financial reporting was effective as of December 31, 2019.

have concluded that our internal control over financial reporting were not effective as of December 31, 2020 as a result of the

material weakness described above.

Changes in Internal Control Over Financial Reporting

There has been no change

in our internal control over financial reporting that occurred during the fourth quarter of 2019 that has materially affected,

or is reasonably likely to materially affect, our internal control over financial reporting, except as noted above as it relates

to our successful remediation of a material weakness in internal controls.

Except as disclosed above,

there has been no change in our internal control over financial reporting that occurred during the fourth quarter of 2020 that

has materially affected, or is reasonably likely to materially affect, our internal control over current or future financial reporting.

Inherent Limitations of the Effectiveness

Management does not

expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all

error and fraud.

A control system, no matter how well designed and operated, is based upon certain assumptions and can provide

only reasonable, not absolute, assurance that its objectives will be met.

Further, no evaluation of controls can provide absolute

assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within

the Company have been detected.

Management does not expect

that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error

A control system, no matter how well designed and operated, is based upon certain assumptions and can provide only

reasonable, not absolute, assurance that its objectives will be met.

Further, no evaluation of controls can provide absolute assurance

that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the

Company have been detected.

Attestation Report of Registered Public

Accounting Firm

This Annual Report

does not contain an attestation report of our independent registered public accounting firm related to internal control over financial

This Annual Report does

not contain an attestation report of our independent registered public accounting firm related to internal control over financial

reporting because the rules for smaller reporting companies provide an exemption from the attestation requirement.

OTHER INFORMATION

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE

DIRECTORS, EXECUTIVE OFFICERS,

AND CORPORATE GOVERNANCE

Executive Officers and Directors

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and directors and their ages are as follows:

Chief Executive Officer and Chairman

Chief Executive Officer

Timothy Knowles

Director, Chief Technical Officer and Secretary

Director, Chief Technical

Officer and Secretary

Simon Westbrook

Chief Financial Officer

Keith Cochran

President and Chief

Operating Officer

Michael Carpenter

Vice President of Engineering

The term of office

for each director is one year, or until the next annual meeting of the stockholders.

Mo was appointed CEO and Director of the Company on March 16, 2011, is a technology entrepreneur and successful investor

with over 20 years of experience in technology management, product development and marketing.

In 2013, he co-founded KULR and has

been serving as its CEO since then.

Vice President of

The term of office for

each director is one year, or until the next annual meeting of the stockholders.

Michael Mo was

appointed CEO and Director of the Company on March 16, 2011, is a technology entrepreneur and successful investor with over 20

years of experience in technology management, product development and marketing.

In 2013, he co-founded KULR and has been serving

as its CEO since then.

From 2007 to 2015, Mr.

Mo served as Senior Director of Business Development at Amlogic, Inc.,

a California high-tech company.

Mo served as Senior Director of Business Development at Amlogic, Inc., a California

high-tech company.

Mo founded Sympeer Technology and served as its CEO until 2008.

In 1998, he founded

Wish Solutions, and served as its CEO until 2001.

Mo received his Master of Science in Electrical Engineering from the University

of California at Santa Barbara in 1995.

Knowles was appointed CTO and Director of the Company, has over 30 Years of Thermal Management R&D and product

development experience for the most challenging space and industrial applications.

He conducted research and built building products

for various space and industrial customers such as NASA, Boeing, Raytheon, Jet Propulsion Lab, and others.

In 1998, he founded Wish Solutions,

and served as its CEO until 2001.

Mo received his Master of Science in Electrical Engineering from the University of California

at Santa Barbara in 1995.

was appointed CTO and Director of the Company, has over 30 Years of Thermal Management R&D and product development experience

for the most challenging space and industrial applications.

He conducted research and built building products for various space

and industrial customers such as NASA, Boeing, Raytheon, Jet Propulsion Lab, and others.

Since 1983, Dr.

has been working as President at ELSI.

Knowles has been working

as President at ESLI.

In addition, in 2013, Dr.

Knowles co-founded KULR and has been serving as its CTO since

From 1977 to 1983, he was a postdoctoral research physicist at Hamburg University.

Knowles co-founded KULR and has been serving as its CTO since then.

1983, he was a postdoctoral research physicist at Hamburg University.

Knowles received Ph.D.

from University of California San Diego in 1977 and B.S.

in Physics from University of

California San Diego in 1977 and B.S.

in Physics from University of Southern California in 1969.

Westbrook was appointed Chief Financial Officer on March 15, 2018.

Westbrook founded and has since served

as an officer of Aargo, Inc., a company specializing in financial consulting services to corporations in various tech-related industries.

Prior to Aargo, Inc., Mr.

Simon Westbrook

was appointed Chief Financial Officer on March 15, 2018.

Westbrook founded and has since served as an officer of

Aargo, Inc., a company specializing in financial consulting services to corporations in various tech-related industries.

to Aargo, Inc., Mr.

Westbrook was CFO of Amber Networks, Inc., and the Chief Financial Officer of Sage, Inc.

a Silicon Valley company specializing in flat panel displays.

Silicon Valley company specializing in flat panel displays.

Before joining Sage, Mr.

2 unchanged sentences

CREAF), a leading PC multimedia company, and Atari Corp (AMEX:

ATC), the video game and

home computer company both in the USA and overseas.

At various times, he has held positions as an advisory board member of the

Silicon Valley Financial Executives Institute, and various technology start-up companies where he has assisted in strategic planning,

fund raising and team development.

Simon is a Chartered Accountant and holds a Master’s in Economics from Trinity College,

Cambridge University.

Carpenter serves as KULR’s Vice President of Engineering.

Carpenter has been employed by ESLI since

December 1983, serving as Director of the PCM Heatsink Group, Quality Manager, Facility Security Officer (FSO) in the Defense Industrial

Security Program from 1988 to 1995.

ATC), the video game

and home computer company both in the USA and overseas.

At various times, he has held positions as an advisory board member of

the Silicon Valley Financial Executives Institute, and various technology start-up companies where he has assisted in strategic

planning, fund raising and team development.

Simon is a Chartered Accountant and holds a Master’s in Economics from Trinity

College, Cambridge University.

Keith Cochran was

appointed President and Chief Operating Officer effective March 1, 2021.

Cochran spent twenty-four years in various management

roles at Jabil Greenpoint (NYSE:

JBL) and most recently as Senior Vice President of its Global Business Unit in Singapore, where

he led a smartphone technology division responsible for $3.7 billion in revenues.

Cochran is based in the United States and

has vast international experience working with partners in Singapore, India, Brazil, Mexico, China, France, Hungary and other

Cochran has a Bachelor of Science in Business Operations from Devry Institute of Technology.

Carpenter serves

as KULR’s Vice President of Engineering.

Carpenter has been employed by ESLI since December 1983, serving as Director

of the PCM Heatsink Group, Quality Manager, Facility Security Officer (FSO) in the Defense Industrial Security Program from 1988

He also has been served as Safety Officer since he joined ESLI in 1983.

Carpenter received

in Applied Mechanics from the University of California, San Diego in 1983.

The Company’s

directors are elected at the annual meeting of shareholders to hold office until the annual meeting of shareholders for the ensuing

year or until their successors have been duly elected and qualified.

Officers are elected annually by the Board of Directors and

serve at the discretion of the Board.

Carpenter received his B.S.

in Applied Mechanics

from the University of California, San Diego in 1983.

The Company’s directors

are elected at the annual meeting of shareholders to hold office until the annual meeting of shareholders for the ensuing year

or until their successors have been duly elected and qualified.

Officers are elected annually by the Board of Directors and serve

at the discretion of the Board.

Director Independence

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Family Relationships

There are no family

relationships between any director and executive officer.

There are no family relationships

between any director and executive officer.

Involvement in Certain Legal Proceedings

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officers and control persons have not been involved in any of the following events during the past five years:

any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;

being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

any bankruptcy petition filed by or against any business of

which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior

to that time;

any conviction in a criminal proceeding or being subject to

a pending criminal proceeding (excluding traffic violations and other minor offenses);

being subject to any order, judgment, or decree, not subsequently

reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending

or otherwise limiting his involvement in any type of business, securities or banking activities;

being found by a court of competent jurisdiction (in a civil

action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities

law, and the judgment has not been reversed, suspended, or vacated.

Section 16(a) Beneficial Ownership Compliance

Section 16(a) of the

Exchange Act requires our directors and executive officers and persons who own more than 10% of the issued and outstanding shares

of our common stock to file reports of initial ownership of common stock and other equity securities and subsequent changes in

that ownership with the SEC.

Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish

us with copies of all Section 16(a) forms they file.

To our knowledge, during the fiscal year ended December 31, 2019, our officers,

directors and greater than 10% beneficial owners have complied with all applicable filing requirements of Section 16(a).

Section 16(a) of the Exchange

Act requires our directors and executive officers and persons who own more than 10% of the issued and outstanding shares of our

common stock to file reports of initial ownership of common stock and other equity securities and subsequent changes in that ownership

with the SEC.

Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with

copies of all Section 16(a) forms they file.

To our knowledge, during the fiscal year ended December 31, 2020, our officers, directors

and greater than 10% beneficial owners have complied with all applicable filing requirements of Section 16(a).

Code of Ethics

We do not currently

have a Code of Ethics, as defined under the rules and regulations of the Exchange Act.

We do not currently have

a Code of Ethics, as defined under the rules and regulations of the Exchange Act.

The Company does not believe a Code of Ethics

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Committees of the Board

We currently do not

have nominating, compensation or audit committee, or committees performing similar functions, nor do we have a written nominating,

We currently do not have

nominating, compensation or audit committee, or committees performing similar functions, nor do we have a written nominating,

compensation or audit committee charter.

The Board of Directors does not believe that it is necessary to have such committees at

this time because it believes that the functions of such committees can be adequately performed by the Board of Directors.

The Board of Directors does not believe that it is necessary to have such committees

at this time because it believes that the functions of such committees can be adequately performed by the Board of Directors.

EXECUTIVE COMPENSATION

8 unchanged sentences

referred to as the “Named Executive Officers”):

Name and Principal

Name and Principal Position

$ 137,931 (1)

2 unchanged sentences

Timothy Knowles

$ 141,353 (2)

Chief Technology Officer

2 unchanged sentences

VP of Engineering

(1) Of the aggregate $161,785 earned during 2019, cash compensation

paid during 2019 was $28,154 and $135,425 remains unpaid as of December 31, 2019.

(2) Of the aggregate $141,353 earned during 2019, cash compensation

paid during 2019 was $70,680 and $70,673 remains unpaid as of December 31, 2019.

(3) Of the aggregate $161,785 earned during 2018, cash compensation

paid during 2018 was $78,247 and $83,539 still remains unpaid as of December 31, 2019.

(4) Of the aggregate $141,353 earned during 2018, cash compensation

paid during 2018 was $103,117 and $38,236 still remains unpaid as of December 31, 2019.

Any bonuses granted

in the future will relate to meeting certain performance criteria that are directly related to areas within the named executive’s

compensation paid during 2020 was $356,895, of which $137,931 and $218,964 was earned in 2020 and prior years, respectively,

and none remains unpaid as of December 31, 2020.

Of the aggregate

$161,785 earned during 2019, cash compensation paid during 2019 and 2020 was $28,154 and $135,425, respectively, and none

remains unpaid as of December 31, 2020.

Of the aggregate $56,893 earned during

2020, cash compensation paid during 2020 was $56,893.

As of December 31, 2020, $108,910 remains unpaid, which includes unpaid

compensation that was earned in 2019 and prior years

Of the aggregate

$141,353 earned during 2019, cash compensation paid during 2019 was $70,680 and $70,673 remains unpaid as of December 31,

Any bonuses granted in

the future will relate to meeting certain performance criteria that are directly related to areas within the named executive’s

responsibilities with the Company.

12 unchanged sentences

Compensation of Directors

Because we are still

in the development stage, our directors do not receive any compensation other than reimbursement for expenses incurred during the

Because we are still in

the development stage, our directors do not receive any compensation other than reimbursement for expenses incurred during the

performance of their duties or their separate duties as officers of the Company.

Employment Contracts;

Termination of

Employment and Change-in-Control Arrangements

Although we have not

entered into employment agreements with all of our officers and directors, we have agreed to pay the following salaries to our

Name and Principal Position

Michael Mo - CEO and Chairman

Timothy Knowles - CTO and Director

Simon Westbrook - CFO

Michael Carpenter - VP of Engineering

At the sole discretion

of our Board of Directors, all officers are entitled to merit-based cash and equity bonuses.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL

OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table

provides the names and addresses of each person known to us who own more than 5% of the outstanding common stock as of the

date of this annual report, and by our officers and directors.

Termination of Employment

and Change-in-Control Arrangements

have not entered into employment agreements with our officers and directors and our Board of Directors has the sole discretion

to pay salaries and incentive bonuses, including merit-based cash and equity bonuses.

OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table provides

the names and addresses of each person known to us who own more than 5% of the outstanding common stock as of the date of

this annual report, and by our officers and directors.

Except as otherwise indicated, all shares are owned directly.

otherwise indicated, the address of each of the persons shown is c/o KULR Technology Group, Inc., 1999 S.

Campbell, CA 95008.

Unless otherwise

indicated, the address of each of the persons shown is c/o KULR Technology Group, Inc., 1999 S.

Name of Beneficial Owner

Beneficial Ownership

Percentage Ownership (1)

Michael Mo (2) - CEO and Chairman

1 unchanged sentence

Simon Westbrook - CFO

Keith Cochran (4) –

President and COO

Michael Carpenter - VP of Engineering

All directors and executive officers as a group (5 persons)

The percent of class is based on 81,187,970 shares of common stock issued and outstanding

as of May 14, 2020.

The percent of class is based on 90,567,200 shares of common

stock issued and outstanding as of March 18, 2021 but does not include 2,060,000 shares that are not vested and cannot be

20,000,000 shares held directly by Mr.

Mo and 1,400,000 shares held jointly by Mr.

Mo and 1,400,000 shares held jointly

Mo and his spouse, Linda Mo, and excludes shares held by Mr.

Mo’s son Alexander Mo and 2,525,000 shares held by Mr.

Mo’s son Brandon Mo, over which shares Mr.

Mo’s son Alexander Mo and shares held by Mr.

son Brandon Mo, over which shares Mr.

Mo disclaims beneficial ownership, as Mr.

Mo has no control over the dispositive or voting power over the shares and his sons no longer live in the same household as Mr.

Mo has no control over the dispositive or voting

power over the shares and his sons no longer live in the same household as Mr.

Consists of 15,600,000 shares held directly by Mr.

Knowles and excludes 1,500,000 shares held by Mr.

excludes 1,500,000 shares held by Mr.

Knowles daughter, Sonja Irene Knowles, over which shares Mr.

Knowles disclaims beneficial ownership, as Mr.

Knowles has no control over the dispositive or voting power over the shares and his daughter no longer lives in the same household as Mr.

Knowles disclaims beneficial

ownership, as Mr.

Knowles has no control over the dispositive or voting power over the shares and his daughter no longer lives

in the same household as Mr.

Does not include 2,000,000 restricted stock grants that vest

in four equal annual installments beginning on March 1, 2022.

Change in Control

We are not aware of

any arrangement that might result in a change in control of the Company.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS,

AND DIRECTOR INDEPENDENCE

On June 19, 2017, we

acquired all the issued and outstanding shares of KULR pursuant to the Share Exchange Agreement in exchange for the issuance of

We are not aware of any

arrangement that might result in a change in control of the Company.

CERTAIN RELATIONSHIPS AND RELATED

PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE

On June 19, 2017, we acquired

all the issued and outstanding shares of KULR pursuant to the Share Exchange Agreement in exchange for the issuance of 50,000,000

of our Common Stock and KULR became our wholly owned subsidiary.

Our Chief Executive Officer and Director, Michael Mo,

and various members of his family were among the shareholders of KULR that entered into the Share Exchange Agreement along with

our Chief Technical Officer and Director, Timothy Knowles, and various members of his family.

Our Chief Executive Officer and Director, Michael Mo, and various

members of his family were among the shareholders of KULR that entered into the Share Exchange Agreement along with our Chief

Technical Officer and Director, Timothy Knowles, and various members of his family.

Furthermore, Mr.

Mo was an officer

and director of both the Company and KULR prior to and after entering into the Share Exchange Agreement.

Knowles was an officer

and director of KULR prior to and after entering into the Share Exchange Agreement and became an officer and director of the Company

after the closing of the Share Exchange Agreement.

On December 28,

2018, the Company’s Board of Directors authorized the issuance of one million (1,000,000) shares of its Series A

Preferred Stock to its Chief Executive Officer, Michael Mo, in the future as a measure to protect the Company from an

uninvited takeover .

The rights, limitations and preferences of the Series A Preferred Stock, including the rights of its

holders to cast one hundred (100) votes for each share of Series A Preferred Stock, are set forth in the Certificate of

Designation of Series A Voting Preferred Stock, which was filed as Exhibit

3.1 to the Company’s Current Report on Form 8-K filed with the SEC as of June 12, 2017 and is incorporated herein

by reference.

PRINCIPAL ACCOUNTING FEES AND SERVICES

On July 19, 2018, the

Company dismissed Chen & Fan Accountancy Corporation (“C&F”) and appointed Marcum LLP (“Marcum”)

as its independent registered public accounting firm.

The following is a

summary of the fees billed or expected to be billed to us for professional services rendered with respect to the fiscal years ended

December 31, 2019 and 2018:

Mo was an officer and director

of both the Company and KULR prior to and after entering into the Share Exchange Agreement.

Knowles was an officer and director

of KULR prior to and after entering into the Share Exchange Agreement and became an officer and director of the Company after

the closing of the Share Exchange Agreement.

December 28, 2018, the Company’s Board of Directors authorized the issuance of one million (1,000,000) shares of its Series

A Preferred Stock to its Chief Executive Officer, Michael Mo, in the future as a measure to protect the Company from an uninvited

The rights, limitations and preferences of the Series A Preferred Stock, including the rights of its holders to cast

one hundred (100) votes for each share of Series A Preferred Stock, are set forth in the Certificate of Designation of Series A

Voting Preferred Stock, which was filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the

SEC as of June 12, 2017 and is incorporated herein by reference.

PRINCIPAL ACCOUNTING FEES AND

The following is a summary

of the fees billed or expected to be billed to us for professional services rendered with respect to the fiscal years ended December

31, 2020 and 2019:

For the Fiscal Year Ended

Audit fees consist

of fees billed for services rendered by our independent auditors during the years ended December 31, 2019 and 2018 for the audit

Audit fees consist of

fees billed for services rendered by our independent auditors during the years ended December 31, 2020 and 2019 for the audit

and review of our financial statements.

Tax fees consist of

fees billed for services rendered by our tax preparers during the years ended December 31, 2019 and 2018 in connection with the

preparation and filing of our income tax returns.

Tax fees consist of fees

billed for services rendered by our tax preparers during the years ended December 31, 2020 and 2019 in connection with the preparation

and filing of our income tax returns.

Pre-Approval Policies

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unrelated to the audit is compatible with maintaining the independence of Marcum.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Share Exchange Agreement, dated June 8, 2017 (1)

Articles of Incorporation of the Company (2)

Bylaws of the Company (2)

Certificate of Incorporation of KULR Technology Corporation (3)

Amended and Restated Certificate of Incorporation of KULR Technology Corporation (3)

By-laws of KULR Technology Corporation (3)

Certificate of Designation of Series A Voting Preferred Stock, filed on June 6, 2017 (1)

Certificate of Amendment to the Certificate of Incorporation, effective August 30, 2018 (8)

Certificate of Designation of Series B Convertible Preferred Stock, filed on December 6, 2018 (9)

Certificate of Amendment to the Certificate of Incorporation, effective December 31, 2018 (10)

Certificate of Designation of Series C Convertible Preferred Stock, filed on August 19, 2019 (11)

Description of registrant’s securities registered pursuant to Section 12 of the Securities Exchange Act of 1934*

License and Development Agreement, dated April 15, 2013 (3)

Consulting Agreement, dated April 15, 2013 (3)

Letter of Intent by and between the Company and E3 Enterprise, dated April 20, 2016 (4)

Letter of Intent by and between the Company and KULR Technology Corporation (5)

Patent Assignment Agreement, dated November 10, 2016 (3)

Promissory Note issued by KULR Technology Corporation, dated March 31, 2017 (6)

Promissory Note issued by KULR Technology Corporation, dated June 8, 2017 (1)

Consulting Agreement, dated March 15, 2018 (7)

EXHIBITS, FINANCIAL STATEMENT

Exchange Agreement, dated June 8, 2017 (1)

of Incorporation of the Company (2)

of the Company (2)

of Incorporation of KULR Technology Corporation (3)

and Restated Certificate of Incorporation of KULR Technology Corporation (3)

of KULR Technology Corporation (3)

of Designation of Series A Voting Preferred Stock, filed on June 6, 2017 (1)

of Amendment to the Certificate of Incorporation, effective August 30, 2018 (8)

of Designation of Series B Convertible Preferred Stock, filed on December 6, 2018 (9)

of Amendment to the Certificate of Incorporation, effective December 31, 2018 (10)

of Designation of Series C Convertible Preferred Stock, filed on August 19, 2019 (11)

of registrant’s securities registered pursuant to Section 12 of the Securities Exchange Act of 1934*

and Development Agreement, dated April 15, 2013 (3)

Agreement, dated April 15, 2013 (3)

of Intent by and between the Company and E3 Enterprise, dated April 20, 2016 (4)

of Intent by and between the Company and KULR Technology Corporation (5)

Assignment Agreement, dated November 10, 2016 (3)

Note issued by KULR Technology Corporation, dated March 31, 2017 (6)

Note issued by KULR Technology Corporation, dated June 8, 2017 (1)

Agreement, dated March 15, 2018 (7)

KULR Technology Group Equity Incentive Plan (12)

Purchase Agreement dated April 2, 2019 (13)

Subscription Agreement, as supplemented, for Common Stock Offering (14)

Rescission and Termination Agreement dated July 5, 2019 (15)

Form of Subscription Agreement (16)

Form of Warrant (16)

Standby Equity Distribution Agreement dated February 27, 2020 (17)

Note Purchase Agreement dated February 27, 2020 (17)

Promissory Note dated February 27, 2020 (17)

List of Subsidiaries (3)

Consent of Marcum LLP*

Certification pursuant to 18 U.S.C.

Agreement, as supplemented, for Common Stock Offering (14)

and Termination Agreement dated July 5, 2019 (15)

of Subscription Agreement (16)

of Warrant (16)

Equity Distribution Agreement dated February 27, 2020 (17)

Purchase Agreement dated February 27, 2020 (17)

Note dated February 27, 2020 (17)

Purchase Agreement dated July 20, 2020 (18)

Note dated July 20, 2020 (18)

Securities Purchase Agreement (19)

Agency Agreement (19)

of Subsidiaries (3)

of Marcum LLP*

Certification

pursuant to 18 U.S.C.

Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

Certification pursuant to 18 U.S.C.

Certification

pursuant to 18 U.S.C.

Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

Certification pursuant to 18 U.S.C.

Certification

pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

XBRL Instance*

XBRL Taxonomy Extension Schema*

XBRL Taxonomy Extension Calculation*

XBRL Taxonomy Extension Definition*

XBRL Taxonomy Extension Labels*

XBRL Taxonomy Extension Presentation*

XBRL Taxonomy Extension

Presentation*

* Filed herewith.

Previously filed as an exhibit to Form 8-K on June 12, 2017 and incorporated herein by this reference.

Previously filed as an exhibit on Form 10-12G on January 7, 2016 (File No.:

Previously filed as an exhibit to Form 8-K on June 12, 2017

and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on June 19, 2017 and incorporated herein by this reference.

Previously filed as an exhibit on Form 10-12G on January 7,

2016 (File No.:

000-55564) and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on June 19, 2017

and incorporated herein by this reference.

Previously filed on Form S-1 on June 28, 2016 (File No.:

and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on November 3, 2016 and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on April 5, 2017 and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on March 15, 2018 and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on August 30, 2018 and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on December 6, 2018 and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on January 7, 2019 and incorporated herein by this reference.

Previously filed as an exhibit to Form

8-K on August 23, 2019 and incorporated herein by this reference.

Previously filed

as an exhibit to Form S-8 on October 9, 2018 and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on April 3, 2019 and incorporated herein by this reference.

Previously filed as an exhibit to Form 10-Q on May 14, 2019 and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on July 5, 2019 and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on December 5, 2019 and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on March 4, 2020 and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on November 3, 2016

and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on April 5, 2017

and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on March 15,

2018 and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on August 30,

2018 and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on December 6, 2018

and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on January 7, 2019

and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on August 23, 2019

and incorporated herein by this reference.

Previously filed as an exhibit to Form S-8 on October 9, 2018

and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on April 3, 2019

and incorporated herein by this reference.

Previously filed as an exhibit to Form 10-Q on May 14, 2019

and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on July 5, 2019 and

incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on December 5, 2019

and incorporated herein by this reference.

Previously filed as an exhibit to

Form 8-K on March 4, 2020 and incorporated herein by this reference.

Previously filed as an exhibit to

Form 8-K on July 21, 2020 and incorporated herein by this reference.

Previously filed as an exhibit to

Form 8-K on December 31, 2020 and incorporated herein by this reference.

FORM 10-K SUMMARY

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undersigned, thereunto duly authorized.

March 19, 2021

KULR Technology Group, Inc.

5 unchanged sentences

Chief Financial Officer

Financial and Accounting Officer)

(Principal Financial and Accounting

Pursuant to the requirements of the Securities

3 unchanged sentences

Chief Executive Officer and Chairman

March 19, 2021

/s/ Timothy Knowles

Chief Technical Officer and Director

March 19, 2021

Timothy Knowles

1 unchanged sentence

Chief Financial Officer

March 19, 2021

Simon Westbrook

1 unchanged sentence

AND SUBSIDIARY

INDEX TO CONSOLIDATED FINANCIAL

of Independent Registered Public Accounting Firm

Balance Sheets as of December 31, 2019 and 2018

Statements of Operations for the Years Ended December 31, 2019 and 2018

Statements of Changes in Stockholders’ Deficiency for the Years Ended December 31, 2019 and 2018

Statements of Cash Flows for the Years Ended December 31, 2019 and 2018

to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting

Consolidated Balance Sheets as of December 31, 2020 and 2019

Consolidated Statements of Operations for the Years Ended

December 31, 2020 and 2019

Consolidated Statements of Changes in Stockholders’

Equity (Deficiency) for the Years Ended December 31, 2020 and 2019

Consolidated Statements of Cash Flows for the Years Ended

December 31, 2020 and 2019

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors

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related consolidated statements of operations, changes in stockholders’

deficiency and cash flows for each of the

equity (deficiency) and cash flows for each of the

two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

2 unchanged sentences

December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph –

Going Concern

The accompanying financial statements have

been prepared assuming that the Company will continue as a going concern.

As more fully described in Note 2, the Company has a

working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain

its operations.

These conditions raise substantial doubt about the Company's ability to continue as a going concern.

plans in regard to these matters are also described in Note 2.

The financial statements do not include any adjustments that might

result from the outcome of this uncertainty.

Basis for Opinion

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reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising

from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,

subjective, or complex judgments.

We determined that there are no critical audit matters.

/s/ Marcum LLP

We have served as the Company’s

auditor since 2018.

TECHNOLOGY GROUP, INC.

We have served as the Company’s auditor since 2018.

Los Angeles, CA

March 19, 2021

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

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Current Assets:

Current Assets

and equipment, net

and Stockholders' Deficiency

expenses and other current liabilities

expenses and other current liabilities - related party

Accounts receivable

Prepaid expenses and other current

Total Current Assets

Property and equipment, net

Liabilities and Stockholders' Equity (Deficiency)

Current Liabilities:

Commitments and contingencies (See Note 10)

Stockholders'

stock, $0.0001 par value, 20,000,000 shares authorized;

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

Accounts payable

Accounts payable - related party

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities - related

Accrued issuable equity

Notes payable, net of debt discount

of $128,198 and $0 at December 31, 2020 and 2019, respectively

Loans payable, current portion

Deferred revenue

Total Current Liabilities

Loans payable, non-current portion

Total Liabilities

Commitments and contingencies (Note 13)

Stockholders' Equity (Deficiency):

Preferred stock, $0.0001 par value, 20,000,000 shares authorized;

Series A Preferred Stock, 1,000,000

shares designated;

none issued and outstanding at December 31, 2020 and 2019

B Convertible Preferred Stock, 31,000 shares designated;

14,487 and 30,858 shares issued and outstanding at December 31, 2019

and 2018, respectively;

liquidation preference of $14,487 and $30,858 at December 31, 2019 and 2018, respectively

C Preferred Stock, 400 shares designated;

24.01 and 0 shares issued and outstanding at December 31, 2019 and

2018, respectively;

liquidation preference of $240,100 and $0 at December 31, 2019 and 2018, respectively

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

81,071,831 and 78,706,256 shares issued and outstanding at December 31,

Series B Convertible Preferred Stock,

31,000 shares designated;

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

at December 31, 2020 and 2019, respectively

Series C Preferred Stock, 400 shares

0.00 and 24.01 shares issued and outstanding and liquidation preference of $0 and $240,100 at December 31, 2020

and 2019, respectively

paid-in capital

Stockholders' Deficiency

Liabilities and Stockholders' Deficiency

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

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

89,908,600 and 81,071,831 shares issued

and outstanding at December 31, 2020 and 2019, respectively

Additional paid-in capital

Accumulated deficit

(11,246,408 )

Total Stockholders' Equity (Deficiency)

Total Liabilities and Stockholders'

Equity (Deficiency)

The accompanying notes are an

integral part of these consolidated financial statements.

TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

STATEMENTS OF OPERATIONS

the Years Ended

and development

general and administrative

CONSOLIDATED STATEMENTS

OF OPERATIONS

For the Years Ended

Cost of revenue

Operating Expenses:

From Operations

(Expense) Income:

in fair value of accrued issuable equity

Other (Expense) Income

Research and development

Selling, general, and administrative

Total Operating Expenses

Loss From Operations

Other (Expenses) Income

Interest expense, net

Amortization of debt discount

Change in fair value of accrued issuable

Total Other Expenses

Deemed dividend

to Series C Preferred Stockholders

Net Loss Attributable

to Common Stockholders

$ (2,851,787 )

$ (1,979,753 )

Loss Per Share

Net Loss Per Share

- Basic and Diluted

Average Number of Common Shares Outstanding

Weighted Average Number of Common Shares Outstanding

- Basic and Diluted

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

KULR TECHNOLOGY GROUP, INC.

The accompanying notes are an

integral part of these consolidated financial statements.

TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIENCY

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

CONSOLIDATED STATEMENTS

OF CHANGES IN STOCKHOLDERS’

(DEFICIENCY) EQUITY

FOR THE YEARS ENDED DECEMBER

31, 2020 AND 2019

B Convertible

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Stockholders'

- January 1, 2018

$ (4,358,320 )

stock issued for cash, net of

B Convertible Preferred Stock issued

common stockholders (See Note 9)

B Convertible Preferred Stock issued as

dividend to common stockholders

of accrued expenses by

Balance - January 1, 2019

Stock-based compensation

Common stock issued for cash

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 - December 31, 2019

$ (6,416,559 )

stock issued for cash

stock issued upon conversion of

Common stock and warrants issued for cash, net

of issuance costs [2]

Common stock issued for the commitment fee pursuant

to the SEDA agreement

Common stock issued pursuant to the SEDA agreement:

For cash, net of issuance

In satisfaction of

notes payable

Common stock issued upon conversion of Series

B Convertible Preferred Stock

C Convertible Preferred Stock and

issued for cash, net of issuance

of accrued expenses by

- December 31, 2019

$ (8,396,312 )

Common stock issued upon conversion of Series

C Convertible Preferred Stock

Stock-based compensation:

Balance - December 31, 2020

[1] Includes gross

proceeds of $216,000, less cash issuance costs of $62,000.

gross proceeds of $8,000,001, less issuance costs of $730,152 ($705,300 of cash and $24,852 of non-cash).

[2] Includes gross proceeds of $216,000, less cash issuance costs of $62,000.

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

KULR TECHNOLOGY GROUP, INC.

represents gross proceeds of $1,501,696 less $78,259 issuance costs.

The accompanying notes are an

integral part of these consolidated financial statements.

TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENTS

For the Years Ended

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$ (1,979,753 )

Adjustments to reconcile net loss to net cash used in

operating activities:

Adjustments to reconcile net loss to net cash used in operating

Amortization of debt discount

Depreciation expense

Bad debt expense

Write-down of inventory

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Stock-based compensation

Lower of cost or net realizable value adjustment

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses

Other current assets

Prepaid expenses and other current assets

Accounts payable

Accounts payable - related party

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities - related party

Accrued expenses and other current liabilities - related

Deferred revenue

Security deposit

Total Adjustments

Net Cash Used In Operating Activities

Net Cash Used In

Operating Activities

Cash Flows From Investing Activities:

Purchases of property and equipment

Net Cash Used In Investing Activities

Purchase of property and equipment

Net Cash Used In

Investing Activities

Cash Flows from Financing Activities:

Proceeds from issuance of Series B Convertible Preferred Stock

Proceeds from sale of Series C Convertible Preferred Stock and warrants [1]

Proceeds from sale of common stock [2]

Payment of offering costs

Net Cash Provided By Financing Activities

Net Decrease In Cash

Cash - Beginning of Year

Cash - End of Year

gross proceeds of $216,000, less withheld cash issuance costs of $32,000.

gross proceeds of $714,000, less withheld cash issuance costs of $35,000 for the year ended December 31, 2018.

were no issuance costs for the year ended December 31, 2019.

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

KULR TECHNOLOGY GROUP, INC.

Proceeds from notes payable

Repayments of notes payable

Payment of debt issuance costs

Proceeds from Paycheck Protection Program loan

Proceeds from sale of Series C Convertible Preferred Stock

and warrants [1]

Payment of offering costs in connection with sale of Series

C Convertible

Preferred Stock and warrants

Proceeds from sale of common stock issued pursuant to the

SEDA agreement [2]

Payment of offering costs in connection with the SEDA agreement

Proceeds from sale of common stock and warrants

Payment of offering costs in connection

with sale of common stock and warrants

Net Cash Provided

By Financing Activities

Net Increase (Decrease) In Cash

Cash - Beginning of Period

Cash - End of Period

[1] Includes gross

proceeds of $216,000 less withheld cash issuance costs of $32,000.

[2] Includes gross proceeds of $2,292,695 less $791,000

withheld by the investor to pay down a portion of the notes payable held by the same

The accompanying

notes are an integral part of these consolidated financial statements.

KULR TECHNOLOGY GROUP,

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

CONSOLIDATED STATEMENTS

OF CASH FLOWS, CONTINUED

For the Years Ended

Supplemental Disclosures of Cash Flow Information:

Cash paid during the period for:

Cash paid during the year for:

Non-cash investing and financing activities:

Common stock equity offering issuance costs

Accrual of offering costs

Series B Convertible Preferred Stock issued as deemed dividend to common stockholders

Common stock issued upon conversion of Series B Convertible Preferred Stock

Forgiveness of accrued expenses by related party

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

Common stock issued for repayment

of note payable

Common stock issued upon conversion

of Series B Convertible Preferred Stock

Common stock issued upon conversion

of Series C Convertible Preferred Stock

Forgiveness of accrued expenses by

related party

Original issuance discount on notes

Value of common stock issued as a

commitment fee for the SEDA agreement

Disposal of fully depreciated property

and equipment

The accompanying

notes are an integral part of these consolidated financial statements.

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019

BUSINESS ORGANIZATION AND NATURE OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

1 BUSINESS ORGANIZATION, NATURE OF OPERATIONS AND RISKS AND UNCERTANTIES

Organization and Operations

KULR Technology Group, Inc.

was incorporated

on December 11, 2015 under the laws of the State of Delaware as KT High-Tech Marketing, Inc.

Effective August 30, 2018, KT High-Tech

Marketing, Inc.

Technology Group, Inc.

was incorporated on December 11, 2015 under the laws of the State of Delaware as KT High-Tech Marketing,

Effective August 30, 2018, KT High-Tech Marketing, Inc.

changed its name to KULR Technology Group, Inc.

KULR Technology Group, Inc., through its

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

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

a range of applications.

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.

GOING CONCERN AND MANAGEMENT’S PLANS

The Company has not yet achieved profitability

and expects to continue to incur cash outflows from operations.

It is expected that its research and development and general and

administrative expenses will continue to increase and, as a result, the Company will eventually need to generate significant product

revenues to achieve profitability.

These conditions indicate that there is substantial doubt about the Company’s ability

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

The Company is currently funding its operations

on a month-to-month basis and the Company’s management believes that it has access to capital resources to fund ongoing operations.

In February 2020, the Company negotiated an equity line of credit for up to $8,000,000 million of which $1,500,000 was immediately

drawn down to fund payment of liabilities and provide working capital, and an additional $10,000 was drawn in April 2020.

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.

there is no assurance that the Company will be able to continue to obtain funds on commercially acceptable terms, if at all.

the Company is unable to obtain adequate funds on reasonable terms, it may be required to significantly curtail or discontinue

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

The Company’s operating needs include

the planned costs to operate its business, including amounts required to fund working capital and capital expenditures.

The accompanying consolidated financial

statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S.

GAAP”), which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of

liabilities in the normal course of business.

The consolidated financial statements do not include any adjustment that might become

necessary should the Company be unable to continue as a going concern.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements of

the Company include the accounts of KULR Technology Group, Inc.

KULR Technology Group, Inc., through its wholly-owned

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

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

range of applications.

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 communication,

cloud computer infrastructure, consumer and industrial devices.

Risks and Uncertainties

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 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.

NOTE 2 SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of

The consolidated financial statements of the

Company include the accounts of KULR Technology Group, Inc.

and its wholly-owned subsidiary, KULR Technology Corporation.

All intercompany transactions have been eliminated in the consolidation.

Preparation of financial statements in

conformity with U.S.

GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of

assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the financial statements.

Company’s significant estimates used in these financial statements include, but are not limited to, fair value calculations

for equity securities, stock-based compensation, the collectability of receivables, inventory valuations, the recoverability and

useful lives of long-lived assets, and the valuation allowance related to the Company’s deferred tax assets.

Certain of the

Company’s estimates could be affected by external conditions, including those unique to the Company and general economic

It is possible that these external factors could have an effect on the Company’s estimates and could cause actual

results to differ from those estimates.

See Note 3 –

Summary of Significant Accounting

Policies, Stock-Based Compensation for additional discussion of the use of estimates in estimating the fair

value of the Company’s common stock.

KULR TECHNOLOGY

significant intercompany transactions have been eliminated in the consolidation.

The consolidated financial statements have been

prepared in conformity with accounting principles generally accepted in the United States of America (“U.S.

The Company has previously disclosed that there was substantial

doubt about its ability to continue as a going concern as a result of its past working capital balances, operating losses, and

cash used in operations.

During the year ended December 31, 2020, the Company raised aggregate gross proceeds of approximately

$8.0 million, $1.5 million, and $3.9 million in connection with the sale of common stock and warrants in a public offering, the

sale of common stock issued pursuant to a Standby Equity Distribution Agreement, and the issuances of notes payable, respectively.

As of December 31, 2020, the Company had cash and working capital of approximately $8.9 million and $6.2 million, respectively.

As a result of these capital raising efforts, the Company has alleviated the previously reported substantial doubt about its ability

to continue as a going concern.

For the year ended December 31, 2020, the Company incurred a net loss of approximately $2.9 million

and used cash in operations of approximately $2.7 million.

While the Company anticipates it will continue to incur operating losses

and use cash in operating activities for the foreseeable future, the Company believes that its current working capital is sufficient

in comparison to its anticipated cash usage for a period of at least the next twelve months subsequent to the filing date of these

financial statements.

Use of Estimates

Preparation of financial statements in conformity

GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities,

revenues and expenses, together with amounts disclosed in the related notes to the financial statements.

The Company’s significant

estimates used in these financial statements include, but are not limited to, fair value calculations for equity securities, stock-based

compensation, the collectability of receivables, inventory valuations, the recoverability and useful lives of long-lived assets,

and the valuation allowance related to the Company’s deferred tax assets.

Certain of the Company’s estimates could

be affected by external conditions, including those unique to the Company and general economic conditions.

It is possible that

these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those

See Note 2 – Summary of Significant

Accounting Policies, Stock-Based Compensation for additional discussion of the use of estimates in estimating the fair value of

the Company’s common stock.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Concentrations of Credit Risk

The Company maintains cash with major financial

institutions.

Cash held in U.S.

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

up to $250,000 at each institution.

There were no uninsured cash balances as of December 31, 2019 and 2018, respectively.

Customer concentrations are as follows:

Financial instruments that potentially subject

the Company to significant concentrations of credit risk consisted primarily of cash, accounts receivable, revenue and accounts

Cash Concentrations

A significant portion of the Company’s

cash is held at one major financial institution.

The Company has not experienced any losses in such accounts.

Cash held in US

bank institutions is currently insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 at each

There was an uninsured balance of $8,513,010 as of December 31, 2020 and no uninsured cash balances as of December

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

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* 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 are as follows:

As of December 31,

* 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

Accounts Receivable

Accounts receivable are carried at their

contractual amounts, less an estimate for uncollectible amounts.

As of December 31, 2019 and 2018, no allowances for uncollectable

amounts were determined to be necessary.

Management estimates the allowance for bad debts based on existing economic conditions,

the financial conditions of the customers, and the amount and age of past due accounts.

Receivables are considered past due if

full payment is not received by the contractual due date.

Past due accounts are generally written off against the allowance for

bad debts only after all collection attempts have been exhausted.

Inventory is comprised of carbon fiber

thermal interface solutions and internal short circuit batteries, which are available for sale.

Inventories are stated at the lower

of cost or net realizable value.

Cost is determined by the first-in, first-out method.

The cost of inventory that is sold to third

parties is included within cost of sales and the cost of inventory that is given as samples is included within operating expenses.

The Company periodically reviews for slow-moving, excess or obsolete inventories.

Products that are determined to be obsolete,

if any, are written down to net realizable value.

As of December 31, 2019 and 2018, the Company’s inventory was comprised

solely of finished goods.

Accounts receivable are carried at their contractual

amounts, less an estimate for uncollectible amounts.

As of December 31, 2020 and 2019, no allowances for uncollectable amounts

were determined to be necessary.

Management estimates the allowance for bad debts based on existing economic conditions, the financial

conditions of the customers, and the amount and age of past due accounts.

Receivables are considered past due if full payment

is not received by the contractual due date.

Past due accounts are generally written off against the allowance for bad debts only

after all collection attempts have been exhausted.

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Inventory is comprised of carbon fiber

velvet (“CFV”) thermal interface solutions and internal short circuit batteries, which are available for sale.

are stated at the lower of cost or net realizable value.

Cost is determined by the first-in, first-out method.

The cost of inventory

that is sold to third parties is included within cost of sales and the cost of inventory that is given as samples is included within

operating expenses.

The Company periodically reviews for slow-moving, excess or obsolete inventories.

Products that are determined

to be obsolete, if any, are written down to net realizable value.

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

was comprised solely of finished goods.

Property and Equipment

2 unchanged sentences

to charge the cost of depreciable assets to operations over their estimated useful lives, which range from 3 to 7 years.

improvements are amortized over the lesser of (a) the useful life of the asset;

improvements are amortized over the shorter of (a) the useful life of the asset;

or (b) the remaining lease term.

Maintenance and

repairs are charged to operations as incurred.

The Company capitalizes cost attributable to the betterment of property and equipment

when such betterment extends the useful life of the assets.

The Company reviews for the impairment

of long-lived assets annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may

not be recoverable.

and repairs are charged to operations as incurred.

The Company capitalizes cost attributable to the betterment of property and

equipment when such betterment extends the useful life of the assets.

The Company reviews for the impairment of

long-lived assets annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may not

be recoverable.

An impairment loss would be recognized when the present value of estimated future cash flows expected to result

1 unchanged sentence

Fair Value of Financial Instruments

The Company measures the fair value of

financial assets and liabilities based on the guidance of Accounting Standards Codification (“ASC”) 820 “Fair

Value Measurements and Disclosures”

(“ASC 820”) which defines fair value, establishes a framework for measuring

fair value, and expands disclosures about fair value measurements.

The Company measures the fair value of financial

assets and liabilities based on the guidance of Accounting Standards Codification (“ASC”) 820 “Fair Value Measurements

and Disclosures” (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and

expands disclosures about fair value measurements.

ASC 820 defines fair value as the exchange

1 unchanged sentence

market for the asset or liability in an orderly transaction between market participants on the measurement date.

ASC 820 also establishes

a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable

inputs when measuring fair value.

establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of

unobservable inputs when measuring fair value.

ASC 820 describes three levels of inputs that may be used to measure fair value:

Level 1 — quoted prices in active

markets for identical assets or liabilities

Level 1 — quoted prices in active markets

for identical assets or liabilities

Level 2 — quoted prices for similar

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The carrying amounts of the Company’s

financial instruments, such as cash, accounts receivable and accrued expenses and other current liabilities approximate fair values

due to the short-term nature of these instruments.

Preferred Stock

The Company applies the accounting standards

for distinguishing liabilities from equity when determining the classification and measurement of its preferred stock.

shares subject to mandatory redemption are classified as liability instruments and are measured at fair value.

Conditionally redeemable

preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or

subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as

temporary equity.

At all other times, preferred shares are classified as stockholders’ equity.

During the year ended December 31, 2018,

the Company obtained a third-party valuation of its Series B Convertible Preferred Stock, which was considered in management’s

estimation of the value of the equity instruments issued during that period.

Based on the valuation, it was determined the Company’s

Series B Convertible Preferred Stock had a fair value of $33.00 per share.

financial instruments, such as cash, accounts receivable, accrued expenses and other current liabilities, notes payable and loans

payable approximate fair values due to the short-term nature of these instruments.

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Preferred Stock

The Company applies the accounting standards

for distinguishing liabilities from equity when determining the classification and measurement of its preferred stock.

The Company’s

Preferred shares are classified as stockholders’ equity because they are not subject to mandatory redemption, which would

result in liability classified instruments measured at fair value and are not conditionally redeemable preferred shares (including

preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon

the occurrence of uncertain events not solely within the Company’s control) which would result in temporary equity classified

Convertible Instruments

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to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately

accounted for in accordance with Topic 815 of the Financial Accounting Standards Board (“FASB”) ASC.

The accounting

treatment of derivative financial instruments requires that the Company record embedded conversion options and any related freestanding

instruments at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet

Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance

The Company reassesses the classification of its derivative instruments at each balance sheet date.

If the classification

changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.

Embedded conversion options and any related freestanding instruments are recorded as a discount to the host instrument.

If the instrument is determined not to

be a derivative liability, the Company then evaluates for the existence of a beneficial conversion feature by comparing the market

accounted for in accordance with Topic 815 of the FASB ASC.

The accounting treatment of derivative financial instruments requires

that the Company record embedded conversion options and any related freestanding instruments at their fair values as of the inception

date of the agreement and at fair value as of each subsequent balance sheet date.

Any change in fair value is recorded as non-operating,

non-cash income or expense for each reporting period at each balance sheet date.

The Company reassesses the classification of

its derivative instruments at each balance sheet date.

If the classification changes as a result of events during the period,

the contract is reclassified as of the date of the event that caused the reclassification.

Embedded conversion options and any

related freestanding instruments are recorded as a discount to the host instrument.

If the instrument is determined not to be

a derivative liability, the Company then evaluates for the existence of a beneficial conversion feature by comparing the market

price of the Company’s common stock as of the commitment date to the effective conversion price of the instrument.

Accrued Issuable Equity

The Company records accrued issuable equity

when it is contractually obligated to issue shares and there has been a delay in the issuance of such shares.

Accrued issuable

equity is recorded and carried at fair value with changes in its fair value recognized in the Company’s consolidated statements

of operations.

Once the underlying shares of common stock are issued, the accrued issuable equity is reclassified as of the share

issuance date at the then current fair market value of the common stock.

Offering Costs

Deferred offering costs, which primarily

consist of direct, incremental professional fees incurred in connection with a debt or equity financing, are capitalized as non-current

Deferred offering costs, which primarily consist

of direct, incremental professional fees incurred in connection with a debt or equity financing, are capitalized as non-current

assets on the balance sheet.

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Revenue Recognition

On January 1, 2018, the Company adopted

ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”).

The core principle of ASC 606 requires

that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the

consideration to which the company expects to be entitled in exchange for those goods or services.

ASC 606 defines a five-step

process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the

revenue recognition process than required under existing U.S.

GAAP including identifying performance obligations in the contract,

estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each

separate performance obligation.

The following five steps are applied to

achieve that core principle:

Identify the contract with the customer;

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.

The Company adopted ASC 606 for all applicable

contracts using the modified retrospective method, which would have required a cumulative-effect adjustment, if any, as of the

date of adoption.

The adoption of ASC 606 did not have a material impact on the Company's consolidated financial statements as

of the date of adoption.

As a result, a cumulative-effect adjustment was not required.

The Company recognizes revenue primarily

from the following different types of contracts:

Product sales – Revenue is recognized at the point the customer obtains controls of

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

Contract services – Revenue is recognized at the point in time that the Company satisfies

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

The Company recognizes revenue in accordance

with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC

The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods

or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange

for those goods or services.

ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is possible

more judgment and estimates may be required within the revenue recognition process, including identifying performance obligations

in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction

price to each separate performance obligation.

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES –

Revenue Recognition – Continued

The following

table summarizes the disaggregation of our revenue recognized in our consolidated statements of operations:

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

The following five steps are applied to achieve

that core principle:

Identify the contract with the customer;

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.

The Company recognizes revenue primarily from

the following different types of contracts:

Product sales – Revenue is recognized at the point

in time the customer obtains control of the goods and the Company satisfies its performance obligation, which is generally

at the time it ships the product to the customer.

Contract services – 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 Company’s revenue

recognized in its consolidated statements of operations:

For the Years Ended

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

obligation under the contract.

The Company expects to satisfy the performance obligation within the next 12 months.

years ended December 31, 2019, and 2018, $0 of revenue was recognized from performance obligations satisfied (or partially satisfied)

in previous periods.

Handling Costs

Shipping and handling costs incurred by

the Company as well as fees received by customers for product shipped to customers are included in selling, general and administrative

expenses on the consolidated statements of operations.

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

During the years ended December 31, 2020, and 2019, the Company recognized $15,000 and $0, respectively, of revenues that were

included in deferred revenue in previous periods.

As of December 31, 2020 and 2019, the Company

recorded $31,212 and $0, respectively, of deferred labor costs, which is included in prepaid expenses and other current assets

in the Company’s consolidated balance sheets.

Deferred labor costs represented costs to fulfill the Company's contract service

The Company will recognize the deferred labor costs as cost of revenues at the point in time that the Company satisfies

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

by the customer.

Shipping and Handling Costs

Shipping and handling costs incurred by the

Company as well as fees received by customers for products shipped to customers are included in selling, general and administrative

expenses in the consolidated statements of operations.

For the years ended December 31, 2020 and 2019, shipping and handling costs

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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 stock-based compensation

Research and development include expenses

incurred in connection with the R&D of our CFV thermal management solution and non-cash stock-based compensation expenses.

Research and development expenses are charged to operations as incurred.

During the years ended December 31, 2019 and

2018, the Company incurred $502,225 and $508,144, respectively, of research and development expenses.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Advertising Costs

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Advertising costs charged to operations for the years ended December 31, 2020 and 2019 were $123,846 and $49,300, respectively,

and are included in selling, general and administrative on the consolidated statements of operations.

and are included in selling, general and administrative in the consolidated statements of operations.

Stock-Based Compensation

The Company measures the cost of services

received in exchange for an award of equity instruments based on the fair value of the award.

The fair value of the award is measured

on the grant date.

The fair value amount is then recognized over the period during which services are required to be provided in

exchange for the award, usually the vesting period.

Upon the exercise of an award, the Company issues new shares of common stock

out of its authorized shares.

received in exchange for an award of equity instruments based on the fair value of the award since the fair value of the award

is more readily determinable than the value of the services.

The fair value of the award is measured on the grant date.

value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually

the vesting period.

Upon the exercise of an award, the Company issues new shares of common stock out of its authorized shares.

During the year ended December 31, 2019

the Company obtained a third-party valuation of its common stock, which was also considered in management’s estimation of

the value of the equity instruments issued during that period.

Besides the third-party valuation, it was determined the Company’s

common stock had a fair value of $0.66 per share, which was based on a number of factors, such as the examination of the sales

of common stock for cash and the convertible preferred stock for cash etc.

All of the shares of common stock sold during the year

ended December 31, 2019 were sold at $0.66 per share, therefore the value of the equity instruments issued during 2019 was determined

using a common stock fair value of $0.66 per share.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES –

and the period from January 1, 2020 through June 17, 2020, it was determined that the Company’s common stock had a fair value

of $0.66 per share, which was based on a number of factors, such as the examination of the sales of common stock for cash and the

convertible preferred stock for cash etc.

All of the shares of common stock sold during the year ended December 31, 2019 were sold

at $0.66 per share, therefore the value of the equity instruments issued during the stated periods were determined using a common

stock fair value of $0.66 per share.

For the period from June 18, 2020 through

December 31, 2020, the Company estimated the fair value of the awards granted in this period to be based on the market value of

its freely tradable common stock as reported on the OTCQB market.

The Company determined the freely tradable common stock price

became a reliable and accurate representation of its fair market value during this period as a result of increased share volume

and dollar trading volume.

Net Loss Per Common Share

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Dilutive common-equivalent shares consist of shares of non-vested restricted stock, if not anti-dilutive.

The following shares were excluded from

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

The following shares were excluded from the

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

For the Years Ended

1 unchanged sentence

Series C Convertible Preferred Stock

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Operating Leases

16 unchanged sentences

are not recognized for short-term leases.

The adoption of this pronouncement did not have a material impact on the Company’s

consolidated financial statements.

The Company recognizes deferred tax assets and liabilities for

the expected future tax consequences of items that have been included or excluded in the financial statements or tax returns.

tax assets and liabilities are determined on the basis of the difference between the tax basis of assets and liabilities and their

respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which

the temporary differences are expected to reverse.

The Company recognizes deferred tax assets

and liabilities for the expected future tax consequences of items that have been included or excluded in the financial statements

or tax returns.

Deferred tax assets and liabilities are determined on the basis of the difference between the tax basis of assets

and liabilities and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in

effect for the years in which the temporary differences are expected to reverse.

The Company utilizes a recognition threshold

1 unchanged sentence

a tax return.

Management has evaluated and concluded

that there were no material uncertain tax positions requiring recognition in the Company’s financial statements as of December

Management has evaluated and concluded that

there were no material uncertain tax positions requiring recognition in the Company’s financial statements as of December

31, 2020 and 2019.

1 unchanged sentence

the reporting date.

The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as selling,

general and administrative expenses in the consolidated statements of operations.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES –

The Company’s policy is to classify

assessments, if any, for tax related interest as interest expense and penalties as selling, general and administrative expenses

in the consolidated statements of operations.

Reclassifications

Certain prior period balances have been reclassified

in order to conform to the current period presentation.

These reclassifications have no effect on previously reported results

of operations or loss per share.

Subsequent Events

4 unchanged sentences

statements, except as disclosed.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Recently Issued Accounting Pronouncements

In November 2019, the FASB issued ASU No.

2019-11, Codification Improvements to Topic 326, Financial Instruments –

Credit Losses (“ASU 2019-11”).

is an accounting pronouncement that amends ASU 2016-13, “Financial Instruments –

Credit Losses (Topic 326):

of Credit Losses on Financial Instruments.”

The amendments update guidance on reporting credit losses for financial assets.

These amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures,

reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive

The amendments in this ASU are effective, as revised by ASU 2019-10, for annual reporting periods beginning after December

15, 2022, as extended, including interim periods within those fiscal years.

All entities may adopt the amendments through a cumulative-effect

adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is,

a modified-retrospective approach).

The Company is currently evaluating ASU 2019-11 and its impact on its consolidated financial

statements and financial statement disclosures.

2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses (“ASU 2019-11”).

2019-11 is an accounting pronouncement that amends ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.” The amendments update guidance on reporting credit losses for financial

These amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit

exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right

to receive cash.

The amendments in this ASU are effective, as revised by ASU 2019-10, for annual reporting periods beginning after

December 15, 2022, as extended, including interim periods within those fiscal years.

All entities may adopt the amendments through

a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is

effective (that is, a modified-retrospective approach).

The Company is currently evaluating ASU 2019-11 and its impact on its

consolidated financial statements and financial statement disclosures.

In December 2019, the FASB issued ASU 2019-12,

“Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes,” which is intended to simplify various

aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740

and also clarifies and amends existing guidance to improve consistent application.

ASU 2019-12 is effective for the Company beginning

in fiscal years after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021.

is currently assessing the impact that this pronouncement will have on its consolidated financial statements.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES –

Recent Adopted Accounting Pronouncements

In February 2016, the FASB issued Accounting

Standards Update (“ASU”) 2016-02, "Leases (Topic 842)."

ASU 2016-02 requires that a lessee recognize the

assets and liabilities that arise from operating leases.

A lessee should recognize in the statement of financial position a liability

to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the

For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of

underlying asset not to recognize lease assets and lease liabilities.

In transition, lessees and lessors are required to recognize

and measure leases at the beginning of the earliest period presented using a modified retrospective approach.

This amendment will

be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

issued ASU No.

2018-10 “Codification Improvements to Topic 842, Leases”

2018-11 “Leases (Topic 842)

Targeted Improvements"

in July 2018, and ASU No.

2018-20 "Leases (Topic 842) - Narrow Scope Improvements for Lessors"

in December 2018.

ASU 2018-10 and ASU 2018-20 provide certain amendments that affect narrow aspects of the guidance issued in ASU

ASU 2018-11 allows all entities adopting ASU 2016-02 to choose an additional (and optional) transition method of adoption,

under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment

to the opening balance of retained earnings in the period of adoption.

The Company adopted ASU 2016-02 effective January 1, 2019

and the adoption did not have a significant impact on the consolidated financial statements.

In July 2017, the FASB issued ASU No.

“Earnings Per Share (Topic 260) and Derivatives and Hedging (Topic 815) —

Accounting for Certain Financial Instruments

with Down Round Features,”

(“ASU 2017-11”).

Equity-linked instruments, such as warrants and convertible instruments

may contain down round features that result in the strike price being reduced on the basis of the pricing of future equity offerings.

Under ASU 2017-11, a down round feature will no longer require a freestanding equity-linked instrument (or embedded conversion

option) to be classified as a liability that is remeasured at fair value through the income statement (i.e.

marked-to-market).

However, other features of the equity-linked instrument (or embedded conversion option) must still be evaluated to determine whether

liability or equity classification is appropriate.

Equity classified instruments are not marked-to-market.

For earnings per share

(“EPS”) reporting, the ASU requires companies to recognize the effect of the down round feature only when it is triggered

by treating it as a dividend and as a reduction of income available to common shareholders in basic EPS.

The amendments in this

ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15,

Early adoption is permitted, including adoption in any interim period.

The Company adopted ASU 2017-11 effective January

1, 2019 and its adoption did not have a material impact on the Company’s consolidated financial statements.

In July 2018, the FASB issued ASU No.

“Codification Improvements”

(“ASU 2018-09”).

These amendments provide clarifications and corrections to

certain ASC subtopics including the following:

Income Statement - Reporting Comprehensive Income –

Overall (Topic 220-10),

Debt - Modifications and Extinguishments (Topic 470-50), Distinguishing Liabilities from Equity –

Overall (Topic 480-10),

Compensation - Stock Compensation - Income Taxes (Topic 718-740), Business Combinations - Income Taxes (Topic 805-740), Derivatives

and Hedging –

Overall (Topic 815-10), and Fair Value Measurement –

Overall (Topic 820-10).

The majority of the amendments

in ASU 2018-09 will be effective in annual periods beginning after December 15, 2018.

The Company adopted ASU 2018-09 effective

January 1, 2019 and its adoption did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No.

2018-13, “Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair

Value Measurement (“ASU 2018-13”).

The amendments in ASU 2018-13 modify the disclosure requirements on fair value measurements

based on the concepts in the Concepts Statement, including the consideration of costs and benefits.

The amendments on changes in

unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value

measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent

interim or annual period presented in the initial fiscal year of adoption.

All other amendments should be applied retrospectively

to all periods presented upon their effective date.

The amendments are effective for all entities for fiscal years beginning after

December 15, 2019, and interim periods within those fiscal years.

Early adoption is permitted, including adoption in an interim

The Company adopted ASU 2018-13 effective January 1, 2019 and its adoption did not have a material impact on the Company’s

consolidated financial statements.

Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects

related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also

clarifies and amends existing guidance to improve consistent application.

ASU 2019-12 is effective for the Company beginning in

fiscal years after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021.

The Company is

currently assessing the impact that this pronouncement will have on its consolidated financial statements.

In October 2020, the FASB issued ASU 2020-10

"Codification Improvements", which improves consistency by amending the Codification to include all disclosure guidance

in the appropriate disclosure sections and clarifies application of various provisions in the Codification by amending and adding

new headings, cross referencing to other guidance, and refining or correcting terminology.

The guidance is effective for the Company

beginning in the first quarter of fiscal year 2022 with early adoption permitted.

The Company is currently assessing the impact

that this pronouncement will have on its consolidated financial statements.

Recently Adopted Accounting Pronouncements

In November 2018, the FASB issued Accounting

2 unchanged sentences

Clarifying the Interaction between Topic 808 and Topic

606 (“ASU 2018-18”), which clarifies that certain transactions between participants in a collaborative arrangement

should be accounted for under ASC 606 when the counterparty is a customer.

11 unchanged sentences

The Company adopted ASU 2018-18 effective January 1, 2020 and its adoption

is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

PREPAID EXPENSES

As of December 31, 2019 and 2018, prepaid

expenses consisted of the following:

Research and development services

Total prepaid expenses

did not have a material impact on the Company’s consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU 2020-03,

“Codification Improvements to Financial Instruments” (“ASU 2020-03”).

ASU 2020-03 improves and clarifies

various financial instruments topics.

ASU 2020-03 includes seven different issues that describe the areas of improvement and the

related amendments to GAAP, intended to make the standards easier to understand and apply by eliminating inconsistencies and providing

clarifications.

The Company adopted ASU 2020-03 upon issuance, which did not have a material effect on the Company’s consolidated

financial statements.

KULR TECHNOLOGY GROUP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019

PROPERTY AND EQUIPMENT

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

NOTE 3 PREPAID

EXPENSES AND OTHER CURRENT ASSETS

As of December 31, 2020 and 2019, prepaid

expenses and other current assets consisted of the following:

Deferred labor costs

Security deposit

Total prepaid expenses and other current assets

NOTE 4 PROPERTY

AND EQUIPMENT

As of December 31, 2020 and 2019, property and equipment consisted

4 unchanged sentences

15 years or the remaining life of the lease

Machinery and equipment

Machinery & equipment

Research and development equipment

Furniture and fixtures

accumulated depreciation

accumulated deprecation

Property and equipment;

Depreciation expense amounted to $17,275 and $15,311 for the

years ended December 31, 2019 and 2018, respectively, which is included in selling, general and administrative expenses in the

consolidated statements of operations.

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Depreciation expense amounted to $15,746 and

$17,275 for the years ended December 31, 2020 and 2019, respectively, which is included in selling, general and administrative

expenses in the consolidated statements of operations.

During the year ended December 31, 2020, the

Company disposed of $1,829 of fully depreciated property and equipment.

NOTE 5 ACCRUED

EXPENSES AND OTHER CURRENT LIABILITIES

As of December 31, 2020 and 2019, accrued

1 unchanged sentence

Payroll and vacation

Travel expenses

Legal and professional fees

Payroll and income tax payable

Customer refund

Credit card payable

Research and development expenses

Issuable equity

Total accrued expenses and other current liabilities

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019

NOTE 7 RELATED PARTY TRANSACTIONS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

NOTE 6 ACCRUED

ISSUABLE EQUITY

A summary of the accrued issuable equity activity

during the year ended December 31, 2020, is presented below:

Balance, January 1, 2020

Reclassifications to equity

Mark-to market

Balance, December 31, 2020

Accrued Issuable Equity for Services

During the year ended December 31, 2020, the

Company entered into certain contractual arrangements for services in exchange for a fixed number of shares of common stock of

On the respective dates the contracts were entered into, the estimated fair value of the shares to be issued was

an aggregate of $205,297.

During the year ended December 31, 2020, the

Company settled certain of its accrued issuable equity obligations through the issuance of an aggregate of 100,000 of its shares

with an aggregate fair value of $79,511, remeasured as of the date of settlement.

During the year ended December 31, 2020, the

Company recorded an aggregate of $2,594 of losses related to the change in fair value of accrued issuable equity (see Note 12

– Stockholders’ Deficiency, Stock-Based Compensation for additional details).

The fair value of the accrued

but unissued shares as of December 31, 2020 was $128,380.

NOTE 7 RELATED

PARTY TRANSACTIONS

Accounts Payable – Related Party

Accounts payable –

related party

consists of a liability of $2,628 and $4,253 as of December 31, 2020 and December 31, 2019, respectively, to Energy Science

Laboratories, Inc.

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

in connection with consulting services provided to the Company associated with the development of the Company’s CFV thermal

management solutions in prior periods.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities

– related party consists of a liability of $10,419 and $83,919 as of December 31, 2019 and 2018, respectively, to Energy

Science Laboratories, Inc.

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

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

thermal management solutions.

As of December 30, 2018, ESLI forgave $50,000

of previously accrued consulting fees that were due to them by the Company.

– related party consisted of a liability of $0 and $10,419 as of December 31, 2020 and 2019, respectively, to ESLI.

On September 30, 2019, ESLI agreed to forgive

2 unchanged sentences

by reducing accrued expenses and other current liabilities by $35,000 with a corresponding credit to additional paid-in capital.

NOTE 8 INCOME TAXES

The income tax provision for the years

ended December 31, 2019 and 2018 consists of the following:

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

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 was being repaid weekly over

the 26-week period following the date of receipt at a weekly interest rate of 1.7%.

The line of credit, including interest thereon,

was repaid in July 2020.

During the year ended December 31, 2020, the Company recorded interest expense of $2,292 related to the

Line of Credit.

A summary of the notes payable activity during

the year ended December 31, 2020, is presented below:

Outstanding, January 1, 2020

Repayments in cash

Repayments from proceeds of SEDA

Amortization of debt discount

Outstanding, December 31, 2020

During the year ended December 31, 2020, the

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

pursuant to which the Investor purchased full recourse promissory notes (the “Notes”) in the original aggregate principal

amount of $4,000,000 (“Principal Amount”) for cash proceeds of $3,710,000.

The Notes included an original issue discount

of $290,000, which represents the difference between the principal and proceeds received.

The original issue discount, along with

the $340,000 advisory fees were recorded as a debt discount which are being amortized over the term of the respective Notes using

the effective interest rate method.

The Notes bears no coupon interest (original

issue discount only) and will become immediately due and payable on May 31, 2021 or June 30, 2021, depending on the Note,

or upon acceleration, redemption or otherwise upon the occurrence of an event of default, as set forth in the Notes and which

includes the early termination of a standby equity distribution agreement with the Investor (see Note 12 – Stockholders’

(Deficiency) Equity, Standby Equity Distribution Agreement ).

The Company is required to repay the Principal Amount

in monthly installments as set forth in the agreements.

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.

Further, pursuant to the terms of

the Notes, the Company may decrease any installment payment, up to three times per Note, 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 due on the respective maturity date.

On April 27, 2020, the Company received

$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 Act”).

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

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 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 used 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 to the earlier of (i) when the Small Business Administration remits the forgiven

amount to the lender or notifies the lender that no forgiveness is allowed or (ii) October 31, 2021.

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.

As of December 31, 2020, the Company’s accrued interest related to the PPP Loan was

NOTE 11 INCOME

The income tax provision for the years ended

December 31, 2020 and 2019 consists of the following:

For The Years Ended

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Income tax provision

A reconciliation of the statutory federal income tax rate to

the Company’s effective tax rate is as follows:

A reconciliation of the statutory federal income tax rate to the

Company’s effective tax rate is as follows:

For The Years Ended

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Effective income tax rate

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019

NOTE 8 INCOME TAXES – CONTINUED

The Company has determined that a valuation

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of all the evidence, management has determined that a full valuation allowance is necessary to reduce the deferred tax asset to

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

The tax effects of temporary differences that give rise to deferred

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At December 31, 2020,

approximately $3.9 million of federal net operating losses will expire from 2033 to 2037, and approximately $3.4 million will have

no expiration.

At December 31, 2019 and 2018, the Company had state net operating loss carry forwards of approximately $6.8 million

and $5.2 million, respectively, which will begin to expire in 2024.

The net operating loss carryovers may be subject to annual limitations

under Internal Revenue Code Section 382, and similar state provisions, should there be a greater than 50% ownership change as determined

under the applicable income tax regulations.

The amount of the limitation would be determined based on the value of the company

immediately prior to the ownership change and subsequent ownership changes could further impact the amount of the annual limitation.

An ownership change pursuant to Section 382 may have occurred in the past or could happen in the future, such that the NOLs available

for utilization could be significantly limited.

approximately $3.9 million of federal net operating losses will expire from 2033 to 2037, and approximately $6.5 million will

have no expiration.

At December 31, 2020 and 2019, the Company had state net operating loss carry forwards of approximately $10.2

million and $7.1 million, respectively, which will begin to expire in 2024.

The net operating loss carryovers may be subject

to annual limitations under Internal Revenue Code Section 382, and similar state provisions, should there be a greater than 50%

ownership change as determined under the applicable income tax regulations.

The amount of the limitation would be determined based

on the value of the company immediately prior to the ownership change and subsequent ownership changes could further impact the

amount of the annual limitation.

An ownership change pursuant to Section 382 may have occurred in the past or could happen in

the future, such that the NOLs available for utilization could be significantly limited.

The Company files federal and state (California)

tax returns which are subject to audit for the year beginning December 31, 2016.

No tax audits were commenced or were in process

during the years ended December 31, 2019 and 2018.

NOTE 9 STOCKHOLDERS' DEFICIENCY

tax returns which are subject to audit for the years ending on or after December 31, 2016.

No tax audits were commenced or were

in process during the years ended December 31, 2020 and 2019.

NOTE 12 STOCKHOLDERS'

EQUITY (DEFICIENCY)

Authorized Capital

2 unchanged sentences

The holders of the Company’s common stock are entitled to one vote per share.

The preferred stock is designated as follows:

1,000,000 shares designated as Series A Preferred Stock, 31,000 shares designated as Series B Convertible Preferred Stock and 400

shares designated as Series C Preferred Stock.

The preferred stock is designated as

1,000,000 shares designated as Series A Preferred Stock, 31,000 shares designated as Series B Convertible Preferred Stock

and 400 shares designated as Series C Preferred Stock.

KULR TECHNOLOGY GROUP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019

NOTE 9 STOCKHOLDERS' DEFICIENCY – CONTINUED

Equity Incentive Plan

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

On November 16, 2020, the Company’s

board of directors (the “Board”) approved, by unanimous written consent, to amend (the “Amendment”) the

Company’s Certificate of Incorporation effecting a reverse split of its issued and outstanding common stock at a ratio no

greater than one-for-eight, with such ratio to be determined at the sole discretion of the Board (or its designee or designees)

and with such reverse split to be effected at such time and date, if at all, as determined by the Board in its sole discretion

(provided that it is effected within one year of the date on which the stockholders of the Corporation approve the Reverse Split).

On November 16, 2020, the voting stockholders, acting by written consent, approved the Amendment and the Reverse Split.

14 – Subsequent Events for additional details.

Equity Incentive

On August 15 and November 5, 2018, the

Board of Directors and a majority of the Company’s shareholders, respectively, approved the 2018 Equity Incentive Plan

(the “2018 Plan”).

Board of Directors and a majority of the Company’s shareholders, respectively, approved the 2018 Equity Incentive Plan

(the “2018 Plan”).

Under the 2018 Plan, 15,000,000 shares of common stock of the Company are authorized for issuance.

2 unchanged sentences

its affiliates.

The 2018 Plan requires the exercise price of stock options to be not less than the fair value of the Company’s

common stock on the date of grant.

As of December 31, 2019, there are 14,050,000 shares available for issuance under the 2018 Plan.

As of December 31, 2020, there were 13,841,047 shares available for issuance under the 2018

Series A Preferred Stock

record holder of Series A Preferred Stock shall have the right to vote on any matter with holders of the Company’s common

stock and other securities entitled to vote, if any, voting together as one (1) class.

Each record holder of Series A Preferred

Stock is entitled to one-hundred (100) votes per share of Series A Preferred Stock held by such holder.

The Series A Preferred Stock is not convertible

3 unchanged sentences

or winding up of the Company.

record holder of Series A Preferred Stock shall have the right to vote on any matter with holders of the Company’s common

stock and other securities entitled to vote, if any, voting together as one (1) class.

Each record holder of Series A Preferred

Stock is entitled to one hundred (100) votes per share of Series A Preferred Stock held by such holder.

On November 5, 2018, the Company received

4 unchanged sentences

Series B Convertible Preferred Stock

On November 30, 2018, the Company filed

with the Secretary of State of the State of Delaware the Certificate of Designation of Series B Convertible Preferred Stock (the

“Certificate of Designation”), which became effective upon filing.

The Company designated 31,000 shares as

Series B Convertible Preferred Stock out of the authorized and unissued preferred stock of the Company, par value $0.0001 per

The Series B Convertible Preferred Stock does not contain any redemption provisions or other provisions requiring cash

settlement within control of the holder.

On November 30, 2018, the Company filed with

the Secretary of State of the State of Delaware the Certificate of Designation of Series B Convertible Preferred Stock (the “Certificate

of Designation”), which became effective upon filing.

The Company designated 31,000 shares as Series

B Convertible Preferred Stock out of the authorized and unissued preferred stock of the Company, par value $0.0001 per share.

The Series B Convertible Preferred Stock does not contain any redemption provisions or other provisions requiring cash settlement

within control of the holder.

Series B Convertible Preferred Stock is senior in liquidation preference to common stock.

Holders of shares of Series B Convertible Preferred Stock are not entitled to voting rights and dividend rights.

Each share of

Series B Convertible Preferred Stock, after 181 days after issuance and without the payment of additional consideration, shall

be convertible at the option of the holder into fifty (50) fully paid and non-assessable shares of common stock.

It was determined

that the embedded conversion option is clearly and closely related to the equity host, therefore it is not bifurcated and not

accounted for as a derivative.

of shares of Series B Convertible Preferred Stock are not entitled to voting rights and dividend rights.

Each share of Series

B Convertible Preferred Stock, after 181 days after issuance and without the payment of additional consideration, shall be convertible

at the option of the holder into fifty (50) fully paid and non-assessable shares of common stock.

It was determined that the embedded

conversion option is clearly and closely related to the equity host, therefore it is not bifurcated and not accounted for as a

Each share of Series B Convertible Preferred Stock shall have a stated value of $1.00 per share.

On November 30, 2018, the Company issued

an aggregate of 30,858 shares of Series B Convertible Preferred Stock to certain existing common shareholders for aggregate proceeds

of $30,858, which was determined to be nominal consideration.

The Company analyzed the transaction and concluded that the issuance

represented a deemed dividend in the form of the Series B Convertible Preferred Stock that was issued to a subset of the Company’s

common stockholders, since the transaction’s primary purpose was not to raise capital and required no action by the recipients.

The shares of Series B Convertible Preferred Stock were determined to have an aggregate issuance date fair value of $1,018,314,

which was reduced by the consideration paid of $30,858, to arrive at the deemed dividend of $987,456.

The Company recognized the

deemed dividend by debiting and crediting additional paid-in capital.

During the year ended December 31, 2019,

holders of Series B Convertible Preferred Stock elected to convert an aggregate of 16,371 shares of Series B Convertible Preferred

Stock into an aggregate of 818,550 shares of common stock.

During the year ended December 31, 2019, holders

of Series B Convertible Preferred Stock elected to convert an aggregate of 16,371 shares of Series B Convertible Preferred Stock

into an aggregate of 818,550 shares of common stock.

KULR TECHNOLOGY GROUP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019

NOTE 9 STOCKHOLDERS' DEFICIENCY – CONTINUED

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

During the year ended December 31, 2020, a

holder of 515 shares of Series B Convertible Preferred Stock elected to convert their shares into 25,758 shares of common stock.

Series C Convertible Preferred Stock

5 unchanged sentences

$0.0001 per share.

C Convertible Preferred Stock is senior in liquidation preference to the Company’s common stock for an amount equal to the

stated value per share of $10,000 (“Stated Value”).

Holders of shares of Series C Convertible Preferred Stock

shall vote on an as-if-converted-to-common-stock basis with the common stock.

Holders of shares of Series C Convertible Preferred

Stock are entitled to receive dividends when, as and if declared by the Board of Directors, at an annual rate of twelve percent

(12%) beginning one year after each share’s issuance.

The Company may elect to redeem all or part of each share of Series

C Convertible Preferred Stock for the Stated Value.

Series C Convertible Preferred Stock is senior

in liquidation preference to the Company’s common stock for an amount equal to the stated value per share of $10,000 (“Stated

Holders of shares of Series C Convertible Preferred Stock shall vote on an as-if-converted-to-common-stock basis

with the common stockholders.

Holders of shares of Series C Convertible Preferred Stock are entitled to receive dividends when,

as and if declared by the Board of Directors, at an annual rate of twelve percent (12%) beginning one year after each share’s

The Company may elect to redeem all or part of each share of Series C Convertible Preferred Stock for the Stated Value.

Each share of Series C Convertible Preferred

6 unchanged sentences

dividends thereon and (ii) 75% of the average of the trading prices five days prior to conversion but in no case less than $0.90

In addition, all outstanding shares of Series C Convertible Preferred Stock may be automatically converted upon the

occurrence of a qualified offering of at least $5 million of gross proceeds (“Qualified Offering”) or an approved listing

of common stock on a national stock exchange (“Uplisting”).

In the event of a Qualified Offering, each share of Series

C Convertible Preferred Stock would be converted into a number of shares of common stock equal to the product determined by dividing

(i) the Stated Value of the number of shares of Series C Convertible Preferred Stock being converted and any accrued dividends

thereon and (ii) 85% of the price of the securities sold in the Qualified Offering.

In the event of an Uplisting, each share of

Series C Convertible Preferred Stock would be converted into a number of shares of common stock equal to the product determined

by dividing (i) the Stated Value of the number of shares of Series C Convertible Preferred Stock being converted and any accrued

dividends thereon and (ii) if converted within 180 days of such share’s initial issuance, $1.00 per share, and if converted

on or after the 181 st day of its initial issuance, 75% of the average of the trading prices five days prior to conversion

but in no case less than $0.90 per share.

the year ended December 31, 2019, the Company sold to certain investors an aggregate of 24.01 shares of Series C Convertible Preferred

Stock and two-year immediately vested warrants to purchase an aggregate of 60,025 shares of the Company’s common stock at

an exercise price of $1.50 per share for aggregate gross proceeds of $216,000, less cash issuance costs of $32,000, for aggregate

net proceeds of $184,000.

The warrants, which were determined to be classified within stockholders’ deficiency, had

an aggregate issuance date fair value of $12,515.

The Company has computed the fair value of warrants using the Black-Scholes pricing

model with the following assumptions:

In addition, all outstanding shares of Series C Convertible Preferred Stock shall be automatically converted upon the

occurrence of a qualified offering of at least $5 million of gross proceeds (“Qualified Offering”) or an approved

listing of common stock on a national stock exchange (“Uplisting”).

In the event of a Qualified Offering, each share

of Series C Convertible Preferred Stock would be converted into the securities offered in the Qualified Offering determined by

dividing (i) the Stated Value of the number of shares of Series C Convertible Preferred Stock being converted and any accrued

dividends thereon and (ii) 85% of the price of the securities sold in the Qualified Offering.

In the event of an Uplisting, each

share of Series C Convertible Preferred Stock would be converted into a number of shares of common stock equal to the product

determined by dividing (i) the Stated Value of the number of shares of Series C Convertible Preferred Stock being converted and

any accrued dividends thereon and (ii) if converted within 180 days of such share’s initial issuance, $1.00 per share, and

if converted on or after the 181 st day of its initial issuance, 75% of the average of the trading prices five days

prior to conversion but in no case less than $0.90 per share.

The Series C Convertible Preferred Stock is

redeemable at the Company’s option;

therefore, it has been classified within stockholders’ equity (deficiency) on

the consolidated balance sheet.

An overall analysis of its features performed by the Company determined that the Series C Convertible

Preferred Stock was more akin to equity.

As a result, while the embedded conversion option (“ECO”) contained certain

anti-dilution price protection mechanisms, since the ECO was clearly and closely related to the equity host, it was not required

to be bifurcated and accounted for as a derivative liability under ASC 815.

The Company determined that the Series C Convertible

Preferred Stock did not contain a beneficial conversion feature at issuance since the conversion price exceeded the estimated

fair value of the Company’s common stock as of the commitment date, however, the Company did recognize a contingent beneficial

conversion feature in connection with a Qualified Offering, as described below within this footnote.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

During the year ended December 31, 2019, the

Company sold to certain investors an aggregate of 24.01 shares of Series C Convertible Preferred Stock and two-year immediately

vested warrants to purchase an aggregate of 60,025 shares of the Company’s common stock at an exercise price of $1.50 per

share for aggregate gross proceeds of $216,000, less cash issuance costs of $32,000, for aggregate net proceeds of $184,000.

warrants, which were determined to be classified within stockholders’ equity (deficiency), had an aggregate issuance date

fair value of $12,515.

The Company has computed the fair value of warrants using the Black-Scholes pricing model with the following

risk free interest rate:

1.53% - 1.74%;

expected term – 2 years, expected volatility

- 97%, expected dividends – 0%.

The Series C Convertible Preferred Stock

is redeemable at the Company’s option, therefore it has been classified within stockholders’ deficiency on the consolidated

balance sheet.

An overall analysis of its features performed by the Company determined that the Series C Convertible Preferred

Stock was more akin to equity.

As a result, while the embedded conversion option (“ECO”) contained certain anti-dilution

price protection mechanisms, since the ECO was clearly and closely related to the equity host, it was not required to be bifurcated

and accounted for as a derivative liability under ASC 815.

The Company determined that the Series C Convertible Preferred Stock

did not contain a beneficial conversion feature, since the conversion price exceeded the estimated fair value of the Company’s

common stock as of the commitment date, except upon a conversion in the event of a Qualified Offering, which was determined to

be a contingent beneficial conversion feature, which will be measured when the contingency is resolved and, if determined to be

beneficial at such time, will be recognized.

expected term – 2 years, expected volatility - 97%, expected dividends

During the year ended December 31, 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 common stock.

During the year

ended December 31, 2020, a Qualified Offering occurred and 18.90 shares of Series C Convertible Preferred Stock were mandatorily

converted into an aggregate of 177,885 shares of common stock of the Company and warrants for the purchase of an aggregate of

177,855 shares of common stock of the Company.

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.

As a result of the Series C Preferred Stock having an effective

conversion price that was lower than the market price on the commitment date, the Company immediately recognized a beneficial

conversion feature of $1,735 as a deemed dividend, which increased the net loss attributable to common stockholders.

Additionally,

since the Company had an accumulated deficit, the impact was equity neutral to its additional paid-in capital.

During the year ended December 31, 2019, the

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

During the year ended December 31, 2019, the

Company issued 140,000 shares of common stock under the 2018 Plan and 45,966 shares of restricted common stock to consultants

in exchange for services, which vested immediately.

The grant date value of the common stock and restricted common stock were

$133,660 during the year ended December 31, 2019.

During the year ended December 31, 2020, the

Company issued an aggregate of 238,953 shares of common stock with a grant date value of $275,500 for legal and consulting services,

of which (i) 166,453 shares were immediately vested, (ii) 12,500 shares vest on the six-month anniversary following the respective

issuance date, and (iii) 60,000 shares vest on the two-year anniversary following the respective issuance date upon completion

of the service period, subject to the Company’s claw back, based upon the satisfaction of meeting general performance parameters

which as of December 31, 2020 were probable to be achieved.

The grant date fair value of the common stock will be recognized as

stock-based compensation expense ratably over the respective vesting periods.

See Stock-Based Compensation section within

this footnote for additional details.

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019

NOTE 9 STOCKHOLDERS' DEFICIENCY – CONTINUED

During the year ended December 31, 2018,

the Company sold an aggregate of 1,081,819 shares of common stock at $0.66 per share to accredited investors for aggregate gross

and net proceeds of $714,000 and $672,400, respectively.

Of the $41,600 of issuance costs, $35,000 were cash costs and $6,600 were

non-cash costs in the form of 10,000 shares of common stock that were issued during 2018.

During the year ended December 31, 2019,

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

proceeds of $898,300.

During the years ended December 31, 2019

and 2018, the Company issued 140,000 and 25,000 shares, respectively, of common stock under the 2018 Plan and 45,966 and 159,437

shares, respectively, of restricted common stock to consultants in exchange for services, which vest immediately.

The grant date

value of the common stock and restricted common stock were $133,660 and $145,904 during the years ended December 31, 2019 and 2018,

respectively.

June 10, 2019, the Company issued two-year immediately vested warrants to purchase an aggregate of 150,000 shares of the Company’s

common stock at an exercise price of $1.00 per share to certain vendors in connection with consulting agreements.

vested immediately on the date of issuance.

The warrants, which were determined to be classified within stockholders’

deficiency, had an aggregate issuance date fair value of $40,974.

The Company has computed the fair value of the warrants using

the Black Scholes option pricing model with the following valuation assumptions:

risk free interest rate – 1.90%, contractual

term – 2.0 years, expected volatility –97%, expected dividends – 0%.

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Public Offering

On December 29, 2020, the Company

entered into a securities purchase agreement (the “Public Offering Purchase Agreement”) with investors for the purchase

and sale of an aggregate of 6,400,001 shares of the Company’s common stock (the “Shares”) and warrants to purchase

an aggregate of up to 6,400,001 shares of common stock (“Warrants”), in a registered direct offering at a combined

purchase price of $1.25 per Share and Warrant, for aggregate gross proceeds to the Company of $8,000,001.

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.

were determined to be classified within stockholders’

equity (deficiency) at their fair value.

The Company intends to use

the net proceeds from this offering for working capital and general corporate purposes, as well as for capital expenditures.

registered direct offering closed on December 31, 2020.

Additionally, pursuant to the Public Offering Purchase Agreement,

the Company shall be prohibited from effecting or entering into an agreement to effect any issuance by the Company of common stock

involving a variable rate transaction (“Variable Rate Transaction”) until such time as no Purchaser holds any of the

Pursuant to a co-placement agency agreement

(the “Placement Agreement”) dated December 29, 2020 by and among the Company, Lake Street Capital Markets, LLC

(“Lake Street”) and Maxim Group LLC (“Maxim”) (together with Lake Street, the “Co-Placement Agents”),

the Company retained Lake Street and Maxim to act as the Company’s co-placement agents in connection with the registered

direct offering.

Pursuant to the Placement Agreement, the Company agreed to pay the co-placement agents a cash fee of 7.0% of

the gross proceeds the Company receives under the Purchase Agreement.

The Company also agreed to reimburse the co-placement agents

for certain out-of-pocket accountable expenses incurred by them in connection with this offering, which amounted to $50,000.

total offering expenses incurred by the Company, other than the placement agent fees, were $170,152, which included 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.

As of December 31, 2020, of the offering costs described above, an

aggregate of $24,852 of offering costs remained unpaid and were accrued for.

Standby Equity Distribution Agreement

On February 27, 2020, KULR Technology

entered into a Standby Equity Distribution Agreement (“SEDA”) with the Investor, pursuant to which

the Company may, at its discretion, sell to the Investor up to $8,000,000 of shares of the Company’s common stock (the “Offering”),

par value $0.0001 per share (the “Common Stock”).

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

the Investor will pay the Company 80% of the lowest daily volume weighted average price of the Common Stock on the OTC Markets

OTCQB or other principal market on which the Common Stock is traded for the five days immediately following the date the Company

delivers notice requiring the Investor to purchase the Shares under the SEDA.

The commitment period under the SEDA commenced

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

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

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

As of December 31, 2020,

the Company was prohibited from issuing shares pursuant to the SEDA as a result of it being a Variable Rate Transaction pursuant

to the Public Offering Purchase Agreement, described above.

Among other things, the Investor’s obligation

to purchase 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 is subject to the Investor’s approval for amounts over

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

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.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

The SEDA contains customary representations,

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

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

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

amounts borrowed under the Note.

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

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 consolidated balance sheet.

During the year ended December 31, 2020

the Company issued two-year immediately vested warrants to purchase an aggregate of 60,025 shares of the Company’s common

stock at an exercise price of $1.50 per share to certain investors in connection with the Series C Convertible Preferred Stock

the Company issued an aggregate of 1,841,548 shares of common stock, at prices between $0.72 - $1.65 per share, for aggregate proceeds

of $2,214,437, in connection with notices submitted to the Investor under the SEDA, of which $791,000 of the proceeds, were applied

directly against the Notes.

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 pursuant to the Public Offering Purchase Agreement, described above.

On June 10, 2019, the Company issued two-year

immediately vested warrants to purchase an aggregate of 150,000 shares of the Company’s common stock at an exercise price

of $1.00 per share to certain vendors in connection with consulting agreements.

The warrants vested immediately on the date of

The warrants, which were determined to be classified within stockholders’ deficiency, had an aggregate issuance

date fair value of $40,974.

The Company has computed the fair value of the warrants using the Black Scholes option pricing model

with the following valuation assumptions:

risk free interest rate – 1.90%, contractual term – 2.0 years, expected

volatility –97%, expected dividends – 0%.

During the year ended December 31, 2019, the

Company issued two-year immediately vested warrants to purchase an aggregate of 60,025 shares of the Company’s common stock

at an exercise price of $1.50 per share to certain investors in connection with the Series C Convertible Preferred Stock sales.

(See Note 12 – Stockholders’ Deficiency, Series C Convertible Preferred Stock).

For details regarding the issuance of warrants

for the purchase of an aggregate of 177,885 and 6,400,001 shares of common stock of the Company during the year ended December

31, 2020, see Note 12 – Stockholders’ Equity (Deficiency), Series C Convertible Preferred Stock and Common Stock,

respectively.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

A summary of warrants activity during the

3 unchanged sentences

Exercisable, December 31, 2020

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019

NOTE 9 STOCKHOLDERS' DEFICIENCY – CONTINUED

Warrants – Continued

A summary of outstanding and exercisable

warrants as of December 31, 2019 is presented below:

A summary of outstanding

and exercisable warrants as of December 31, 2020 is presented below:

Warrants Outstanding

2 unchanged sentences

Stock Options

On December 28, 2018, the Company granted

five-year options to purchase a total of 300,000 shares of common stock at an exercise price of $0.66 per share to employees pursuant

to the 2018 Plan.

The options vested one-fifth on the date of grant and the remaining options vest monthly over three years.

options had an aggregate grant date value of $113,312 which is recognized over the vesting period.

On September 20, 2019, the Company granted

1 unchanged sentence

to the 2018 Plan.

The options vested one-fifth on the first anniversary of the employment date and the remaining options vest monthly

over three years.

The options vested one-fifth on the first anniversary of the employment date and the remaining options vest

monthly over three years.

The options had an aggregate grant date value of $35,510 which is recognized over the vesting period.

The Company has computed the fair value

of stock options granted using the Black-Scholes option pricing model.

In applying the Black-Scholes option pricing model, the

Company used the following assumptions:

On January 1, 2020, the Company granted five-year

options to purchase a total of 10,000 shares of common stock at an exercise price of $0.66 per share to an employee pursuant to

the 2018 Plan.

One-fourth of the options will vest on the first-year anniversary of the grant date and the remaining options vest

monthly over three years.

The options had an aggregate grant date value of $3,609 which is recognized over the vesting period.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

The Company has computed the fair value of

stock options granted using the Black-Scholes option pricing model.

In applying the Black-Scholes option pricing model, the Company

used the following assumptions:

For the Years Ended

3 unchanged sentences

Expected dividends

Option forfeitures are accounted for

at the time of occurrence.

The expected term used is the estimated period of time that options granted are expected to be

The Company utilizes the “simplified” method to develop an estimate of the expected term of

“plain vanilla” employee option grants.

The Company does not yet have a trading history to support its historical

volatility calculations.

Accordingly, the Company is utilizing an expected volatility figure based on a review of the

historical volatility of comparable entities over a period of time equivalent to the expected life of the instrument being

The risk-free interest rate was determined from the implied yields from U.S.

Treasury zero-coupon bonds with a

remaining term consistent with the expected term of the instrument being valued.

The weighted average grant date fair value per share of options

granted during the years ended December 31, 2019 and 2018 was $0.36 and $0.38, respectively.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019

NOTE 9 STOCKHOLDERS' DEFICIENCY – CONTINUED

Options – Continued

A summary of options activity during the

years ended December 31, 2019 and 2018 is presented below:

Option forfeitures are accounted for at the

time of occurrence.

The expected term used is the estimated period of time that options granted are expected to be outstanding.

The Company utilizes the “simplified” method to develop an estimate of the expected term of “plain vanilla”

employee option grants.

The Company does not yet have a trading history to support its historical volatility calculations.

the Company is utilizing an expected volatility figure based on a review of the historical volatility of comparable entities over

a period of time equivalent to the expected life of the instrument being valued.

The risk-free interest rate was determined from

the implied yields from U.S.

Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument

being valued.

The weighted average grant date fair value

per share of options granted during both years ended December 31, 2020 and 2019 was $0.36.

A summary of options activity during the year

ended December 31, 2020 is presented below:

Outstanding, January 1, 2020

Outstanding, December 31, 2020

Outstanding, December 31, 2019

Exercisable, December 31, 2020

The following table presents information

related to stock options as of December 31, 2019:

The following table presents information related

to stock options as of December 31, 2020:

Options Outstanding

1 unchanged sentence

Remaining Life

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Stock-Based Compensation

During the years ended December 31, 2020 and

2019, the Company recognized stock-based compensation expense of $343,854 and $220,625, respectively, related to restricted common

stock, warrants and stock options which are included within selling, general and administrative expenses and research and development

expenses on the consolidated statements of operations.

During the years ended December 31, 2020 and 2019, the Company recognized

stock-based compensation related to research and development of $30,932 and $36,022, respectively.

During the years ended December

and 2018, the Company recognized stock-based compensation expense of $220,625 and $457,713, respectively, related to restricted

common stock, warrants and stock options which are included within selling, general and administrative expenses and research and

development expenses on the consolidated statements of operations.

During the years ended December 31, 2019 and 2018, the Company

recognized stock-based compensation related to research and development of $36,022 and $0, respectively.

During the years ended

December 31, 2019 and 2018, the Company recognized stock-based compensation related to selling, general and administrative expenses

of $184,603 and $457,713, respectively.

31, 2020 and 2019, the Company recognized stock-based compensation related to selling, general and administrative expenses of

$312,922 and $184,603, respectively.

As of December 31, 2020, there was $47,021 of unrecognized stock-based compensation expense

that will be recognized over the weighted average remaining vesting period of 1.50 years.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019

NOTE 9 STOCKHOLDERS' DEFICIENCY – CONTINUED

Stock-Based Compensation – Continued

The following table presents information

related to stock-based compensation for the years ended December 31, 2019 and 2018:

The following table presents information related

to stock-based compensation for the years ended December 31, 2020 and 2019:

For the Years Ended

Common stock (issued)

Stock options

(1) An additional $6,600 of grant date

value was debited to additional paid in capital as it was an equity issuance cost.

See Note 9 – Stockholders’ Deficiency,

Common Stock.

NOTE 10 COMMITMENTS AND CONTINGENCIES

Accrued issuable equity (common stock)

NOTE 13 COMMITMENTS

AND CONTINGENCIES

Operating Lease

On January 1, 2017, KULR Technology Group,

entered into a one-year lease agreement to lease 5,296 square feet of space located in San Diego, California with respect

to its research and development activities.

The base rent was $4,364 per month plus association fees of $531 per month.

In connection

with the lease, the Company paid the landlord a security deposit of $8,729.

The aggregate base rent payable over the lease term

was recognized on a straight-line basis.

On December 30, 2018, the lease was extended until December 31, 2019, the base rent was

$4,452 per month plus association fees of $555 per month.

The lease was renewed on January 1, 2020.

See Note 11 – Subsequent

On December 30, 2018, KULR Technology Group,

entered into a lease addendum to extend its lease of 5,296 square feet of space located in San Diego, California with respect

to its research and development activities until December 31, 2019.

The base rent was $4,452 per month plus association fees of

$555 per month.

In connection with the lease, the Company paid the landlord a security deposit of $8,729.

The lease was renewed

on January 1, 2020 under a six-month lease agreement ending June 30, 2020.

The base rent was increased to $4,552 per month plus

association fees of $555 per month.

On June 15, 2020, the Company entered into an agreement to extend the term of its original

office space 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.

The lease was renewed subsequent to December 31, 2020

(see Note 14 – Subsequent Events).

The Company evaluated this operating lease and determined that the short-term exemption

available under ASC 842 applied 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.

On March 8, 2018, KULR Technology Corporation

11 unchanged sentences

Company does not have any financing leases.

Patent License Agreement

On March 21, 2018, the Company

entered into an agreement with the National Renewable Energy Laboratory (“NREL”) granting the Company an

exclusive license to commercialize its patented Internal Short Circuit technology.

The agreement is effective for as long as

the licensed patents are enforceable, subject to certain early termination provisions specified in the agreement.

consideration, the Company agreed to pay to NREL the following:

(i) a cash payment of $12,000 payable over one year, (ii)

royalties ranging from 1.5% to 3.75% on the net sales price of the licensed products, as defined in the agreement, with

minimum annual royalty payments ranging from $0 to $7,500.

In addition, the Company shall use commercially reasonable efforts

to bring the licensed products to market through a commercialization program that requires that certain milestones be met, as

specified in the agreement.

During the years ended December 31, 2019 and 2018, the Company recorded royalties of $1,290 and

$0, respectively, which were included within cost of revenues.

KULR TECHNOLOGY GROUP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019

NOTE 10 COMMITMENTS

AND CONTINGENCIES – CONTINUE D

States impose sales tax on certain sales

to nonexempt customers.

The Company is current in its filing with its home state of California and has reported no taxable sales

for the year ended December 31, 2019.

as a result of the following:

(i) approximately 11% of the Company's sales are design and

engineering services which are not subject to sales tax, (ii) certain product sales are shipped to non US countries, states outside

of California, or tax-exempt government agencies, (iii) the Company’s customers are licensed resellers of the products and

accordingly are exempt from the pass through of sales taxes.

Accordingly, the Company did not collect sales taxes during

the years ended December 31, 2019 and 2018.

If, during an inspection by a tax authority, the Company was unable to support its

customers’ tax exemption status, the Company may be subject to a liability for sales taxes not collected.

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Patent License Agreement

On March 21, 2018, the Company entered into

an agreement with the National Renewable Energy Laboratory (“NREL”) granting the Company an exclusive license to commercialize

its patented Internal Short Circuit technology.

The agreement is effective for as long as the licensed patents are enforceable,

subject to certain early termination provisions specified in the agreement.

In consideration, the Company agreed to pay to NREL

the following:

(i) a cash payment of $12,000 payable over one year, (ii) royalties ranging from 1.5% to 3.75% on the net sales

price of the licensed products, as defined in the agreement, with minimum annual royalty payments ranging from $0 to $7,500.

addition, the Company shall use commercially reasonable efforts to bring the licensed products to market through a commercialization

program that requires that certain milestones be met, as specified in the agreement.

During the years ended December 31, 2020

and 2019, the Company recorded royalties of $1,906 and $1,290, respectively, which were included within cost of revenues.

States impose sales tax on certain sales to

nonexempt customers.

As of December 31, 2020, the Company collected and owes state sales tax to its home state of California in

the amount of $3,330.

Majority, of the Company’s sales during the year ended December 31, 2020 were not taxable as a result

of the following:

(i) a certain portion of the Company's sales are design and engineering services which are not subject to sales

tax, (ii) certain product sales are shipped to non-US countries, states outside of California, or tax-exempt government agencies,

(iii) the Company’s customers are licensed resellers of the products and accordingly are exempt from the pass through of

The Company did not collect or owe sales taxes during the year ended December 31, 2019.

If, during an inspection

by a tax authority, the Company was unable to support its customers’ tax exemption status, the Company may be subject to

a liability for sales taxes not collected.

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 satisfaction of meeting general performance parameters.

As of December

31, 2020, it was probable the contractor would satisfy the performance parameters and, as a result, the grant date fair value

of the common stock is being recognized as stock-based compensation expense ratably over the vesting period.

See Note 12 –

Stockholders’ Equity (Deficiency) for additional details.

NOTE 14 SUBSEQUENT

In January 2020, an outbreak of a new strain

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

Through the first quarter of 2020, the disease became widespread around

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

Our business is dependent on developing new

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

and interruptions to supply chains.

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

will affect our ability

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

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

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

cash flows, or financial condition.

Operating Lease Renewal

On January 1, 2020, KULR Technology Group,

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

ending June 30, 2020.

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

Standby Equity Distribution Agreement

On February 27, 2020,

KULR Technology Group, Inc.

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 (the “Common

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 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.

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 gross proceeds received by the Company from the sale of Shares that exceeds $1,500,000.

On May 12, 2020, the Company issued an

aggregate of 20,292 shares of common stock in connection with an aggregate of $16,000 of proceeds received against advance notices

submitted to the Investor under the Standby Equity Distribution Agreement.

On March 27, 2020,

President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act ("CARES Act").

The CARES Act, amongst

other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments,

net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations

and technical corrections to tax depreciation methods for qualified improvement property.

Under ASC 740, the effects of new legislation

are recognized upon enactment.

Accordingly, the CARES Act is effective beginning in the quarter ended March 31, 2020.

is currently evaluating how provisions in the CARES Act will impact its consolidated financial statements, however, it does not

currently believe that such provisions will have a material impact on the Company’s consolidated financial statements.

Paycheck Protection Program Loan

On April 27, 2020,

the Company received loan proceeds in the amount of approximately $155,000 under the Paycheck Protection Program (“PPP”).

The PPP, established as part of the CARES Act, provides for loans to qualifying businesses for amounts up to 2.5 times of the average

monthly payroll expenses of the qualifying business.

The loans and accrued interest are forgivable after eight weeks as long as

the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll

The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week

The unforgiven

portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months.

The Company intends to use the proceeds for purposes consistent with the PPP.

While the Company currently believes that its use

of the loan proceeds will meet the conditions for forgiveness of the loan, there can be no assurance that it will not take actions

that could cause the Company to be ineligible for forgiveness of the loan, in whole or in part.

Repayments of the

Notes Payable

Subsequent to December

31, 2020, the Company repaid principal on the Notes in the aggregate amount of $1,050,000.

Election of Directors

and Appointment of Certain Officers

Subsequent to December 31, 2020, the Board

of the Company appointed Joanna D.

Massey, Morio Kurosaki and Stayce D.

Harris as directors on the Board, to hold office until

the earlier of the expiration of the term of office of the director whom they have replaced, a successor is duly elected and qualified,

or the earlier of such director’s death, resignation, disqualification, or removal.

Massey’s, Mr.

Kurosaki’s

Harris’

appointment is contingent upon the Company’s common stock being approved for uplisting to a national

Furthermore, subject to approval for uplisting to a national exchange, each director will receive quarterly cash compensation

equal to $10,000 and each director will be granted 20,000 shares of common stock, which shares shall vest quarterly in 5,000 share

installments with the first installment vesting immediately upon approval for uplisting to a national exchange.

KULR TECHNOLOGY GROUP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019

NOTE 11 SUBSEQUENT EVENTS – CONTINUED

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.

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Subsequent to December 31, 2020, the Company

entered into a consulting agreement with Keith Cochran to act in the capacity of Executive Vice President.

The consultant provided

management and business development services to the Company.

In consideration for services provided in January and February 2021,

the Company compensated the consultant with $10,000 per month and 10,000 shares of its common stock per month.

Effective March

1, 2021, the Company appointed Keith Cochran as President and Chief Operating Officer (“COO”) 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.

The COO will receive cash compensation of $250,000 per annum

and received an aggregate of 2,000,000 shares of its common stock, which shares will vest in four equal annual installments beginning

on March 1, 2022.

Additionally, the COO is eligible for incentive based share grants totaling up to 1,500,000 shares of the Company’s

common stock, which will be earned based on certain market cap achievement up to $4 billion.

Subsequent to December 31, 2020, the Company

entered into an at-will employment arrangement with its Senior Director of Product Development.

In connection with the hire of

its Senior Director of Product Development the Company agreed to issue 50,000 shares of its common stock which shares will vest

in four equal annual installments beginning on the first-year anniversary of the hire date.

Additionally, the Company granted

a five-year option to purchase 100,000 shares of common stock at an exercise price of $2.44 per share, pursuant to the 2018 Plan.

One-fourth of the options will vest on the first-year anniversary of the grant date and the remaining options vest monthly over

Operating Lease Renewal

to December 31, 2020, the Company entered into a lease addendum to extend the term of its original lease, located in San Diego,

California with respect to its research and development activities, from December 31, 2020 to June 30, 2021.

Monthly rental payments

under the renewed lease total $5,127, which is comprised of $4,572 of base rent plus $555 of association fees.

Series B Convertible Preferred Stock

Subsequent to December 31, 2020, the Company

issued 698,600 shares of common stock upon conversion of 13,972 shares of the Company’s Series B Preferred Stock.

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 9A. Controls and Procedures