KBLB 10-Q
Kraig Biocraft Laboratories, Inc. (KBLB)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from_____ to _____
Commission
File Number:
(Exact Name of Registrant as Specified in Charter)
(State or Other Jurisdiction of Incorporation) |
(I.R.S. Employer Identification No.) |
| (Address of Principal Executive Offices) |
(Registrant’s telephone number, including area code)
(Former name and address, if changed since last report)
Copies to:
Hunter Taubman Fischer & Li LLC
950 Third Ave., 19th Floor
New York, NY 10022
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
| None | - | - |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and emerging growth company in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company | |
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐
As of November 13, 2023, there were shares of the issuer’s Class A common stock, no par value per share, outstanding, shares of the issuer’s Class B common stock, no par value per share, outstanding and 2 shares of preferred stock, no par value per share, outstanding.
TABLE OF CONTENTS
| 2 |
Kraig Biocraft Laboratories, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
| September 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Investment in U.S. Treasury Bills at fair value (cost: $ | ||||||||
| Inventory | ||||||||
| Prepaid expenses | ||||||||
| Deposit– related party | ||||||||
| Total Current Assets | ||||||||
| Property and Equipment, net | ||||||||
| Investment in gold bullions (cost $ | ||||||||
| Operating lease right-of-use asset, net | ||||||||
| Security deposit | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Note payable - related party | ||||||||
| Royalty agreement payable - related party | ||||||||
| Accounts payable and accrued expenses - related party | ||||||||
| Operating lease liability, current | ||||||||
| Loan payable | ||||||||
| Total Current Liabilities | ||||||||
| Long Term Liabilities | ||||||||
| Operating lease liability, net of current | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 9) | ||||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock, | ||||||||
| Preferred stock Series A, | ||||||||
| Common stock Class A, | ||||||||
| Common stock Class B, | ||||||||
| Common Stock Issuable, and shares, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
| 3 |
Kraig Biocraft Laboratories, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Operating Expenses | ||||||||||||||||
| General and Administrative | ||||||||||||||||
| Professional Fees | ||||||||||||||||
| Officer’s Salary | ||||||||||||||||
| Research and Development | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income/(Expenses) | ||||||||||||||||
| Net change in unrealized depreciation on investment in gold bullion | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of debt issue costs | ( | ) | ( | ) | ||||||||||||
| Interest income | ||||||||||||||||
| Total Other Income/(Expenses) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net (Loss) before Provision for Income Taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for Income Taxes | ||||||||||||||||
| Net (Loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other Comprehensive Income | ||||||||||||||||
| Change in unrealized value of available-for-sale securities, net of income tax | $ | ( | ) | $ | $ | $ | ||||||||||
| Other Comprehensive Income | ||||||||||||||||
| Total Operating and Comprehensive Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net Income (Loss) Per Share - Basic and Diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average number of shares outstanding during the period - Basic and Diluted | ||||||||||||||||
| 4 |
Kraig Biocraft Laboratories, Inc. and Subsidiary
Condensed Consolidated Statement of Changes in Stockholders Deficit
For the three and nine months ended September 30, 2023
(Unaudited)
| Preferred Stock - Series A | Common Stock - Class A | Common Stock - Class B | To be issued | Accumulated other Comprehensive | Accumulated | |||||||||||||||||||||||||||||||||||||||||||
| Shares | Par | Shares | Par | Shares | Par | Shares | Par | APIC | Income | Deficit | Total | |||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 (Unaudited) | $ | $ | $ | $ | $ | $ | | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||
| Warrants issued for services - related parties | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Warrants issued for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Imputed interest - related party | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended September 30, 2023 | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 (Unaudited) | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 (Audited) | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||
| Warrants issued for services - related parties | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Warrants issued for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Shares issued in connection with cashless warrants exercise | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Imputed interest - related party | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the nine months ended September 30, 2023 | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 (Unaudited) | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| 5 |
Kraig Biocraft Laboratories, Inc. and Subsidiary
Condensed Consolidated Statement of Changes in Stockholders’ Deficit
For the three and nine months ended September 30, 2022
(Unaudited)
| Preferred Stock - Series A | Common Stock - Class A | Common Stock - Class B | To be issued | Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Shares | Par | Shares | Par | Shares | Par | Shares | Par | APIC | Deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 (Unaudited) | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Warrants issued for services - related parties | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Warrants issued for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Convertible debt and accrued interest conversion into common stock ($ | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Imputed interest - related party | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended September 30, 2022 | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 (Unaudited) | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Preferred Stock - | Common Stock - | Class A Shares | ||||||||||||||||||||||||||||||||||||||||||
| Series A | Common Stock - Class A | Class B | To be issued | Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Shares | Par | Shares | Par | Shares | Par | Shares | Par | APIC | Deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 (Audited) | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Warrants issued for services - related parties | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Warrants issued for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Exercise of warrants in exchange for cash ($ | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Convertible debt and accrued interest conversion into common stock ($ | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Imputed interest - related party | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Net loss for the nine months ended September 30, 2022 | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 (Unaudited) | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| 6 |
Kraig Biocraft Laboratories, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operations | ||||||||
| Depreciation expense | ||||||||
| Net change in unrealized appreciation and depreciation in gold bullions | ( | ) | ||||||
| Amortization of debt discount | ||||||||
| Imputed interest - related party | ||||||||
| Warrants issued/(cancelled) to consultants | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease in prepaid expenses | ||||||||
| (Increase) in deposits | ( | ) | ||||||
| Decrease in operating lease right-of-use, net | ||||||||
| Increase in accrued expenses and other payables - related party | ||||||||
| Decrease in accounts payable | ( | ) | ||||||
| Decrease in operating lease liabilities, current | ( | ) | ( | ) | ||||
| Net Cash Used In Operating Activities | ( | ) | ( | ) | ||||
| Net Cash Used In Investing Activities | ||||||||
| Purchase of treasury bills | ( | ) | ||||||
| Proceeds from maturity of treasury bills | ||||||||
| Purchase of fixed assets | ( | ) | ||||||
| Net Cash Provided by Investing Activities | ( | ) | ||||||
| Cash Flows From Financing Activities: | ||||||||
| Repayment of notes payable - related party | ( | ) | ||||||
| Proceeds from convertible note payable, net of original issue discount | ||||||||
| Payment of debt offering costs | ( | ) | ||||||
| Principal payments on debt | ( | ) | ( | ) | ||||
| Proceeds from warrant exercise | ||||||||
| Net Cash Provided by Financing Activities | ( | ) | ||||||
| Net Change in Cash and Cash Equivalents | ( | ) | ||||||
| Cash and Cash Equivalents at Beginning of Period | ||||||||
| Cash and Cash Equivalents at End of Period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Shares issued in connection with cashless warrants exercise | $ | $ | ||||||
| Beneficial conversion feature in connection with convertible debt | $ | $ | ||||||
| Adoption of lease standard ASC 842 | $ | $ | ||||||
| Shares issued in connection with convertible note payable | $ | $ | ||||||
| 7 |
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Consolidated Financial Statements as of September 30, 2023
(Unaudited)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements.
In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all of the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of September 30, 2023 and the results of operations and cash flows for the periods presented. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the operating results for the full fiscal year or any future period.
These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 29, 2023.
Management acknowledges its responsibility for the preparation of the accompanying unaudited consolidated financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its consolidated financial position and the consolidated results of its operations for the periods presented.
On July 15, 2022, the Company signed an agreement with Global Silk Solutions Joint Stock Company (GSS). Under this agreement, GSS will serve as a contract manufacturer for the Company’s recombinant spider silk.
Kraig Biocraft Laboratories, Inc. (the “Company”) was incorporated under the laws of the State of Wyoming on April 25, 2006. The Company was organized to develop high strength, protein based fiber, using recombinant DNA technology, for commercial applications in the textile and specialty fiber industries.
Kraig Biocraft Laboratories, Inc. (the “Company”) was incorporated under the laws of the State of Wyoming on April 25, 2006. The Company was organized to develop high strength, protein based fiber, using recombinant DNA technology, for commercial applications in the textile and specialty fiber industries.
On March 5, 2018, the Company issued a board resolution authorizing investment in a Vietnamese subsidiary and appointing a representative for the subsidiary.
On April 24, 2018, the Company announced that it had received its investment registration certificate for its new Vietnamese subsidiary Prodigy Textiles Co., Ltd.
On May 1, 2018, the Company announced that it had received its enterprise registration certificate for its new Vietnamese subsidiary Prodigy Textiles Co., Ltd
Foreign Currency
The assets and liabilities of Prodigy Textiles, Co., Ltd. (the Company’s Vietnamese subsidiary) whose functional currency is the Vietnamese Dong, are translated into US dollars at period-end exchange rates prior to consolidation. Income and expense items are translated at the average rates of exchange prevailing during the period. The adjustments resulting from translating the Company’s financial statements are reflected as a component of other comprehensive (loss) income. Foreign currency transaction gains and losses are recognized in net earnings based on differences between foreign exchange rates on the transaction date and settlement date.
| 8 |
Use of Estimates
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposits at financial institutions, money market funds, and highly liquid investments with original maturities of three months or less.
As
of September 30, 2023 and December 31, 2022, the Company had $
Basic and diluted net loss per common share is computed based upon the weighted average common shares outstanding as defined by the Financial Accounting Standards Board (“FASB” Accounting Standards Codification (“ASC”) No. 260, “Earnings per Share.” For September 30, 2023 and 2022, warrants were not included in the computation of income/ (loss) per share because their inclusion is anti-dilutive.
| September 30, 2023 | December 31, 2022 | |||||||
| Stock Warrants (Exercise price - $- $/share) | ||||||||
| Stock Options (Exercise price - $/Share) | ||||||||
| Convertible Preferred Stock | ||||||||
| Total | ||||||||
Investments
The Company has investments Treasury Bills. The Treasury Bills have remaining terms ranging from one month to three months on September 30, 2023.
The Company classifies its investments in Treasury Bills as available-for-sale, accounted for at fair value with unrealized gains and losses recognized in other comprehensive gain on the statement of operations and comprehensive loss.
During the nine months ended September 30, 2023, the Treasury Bills were redeemed, and the remaining balance is $.
The cost and estimated fair value of the Company’s investments are as follows:
| Cost | Gross unrealized gain | Fair value | ||||||||||
| December 31, 2022 | $ | $ | $ | |||||||||
| Treasury Bills | $ | $ | $ | |||||||||
| Treasury Bills – Redemption | $ | $ | ( | ) | $ | ( | ) | |||||
| Total Investments, September 30, 2023 | $ | $ | $ | |||||||||
| 9 |
Research and Development Costs
The Company expenses all research and development costs as incurred for which there is no alternative future use. These costs also include the expensing of employee compensation and employee stock based compensation.
For
the three months ended September 30, 2023 and 2022, the Company had $
For
the nine months ended September 30, 2023 and 2022, the Company had $
Advertising Expense
The
Company follows the policy of charging the costs of advertising to expense as incurred. There was
Income Taxes
The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC No. 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC No. 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company accounts for stock-based compensation for employees and directors in accordance with ASC 718, Compensation (“ASC 718”). ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their fair values. Under the provisions of ASC 718, stock-based compensation costs are measured at the grant date, based on the fair value of the award, and are recognized as expense over the employee’s requisite service period (generally the vesting period of the equity grant). The fair value of the Company’s common stock options are estimated using the Black Scholes option-pricing model with the following assumptions: expected volatility, dividend rate, risk free interest rate and the expected life. The Company expenses stock-based compensation by using the straight-line method. In accordance with ASC 718 and, excess tax benefits realized from the exercise of stock-based awards are classified as cash flows from operating activities. All excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) are recognized as income tax expense or benefit in the condensed consolidated statements of operations.
The Company accounts for stock-based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in ASU 2018-07.
| 10 |
Recent Accounting Pronouncements
In August 2020, FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity; Own Equity (“ASU 2020-06”), as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Among other changes, the new guidance removes from GAAP separation models for convertible debt that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will no longer separately present such embedded conversion features in equity and will instead account for the convertible debt wholly as debt. The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the Company’s current accounting treatment under the current guidance. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the fiscal year. The Company adopted the guidance under ASU 2020-06 on January 1, 2022. The adoption of this guidance and had no material impact on the Company’s financial statements.
Equipment
The Company values property and equipment at cost and depreciates these assets using the straight-line method over their expected useful life.
In accordance with FASB ASC No. 360, Property, Plant and Equipment, the Company carries long-lived assets at the lower of the carrying amount or fair value. Impairment is evaluated by estimating future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected undiscounted future cash flow is less than the carrying amount of the assets, an impairment loss is recognized. Fair value, for purposes of calculating impairment, is measured based on estimated future cash flows, discounted at a market rate of interest.
There
were
Fair Value of Financial Instruments
We hold certain financial assets, which are required to be measured at fair value on a recurring basis in accordance with the Statement of Financial Accounting Standard No. 157, “Fair Value Measurements” (“ASC Topic 820-10”). ASC Topic 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). ASC Topic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Level 1 instruments include cash and cash equivalents, account receivable, prepaid expenses, inventory and account payable and accrued liabilities. The carrying values are assumed to approximate the fair value due to the short term nature of the instrument.
The three levels of the fair value hierarchy under ASC Topic 820-10 are described below:
| ● | Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. We believe our carrying value of level 1 instruments approximate their fair value at September 30, 2023 and 2022. | |
| ● | Level 2 - Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. | |
| ● | Level 3 - Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. We consider depleting assets, asset retirement obligations and net profit interest liability to be Level 3. We determine the fair value of Level 3 assets and liabilities utilizing various inputs, including NYMEX price quotations and contract terms. |
| 11 |
The following are the major categories of assets measured at fair value on a recurring basis: as of September 30, 2023 and December 31, 2022, using quoted prices in active markets for identical liabilities (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):
The Company has consistently applied the valuation techniques in all periods presented. The following table presents the Company’s assets which were measured at fair value at September 30, 2023 and December 31, 2022:
| September 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||
| Fair Value Measurement Using | Fair Value Measurement Using | |||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||
| Investment in gold | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Money market fund | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
The Board of Directors, who serves as the Custodian, is responsible for the safekeeping of gold bullion owned by the Company.
Fair value of the gold bullion held by the Company is based on that day’s London Bullion Market Association (“LBMA”) Gold Price PM. “LBMA Gold Price PM” is the price per fine troy ounce of gold, stated in U.S. dollars, determined by ICE Benchmark Administration (“IBA”) following an electronic auction consisting of one or more 30-second rounds starting at 3:00 p.m. (London time), on each day that the London gold market is open for business and published shortly thereafter.
The fair value of the treasury bills is based on quoted market prices in an active market. The Company has determined the fair value based on financial factors that are considered level 1 inputs in the fair value hierarchy.
Money market funds included in cash and cash equivalents and U.S. government-backed securities are measured at fair value based on quoted prices in active markets, which are considered Level 1 inputs. The Company’s policy is to recognize transfers in and/or out of the fair value hierarchy as of the date in which the event or change in circumstances caused the transfer.
The following tables summarize activity in gold bullion for the nine months ended September 30, 2023:
| Nine Months Ended September 30, 2023 | Ounces | Cost | Fair Value | |||||||||
| Balance December 31, 2022 | $ | $ | ||||||||||
| Net change in unrealized gain | ||||||||||||
| Balance September 30, 2023 | $ | $ | ||||||||||
The following tables summarize activity in gold bullion for the nine months ended September 30, 2022:
| Nine Months Ended September 30, 2022 | Ounces | Cost | Fair Value | |||||||||
| Balance December 31, 2021 | $ | $ | ||||||||||
| Net change in unrealized loss | ( | ) | ||||||||||
| Balance September 30, 2022 | $ | $ | ||||||||||
| 12 |
Revenue Recognition
Effective January 1, 2018, the Company adopted ASC No. 606 — Revenue from Contracts with Customers. Under ASC No. 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
For the three and nine months ended September 30, 2023 and 2022, the Company recognized $ and $ respectively in revenue.
Concentration of Credit Risk
The
Company at times has cash and cash equivalents in banks in excess of FDIC insurance limits. At September 30, 2023 and December 31, 2022,
the Company had approximately $
On
March 12, 2023, the U.S. government took extraordinary steps to stop a potential banking crisis after the historic failure of Silicon
Valley Bank, assuring all depositors at the failed institution that they could access all their money quickly, even as another major
bank was shut down. The Company had no exposure to a failed bank. The Company averts risks associated with such a crisis by holding minimum
cash balances required for uninterrupted operations, federal funds money market fund, and U.S. government-backed securities. As of September
30, 2023, the Company held $
Original Issue Discount
For certain notes issued, the Company provides the debt holder with an original issue discount. The original issue discount is recorded as a debt discount, reducing the face amount of the note, and is amortized to amortization of original issue discount in the consolidated statements of operations over the life of the debt.
Debt Issue Cost
Debt issuance cost paid to lenders, or third parties are recorded as debt discounts and amortized to interest expense in the consolidated statements of operations, over the life of the underlying debt instrument.
Deposit– Related Party
During
the year ended December 31, 2022, the Company paid $
Investments without a Readily Determinable Fair Value (Cost Method)
Investments in nonmarketable entities in which the Company is not able to exercise significant influence, our “Cost Method Investments,” are accounted for at our initial cost, minus any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
The Company holds a
NOTE 2 GOING CONCERN
As
reflected in the accompanying financial statements, the Company has a working capital deficiency of $
Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.
| 13 |
NOTE 3 EQUIPMENT
At September 30, 2023 and December 31, 2022, property and equipment, net, is as follows:
| September 30, 2023 | December 31, 2022 | Estimated Useful Lives (Years) | ||||||||||
| Automobile | $ | $ | ||||||||||
| Laboratory Equipment | ||||||||||||
| Office Equipment | ||||||||||||
| Leasehold Improvements | ||||||||||||
| Less: Accumulated Depreciation | ( | ) | ( | ) | ||||||||
| Total Property and Equipment, net | $ | $ | ||||||||||
Depreciation
expense for the three months ended September 30, 2023 and 2022, was $
Depreciation
expense for the nine months ended September 30, 2023 and 2022, was $
NOTE 4 - RIGHT TO USE ASSETS AND LEASE LIABILITY
We determine if an arrangement is a lease, or contains a lease, at inception and record the leases in our financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor.
We have a lease agreement with lease and non-lease components and have elected to utilize the practical expedient to account for lease and non-lease components together as a single combined lease component, from both a lessee and lessor perspective with the exception of direct sales-type leases and production equipment classes embedded in supply agreements. From a lessor perspective, the timing and pattern of transfer are the same for the non-lease components and associated lease component and, the lease component, if accounted for separately, would be classified as an operating lease.
We have elected not to present short-term leases on the balance sheet as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that we are reasonably certain to exercise. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because our lease does not provide an implicit rate of return, we used our incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments.
In general, leases, where we are the lessee, may include options to extend the lease term. These leases may include options to terminate the lease prior to the end of the agreed upon lease term. For purposes of calculating lease liabilities, lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise such options.
Lease expense for operating leases is recognized on a straight-line basis over the lease term as cost of revenues or operating expenses depending on the nature of the leased asset. Certain operating leases provide for annual increases to lease payments based on an index or rate. We calculate the present value of future lease payments based on the index or rate at the lease commencement date.
Differences between the calculated lease payment and actual payment are expensed as incurred. Amortization of finance lease assets is recognized over the lease term as cost of revenues or operating expenses depending on the nature of the leased asset.
Interest expense on finance lease liabilities is recognized over the lease term in interest expense.
| 14 |
Since
September of 2015, we rent office space at 2723 South State Street, Suite 150, Ann Arbor, Michigan 48104, which is our principal place
of business. We pay an annual rent of $
On
September 5, 2019, we signed a -year lease for a
On
May 9, 2019 the Company signed a
On
July 1, 2021, the Company signed a
The tables below present information regarding the Company’s operating lease assets and liabilities at September 30, 2023;
At September 30, 2023 and December 31, 2022, the Company had no financing leases as defined in ASC 842, “Leases.”
| September 30, 2023 | December 31, 2022 | |||||||
| Assets | ||||||||
| Operating lease - right-of-use asset - non-current | $ | $ | ||||||
| Liabilities | ||||||||
| Operating lease liability | $ | $ | ||||||
| Weighted-average remaining lease term (three months) | ||||||||
| Weighted-average discount rate | % | % | ||||||
| The components of lease expense were as follows: | ||||||||
| Operating lease costs | ||||||||
| Amortization of right-of-use operating lease asset | $ | $ | ||||||
| Total operating lease costs | $ | $ | ||||||
| Supplemental cash flow information related to operating leases was as follows: | ||||||||
| Operating cash outflows from operating lease (obligation payment) | $ | $ | ||||||
| Right-of-use asset obtained in exchange for new operating lease liability | $ | $ | ||||||
| 15 |
Future minimum lease payments required under leases that have initial or remaining non-cancelable lease terms in excess of one year at September 30, 2023:
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total lease payments | ||||
| Less: amount representing interest | ( | ) | ||
| Total lease obligations | ||||
| Less: current portion of operating lease liability | ( | ) | ||
| Long-term portion operating lease liability | $ |
NOTE 5 NOTE PAYABLE – RELATED PARTY
Between
June 6, 2016, and December 1, 2020 the Company received a total of $
On
January 26, 2022, the Company repaid $
Total
loan payable to the founder and CEO for as of September 30, 2023 is $
Total
loan payable to the founder and CEO as of December 31, 2022 is $
During
the nine months ended September 30, 2023, the Company recorded $
During
the nine months ended September 30, 2022, the Company recorded $
NOTE 6 LOAN PAYABLE
On
March 1, 2019, the Company entered into an unsecured promissory note with Notre Dame - an unrelated party in the amount of $
1.
$
2.
$
3.
$
4.
Final payment of all remaining balance, in the amount of $
On
July 8, 2021, the Company entered into an amendment to the March 1, 2019 agreement. As of the date of the amendment, the remaining outstanding
balance was $
| 1. | $ |
| 2. | Final
payment of the remaining balance in the amount of $ |
| 16 |
The
Company has continued to make $
During
the nine months ended September 30, 2023, the Company paid $
NOTE 7 CONVERTIBLE NOTES
On
December 11, 2020, the Company issued
| Stock Price | $ | |||
| Exercise price | $ | |||
| Expected term (in years) | ||||
| Expected volatility | % | |||
| Annual rate of quarterly dividends | % | |||
| Risk free interest rate | % |
The Company has determined that ASC 815 does not apply since the Company has unlimited authorized shares, which in turn satisfies the requirement of having sufficient authorized shares available to settle any potential instruments that may require physical net-share settlement.
Pursuant
to ASC 470, the Company will record a beneficial conversion feature (“BCF”) based upon the relative fair value of the conversion
feature within the convertible note and the related warrants. The BCF cannot exceed the face amount of the note, therefore, the discount
for this note is $
The
Company also paid $
On
March 25, 2021, the Company entered into
Additionally,
the Company issued
| Stock Price | $ | |||
| Exercise price | $ | |||
| Expected term (in years) | ||||
| Expected volatility | % | |||
| Annual rate of quarterly dividends | % | |||
| Risk free interest rate | % |
The Company has determined that ASC 815 does not apply since the Company has unlimited authorized shares, which in turn satisfies the requirement of having sufficient authorized shares available to settle any potential instruments that may require physical net-share settlement.
| 17 |
Pursuant
to ASC 470, the Company will record a beneficial conversion feature (“BCF”) based upon the relative fair value of the conversion
feature within the convertible note and the related warrants. The BCF cannot exceed the face amount of the note, therefore, the discount
for this note is $
The
Company also paid $
On
January 21, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
January 31, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
February 16, 2022, the Company issued shares of Common Stock in exchange for conversion of $
The
Company issued a $
Additionally,
the Company issued
| Stock Price | $ | |||
| Exercise price | $ - $ | |||
| Expected term (in years) | ||||
| Expected volatility | % | |||
| Annual rate of quarterly dividends | % | |||
| Risk free interest rate | % |
The Company has determined that ASC 815 does not apply since the Company has unlimited authorized shares, which in turn satisfies the requirement of having sufficient authorized shares available to settle any potential instruments that may require physical net-share settlement.
In
connection with $
The
Company also paid $
On
April 14, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
April 29, 2022, the Company issued shares of Common Stock in exchange for conversion of $
| 18 |
On
May 17, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
June 6, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
June 14, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
June 21, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
June 30, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
July 19, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
August 18, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
September 8, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
September 26, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
October 11, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
October 18, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
October 26, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
October 31, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
November 1, 2022, the Company issued shares of Common Stock in exchange for conversion of $
| 19 |
On
November 14, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
November 17, 2022, the Company issued shares of Common Stock in exchange for conversion of $
The
Company issued a $
The
Company also paid $
As of November 17, 2022, the above three notes were fully converted, with the no remaining balance due.
The following represents a summary of the Company’s convertible debt at September 30, 2023:
Convertible Note Payable
| Amounts | ||||
| Balance – December 31, 2021 | $ | |||
| Proceeds | ||||
| Debt discount and issue costs recorded | ( | ) | ||
| Conversion of debt into common shares | ( | ) | ||
| Amortization of debt discount | ||||
| Balance – December 31, 2022 | $ | |||
| No activity – September 30, 2023 | ||||
| Balance – September 30, 2023 | $ | |||
Accrued Interest Payable
| Amounts | ||||
| Balance – December 31, 2021 | ||||
| Interest Expense December 31, 2022 | ||||
| Interest conversion into common shares | ( | ) | ||
| Balance – December 31, 2022 | $ | |||
| No activity – September 30, 2023 | ||||
| Balance – September 30, 2023 | $ | |||
NOTE 8 STOCKHOLDERS’ DEFICIT
(A) Common Stock Issued for Cash
On
March 9, 2019, the Company entered into a purchase agreement with one investor (the “Purchase Agreement”). Pursuant to the
Purchase Agreement, the Company issued the investor Units at a purchase price of $ per Unit, for total gross proceeds
to the Company of $
| ● | ½ of
all $ |
| ● | ½ of all $ |
| ● | ½ of all $ |
| ● | ½ of all $ |
| 20 |
On March 2, 2021, the Company determined to amend and extend the expiration of the warrants expiring on March 8, 2021 as follows:
| ● | ||
| ● | ||
| ● | ||
| ● | ||
| ● |
On
February 15, 2022, the Company issued shares of Common stock in connection with the exercise of
On
February 15, 2022, the Company issued shares of Common stock in connection with the exercise of
(B) Common Stock Warrants and Options
On February 16, 2023, the Company issued shares of Common Stock in exchange for the cashless exercise of warrants.
On
February 15, 2022, the Company issued shares of Common stock in connection with the exercise of
On
February 15, 2022, the Company issued shares of Common stock in connection with the exercise of
On April 11, 2022, the Company extended the expiration date of the warrant issued on May 28, 2015 to May 27, 2025. No additional expense was recorded due to rate difference being de minimis.
On
January 25, 2021, the Company issued a 7-year option to purchase shares of common stock at an exercise price of $ per
share to a related party for services rendered. The options had a fair value of $, based upon the Black-Scholes option-pricing
model on the date of grant.
| Expected dividends | % | |||
| Expected volatility | % | |||
| Expected term | years | |||
| Risk free interest rate | % | |||
| Expected forfeitures | % |
On February 19, 2020 the Company issued a 10-year option to purchase shares of common stock at an exercise price of $ per share to a related party for services rendered. The options had a fair value of $, based upon the During the nine months ended September 30, 2023, the Company recorded $ as an expense for options issued.
| Expected dividends | % | |||
| Expected volatility | % | |||
| Expected term | years | |||
| Risk free interest rate | % | |||
| Expected forfeitures | % |
On February 19, 2020 the Company issued a 7-year option to purchase shares of common stock at an exercise price of $ per share to employees for services rendered. The options had a fair value of $, based upon the During the nine months ended September 30, 2023, the Company recorded $ as an expense for options issued
| 21 |
| Expected dividends | % | |||
| Expected volatility | % | |||
| Expected term | years | |||
| Risk free interest rate | % | |||
| Expected forfeitures | % |
Warrant activity as of September 30, 2023 is summarized as follows:
| Warrants | Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||
| Outstanding - December 31, 2021 | $ | $ | ||||||||||||||
| Exercisable - December 31, 2021 | $ | $ | ||||||||||||||
| Granted | $ | - | ||||||||||||||
| Exercised | ( | ) | $ | - | - | |||||||||||
| Cancelled/Forfeited | $ | - | - | |||||||||||||
| Outstanding - December 31, 2022 | $ | $ | ||||||||||||||
| Exercisable - December 31, 2022 | $ | $ | ||||||||||||||
| Granted | $ | - | - | |||||||||||||
| Exercised | ( | ) | $ | - | - | |||||||||||
| Cancelled/Forfeited | ( | ) | $ | - | - | |||||||||||
| Outstanding – September 30, 2023 | $ | $ | ||||||||||||||
| Exercisable – September 30, 2023 | $ | $ | ||||||||||||||
As of September 30, 2023, the following warrants were outstanding:
| Exercise Price Warrants Outstanding | Warrants Exercisable | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | ||||||||||||||
| 22 |
For the year ended December 31, 2022, the following warrants were outstanding:
| Exercise Price Warrants Outstanding | Warrants Exercisable | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | ||||||||||||||
| Options | Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||
| Outstanding - December 31, 2021 | $ | $ | ||||||||||||||
| Exercisable - December 31, 2021 | $ | $ | ||||||||||||||
| Granted | $ | - | - | |||||||||||||
| Exercised | $ | - | - | |||||||||||||
| Cancelled/Forfeited | ( | ) | $ | - | ||||||||||||
| Outstanding - December 31, 2022 | $ | $ | ||||||||||||||
| Granted | $ | - | - | |||||||||||||
| Exercised | $ | - | - | |||||||||||||
| Cancelled/Forfeited | $ | - | - | |||||||||||||
| Outstanding – September 30, 2023 | $ | $ | ||||||||||||||
| Exercisable – September 30, 2023 | $ | $ | ||||||||||||||
| Exercise Price | Options Outstanding | Options Exercisable | Weighted Average Remaining Contractual Life (in Years) | |||||||||||
| $ | ||||||||||||||
For the year ended December 31, 2022, the following options were outstanding:
| Exercise Price | Options Outstanding | Options Exercisable | Weighted Average Remaining Contractual Life (in Years) | |||||||||||
| $ | ||||||||||||||
| 23 |
(C) Amendment to Articles of Incorporation
On February 16, 2009, the Company amended its articles of incorporation to amend the number and class of shares the Company is authorized to issue as follows:
| ● | Common stock Class A,
number of shares authorized, |
| ● | Common stock Class B, number of shares authorized,
|
| ● | Preferred stock, number of shares authorized,
|
Effective
December 17, 2013, the Company amended its articles of incorporation to designate a Series A
(D) Common Stock Issued for Debt
As of November 17, 2022, the Company has satisfied all debentures to Yorkville Advisors.
On
November 17, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
November 14, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
November 1, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
October 31, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
October 26, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
October 18, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
October 11, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
September 26, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
September 8, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
August 18, 2022, the Company issued shares of Common Stock in exchange for conversion of $
| 24 |
On
July 19, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
June 30, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
June 21, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
June 14, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
June 6, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
May 17, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
April 14, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
April 29, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
February 16, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
January 21, 2022, the Company issued shares of Common Stock in exchange for conversion of $
On
January 31, 2022, the Company issued shares of Common Stock in exchange for conversion of $
NOTE 9 COMMITMENTS AND CONTINGENCIES
On
November 10, 2010, the Company entered into an employment agreement with its CEO, effective January 1, 2011 through the December 31,
2015.
| 25 |
On
January 20, 2015, the board of directors appointed Mr. Jonathan R. Rice as our Chief Operating Officer. Mr. Rice’s employment agreement
has a term of one year and can be terminated by either the Company or Mr. Rice at any time. Under the employment agreement, Mr. Rice
is entitled to an annual cash compensation of $
As
of September 30, 2023 and December 31, 2022, the Company owes $
On
July 3, 2019, the board of directors appointed Mr. Kenneth Le as the Company’s Director of Government relations and President of
Prodigy Textiles. Mr. Le’s employment agreement has a term of one year and can be terminated by either the Company or Mr. Rice
at any time. Under the employment agreement, Mr. Le is entitled to annual cash compensation of $
(A) License Agreement
On
May 8, 2006, the Company entered into a license agreement. Pursuant to the terms of the agreement, the Company paid a non- refundable
license fee of $
| 26 |
On
October 28, 2011, the Company entered into a license agreement with the University of Notre Dame. Under the agreement, the Company received
exclusive and non-exclusive rights to certain spider silk technologies including commercial rights with the right to sublicense such
intellectual property. In consideration of the licenses granted under the agreement, the Company agreed to issue to the University of
Notre Dame shares of its common stock and to pay a royalty of
On
December 26, 2006, the Company entered into an addendum to the intellectual property transfer agreement with Mr. Thompson, its CEO. In
accordance with FASB ASC No 480, Distinguishing Liabilities from Equity, the Company determined that the present value of the
payment of $
(B) Operating Lease Agreements
Since
September of 2015, we rent office space at 2723 South State Street, Suite 150, Ann Arbor, Michigan 48104, which is our principal place
of business. We pay an annual rent of $
On
May 9, 2019, the Company signed a
On
July 1, 2021, the Company signed a
On
September 13, 2017, the Company signed a new two year lease with a 2 year option commencing on October 1, 2017 and ending on September
31, 2019. The Company paid an annual rent of $
NOTE 10 RELATED PARTY TRANSACTIONS
Accounts payable and accrued expenses – related party consists of the following:
| As of September 30, 2023 | As of December 31, 2022 | |||||||
| Accounts payable - related party | $ | $ | ||||||
| Accrued expenses - related party | ||||||||
| Accrued interest - related party | ||||||||
| Total accounts payable and accrued expenses - related party | $ | $ | ||||||
| 27 |
Between
June 6, 2016, and December 1, 2020 the Company received a total of $
On
January 26, 2022, the Company repaid $
Total
loan payable to principal stockholder for as of September 30, 2023 is $
Total
loan payable to this principal stockholder as of December 31, 2022 is $
During
the nine months ended September 30, 2023, the Company recorded $
During
the nine months ended September 30, 2022, the Company recorded $
As
of September 30, 2023, and December 31, 2022, there was $
As
of September 30, 2023, and December 31, 2022, there was $
As
of September 30, 2023, and December 31, 2022, there was $
In
aggregate as of September 30, 2023, and December 31, 2022, the Company owed $
As
of September 30, 2023 and December 31, 2022, the Company owed $
During the year ended December 31, 2022, the Company
paid $
NOTE 11 SUBSEQUENT EVENTS
The Company has analyzed its operations subsequent to November 13, 2023 through the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose.
| 28 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
The following information should be read in conjunction with Kraig Biocraft Laboratories, Inc. and its subsidiaries (“we”, “us”, “our”, or the “Company”) condensed unaudited financial statements and the notes thereto contained elsewhere in this report. Information in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Form 10-Q that does not consist of historical facts, are “forward-looking statements.” Statements accompanied or qualified by, or containing words such as “may,” “will,” “should,” “believes,” “expects,” “intends,” “plans,” “projects,” “estimates,” “predicts,” “potential,” “outlook,” “forecast,” “anticipates,” “presume,” and “assume” constitute forward-looking statements, and as such, are not a guarantee of future performance.
Forward-looking statements are subject to risks and uncertainties, certain of which are beyond our control. Actual results could differ materially from those anticipated as a result of the factors described in the “Risk Factors” and detailed in our other Securities and Exchange Commission (“SEC”) filings. Risks and uncertainties can include, among others, international, national and local general economic and market conditions: demographic changes; the ability of the Company to sustain, manage or forecast its growth; the ability of the Company to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to obtain sufficient financing to continue and expand business operations; the ability to develop technology and products; changes in technology and the development of technology and intellectual property by competitors; the ability to protect technology and develop intellectual property; and other factors referenced in this and previous filings. Consequently, investors should not place undue reliance on forward-looking statements as predictive of future results.
Because of these risks and uncertainties, the forward-looking events and circumstances discussed in this report or incorporated by reference might not transpire. Factors that cause actual results or conditions to differ from those anticipated by these and other forward-looking statements include those more fully described elsewhere in this report and in the “Risk Factors” section of our registration statement on Form S-1.
The Company disclaims any obligation to update the forward-looking statements in this report.
Overview
Kraig Biocraft Laboratories, Inc. is a corporation organized under the laws of Wyoming on April 25, 2006. Kraig Labs was organized to develop high strength fibers using recombinant DNA technology for commercial applications in technical textile. We use genetically engineered silkworms that produce spider silk proteins to create our recombinant spider silk. Applications include performance apparel, workwear, filtration, luxury fashion, flexible composites, medical implants, cosmetics and more. We believe that we have been a leader in the research and development of commercially scalable and cost-effective spider silk for technical textile and non-fibrous applications. Our primary proprietary fiber technology includes natural and engineered variants of spider silk produced in domesticated mulberry silkworms. Our business brings twenty-first century biotechnology to the historical silk industry, permitting us to introduce materials with innovative properties and claims into an established commercial ecosystem of silkworm rearing, silk spinning and weaving, and manufacture of garments and other products that can include our specialty fibers and textiles. Specialty fibers are engineered for specific uses that require exceptional strength, flexibility, heat resistance and/or chemical resistance. The specialty fiber market is exemplified by two synthetic fiber products that come from petroleum derivatives: (1) aramid fibers; and (2) ultra-high molecular weight polyethylene fibers. The technical textile industry involves products for both industrial and consumer products, such as filtration fabrics, medical textiles (e.g., sutures and artificial ligaments), safety and protective clothing and fabrics used in military and aerospace applications (e.g., high-strength composite materials).
We are using genetic engineering technologies to develop fibers with greater strength, resiliency and flexibility for use in our target markets, namely the specialty fiber and technical textile industries.
We are continuing to work with our non-CRISPR Cas9 platform technology to accelerate our R&D operations. We are refining that approach for our targeted end-market applications. We are simultaneously working with other technologies to advance, accelerate, and broaden our genetic engineering capabilities. All of these systems are built on our eco-friendly and cost-effective silkworm production system, which we believe is more advanced than current competing methods. Knock-in knock-out technology allows for the targeting of specific locations and genetic traits for modification, addition, and removal. We are implementing these gene editing technologies to develop new protein structures well beyond the native spider silk sequences that were used to create our Monster silk and dragon silk lines.
Based on our internal analysis, management believes that these new platform technologies will allow us to outpace and surpass the performance of Dragon Silk, a fiber that we developed with our previous tools. Samples of Dragon Silk have already demonstrated to be tougher than many fibers used in bullet proof vests. We expect that this new approach will yield materials beyond those capabilities based upon its potential for significantly improved purity.
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In August 2019, we received authorization from governmental authorities to begin rearing genetically enhanced silkworms at our production facility in Vietnam. In October 2019, the Company delivered the first batch of these silkworms and began operations. These silkworms served as the basis for the commercial expansion of our proprietary silk technology. On November 4, 2019, we reported that we had successfully completed rearing the first batch of its transgenic silkworms at the Quang Nam production factory. Seasonal challenges in late December 2019 slowed production operations, and governmental restrictions imposed due to the global COVID-19 pandemic further delayed our operations in 2020. In 2021, we received the first shipment of silk from our factory in Vietnam despite obstacles relating to the global pandemic. Production operations in 2022 and early 2023 were hampered by unseasonable climate fluctuations and poor robustness of the silkworm strains we were utilizing at that time. To address these challenges, we have taken significant steps to improve the genetics of our silkworms and radically improve our internal procedures at Kraig labs and Prodigy Textiles to strengthen our operations. We believe that we will be able to target metric tons of capacity of our recombinant spider silk fiber per annum from our operations once we overcome the current challenges and reach maximum utilization. This capacity will allow us to address the initial demand for our products and materials for various applications in the protective, performance, and luxury textile markets.
On November 23, 2020, we entered into a Strategic Partnership Agreement (the “SPA”) with Mthemovement Kings Pte Ltd (“Kings”). Kings is an eco-friendly luxury streetwear apparel line, part of the Kings Group of Companies and its affiliated companies. On January 25, 2021, the parties exchanged signatures for an amendment to the Agreement, which amended the procedures for termination of the SPA to only allow for the termination of the SPA by mutual agreement of the Company and Kings following a consultation period of 120 (one hundred and twenty) calendar days or such period as agreed otherwise between the parties (the “Amendment,” together with the SPA, the “Agreement”).
Pursuant to the Agreement, the parties formed a joint venture, SpydaSilk Enterprises Pte. Ltd., to develop and sell the Company’s spider silk fibers under the new innovative apparel and fashion brand, trade named SpydaSilk™ and potential other trademarks to be announced. All intellectual property related to SpydaSilk™ will be jointly owned by the Company and Kings.
The Report of Independent Registered Public Accounting Firm to our financial statements as of December 31, 2022 includes an explanatory paragraph stating that our net loss from operations and net capital deficiency at December 31, 2022 raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Plan of Operations
During the next twelve months, we expect to take the following steps in connection with the further development of our business and the implementation of our plan of operations:
| ● | We plan to expand our research and development to accelerate our work in creating next generation materials and to improve the robustness of our recombinant spider silk lines. This will involve new selective breed protocols, the creation of new hybrids, and the development of new transgenics utilizing plasmids that are already in an advanced state of development. |
| ● | We plan to develop a line of fabrics and apparel under a joint venture with Kings to create a line of fashion wear under Spydasilk Enterprises Pte. Ltd., with trade names including SpydaSilkTM, SpydraTM and others. |
| ● | We plan to continue the expansion of our production capacity at our facilities in Vietnam. This process will include the replacement of key management positions at Prodigy Textiles, overhauling internal structures, and onboarding additional expertise in silkworm breeding, rearing, and pathology. |
| ● | We plan to overcome the current bottleneck in production by improving the overall robustness of our recombinant spider silk lines through a combination of climate acclimation, improved silkworm genetics, and the implementation of a multiple-strain hybrid breeding program. This program has already been initiated and is being rapidly accelerated. |
| ● | We plan to accelerate both our microbiology and selective breeding programs, as well as provide more resources for our material testing protocols. We spent approximately $166,000 over the last 9 months on research and development of high strength polymers . In 2023, we are directing our research and development efforts on growing our internal capabilities. |
| ● | We will consider buying an established revenue producing company in a compatible business, in order to broaden our financial base and facilitate the commercialization of our products; as of the date hereof, we have not had any formal discussion or entered into any definitive agreements regarding any such purchase.
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| ● | We will also actively consider pursuing collaborative research opportunities with private laboratories in areas of research that overlap the company’s existing research and development. One such potential area for collaborative research that the company is considering is protein expression platforms. If our financing allows, management will strongly consider increasing the breadth of our research to include protein expression platform technologies. |
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| ● | We plan to actively pursue collaborative research and product testing opportunities with companies in the biotechnology, materials, textile and other industries. |
| ● | We plan to actively pursue additional collaborative commercialization, marketing and manufacturing opportunities with companies in the textile and material sectors for the fibers we developed and for any new polymers that we create in 2023 and going forward. |
| ● | We plan to actively pursue the development of commercial scale production of our recombinant materials including Monster Silk®, Dragon SilkTM, SpydaSilkTM, and SpydraTM. |
Limited Operating History
We have not previously demonstrated that we will be able to expand our business through an increased investment in our research and development efforts. We cannot guarantee that the research and development efforts described in this filing will be successful. Our business is subject to risks inherent in growing an enterprise, including limited capital resources, risks inherent in the research and development process and possible rejection of our products in development.
If financing is not available on satisfactory terms, we may be unable to continue our research and development and other operations. Equity financing will result in dilution to existing stockholders.
Impact of COVID-19 Outbreak
On January 30, 2020, the World Health Organization declared the coronavirus outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world relating to coronavirus include restrictions on travel, quarantines in certain areas, and forced closures for certain types of public places and businesses. Governmental actions taken relating to coronavirus are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. While the closures and limitations on movement, domestically and internationally, are expected to be temporary, if these actions continue, the duration of the supply chain disruption could reduce the availability or result in delays, of materials or supplies to and from the Company, which in turn could materially interrupt the Company’s business operations. Given the speed and frequency of the continuously evolving developments with respect to this pandemic, the Company cannot reasonably estimate the magnitude of the impact to its consolidated results of operations. We have taken every known and reasonable precaution possible to ensure the safety of our employees.
On March 19, 2020, we furloughed non-essential staff in response to governmental regulations relating to COVID. This decision primarily impacted staff at our fully owned subsidiary, Prodigy Textiles, in Vietnam and resulted in the temporary closing of silk rearing operations at that facility. As of the date hereof, we have resumed silk production operations at the factory in Vietnam. The Company supported its furloughed staff and paid their salaries during all mandatory closures. During the duration of the furlough, the Company’s CEO voluntarily waved the payment or accrual of his salary. The Company leveraged this forced closure time to improve its production infrastructure based on the lessons learned from its operations. After the mandated closure, the Company has enhanced its production operations with process automation, moved its production headquarters to a facility designed for silk production, created a more self-reliant supply chain, and established a microbiology laboratory in its factory for enhanced quality control. On October 24, 2020, silk production operations at the factory resumed.
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The actions of governments in response to COVID, both domestic and foreign, impacted our ability to transport goods, people, essential equipment, and other items essential to our production. In turn, these restrictions are impacting our ability to produce intermediate and end products and are delaying our timelines for commercialization and revenue.
Additionally, it is reasonably possible that estimates made in the financial statements have been, or will be, materially and adversely impacted in the near term as a result of these conditions, including losses on inventory; impairment losses related to goodwill and other long-lived assets and current obligations.
Three months ended September 30, 2023 compared to the three months ended September 30, 2022
Our revenue, operating expenses, and net loss from operations for the three month period ended September 30, 2023 as compared to the three month period ended September 30, 2022, were as follows – some balances on the prior period’s combined financial statements have been reclassified to conform to the current period presentation:
| Three Months Ended September 30, | % Change Increase | |||||||||||||||
| 2023 | 2022 | Change | (Decrease) | |||||||||||||
| NET REVENUES | $ | - | $ | - | - | - | ||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| General and Administrative | 224,687 | 207,172 | 17,515 | 8.45 | % | |||||||||||
| Professional Fees | 23,294 | 87,220 | (63,926 | ) | -73.29 | % | ||||||||||
| Officer’s Salary | 172,335 | 168,770 | 3,565 | 2.11 | % | |||||||||||
| Research and Development | 39,129 | 62,118 | (22,989 | ) | -37.01 | % | ||||||||||
| Total operating expenses | 459,445 | 525,280 | (65,835 | ) | -12.53 | % | ||||||||||
| Loss from operations | (459,445 | ) | (525,280 | ) | 65,835 | -12.53 | % | |||||||||
| Interest expense | (121,969 | ) | (74,747 | ) | (47,222 | ) | 63.18 | % | ||||||||
| Amortization of debt issue costs | - | (176,276 | ) | 176,276 | -100.00 | % | ||||||||||
| Net change in unrealized appreciation on investment in gold bullion | (17,055 | ) | (34,053 | ) | 16,998 | -49.92 | % | |||||||||
| Interest income | 49,196 | - | 49,196 | 100.00 | % | |||||||||||
| Net Loss | $ | (549,273 | ) | $ | (810,356 | ) | 261,083 | -32.22 | % | |||||||
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Net Revenues: During the three months ended September 30, 2023, we realized $0 of revenues from our business. During the three months ended September 30, 2022, we realized $0 of revenues from our business. The change in revenues between the quarter ended September 30, 2023 and 2022 was $0 or 0%.
Cost of Revenues: Costs of revenues for the three months ended September 30, 2023 were $0, as compared to $0 for the three months ended September 30, 2022, a change of $0 or 0%.
Gross Profit: During the three months ended September 30, 2023, we realized a gross profit of $0, as compared to $0 for the three months ended September 30, 2022, a change of $0 or 0%.
Research and development expenses: During the three months ended September 30, 2023, we incurred $39,129 of research and development expenses. During the three months ended September 30, 2022, we incurred $62,118 of research and development expenses. This was a decrease of $22,989 or 37.01% in 2023 compared with the same period in 2022. This increase was due to an increase in research spending.
Professional Fees: During the three months ended September 30, 2023, we incurred $23,294 of professional expenses, which decreased by $63,926 or 73.29% from $87,220 for the three months ended September 30, 2022. This decrease was primarily due to a decrease in professional fees and in investor relations services.
Officers Salary: During the three months ended September 30, 2023, officers’ salary expenses increased to $172,335 or 2.11% from $168,770 for the three months ended September 30, 2022. This change was primarily due to a 6% annual increase for the Company’s CEO for the three months ended September 30, 2022.
General and Administrative Expense: General and administrative expenses increased by $17,515 or 8.45% to $224,687 for the three months ended September 30, 2023 from $207,172 for the three months ended September 30, 2022. Our general and administrative expenses for the three months ended September 30, 2023 consisted of other general and administrative expenses (which includes expenses such as auto, business development, SEC filings, investor relations, general office, warrants and shares issued for services) of $107,083, travel of $4,243, and office salary of $113,361 for a total of $224,687. Our general and administrative expenses for the three months ended September 30, 2022 consisted of other general and administrative expenses (which includes expenses such as auto, business development, SEC filings, investor relations, general office, warrants and shares issued for services) of $71,900, travel of $7,569, consulting $20,000 and office salary of $107,703 for a total of $207,172.
Net Change in Unrealized Depreciation on Investment in Gold Bullion: Net change in unrealized appreciation on investment in gold bullion decreased by $16,998 to $17,055 for the three-month period ended September 30, 2023 from $34,053 for the three month period ended September 30, 2022. The decrease was primarily due to a net change in unrealized appreciation on investment in gold bullion.
Interest Expense: Interest expense increased by $47,222 to $121,969 for the three-month period ended September 30, 2023 from $74,747 for the three month period ended September 30, 2022. The increase was primarily due to interest on certain Company loans.
Amortization of original issue and debt discounts: Amortization of original issue and debt discount decreased to $0, or 0% for the three months ended September 30, 2023 compared to $176,276 for the three months ended September 30, 2022. The decrease was primarily due to amortization of original issue and debt discounts on convertible loans.
Net Loss: Net loss decreased by $261,083, or 32.22%, to a net loss of $549,273 for the three-month period ended September 30, 2023 from a net loss of $810,356 for the three month period ended September 30, 2022. This decrease in net loss was primarily attributable to decreases in amortization of original issue debt discount, warrant expense, professional fees and general and administrative expenses and offset by an increase in research and development fees.
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Nine months ended September 30, 2023 compared to the nine months ended September 30, 2022
Our revenue, operating expenses, and net loss from operations for the nine month period ended September 30, 2023 as compared to the nine month period ended September 30, 2022, were as follows – some balances on the prior period’s combined financial statements have been reclassified to conform to the current period presentation:
| Nine Months Ended September 30, | % Change Increase | |||||||||||||||
| 2023 | 2022 | Change | (Decrease) | |||||||||||||
| NET REVENUES | $ | - | $ | - | - | - | ||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| General and Administrative | 656,457 | 632,610 | 23,847 | 3.77 | % | |||||||||||
| Professional Fees | 89,390 | 317,134 | (227,744 | ) | -71.81 | % | ||||||||||
| Officer’s Salary | 515,584 | 518,423 | (2,839 | ) | -0.55 | % | ||||||||||
| Research and Development | 165,256 | 139,491 | 25,765 | 18.47 | % | |||||||||||
| Total operating expenses | 1,426,687 | 1,607,658 | (180,971 | ) | -11.26 | % | ||||||||||
| Loss from operations | (1,426,687 | ) | (1,607,658 | ) | 180,971 | -11.26 | % | |||||||||
| Interest expense | (359,088 | ) | (535,078 | ) | 175,990 | -32.89 | % | |||||||||
| Amortization of debt issue costs | - | (712,977 | ) | 712,977 | -100.00 | % | ||||||||||
| Net change in unrealized appreciation on investment in gold bullion | 4,526 | (39,454 | ) | 43,980 | -111.47 | % | ||||||||||
| Interest income | 76,103 | - | 76,103 | 100.00 | % | |||||||||||
| Net Loss | $ | (1,705,146 | ) | $ | (2,895,167 | ) | 1,190,021 | -41.10 | % | |||||||
Net Revenues: During the nine months ended September 30, 2023, we realized $0 of revenues from our business. During the nine months ended September 30, 2022, we realized $0 of revenues from our business. The change in revenues between the quarter ended September 30, 2023 and 2022 was $0 or 0%.
Cost of Revenues: Costs of revenues for the nine months ended September 30, 2023 were $0, as compared to $0 for the nine months ended September 30, 2022, a change of $0 or 0%.
Gross Profit: During the nine months ended September 30, 2023, we realized a gross profit of $0, as compared to $0 for the nine months ended September 30, 2022, a change of $0 or 0%.
Research and development expenses: During the nine months ended September 30, 2023, we incurred $165,256 of research and development expenses. During the nine months ended September 30, 2022, we incurred $139,491 of research and development expenses. This was an increase of $25,765 or 18.47% in 2023 compared with the same period in 2022. This increase was due to an increase in research spending.
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Professional Fees: During the nine months ended September 30, 2023, we incurred $89,390 of professional expenses, which decreased by $227,744 or 71.81% from $317,134 for the nine months ended September 30, 2022. This decrease was primarily due to a decrease in professional fees and in investor relations services.
Officers Salary: During the nine months ended September 30, 2023, officers’ salary expenses decreased to $515,584 or 0.55% from $518,423 for the nine months ended September 30, 2022. This change was primarily due to a 6% annual increase for the Company’s CEO and offset by a bonus paid to the Company’s COO for the nine months ended September 30, 2022.
General and Administrative Expense: General and administrative expenses increased by $23,847 or 3.77% to $656,457 for the nine months ended September 30, 2023 from $632,610 for the nine months ended September 30, 2022. Our general and administrative expenses for the nine months ended September 30, 2023 consisted of other general and administrative expenses (which includes expenses such as auto, business development, SEC filings, investor relations, general office, warrants and shares issued for services) of 381,080, travel of $16,411, and office salary of $258,966 for a total of $656,457. Our general and administrative expenses for the nine months ended September 30, 2022 consisted of other general and administrative expenses (which includes expenses such as auto, business development, SEC filings, investor relations, general office, warrants and shares issued for services) of $211,587, travel of $22,958, consulting $80,000 and office salary of $318,065 for a total of $632,610.
Net Change in Unrealized Depreciation on Investment in Gold Bullion: Net change in unrealized appreciation on investment in gold bullion increased by $43,980 to $4,526 for the nine-month period ended September 30, 2023 from $39,454 for the nine month period ended September 30, 2022. The increase was primarily due to a net change in unrealized appreciation on investment in gold bullion.
Interest Expense: Interest expense decreased by $175,990 to $359,088 for the nine-month period ended September 30, 2023 from $535,078 for the nine month period ended September 30, 2022. The decrease was primarily due to interest on certain Company loans.
Amortization of original issue and debt discounts: Amortization of original issue and debt discount decreased to $0, or 0% for the nine months ended September 30, 2023 compared to $712,977 for the nine months ended September 30, 2022. The decrease was primarily due to amortization of original issue and debt discounts on convertible loans.
Net Loss: Net loss decreased by $1,190,021, or 41.10%, to a net loss of $1,705,146 for the nine-month period ended September 30, 2023 from a net loss of $2,895,167 for the nine month period ended September 30, 2022. This decrease in net loss was primarily attributable to decreases in amortization of original issue debt discount, warrant expense, professional fees and general and administrative expenses and offset by an increase in research and development fees.
Capital Resources and Liquidity
Our financial statements have been presented on the basis that are a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As presented in the unaudited condensed financial statements, we incurred a net loss of $1,705,146 during the nine months ended September 30, 2023, and losses are expected to continue in the near term. The accumulated deficit is $48,362,146 at September 30, 2023. Refer to Note 2 for our discussion of stockholder deficit. We have been funding our operations through private loans and the sale of common stock in private placement transactions. Refer to Note 6 and Note 7 in the financial statements for our discussion of notes payable and shares issued, respectively. Our cash resources are insufficient to meet our planned business objectives without additional financing. These and other factors raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of our company to continue as a going concern.
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Management anticipates that significant additional expenditures will be necessary to develop and expand our business before significant positive operating cash flows can be achieved. Our ability to continue as a going concern is dependent upon our ability to raise additional capital and to ultimately achieve sustainable revenues and profitable operations. At September 30, 2023, we had $2,894,555 of cash and cash equivalents on hand. These funds are insufficient to complete our business plan and as a consequence, we will need to seek additional funds, primarily through the issuance of debt or equity securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in the case of equity financing.
Management has undertaken steps as part of a plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond. These steps include (a) raising additional capital and/or obtaining financing; (b) controlling overhead and expenses; and (c) executing material sales or research contracts. There can be no assurance that the Company can successfully accomplish these steps and it is uncertain that the Company will achieve a profitable level of operations and obtain additional financing. There can be no assurance that any additional financing will be available to the Company on satisfactory terms and conditions, if at all. As of the date of this Report, we have not entered into any formal agreements regarding the above.
In the event the Company is unable to continue as a going concern, the Company may elect or be required to seek protection from its creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered this alternative, nor does management view it as a likely occurrence.
Cash and cash equivalents, total current assets, total assets, total current liabilities and total liabilities as of September 30, 2023 as compared to December 31, 2022, were as follows:
| September 30, 2023 | December 31, 2022 | |||||||
| Cash and Cash Equivalents | $ | 2,894,555 | $ | 3,862,716 | ||||
| Inventory | $ | 6,580 | $ | 6,580 | ||||
| Prepaid expenses | $ | 162 | $ | 15,665 | ||||
| Deposits | $ | 98,480 | $ | 98,480 | ||||
| Total current assets | $ | 2,999,777 | $ | 3,983,441 | ||||
| Total assets | $ | 3,626,734 | $ | 4,570,920 | ||||
| Total current liabilities | $ | 8,570,531 | $ | 8,072,083 | ||||
| Total liabilities | $ | 8,625,267 | $ | 8,092,780 | ||||
At September 30, 2023, we had a working capital deficit of $5,570,754 compared to a working capital deficit of $4,088,642 at December 31, 2022. Current liabilities increased to $8,570,531 at September 30, 2023 from $8,072,083 at December 31, 2022, primarily as a result of accounts payable – related party.
For the nine months ended September 30, 2023, net cash used in operations of $916,762 was the result of a net loss of $1,705,146 offset by depreciation expense of $20,042, net change in unrealized depreciation in gold bullions of $4,526, warrants issuance of $168,001, imputed interest on related party loans of $60,472, decrease in prepaid expenses of $15,503, decrease in operating lease right of use of $37,476, an increase of accrued expenses and other payables-related party of $550,626, decrease in accounts payable of $20,686 and a decrease in operating lease liabilities of $37,476.
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For the nine months ended September 30, 2022, net cash used in operations of $1,445,593 was the result of a net loss of $2,895,167 offset by depreciation expense of $21,437, net change in unrealized depreciation in gold bullions of $39,454, amortization of debt discount of $712,977, warrants issuance of $176,769, imputed interest on related party loans of $60,472, decrease in prepaid expenses of $10,593, increase in deposits of $105,060 and a decrease in operating lease right of use of $33,623, an increase of accrued expenses and other payables-related party of $282,739, increase in accounts payable of $248,844 and a decrease in operating lease liabilities of $32,574.
Net cash used in our investing activities were $6,399 and $0 for the nine months ended September 30, 2023 and September 30, 2022, respectively. During the nine months ended September 30, 2023, the Company had net purchases of treasury bills of $2,587,811 and net proceeds from maturities of treasury bills of $2,587,811.
Our financing activities resulted in a cash outflow of $45,000 for the nine months ended September 30, 2023 is represented loan repayment.
Our financing activities resulted in a cash inflow of $3,414,864 for the nine months ended September 30, 2022 is represented by proceeds from convertible notes payable, net of $2,990,000, repayment of notes payable – related party of $40,000, $45,000 loan repayment, payment of debt offering costs of $230,000, and proceeds from a warrant exercise for $739,864.
Critical Accounting Policies
Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2022, for disclosures regarding the Company’s critical accounting policies and estimates, as well as updates further disclosed in our interim financial statements as described in this Form 10-Q.
Recent Accounting Pronouncements
In August 2020, FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity; Own Equity (“ASU 2020-06”), as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Among other changes, the new guidance removes from GAAP separation models for convertible debt that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will no longer separately present such embedded conversion features in equity and will instead account for the convertible debt wholly as debt. The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the Company’s current accounting treatment under the current guidance. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the fiscal year. The Company adopted the guidance under ASU 2020-06 on January 1, 2022. The adoption of this guidance and had no material impact on the Company’s financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of our fiscal quarter ended September 30, 2023, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon those evaluations, management concluded that our disclosure controls and procedures were not effective as of September 30, 2023, to cause the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods prescribed by SEC, and that such information is accumulated and communicated to management, including our chief executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
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Going forward from this filing, the Company intends to work on establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
During the quarter covered by this Report, there were no changes in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. Although we continue to educate our management personnel to increase its ability to comply with the disclosure requirements and financial reporting controls and management oversight of accounting and reporting functions in the future, as we stated in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, we do not expect to remediate the weaknesses in our internal controls over financial reporting until the time when we start to commercialize a recombinant fiber or such time as we have sufficient cash flow to carry out our remediation plans.
Part II – Other Information
Item 1. Legal Proceedings
From time to time, the Company may become a party to litigation or other legal proceedings that it considers to be a part of the ordinary course of its business. To the best of our knowledge, the Company is not currently involved in any legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations; however, the Company may become involved in material legal proceedings in the future.
Item 1A. Risk Factors
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this item. A description of risk factors can be found on our registration statement on Form S-1 located through the SEC EDGAR system or on the company website www.kraiglabs.com/sec-filings/. Information contained on, or that can be accessed through, our website does not constitute a part of this report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We have not sold any equity securities during the period covered by this Report that were not registered under the Securities Act of 1933, as amended.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
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Item 5. Other Information
| (a) | Not applicable. |
| (b) | None. |
ITEM 6. EXHIBITS
EXHIBIT INDEX
| 1. | Incorporated by reference to our Registration Statement on Form SB-2 (Reg. No. 333-146316) filed with the SEC on September 26, 2007. |
| 2. | Incorporated by reference to our Registration Statement on Form S-1 (Reg. No. 333-162316) filed with the SEC on October 2, 2009. |
| 3. | Incorporated by reference to our Current Report on Form 8-K filed with the SEC on November 22, 2013. |
| 4. | Incorporated by reference to our Current Report on Form 8-K filed with the SEC on December 19, 2013. |
| 5. | Incorporated by reference to our Annual Report on Form 10-K filed with the SEC on March 22, 2017. |
| 6. | Incorporated by reference to our Current Report on Form 8-K filed with the SEC on January 21, 2015. |
| 7. | Incorporated by reference to our Current Report on Form 8-K filed with the SEC on March 11, 2019. |
| 8. | Incorporated by reference to our Current Report on Form 8-K filed with the SEC on March 26, 2021. |
| 9. | Incorporated by reference to our Current Report on Form 8-K filed with the SEC on January 26, 2021. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf of the undersigned thereunto duly authorized.
| Kraig Biocraft Laboratories, Inc. | ||
| (Registrant) | ||
| Date: November 13, 2023 | By: | /s/ Kim Thompson |
| Kim Thompson | ||
| President, Chief Executive Officer and | ||
| Chief Financial Officer (Principal Executive Officer and | ||
| Principal Financial and Accounting Officer) | ||
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