KULR Technology Group, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES 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 Act”). Based on the foregoing evaluation, our principal executive officer and principal financial officer concluded that, 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 Our management, including our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020, based on the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013 Framework). 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 were not effective as of December 31, 2020 as a result of the material weakness described above. 23 Changes in Internal Control Over Financial Reporting 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 of Controls 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. 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 reporting because the rules for smaller reporting companies provide an exemption from the attestation requirement. ITEM 9B. OTHER INFORMATION None. 24 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE Executive Officers and Directors Our executive officers and directors and their ages are as follows: Name Age Office Michael Mo 50 Chief Executive Officer and Chairman Dr. Timothy Knowles 74 Director, Chief Technical Officer and Secretary Simon Westbrook 72 Chief Financial Officer Keith Cochran 55 President and Chief Operating Officer Michael Carpenter 57 Vice President of Engineering 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. In 2005, Mr. Mo founded Sympeer Technology and served as its CEO until 2008. In 1998, he founded Wish Solutions, and served as its CEO until 2001. Mr. Mo received his Master of Science in Electrical Engineering from the University of California at Santa Barbara in 1995. Timothy R. 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. Since 1983, Dr. 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 then. From 1977 to 1983, he was a postdoctoral research physicist at Hamburg University. Mr. Knowles received Ph.D. in Physics from University of California San Diego in 1977 and B.S. in Physics from University of Southern California in 1969. Simon Westbrook was appointed Chief Financial Officer on March 15, 2018. In 2009, Mr. 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. Westbrook was CFO of Amber Networks, Inc., and the Chief Financial Officer of Sage, Inc. (NASDAQ: SAGI), a Silicon Valley company specializing in flat panel displays. Before joining Sage, Mr. Westbrook held a number of senior financial positions at Creative Technology (NASDAQ: 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. Keith Cochran was appointed President and Chief Operating Officer effective March 1, 2021. Mr. 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. Mr. 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 countries. Mr. Cochran has a Bachelor of Science in Business Operations from Devry Institute of Technology. Michael G. Carpenter serves as KULR’s Vice President of Engineering. Mr. 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. He also has been served as Safety Officer since he joined ESLI in 1983. Mr. 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 Currently no directors would qualify as independent as defined under NASDAQ Marketplace Rules. Our directors believe that retaining one or more additional directors who would qualify as independent as defined in the NASDAQ Marketplace Rules would be overly costly and burdensome and not warranted in the circumstances given the current stage of the Company’s development. 25 Family Relationships There are no family relationships between any director and executive officer. Involvement in Certain Legal Proceedings Our directors, executive 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; or ● 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, 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. The Company does not believe a Code of Ethics is necessary at this time. Nomination Process As of December 31, 2020, we did not affect any material changes to the procedures by which stockholders may recommend nominees to the Board of Directors. We do not have any defined policy or procedure requirements for stockholders to submit recommendations or nominations for directors. The Board of Directors believes that, given the current stage of our development, a specific nominating policy would be premature and of little assistance until our operations develop to a more advanced level. We do not currently have any specific or minimum criteria for the election of nominees to the Board of Directors and there is no specific process or procedure for evaluating such nominees. The board of directors assesses all candidates, whether submitted by management or stockholders, and makes recommendations for election or appointment. A stockholder who wishes to communicate with the Board of Directors may do so by directing a written request addressed to our Chief Executive Officer at the address appearing on the face page of this annual report. 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, 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. 26 ITEM 11. EXECUTIVE COMPENSATION Summary Compensation Table The following Summary Compensation Table sets forth all compensation earned in all capacities during the fiscal years ended December 31, 2020 and 2019 by (i) our principal executive officer, (ii) our two most highly compensated executive officers, other than our principal executive officer, who were serving as executive officers as of December 31, 2020 and whose total compensation for the 2019 fiscal year, as determined by Regulation S-K, Item 402, exceeded $100,000, (iii) a person who would have been included as one of our two most highly compensated executive officers, other than our principal executive officer, but for the fact that he was not serving as one of our executive officers as of December 31, 2020 (the individuals falling within categories (i), (ii) and (iii) are collectively referred to as the “Named Executive Officers”): Name and Principal Position Year Salary Bonus Total Earned Michael Mo 2020 $ 137,931 $ - $ 137,931 (1) Chief Executive Officer 2019 $ 161,785 $ - $ 161,785 (2) Timothy Knowles 2020 $ 56,893 $ - $ 56,893 (3) Chief Technology Officer 2019 $ 141,353 $ - $ 141,353 (4) Michael Carpenter 2020 $ 92,178 $ - $ 92,178 VP of Engineering 2019 $ 124,459 $ - $ 124,459 (1) Cash 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. (2) 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. (3) 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 (4) 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, 2020. Bonuses 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. As we continue to grow, more defined bonus programs may be established to attract and retain our employees at all levels. Equity Compensation Plans 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”). Under the 2018 Plan, 15,000,000 shares of common stock of the Company are authorized for issuance. The 2018 Plan provides for the issuance of incentive stock options, non-statutory stock options, rights to purchase common stock, stock appreciation rights, restricted stock, and restricted stock units to employees, directors and consultants of the Company and its affiliates. The 2018 Plan requires the exercise price of stock options to be not less than the fair value of the Company’s common stock on the date of grant. 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 performance of their duties or their separate duties as officers of the Company. Employment Contracts; Termination of Employment and Change-in-Control Arrangements We 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. 27 ITEM 12. 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. Except as otherwise indicated, all shares are owned directly. Unless otherwise indicated, the address of each of the persons shown is c/o KULR Technology Group, Inc., 1999 S. Bascom Ave. Suite 700. Campbell, CA 95008. Amount of Name of Beneficial Owner Beneficial Ownership Percentage Ownership (1) Michael Mo (2) - CEO and Chairman 21,400,000 23.63 % Dr. Timothy Knowles (3) - CTO and Director 15,600,000 17.22 % Simon Westbrook - CFO - - Keith Cochran (4) – President and COO 80,000 * Michael Carpenter - VP of Engineering 500,000 * All directors and executive officers as a group (5 persons) 37,580,000 41.49 % * Less than 1% (1) 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 voted. (2) Consists of: 20,000,000 shares held directly by Mr. Mo and 1,400,000 shares held jointly by Mr. Mo and his spouse, Linda Mo, and excludes shares held by Mr. Mo’s son Alexander Mo and shares held by Mr. Mo’s 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. (3) Consists of 15,600,000 shares held directly by Mr. Knowles and 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. (4) 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. ITEM 13. 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. Furthermore, Mr. Mo was an officer and director of both the Company and KULR prior to and after entering into the Share Exchange Agreement. Dr. 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. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 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 December 31, 2020 2019 Audit Fees $ 156,936 $ 173,501 Tax Fees 6,825 22,850 Total $ 163,761 $ 196,351 28 Audit Fees 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 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 Our Board of Directors, who acts as our audit committee, has adopted a policy governing the pre-approval by the Board of Directors of all services, audit and non-audit, to be provided to our Company by our independent auditors. Under the policy, the Board of Directors has pre-approved the provision by our independent auditors of specific audit, audit related, tax and other non-audit services as being consistent with auditor independence. Requests or applications to provide services that require the specific pre-approval of the board of directors must be submitted to the Board of Directors by the independent auditors, and the independent auditors must advise the board of directors as to whether, in the independent auditor’s view, the request or application is consistent with the SEC’s rules on auditor independence. The Board of Directors has considered the nature and amount of the fees billed by Marcum and believes that the provision of the services for activities unrelated to the audit is compatible with maintaining the independence of Marcum. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES Exhibit No. Description 2.1 Share Exchange Agreement, dated June 8, 2017 (1) 3.1 Articles of Incorporation of the Company (2) 3.2 Bylaws of the Company (2) 3.3 Certificate of Incorporation of KULR Technology Corporation (3) 3.4 Amended and Restated Certificate of Incorporation of KULR Technology Corporation (3) 3.5 By-laws of KULR Technology Corporation (3) 3.6 Certificate of Designation of Series A Voting Preferred Stock, filed on June 6, 2017 (1) 3.7 Certificate of Amendment to the Certificate of Incorporation, effective August 30, 2018 (8) 3.8 Certificate of Designation of Series B Convertible Preferred Stock, filed on December 6, 2018 (9) 3.9 Certificate of Amendment to the Certificate of Incorporation, effective December 31, 2018 (10) 3.10 Certificate of Designation of Series C Convertible Preferred Stock, filed on August 19, 2019 (11) 4.1 Description of registrant’s securities registered pursuant to Section 12 of the Securities Exchange Act of 1934* 10.1 License and Development Agreement, dated April 15, 2013 (3) 10.2 Consulting Agreement, dated April 15, 2013 (3) 10.3 Letter of Intent by and between the Company and E3 Enterprise, dated April 20, 2016 (4) 10.4 Letter of Intent by and between the Company and KULR Technology Corporation (5) 29 10.5 Patent Assignment Agreement, dated November 10, 2016 (3) 10.6 Promissory Note issued by KULR Technology Corporation, dated March 31, 2017 (6) 10.7 Promissory Note issued by KULR Technology Corporation, dated June 8, 2017 (1) 10.8 Consulting Agreement, dated March 15, 2018 (7) 10.9 2018 KULR Technology Group Equity Incentive Plan (12) 10.10 Securities Purchase Agreement dated April 2, 2019 (13) 10.11 Subscription Agreement, as supplemented, for Common Stock Offering (14) 10.12 Rescission and Termination Agreement dated July 5, 2019 (15) 10.13 Form of Subscription Agreement (16) 10.14 Form of Warrant (16) 10.15 Standby Equity Distribution Agreement dated February 27, 2020 (17) 10.16 Note Purchase Agreement dated February 27, 2020 (17) 10.17 Promissory Note dated February 27, 2020 (17) 10.18 Note Purchase Agreement dated July 20, 2020 (18) 10.19 Promissory Note dated July 20, 2020 (18) 10.20 Form of Securities Purchase Agreement (19) 10.21 Form of Warrant (19) 10.22 Co-Placement Agency Agreement (19) 21.1 List of Subsidiaries (3) 23.1 Consent of Marcum LLP* 31.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 31.2 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* 101.INS XBRL Instance* 101.SCH XBRL Taxonomy Extension Schema* 101.CAL XBRL Taxonomy Extension Calculation* 101.DEF XBRL Taxonomy Extension Definition* 101.LAB XBRL Taxonomy Extension Labels* 101.PRE XBRL Taxonomy Extension Presentation* * Filed herewith. 30 (1) Previously filed as an exhibit to Form 8-K on June 12, 2017 and incorporated herein by this reference. (2) Previously filed as an exhibit on Form 10-12G on January 7, 2016 (File No.: 000-55564) and incorporated herein by this reference. (3) Previously filed as an exhibit to Form 8-K on June 19, 2017 and incorporated herein by this reference. (4) Previously filed on Form S-1 on June 28, 2016 (File No.: 333-212272) and incorporated herein by this reference. (5) Previously filed as an exhibit to Form 8-K on November 3, 2016 and incorporated herein by this reference. (6) Previously filed as an exhibit to Form 8-K on April 5, 2017 and incorporated herein by this reference. (7) Previously filed as an exhibit to Form 8-K on March 15, 2018 and incorporated herein by this reference. (8) Previously filed as an exhibit to Form 8-K on August 30, 2018 and incorporated herein by this reference. (9) Previously filed as an exhibit to Form 8-K on December 6, 2018 and incorporated herein by this reference. (10) Previously filed as an exhibit to Form 8-K on January 7, 2019 and incorporated herein by this reference. (11) Previously filed as an exhibit to Form 8-K on August 23, 2019 and incorporated herein by this reference. (12) Previously filed as an exhibit to Form S-8 on October 9, 2018 and incorporated herein by this reference. (13) Previously filed as an exhibit to Form 8-K on April 3, 2019 and incorporated herein by this reference. (14) Previously filed as an exhibit to Form 10-Q on May 14, 2019 and incorporated herein by this reference. (15) Previously filed as an exhibit to Form 8-K on July 5, 2019 and incorporated herein by this reference. (16) Previously filed as an exhibit to Form 8-K on December 5, 2019 and incorporated herein by this reference. (17) (18) (19) 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. ITEM 16. FORM 10-K SUMMARY None. 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. March 19, 2021 KULR Technology Group, Inc. By: /s/ Michael Mo Michael Mo Chief Executive Officer and Chairman (Principal Executive Officer) By: /s/ Simon Westbrook Simon Westbrook Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date By: /s/ Michael Mo Chief Executive Officer and Chairman March 19, 2021 Michael Mo By: /s/ Timothy Knowles Chief Technical Officer and Director March 19, 2021 Timothy Knowles By: /s/ Simon Westbrook Chief Financial Officer March 19, 2021 Simon Westbrook 32 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2020 and 2019 F-3 Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019 F-4 Consolidated Statements of Changes in Stockholders’ Equity (Deficiency) for the Years Ended December 31, 2020 and 2019 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019 F-6 Notes to Consolidated Financial Statements F-8 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of KULR Technology Group, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of KULR Technology Group, Inc. and Subsidiary (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’ 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”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a 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 and that: (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 Marcum llp We have served as the Company’s auditor since 2018. Los Angeles, CA March 19, 2021 F- 2 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, 2020 2019 Assets Current Assets: Cash $ 8,880,140 $ 108,857 Accounts receivable 55,492 30,101 Inventory 55,452 27,091 Prepaid expenses and other current assets 159,196 43,201 Total Current Assets 9,150,280 209,250 Property and equipment, net 57,857 27,516 Total Assets $ 9,208,137 $ 236,766 Liabilities and Stockholders' Equity (Deficiency) Current Liabilities: Accounts payable $ 66,537 $ 344,660 Accounts payable - related party 2,628 4,253 Accrued expenses and other current liabilities 395,012 659,399 Accrued expenses and other current liabilities - related party — 10,419 Accrued issuable equity 128,380 — Notes payable, net of debt discount of $128,198 and $0 at December 31, 2020 and 2019, respectively 2,321,802 — Loans payable, current portion 12,936 — Deferred revenue 20,000 15,000 Total Current Liabilities 2,947,295 1,033,731 Loans payable, non-current portion 142,290 — Total Liabilities 3,089,585 1,033,731 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 — — 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 1 1 Series C Preferred Stock, 400 shares designated; 0.00 and 24.01 shares issued and outstanding and liquidation preference of $0 and $240,100 at December 31, 2020 and 2019, respectively — — 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 8,991 8,107 Additional paid-in capital 17,355,968 7,591,239 Accumulated deficit (11,246,408 ) (8,396,312 ) Total Stockholders' Equity (Deficiency) 6,118,552 (796,965 ) Total Liabilities and Stockholders' Equity (Deficiency) $ 9,208,137 $ 236,766 The accompanying notes are an integral part of these consolidated financial statements. F- 3 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 2020 2019 Revenue $ 623,965 $ 830,398 Cost of revenue 169,016 226,505 Gross Profit 454,949 603,893 Operating Expenses: Research and development 289,772 502,225 Selling, general, and administrative 2,505,609 2,080,941 Total Operating Expenses 2,795,381 2,583,166 Loss From Operations (2,340,432 ) (1,979,273 ) Other (Expenses) Income Interest expense, net (5,268 ) (1,580 ) Other income — 1,100 Amortization of debt discount (501,802 ) — Change in fair value of accrued issuable equity (2,594 ) — Total Other Expenses (509,664 ) (480 ) Net Loss (2,850,096 ) (1,979,753 ) Deemed dividend to Series C Preferred Stockholders (1,691 ) — Net Loss Attributable to Common Stockholders $ (2,851,787 ) $ (1,979,753 ) Net Loss Per Share - Basic and Diluted $ (0.03 ) $ (0.02 ) Weighted Average Number of Common Shares Outstanding - Basic and Diluted 82,032,420 80,123,111 The accompanying notes are an integral part of these consolidated financial statements. F- 4 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIENCY) EQUITY FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 Total Series B Convertible Series C Convertible Additional Stockholders' Preferred Stock Preferred Stock Common Stock Paid-In Accumulated Equity Shares Amount Shares Amount Shares Amount Capital Deficit (Deficiency) Balance - January 1, 2019 30,858 $ 3 — $ — 78,706,256 $ 7,871 $ 6,283,548 $ (6,416,559 ) $ (125,137 ) Stock-based compensation — — — — 185,966 19 220,606 — 220,625 Common stock issued for cash — — — — 1,361,059 135 898,165 — 898,300 Common stock issued upon conversion of Series B Convertible Preferred Stock (16,371 ) (2 ) — — 818,550 82 (80 ) — — Series C Convertible Preferred Stock and warrants issued for cash, net of issuance costs [1] — — 24.01 — — — 154,000 — 154,000 Forgiveness of accrued expenses by related party — — — — — — 35,000 — 35,000 Net loss — — — — — — — (1,979,753 ) (1,979,753 ) Balance - December 31, 2019 14,487 $ 1 24.01 $ — 81,071,831 $ 8,107 $ 7,591,239 $ (8,396,312 ) $ (796,965 ) Common stock and warrants issued for cash, net of issuance costs [2] — — — — 6,400,001 640 7,269,209 — 7,269,849 Common stock issued for the commitment fee pursuant to the SEDA agreement — — — — 95,847 10 63,249 — 63,259 Common stock issued pursuant to the SEDA agreement: For cash, net of issuance costs [3] — — — — 1,128,908 113 1,423,324 — 1,423,437 In satisfaction of notes payable — — — — 712,640 71 790,929 — 791,000 Common stock issued upon conversion of Series B Convertible Preferred Stock (515 ) — — — 25,758 3 (3 ) — — Common stock issued upon conversion of Series C Convertible Preferred Stock — — (24.01 ) — 234,662 24 (24 ) — — Stock-based compensation: Common stock — — — — 238,953 23 178,619 — 178,642 Options — — — — — — 39,426 — 39,426 Net loss — — — — — — — (2,850,096 ) (2,850,096 ) Balance - December 31, 2020 13,972 $ 1 — $ — 89,908,600 $ 8,991 $ 17,355,968 $ (11,246,408 ) $ 6,118,552 [1] Includes gross proceeds of $216,000, less cash issuance costs of $62,000. [2] Includes gross proceeds of $8,000,001, less issuance costs of $730,152 ($705,300 of cash and $24,852 of non-cash). [3] Amount represents gross proceeds of $1,501,696 less $78,259 issuance costs. The accompanying notes are an integral part of these consolidated financial statements. F- 5 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOW For the Years Ended December 31, 2020 2019 Cash Flows From Operating Activities: Net loss $ (2,850,096 ) $ (1,979,753 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of debt discount 501,802 - Depreciation expense 15,746 17,275 Bad debt expense 933 - Write-down of inventory - 90 Change in fair value of accrued issuable equity 2,594 - Stock-based compensation 343,854 220,625 Changes in operating assets and liabilities: Accounts receivable (26,324 ) 82,123 Inventory (28,361 ) (17,587 ) Prepaid expenses and other current assets (115,995 ) 11,401 Accounts payable (296,072 ) 230,918 Accounts payable - related party (1,625 ) - Accrued expenses and other current liabilities (271,290 ) 270,069 Accrued expenses and other current liabilities - related party (10,419 ) (38,500 ) Deferred revenue 5,000 15,000 Total Adjustments 119,843 791,414 Net Cash Used In Operating Activities (2,730,253 ) (1,188,339 ) Cash Flows From Investing Activities: Purchase of property and equipment (46,087 ) - Net Cash Used In Investing Activities (46,087 ) - Cash Flows from Financing Activities: Proceeds from notes payable 3,710,000 - Repayments of notes payable (759,000 ) - Payment of debt issuance costs (340,000 ) - Proceeds from Paycheck Protection Program loan 155,226 - Proceeds from sale of Series C Convertible Preferred Stock and warrants [1] - 184,000 Payment of offering costs in connection with sale of Series C Convertible Preferred Stock and warrants - (15,000 ) Proceeds from sale of common stock issued pursuant to the SEDA agreement [2] 1,501,696 - Payment of offering costs in connection with the SEDA agreement (15,000 ) - Proceeds from sale of common stock and warrants 8,000,001 898,300 Payment of offering costs in connection with sale of common stock and warrants (705,300 ) - Net Cash Provided By Financing Activities 11,547,623 1,067,300 Net Increase (Decrease) In Cash 8,771,283 (121,039 ) Cash - Beginning of Period 108,857 229,896 Cash - End of Period $ 8,880,140 $ 108,857 [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 investor. The accompanying notes are an integral part of these consolidated financial statements. F- 6 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED For the Years Ended December 31, 2020 2019 Supplemental Disclosures of Cash Flow Information: Cash paid during the year for: Interest $ 3,890 $ 789 Income taxes $ - $ - Non-cash investing and financing activities: Common stock issued for repayment of note payable $ 791,000 $ - Common stock issued upon conversion of Series B Convertible Preferred Stock $ 3 $ 82 Common stock issued upon conversion of Series C Convertible Preferred Stock $ 24 $ - Forgiveness of accrued expenses by related party $ - $ 35,000 Original issuance discount on notes payable $ 290,000 $ - Value of common stock issued as a commitment fee for the SEDA agreement $ 63,259 $ - Disposal of fully depreciated property and equipment $ 1,829 $ - The accompanying notes are an integral part of these consolidated financial statements. F- 7 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 NOTE 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. 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 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 Presentation The consolidated financial statements of the Company include the accounts of KULR Technology Group, Inc. and its wholly-owned subsidiary, KULR Technology Corporation. All 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. GAAP”). Liquidity 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 with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the financial statements. The Company’s significant estimates 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 estimates. 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. F- 8 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 Concentrations of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consisted primarily of cash, accounts receivable, revenue and accounts payable. 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 institution. There was an uninsured balance of $8,513,010 as of December 31, 2020 and no uninsured cash balances as of December 31, 2019. 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: Revenue Accounts Receivable For the Years Ended December 31, As of December 31, 2020 2019 2020 2019 Customer A * * 70 % * Customer B * * 19 % 20 % Customer C * * * 19 % Customer D * * 10 % 33 % Customer E * * * 17 % Customer F * 43 % * * Customer G 18 % 14 % * * Customer H 32 % * * * Customer I * 12 % * * Total 50 % 69 % 99 % 89 % * 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. Accounts Receivable 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. F- 9 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 Inventory Inventory is comprised of carbon fiber velvet (“CFV”) 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, 2020, and 2019, the Company’s inventory was comprised solely of finished goods. Property and Equipment Property and equipment are stated at cost, net of accumulated depreciation which is recorded commencing at the in-service date using the straight-line method at rates sufficient to charge the cost of depreciable assets to operations over their estimated useful lives, which range from 3 to 7 years. Leasehold 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. An impairment loss would be recognized when the present value of estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying value. 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. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value: Level 1 — quoted prices in active markets for identical assets or liabilities Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable Level 3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions) The carrying amounts of the Company’s 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. F- 10 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 instruments. Convertible Instruments The Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for in accordance with 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 assets on the balance sheet. Once the financing closes, the Company reclassifies such costs as either discounts to notes payable or as a reduction of proceeds received from equity transactions so that such costs are recorded as a reduction of additional paid-in capital. If the completion of a contemplated financing was deemed to be no longer probable, the related deferred offering costs would be charged to general and administrative expense in the consolidated financial statements. Revenue Recognition The Company recognizes revenue in accordance with Accounting Standards Codification (“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, 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. F- 11 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 The following five steps are applied to achieve that core principle: · Step 1: Identify the contract with the customer; · Step 2: Identify the performance obligations in the contract; · Step 3: Determine the transaction price; · Step 4: Allocate the transaction price to the performance obligations in the contract; and · Step 5: 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 December 31, 2020 2019 Product sales $ 404,467 $ 735,431 Contract services 219,498 94,967 Total revenue $ 623,965 $ 830,398 As of December 31, 2020 and 2019, the Company had $ 20,000 and $15,000 of deferred revenue, respectively, from contracts with customers. The contract liabilities represent payments received from customers for which the Company had not yet satisfied its performance obligation under the contract, 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 revenue. 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 amounted to $18,887 and $3,172, respectively. Research and Development 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. F- 12 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 Advertising Costs Advertising costs are expensed in the period incurred. 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 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 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. 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. During the year ended December 31, 2019 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 Basic net loss per common share is computed by dividing net loss by the weighted average number of vested common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of common and dilutive common-equivalent shares outstanding during each period. 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: For the Years Ended December 31, 2020 2019 Series B Convertible Preferred Stock 698,600 724,350 Series C Convertible Preferred Stock — 240,100 Options 370,000 385,000 Warrants 6,787,911 210,025 Total 7,856,511 1,559,475 F- 13 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 Operating Leases The Company leases properties under operating leases. For leases in effect upon adoption of Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” at January 1, 2019 and for any leases commencing thereafter, the Company recognizes a liability to make lease payments, the “lease liability”, and an asset representing the right to use the underlying asset during the lease term, the “right-of-use asset”. The lease liability is measured at the present value of the remaining lease payments, discounted at the Company’s incremental borrowing rate. The right-of-use asset is measured at the amount of the lease liability adjusted for the remaining balance of any lease incentives received, any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term, any unamortized initial direct costs, and any impairment of the right-of-use-asset. Operating lease expense consists of a single lease cost calculated so that the remaining cost of the lease is allocated over the remaining lease term on a straight-line basis, variable lease payments not included in the lease liability, and any impairment of the right-of-use asset. The Company evaluated their operating lease and elected to apply the short-term lease measurement and recognition exemption in which the right of use asset and lease liability 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. Income Taxes 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 and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s financial statements as of December 31, 2020 and 2019. The Company does not expect any significant changes in its unrecognized tax benefits within twelve months of the reporting date. The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as 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 The Company has evaluated subsequent events through the date which the consolidated financial statements were issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements, except as disclosed. F- 14 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”). ASU 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 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 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. 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 Standards Update No. 2018-18, Collaborative Arrangements (Topic 808): 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. In addition, ASU 2018-18 precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted, including adoption in any interim period, (1) for public business entities for periods for which financial 3 statements have not yet been issued and (2) for all other entities for periods for which financial statements have not yet been made available for issuance. The Company adopted ASU 2018-18 effective January 1, 2020 and its adoption 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. F- 15 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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: December 31, 2020 2019 Filing $ 9,944 $ 9,858 Marketing 56,853 — Deferred labor costs 31,212 — Professional 10,603 4,134 Insurance 10,429 8,026 Security deposit 8,729 16,977 Other 31,426 4,206 Total prepaid expenses and other current assets $ 159,196 $ 43,201 NOTE 4 PROPERTY AND EQUIPMENT As of December 31, 2020 and 2019, property and equipment consisted of the following: December 31, 2020 2019 Estimated Useful Life Computer equipment $ 11,525 $ 13,355 3 years Leasehold improvement 8,834 8,834 15 years or the remaining life of the lease Software 5,656 5,656 3 years Machinery & equipment 72,392 26,304 5 - 7 years Research and development equipment 12,810 12,810 3 years Furniture and fixtures 3,307 3,307 5 years 114,524 70,266 Less: accumulated deprecation (56,667 ) (42,750 ) Property and equipment; net $ 57,857 $ 27,516 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 expenses and other current liabilities consisted of the following: December 31, 2020 2019 Payroll and vacation $ 279,054 $ 525,917 Legal and professional fees 81,902 60,000 Other 34,056 73,482 Total accrued expenses and other current liabilities $ 395,012 $ 659,399 F- 16 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 $ — Additions 205,297 Reclassifications to equity (79,511 ) Mark-to market 2,594 Balance, December 31, 2020 $ 128,380 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 the Company. 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 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 $35,000 of previously accrued consulting fees. As a result, the Company accounted for the forgiveness as a capital contribution by reducing accrued expenses and other current liabilities by $35,000 with a corresponding credit to additional paid-in capital. F- 17 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 NOTE 8 LINE OF CREDIT On February 18, 2020, the Company entered into a financing agreement (the “Line of Credit”) wherein it may borrow up to $10,000. The repayment terms (interest rate, repayment amount and number of consecutive weekly periodic installments) are determined at the time the Company borrows proceeds under the Line of Credit. On February 19, 2020, the Company borrowed and received gross proceeds of $10,000 under the Line of Credit for its working capital needs, which 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. NOTE 9 NOTES PAYABLE A summary of the notes payable activity during the year ended December 31, 2020, is presented below: Notes Debt Payable Discount Total Outstanding, January 1, 2020 $ — $ — $ — Issuances 4,000,000 (630,000 ) 3,370,000 Repayments in cash (759,000 ) — (759,000 ) Repayments from proceeds of SEDA (791,000 ) — (791,000 ) Amortization of debt discount — 501,802 501,802 Outstanding, December 31, 2020 $ 2,450,000 $ (128,198 ) $ 2,321,802 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. NOTE 10 LOAN PAYABLE 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”). F- 18 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. The 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 $923. NOTE 11 INCOME TAXES The income tax provision for the years ended December 31, 2020 and 2019 consists of the following: For The Years Ended December 31, 2020 2019 Federal: Current $ — $ — Deferred (474,692 ) (418,667 ) State and local: Current — — Deferred (164,651 ) (75,967 ) (639,343 ) (494,634 ) Change in valuation allowance 639,343 494,634 Income tax provision $ — $ — A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows: For The Years Ended December 31, 2020 2019 Tax benefit at federal statutory rate (21.0 )% (21.0 )% State income taxes, net of federal benefit (6.0 )% (6.0 )% Permanent differences 0.5 % 1.6 % Other and prior year true-ups 4.1 % 0.4 % Change in valuation allowance 22.4 % 25.0 % Effective income tax rate 0.0 % (0.0 )% The Company has determined that a valuation allowance for the entire net deferred tax asset is required. A valuation allowance is required if, based on the weight of evidence, it is more likely than not that some or the entire portion of the deferred tax asset will not be realized. After consideration of all the evidence, management has determined that a full valuation allowance is necessary to reduce the deferred tax asset to zero. F- 19 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 tax assets and liabilities are presented below: For The Years Ended December 31, 2020 2019 Deferred Tax Assets: Net operating loss carryforwards $ 2,799,135 $ 1,975,739 Research and development credit carryforwards 51,199 152,785 Stock-based compensation 11,062 11,062 Accruals 68,082 150,548 Gross deferred tax assets 2,929,478 2,290,134 Valuation allowance (2,929,478 ) (2,290,134 ) Deferred tax asset, net of valuation allowance $ — $ — Changes in valuation allowance $ 639,344 $ 494,634 At December 31, 2020 and 2019, the Company had federal net operating loss carry forwards of approximately $10.4 million and $7.3 million, respectively. At December 31, 2020, 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 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 The Company is authorized to issue 500,000,000 shares of common stock, par value of $0.0001 per share, and 20,000,000 shares of preferred stock, par value of $0.0001 per share. 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. F- 20 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. See Note 14 – Subsequent Events for additional details. Equity Incentive Plan 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”). Under the 2018 Plan, 15,000,000 shares of common stock of the Company are authorized for issuance. The 2018 Plan provides for the issuance of incentive stock options, non-statutory stock options, rights to purchase common stock, stock appreciation rights, restricted stock and restricted stock units to employees, directors and consultants of the Company and its affiliates. The 2018 Plan requires the exercise price of stock options to be not less than the fair value of the Company’s common stock on the date of grant. As of December 31, 2020, there were 13,841,047 shares available for issuance under the 2018 Plan. Series A Preferred Stock Each 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 into any series or class of stock of the Company. In addition, holders of the Series A Preferred Stock shall not be entitled to receive dividends, nor do they have a right to distribution from the assets of the Company in the event of any liquidation, dissolution, or winding up of the Company. On November 5, 2018, the Company received a written consent of the majority of the stockholders to issue 1,000,000 shares of the Company’s Series A Preferred Stock to Mr. Mo, as a measure to protect the Company from an uninvited takeover. As of the date of filing, the shares of Series A Preferred Stock have not been issued. 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 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. Each share of Series B Convertible Preferred Stock shall have a stated value of $1.00 per share. 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. F- 21 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, 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 On August 19, 2019, the Company filed with the Secretary of State of the State of Delaware the Certificate of Designation of Series C Convertible Preferred Stock (the “Certificate of Designation”), which became effective upon filing. Pursuant to the Certificate of Designation, the Company designated 400 shares as Series C Convertible Preferred Stock out of the authorized and unissued preferred stock of the Company, par value $0.0001 per share. 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 Value”). 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 issuance. 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 Stock, if converted within 180 days of such share’s initial issuance, is convertible into a number of shares of common stock equal to the product determined by multiplying (i) the number of shares of Series C Convertible Preferred Stock being converted and any accrued dividends thereon and (ii) $1.00 per share. Each share of Series C Convertible Preferred Stock, if converted on or after the 181 st day of its initial issuance, is convertible into a number of shares of common stock equal to the product determined by multiplying (i) the number of shares of Series C Convertible Preferred Stock being converted and any accrued 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 per share. 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. F- 22 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. The 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 assumptions: risk free interest rate: 1.53% - 1.74%; expected term – 2 years, expected volatility - 97%, expected dividends – 0%. 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. Common Stock 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 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. F- 23 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. The Warrants 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. This 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 Warrants. 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. The 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 Group, Inc. 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 $100,000. 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 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. F- 24 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. The Company 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 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. Warrants 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 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%. 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. F- 25 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 year ended December 31, 2020 is presented below: Weighted Weighted Average Average Number of Exercise Remaining Intrinsic Warrants Price Term (Yrs) Value Outstanding, January 1, 2020 210,025 $ 1.14 Issued 6,577,886 1.25 Exercised — — Expired — — Forfeited — — Outstanding, December 31, 2020 6,787,911 $ 1.25 4.9 $ 1,517,635 Exercisable, December 31, 2020 6,787,911 $ 1.25 4.9 $ 1,517,635 A summary of outstanding and exercisable warrants as of December 31, 2020 is presented below: Warrants Outstanding Warrants Exercisable Weighted Outstanding Average Exercisable Exercise Number of Remaining Life Number of Price Warrants In Years Warrants $ 1.00 150,000 0.4 150,000 $ 1.25 6,577,886 5.0 6,577,886 $ 1.50 60,025 0.7 60,025 6,787,911 4.9 6,787,911 Stock Options On September 20, 2019, the Company granted five-year options to purchase a total of 100,000 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 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. 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. F- 26 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 December 31, 2020 2019 Risk free interest rate 1.58 % 1.69 % Expected term (years) 2.50 2.50 Expected volatility 93.00 % 91.00 % Expected dividends 0.00 % 0.00 % 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. 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 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: Weighted Weighted Average Average Number of Exercise Remaining Intrinsic Options Price Term (Yrs) Value Outstanding, January 1, 2020 385,000 $ 0.66 Granted 10,000 0.66 Exercised — — Expired (8,649 ) (0.66 ) Forfeited (16,351 ) (0.66 ) Outstanding, December 31, 2020 370,000 $ 0.66 3.1 $ 299,700 Exercisable, December 31, 2020 244,157 $ 0.66 3.1 $ 197,767 The following table presents information related to stock options as of December 31, 2020: Options Outstanding Options Exercisable Weighted Outstanding Average Exercisable Exercise Number of Remaining Life Number of Price Options In Years Options $ 0.66 370,000 3.1 244,157 F- 27 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 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. The following table presents information related to stock-based compensation for the years ended December 31, 2020 and 2019: For the Years Ended December 31, 2020 2019 Common stock (issued) $ 178,642 $ 133,660 Stock options 39,426 45,994 Warrants — 40,971 Accrued issuable equity (common stock) 125,786 — Total $ 343,854 $ 220,625 NOTE 13 COMMITMENTS AND CONTINGENCIES Operating Lease On December 30, 2018, KULR Technology Group, Inc. 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 took over ESLI’s lease agreement and entered into a one-year lease agreement to lease 6,754 square feet of space located in San Diego, California with respect to its research and development activities starting May 1, 2018. The base rent was $8,150 per month. In connection with the lease, the Company recorded a liability to ESLI in connection with the security deposit of $8,150. The aggregate base rent payable over the lease term was recognized on a straight-line basis. On March 22, 2019, the Company extended the lease for 8 months with a base rent of $8,442 starting May 1, 2019. The Company moved out of the space as of December 15, 2019. During the years ended December 31, 2020 and 2019, operating lease expense was $63,751 and $162,520, respectively. As of December 31, 2020, the Company does not have any financing leases. F- 28 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. 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, 2020 and 2019, the Company recorded royalties of $1,906 and $1,290, respectively, which were included within cost of revenues. Sales Taxes 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 sales taxes. 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 EVENTS 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. Dr. Massey’s, Mr. Kurosaki’s and Ms. Harris’ appointment is contingent upon the Company’s common stock being approved for uplisting to a national exchange. 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. F- 29 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 three years. Operating Lease Renewal Subsequent 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. F- 30