Kraig Biocraft Laboratories, Inc 10-K for FY2022
Kraig Biocraft Laboratories, Inc. (KBLB)
About this 10-K
Kraig Biocraft Laboratories, Inc filed this 10-K on March 29, 2023, covering the fiscal year ended December 31, 2022 (FY2022).
Headline figures
Fiscal year ended December 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $3.84M
- compared with a net loss of $8.05M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For
The Fiscal Year Ended
Commission
File No.
(Exact name of issuer as specified in its charter)
(State or Other Jurisdiction of Incorporation) |
(I.R.S. Employer Identification No.) |
| ( | ||
| (Address of Principal Executive Offices) | (Registrant’s Telephone Number) |
Securities registered under Section 12(b) of the Exchange Act: None.
Securities
registered under Section 12(g) of the Exchange Act:
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
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 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 has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officer during the relevant recovery period pursuant to Section 249.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
The
aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on June 30, 2022 (the last
business day of the registrant’s most recently completed second fiscal quarter) was approximately $
As of March 29, 2023, the registrant had shares of common stock issued and outstanding.
INTRODUCTORY NOTE
“Kraig”, “Kraig Biocraft” “KBLB”, “the Company”, “we”, “us” and “our” refer to Kraig Biocraft Laboratories, Inc., a Wyoming corporation, unless the context otherwise requires.
Special Note Regarding Forward-Looking Statements
This report contains forward-looking statements and information that are based on the beliefs of our management as well as assumptions made by and information currently available to us. Such statements should not be unduly relied upon. Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts or that are not present facts or conditions. Forward-looking statements and information can generally be identified by the use of forward-looking terminology or words, such as “anticipate,” “approximately,” “believe,” “continue,” “estimate,” “expect,” “forecast,” “intend,” “may,” “ongoing,” “pending,” “perceive,” “plan,” “potential,” “predict,” “project,” “seeks,” “should,” “views” or similar words or phrases or variations thereon, or the negatives of those words or phrases, or statements that events, conditions or results “can,” “will,” “may,” “must,” “would,” “could” or “should” occur or be achieved and similar expressions in connection with any discussion, expectation or projection of future operating or financial performance, costs, regulations, events or trends. The absence of these words does not necessarily mean that a statement is not forward-looking.
Forward-looking statements and information are based on management’s current expectations and assumptions, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. These statements reflect our current view concerning future events and are subject to risks, uncertainties and assumptions. There are important factors that could cause actual results to vary materially from those described in this report as anticipated, estimated or expected, as well as general conditions in the economy, petrochemicals industry and capital markets, Securities and Exchange Commission (the “SEC”) regulations which affect trading in the securities of “penny stocks,” and other risks and uncertainties. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future. Depending on the market for our stock and other conditional tests, a specific safe harbor under the Private Securities Litigation Reform Act of 1995 may be available. Notwithstanding the above, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), expressly state that the safe harbor for forward-looking statements does not apply to companies that issue penny stock. Because we may from time to time be considered to be an issuer of penny stock, the safe harbor for forward-looking statements may not apply to us at certain times.
| 2 |
TABLE OF CONTENTS
| 3 |
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Overview
Kraig Biocraft Laboratories, Inc., a Wyoming corporation, is a corporation 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 believe that the genetically engineered protein-based fibers we seek to produce have properties that are in some ways superior to the materials currently available in the marketplace. Production of our product in commercial quantities holds what we believe to be potential life-saving ballistic resistant material, which we believe is lighter, thinner, more flexible, and tougher than steel. Other potential applications for spider silk based recombinant fibers include use as structural material and for any application in which light weight and high strength are required. We believe that fibers made with recombinant protein-based polymers will make significant inroads into the specialty fiber and technical textile markets.
Through our technologies, the introduction of the gene sequence based on those found in native spider silk, results in a germline transformation and is therefore self-perpetuating. This technology is in essence a protein expression platform which has other potential applications including diagnostics and pharmaceutical production. Moreover, our technologies are “green” inasmuch as our fibers and textiles are derived from nature and do not use any petrochemicals as an input into the fibers.
The Report of Independent Registered Public Accounting Firm to our financial statements as of December 31, 2022 include 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.
Corporate Information
Kraig was incorporated in Wyoming in 2006. Our principal executive offices are located at 2723 South State St. Suite 150, Ann Arbor, Michigan 48104. Our website is located at www.kraiglabs.com and we make available, free of charge, on or through our website all of our periodic reports, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and current reports on Form 8-K, as soon as reasonably practicable after we file such reports with the SEC. Our website and the information contained on our website is not incorporated by reference and is not a part of this Annual Report.
| 4 |
Recent Developments
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 pandemic further delayed our operations in 2020. In January of 2021 we received the first shipment of silk from our factory in Vietnam. We believe that we will be able to target metric tons of capacity of our recombinant spider silk fiber per annum from this factory once it reaches maximum utilization. This capacity will allow us to address initial demand for our products and materials for various applications in the protective, performance, and luxury textile markets.
In January 2022, we completed production of the first Dragon Silk yarn produced entirely in Vietnam. The finished recombinant spider silk yarn was spun from raw spider silk produced at Prodigy Textiles. We believe this production fully integrated Prodigy Textiles into Vietnam’s substantial silk textile industry. Vietnam produced nearly 1,000 metric tons of mundane silk in 20201. While Prodigy Textiles remains focused on ramping up the output of recombinant spider silk cocoons, these supporting vendors will play an essential role in processing that silk into finished goods for a wide range of consumer markets. We plan to ship this Dragon Silk yarn to SpydaSilk Enterprises in Singapore, a joint venture partially owned by the Company for weaving into fabrics and finished garments. The Company expects that Prodigy Textiles will continue to leverage expanding silk production to address the material needs of SpydaSilk and make additional materials available for purchase to fill the numerous and backlogged material requests it has received.
On July 15, 2022, we 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.
Strategic Partnership
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 have formed a joint venture 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. Under the terms of the Agreement, the Company granted the joint venture and the SpydaSilk Enteprises Pte. Ltd. brand an exclusive geographic license to all the Company’s technologies for the Association of Southeast Asian Nations, in exchange for a 4-year firm commitment to purchase up to $32 million of the Company’s raw recombinant spider silk over the 4-year period, with an initial payment of $250,000 to the Company. Kings is projected to purchase an additional $8 million of material in the fourth year and due to lags in production, the Company expects to extend the time period for the purchase commitment, but there is no guarantee that SpydaSilk will agree to such extension or that such additional purchase will be made. Upon commencement, in consideration for its ownership position in the joint venture, the Company shall issue 1,000,000 shares of its common stock to Kings.
1 https://inserco.org/en/statistics
| 5 |
The Agreement has a 60-month term, which can be terminated at any time by mutual agreement following a consultation period of 120 days, or such other period as agreed by the parties. If applicable, the parties will honor their share of committed expenditures of the joint venture and King will repay the Company any unused brand funds.
Yorkville Transaction
On January 18, 2022, we entered into a securities purchase agreement with YA II PN, LTD., a Cayman Islands exempt company (“Yorkville”), pursuant to which Yorkville purchased secured convertible debentures (the “Securities Purchase Agreement”) in the aggregate principal amount of USD$3,000,000 (the “Convertible Debentures”), which are convertible into shares of Common Stock (as converted, the “Conversion Shares”), of which a secured convertible debenture (the “First Convertible Debenture”) in the principal amount of $1,500,000 (the “First Convertible Debenture Purchase Price”) shall be issued upon signing the Securities Purchase Agreement and a secured convertible debenture (the “Second Convertible Debenture,” together with the First Convertible Debenture, each a “Convertible Debenture” and collectively, the “Convertible Debentures”) in the principal amount of $1,500,000 (the “Second Convertible Debenture Purchase Price”) shall be issued on or about the date that the Securities and Exchange Commission declares the registration statement registering the shares of common stock underlying the notes effective (collectively, the First Convertible Debenture Purchase Price and the Second Convertible Debenture Purchase Price shall collectively be referred to as the “Purchase Price”) (the “Yorkville Transaction”). These additional funds, together with those from the previously completed transactions we conducted with Yorkville between December 2020 and March 2021, account for an $8 million total Yorkville investment; as of November 17, 2022, all debentures to Yorkville pursuant thereto have been satisfied. The Company also issued Yorkville a warrant to purchase 12,500,000 shares of the Company’s Common Stock, at an initial exercise price of $0.12 per share and a warrant to purchase 4,285,714 shares of the Company’s Common Stock, at an initial exercise price of $0.14 per share. The warrants have a term of five (5) years and can be exercised via cashless exercise. If the Company issues or sells securities at a price less than the applicable warrant exercise price, the exercise price of the applicable warrant shall be reduced to such lower price. The warrants also have the same ownership cap as set forth in the Convertible Debentures, as described below.
In connection with the Securities Purchase Agreement, the Company also entered into a Registration Rights Agreement with Yorkville, pursuant to which the Company agreed to register all of the shares of Common Stock underlying the Convertible Debentures and warrants and with respect to subsequent registration statements, if any, such number of shares of Common Stock as requested by Yorkville not to exceed 300% of the maximum number of shares of Common Stock issuable upon conversion of all Convertible Debentures then outstanding (assuming for purposes hereof that (x) such Convertible Debentures are convertible at the then current conversion price and (y) any such conversion shall not take into account any limitations on the conversion of the Convertible Debentures set forth therein, in each case subject to any cutbacks set forth in the Registration Rights Agreement.
Upon signing the letter of intent for the Yorkville Transaction, the Company paid $10,000 to an affiliate of Yorkville, for due diligence and structuring.
The Securities Purchase Agreement also contained customary representation and warranties of the Company and the Investor, indemnification obligations of the Company, termination provisions, and other obligations and rights of the parties.
The foregoing description of the Securities Purchase Agreement, Convertible Debentures, Warrant, Security Agreement, IP Security Agreement, Registration Rights Agreement and Guaranty Agreement is qualified by reference to the full text of the forms of Securities Purchase Agreement, Convertible Debenture and Warrant, which are filed as Exhibits hereto and incorporated herein by reference.
Maxim Group LLC received a cash placement agent fee of $230,000.
Covid-19
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. The global COVID pandemic and government regulations associated with the pandemic continue to evolve. We will continue to monitor the situation closely, including its potential effect on our plans and timelines.
Reverse Stock Split & Series A Voting Power
In 2019, in order to facilitate a proposed uplisting to a national exchange, our stockholders approved a possible reverse stock split of the Company’s issued and outstanding Common Stock. However, the Board elected not to proceed with a reverse stock split. A significant factor in that decision was our ability to access financing as described above without having to expend time and money on the uplisting process.
| 6 |
The Product
Our products exploit the unique characteristics of spider silk, specifically dragline silk from Nephila clavipes (golden orb-web spider) and variants thereof. Such fibers possess unique mechanical properties in terms of strength, resilience and flexibility. Through the use of genetic engineering, we believe that we have produced a variety of unique transgenic silkworm strains that produce recombinant spider silk. Our recombinant spider silk fiber blends the silk proteins found in spider silk with the native silkworm silk proteins. This approach allows for the cost-effective and eco-responsible production of spider silk at commercial production levels.
Monster Silk®
Monster Silk® was the first recombinant spider silk fiber product we developed. Monster Silk incorporates the natural elasticity of spider silk to make a silk fiber which is more flexible that conventional silk fibers and textiles. We have produced sample products using Monster Silk® including knit fabrics, gloves, and shirts in collaboration with textile mills. We expect that Monster Silk® will have market applications across the traditional textile markets where its increased flexibility will provide increased durability and comfort.
Dragon SilkTM
Dragon SilkTM is the next evolution in recombinant spider silk, combining the elasticity of Monster Silk® with additional high strength elements of native spider silk. Some samples of Dragon SilkTM have demonstrated strength beyond that of native spider silk. This combination of strength and elasticity results in a silk fiber which is soft and flexible, yet tougher than leading synthetic fiber available on the market. Based on inquires we have received from end market leaders, we believe that Dragon SilkTM- will have applications in performance apparel, durable workwear, luxury goods and apparel, and composites.
Other Products
We are continuing to develop new recombinant silks and other protein-based fibers and materials using our genetic engineering capabilities. Our silkworm based knock-in knock-out production and development platform has significant advantages over our legacy technology which created Dragon Silk and Monster Silk. Chief among these is the potential to produce spider silks with greatly increased purity and performance. Due to the biocompatible and biodegradable properties of silk, we believe that the materials developed using this higher purity process will create opportunities for products in the medical industry, including sutures, grafts, and implants.
Our Technology
Our technology builds upon the unique advantages of the domesticated silkworm. The silkworm is an efficient commercial and industrial producer of protein based polymers, and forty percent (40%) of the caterpillars’ weight is devoted to the silk glands. The silk glands produce large amounts of an insoluble protein called fibroin, which the silkworm spins into a composite protein thread (silk).
We use our genetic engineering technology to create proprietary recombinant silk polymers from the silkworms. On September 29, 2010, we, along with our collaborators at Notre Dame created approximately twenty different strains of transgenic silkworm which produce recombinant silk polymers. In October of 2017, with the support of funding from the U.S. Army, we transitioned our research operations out of Notre Dame and into our own research and development headquarters.
Our transgenic silkworms are created by inserting the genes expressing spider silk with either natural or engineered amino acid sequences into the embryos of the silkworm. The spider silk sequence is introduced to the embryo of the silkworm and incorporated into the silkworm genome using state of the art molecular biology approaches. The spider sequence is created on a circular loop of DNA called a plasmid. We developed a method to alter the plasmid DNA to more readily allow the mixing and matching of various targeted traits including spider DNA genes, disease resistance, commercially marketable proteins and other physical properties. In this way, we can combine different genetic cassettes to create fibers and proteins with the desired chemical, physical, and mechanical properties more rapidly than through conventional methods.
| 7 |
In addition to this ability to easily mix and match DNA construction, we have also adapted new approaches to accelerate the rate we generate new transgenic silkworms. Our initial approaches limited us to process silkworm eggs at a rate of roughly 50-200 a day, however, we have developed approaches which allows us to process thousands of eggs a day. Utilizing both visual and non-visual genetic markers, we have successfully developed methods to speed up the screening of potentially transgenic silkworms, which allows for rapid screening of transgenic eggs. The eggs expressing the new spider silk constructs or other targeted properties are propagated while the eggs without the visual marker are discarded, greatly increasing the efficiency of our screen for transgenic eggs. This new approach has been highly effective in increasing the rate of development for new transgenics. We have employed this new procedure and have filed patent applications to protect its use.
We utilize the latest advancements in molecular biology and genetic engineering to deliver targeted gene incorporations. The new constructs are designed to integrate in the silkworm genome directly where the native silkworm silk is created. First made public in 2020, this capability is designed for the full knock out and knock in replacement of the native silkworm heavy chain silk protein. We believe that this increased expression and incorporation of the spider protein into the silkworm cocoon will lead to increased performance and open the door for additional opportunities beyond fibers and textiles.
Production of this material in commercial quantities holds the potential of a life-saving ballistic resistant material, which is lighter, thinner, more flexible, and tougher than steel. However, the Company does not currently have any life-saving ballistic products and could be some time before we are able to produce such a product from the material. Other applications for spider silk based recombinant fibers include use as structural material and for any application in which light weight and high strength are required. We believe that fibers made with recombinant protein-based polymers will make significant inroads into the specialty fiber and technical textile markets. Our interactions with manufacturers of high performance textiles, convince us that there is an eager commercial market for our innovative, sustainable, and differentiated technology and products.
| 8 |
Manufacturing
Our spider silk technology is designed for easy plug and play incorporation into the existing silk production model. We manufacture and plan to continue to manufacture our proprietary spider silk fibers using traditional silkworm production practices (sericulture).
In August 2019, we received authorization from Governmental authorities to begin rearing genetically enhanced silkworms at our production facility in Quang Nam, Vietnam. In October 2019, we 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 our transgenic silkworms at the Quang Nam factory. Seasonal challenges in late December 2019 slowed production operations and Governmental restrictions imposed due to the global COVID pandemic further delayed our operations in 2020. In January of 2021, we received the first shipment of silk from our factory in Vietnam. We believe that we will be able to target metric tons of capacity of our recombinant spider silk fiber per annum from our Vietnamese operations once we reach maximum utilization. This capacity will allow us to address initial demand for our products and materials for various applications in the protective, performance, and luxury textile markets.
We contract with local farmers to cultivate and harvest fresh mulberry for our operations. Prodigy Textiles has also established its own mulberry rearing operations as part of our supply chain resilience program. Prodigy Textiles has hired local workers with experience in sericulture production to care for and raise our silkworms through the five instars, or stages, of the silkworm life cycle, including the final instar when the mature caterpillars produce a cocoon comprised of pure silk. These cocoons are then reeled to our specifications to form the final recombinant spider silk threads such as Dragon SilkTM and Monster Silk®.
By utilizing existing production methodology in traditional silk regions to produce our high performance materials, we leverage historical knowledge, available labor and existing capital infrastructure for production, spinning, and weaving of our recombinant spider silk materials. This approach reduces the risk to our manufacturing operations and decreases our need for upfront capital expenditure.
Working with our contract manufacturer in Vietnam we have identified robustness and acclimation of our silkworm strain to the local climate as the most significant challenges to production. We are working to overcome these challenges by acclimating our silkworms to the local environment and accelerating the introduction of our multi-strain hybrids. These efforts are targeted to increase overall robustness and cocoon size.
We believe that we will be able to target metric tons of capacity of recombinant spider silk fiber per annum from our operations in Vietnam once we reach maximum utilization of our current facilities. This capacity will allow us to address our anticipated initial demand for applications in the protective, performance, and luxury textile markets.
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.
The global COVID pandemic and government regulations associated with the pandemic continue to evolve. We will continue to monitor the situation closely, including its potential effect on our plans and timelines. See, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Impact of COVID-19 Outbreak.”
| 9 |
The Market
We are focusing our work on the creation of new fibers with unique properties including fibers with potential high performance and technical fiber applications for the performance fiber market. The performance fiber market is currently dominated by two classes of product: aramid fibers, and ultra-high molecular weight polyethylene fibers. These existing products serve the need for materials with high strength, resilience, but are unable to delivery flexibility. Because these synthetic performance fibers are stronger and tougher than steel, they are used in a wide variety of military, industrial, and consumer applications.
The military and police are among the users of performance fibers for its ballistic protection. The materials are also used for industrial applications requiring superior strength and toughness, e.g., critical cables and abrasion/impact resistant components. Performance fibers are also employed in safety equipment, high strength composite materials for the aero-space industry and for ballistic protection by the defense industry.
The global market for technical textiles was estimated at greater than $184 billion in 2020 and projected to reach $250 billion by 20271.
These are industrial materials which have become essential products for both industrial and consumer applications. The market for technical textiles can be defined as consisting of:
| ● | Medical textiles; |
| ● | Geotextiles; |
| ● | Textiles used in Defense and Military; |
| ● | Safe and Protective Clothing; |
| ● | Filtration Textiles; |
| ● | Textiles used in Transportation; |
| ● | Textiles used in Buildings; |
| ● | Composites with Textile Structure; and, |
| ● | Functional and Sportive Textiles. |
We believe that the superior mechanical characteristics of the next generation of protein-based polymers (in other words, genetically engineered silk fibers), will open up new applications for the technology. The materials which we are working to produce are many times tougher and stronger than steel.
We are actively pursuing relationships within target end markets to secure product collaborations with key market channel leaders. Due to the unique nature of our product, we received numerous unsolicited requests from leading businesses across a range of attractive end markets requesting materials for applications development. This substantial demand for spider silk materials across the broad spectrum of applications for high performance fibers and textiles, combined with the limited initial production capacity, has provided the opportunity to be selective in choosing market channel partners best able to quickly bring our product to market at scale. We are working under non-disclosure agreements to secure these collaborative development agreements and to establish limited channel exclusivity for firms we believe mirror our culture of innovation. In January 2021 the Company entered into a partnership and exclusive purchase agreement worth up to $40 million with M the Movement by Kings Group. This partnership will establish a jointly owned apparel and fashion brand headquarter in Singapore focuses on sales to the ASEAN region.
1https://www.grandviewresearch.com/industry-analysis/technical-textiles-market#:~:text=Report%20Overview,4.5%25%20from%202020%20to%202027.
| 10 |
Research and Development
In 2007, we entered into the first series of the Notre Dame Agreements to develop new transgenic silkworms. In 2010, we achieved our longstanding goal of producing new silk fibers composed of recombinant proteins. In 2016, we received a contract from the U.S. Army to deliver the first samples of its recombinant spider silk materials. In 2017, this contract was expanded to include research into the development of stronger silk materials. As a result of that contract, the Company brought its research operations in-house, opening its own research laboratories and expanding its scientific staff. This transition to in-house operations has led to a series of new technical breakthroughs and is believed to have accelerated the pace of new development. We intend to turn its technology to the development and production of high performance polymers.
During the fiscal years ended December 31, 2022 and 2021, we have spent approximately 10,375 hours and 9,505 hours, respectively, on research and development activities, which consisted primarily of laboratory research on genetic engineering by our in-house research operations.
As of the date of this Report, our research and development efforts remain focused on growing our internal capabilities, but we may consider renewing funding of the collaborative research and development of high strength polymers with Notre Dame or other joint development opportunities; we have not had any formal discussions regarding any such collaborations.
We have initiated production of our recombinant materials including Monster Silk® and Dragon SilkTM. Additionally, we plan to accelerate both our microbiology and selective breeding programs, as well as providing more resources for their material and genetic testing protocols in 2023.
A key aspect of our research program is designed to target the biggest immediate hurdle to production, the robustness of our silkworms within the large-scale production environment. Working with our contract manufacture in Vietnam we have identified robustness and acclimation of our silkworm lines to the local climate as the most significant challenge to production. Our research department has initiated, and we are accelerating a hybridization program, which is explicitly designed to increase robustness and cocoon size.
Our Intellectual Property Approach
Our intellectual property strategy utilizes a blended approach of licensed technologies and in-house developments. As part of our intellectual property portfolio, we have licensed the exclusive right to use certain patented gene-splicing technologies for use in silkworm.
Under the Notre Dame Agreements, we were issued and exercised our right to exclusive commercial use for spider silk technologies developed under that agreement. We have worked collaboratively with the university to develop fibers with the mechanical characteristics of spider silk. We are applying this proprietary genetic engineering technology to domesticated silkworms, which to our knowledge, is the only proven commercially scaled system for producing silk.
In 2017, we opened a research and development facility to expand on the work conducted at Notre Dame. Since opening this new facility, we have expanded our intellectual property portfolio with multiple additional provisional and utility patent filings based on new discoveries and inventions and made numerous advancements that have decreased the development time for new technologies, none of which rely on the patented material from our collaboration with Notre Dame. We will continue to utilize this in-house research facility to expand and strengthen its patent portfolio while also maintaining and growing its trade secret technologies approach to genetic advancement. We are actively working to develop and patent new approaches to the development of genetically engineering silkworms, underlying construction techniques, and fundamental genetic sequences for improved material performance.
The Notre Dame Agreements will last for the duration of the patented materials that we developed with Notre Dame. The new technologies that we are developing in our internal research labs does not rely on the Notre Dame patented materials and as a result will not be impacted by an expiration of those agreements.
The introduction of the gene sequence, in the manner employed by us, results in a germline transformation and is therefore self-perpetuating.
License Agreements/Intellectual Property
We have obtained certain rights to use a number of university created, and patented gene splicing and spider silk protein technologies.
As part of the joint development program with the University of Notre Dame and the Notre Dame Agreements, Kraig Labs negotiated an option for exclusive global commercial rights to technologies jointly developed with Notre Dame. Kraig Labs has exercised that option. As of the date of this filing, four patents relating to the jointly developed technologies have been issued, number 10-1926286 in South Korea, number 2011314072 in Australia, number 26612 in Vietnam, and number 2,812,791 in Canada. These jurisdictions are a mix of silk producing and consuming countries. We believe protecting our technologies in these countries will be beneficial to our future operations.
In addition to the patents related to licensed technologies from Notre Dame listed above, Kraig Labs has filed a number of patent applications and provisional applications based on technologies developed solely within the Company’s own laboratories. Kraig has filed two such patent applications and four provisional patent applications based on technologies developed and discoveries from our own independent research operations.
| 11 |
Table of Patent Applications and Status
| Title | Country | Application No. | Filing Date | Patent No. | Patent Date | Status | ||||||
| Chimeric Spider Silk Polypeptides and Fibers Uses Thereof | United States of America | 14/754916 | 30-Jun-2015 | Under Exam | ||||||||
| Transgenic Silkworms Capable of Producing Chimeric Spider Silk Polypeptides and Fibers | United States of America | 14/754946 | 30-Jun-2015 | Under Exam | ||||||||
| A Nucleic Acid Encoding a Chimeric Spider Silk Polypeptide, Chimeric Spider Silk Polypeptide, Composite Fiber Comprising the Chimeric Spider Silk Polypeptide and Method of Preparing a Transgenic Silkworm | Vietnam | 1-2013-01306 | 25-Apr-2013 | 26612 | 03-Nov-2020 | Granted | ||||||
| Method of Preparing a Transgenic Silkworm, Transgenic Silkworm, Manufacturing Method for the Production of Chimeric Spider Silk Composite Fiber and Genetic Construct | Vietnam | 1-2020-05354 | 17-Sep-2020 | Pending | ||||||||
| Chimeric Spider Silk and Uses thereof | Australia | 2011314072 | 26-Apr-2013 | 2011314072 | 13-Jul-2017 | Granted | ||||||
| Chimeric Spider Silk and Uses thereof | Canada | 2812791 | 28-Sep-2011 | 2812791 | 14-Jul-2020 | Granted | ||||||
| Chimeric Spider Silk and Uses thereof | China (People’s Republic) | 201180057127.1 | 28-May-2013 | Pending | ||||||||
| Chimeric Spider Silk and Uses thereof | European Patent Convention | 11833071.1 | 26-Apr-2013 | 2621957 | 02-Jun-2021 | EP Granted | ||||||
| Chimeric Spider Silk and Uses thereof | Germany | 11833071.1 | 26-Apr-2013 | 602011071095.8 | 02-Jun-2021 | Granted | ||||||
| Chimeric Spider Silk and Uses thereof | France | 11833071.1 | 26-Apr-2013 | 2621957 | 02-Jun-2021 | Granted | ||||||
| Chimeric Spider Silk and Uses thereof | India | 3574/DELNP/2013 | 22-Apr-2013 | Under Exam | ||||||||
| Chimeric Spider Silk and Uses thereof | Japan | 2013-530432 | 26-Mar-2013 | Pending | ||||||||
| Chimeric Spider Silk and Uses Thereof | Japan | 2017-038829 | 01-Mar-2017 | Under Exam | ||||||||
| Chimeric Spider Silk and Uses thereof | Korea, Republic of | 10-2017-7005086 | 22-Feb-2017 | 10-1926286 | 30-Nov-2018 | Granted | ||||||
| Chimeric Spider Silk and Uses thereof | Korea, Republic of | 10-2018-7034773 | 30-Nov-2018 | 10-2063002 | 30-Dec-2019 | Granted | ||||||
| Modification of Heavy Chain Fibroin In Bombyx Mori | United States of America | 17/172818 | 10-Feb-2021 | Published | ||||||||
| Modification of Heavy Chain Fibroin In Bombyx Mori | Patent Cooperation Treaty | PCT/US2021/017544 | 11-Feb-2021 | Published | ||||||||
| Modification of Heavy Chain Fibroin In Bombyx Mori | European Patent Convention | 21753525.1 | 07-Sep-2022 | Published | ||||||||
| Synthesis of High Molecular Weight Proteins Using Inteins | United States of America | 17/377312 | 15-Jul-2021 | Published | ||||||||
| Synthesis of High Molecular Weight Proteins Using Inteins | Patent Cooperation Treaty | PCT/US2021/041965 | 16-Jul-2021 | Published | ||||||||
| Synthesis of High Molecular Weight Proteins Using Inteins | European Patent Convention | 21841571.9 | 20-Jan-2023 | Pending | ||||||||
| Synthesis Of Non-Native Proteins In Bombyx Mori By Modifying Sericin Expression | United States of America | 17/377318 | 15-Jul-2021 | Published | ||||||||
| Synthesis Of Non-Native Proteins In Bombyx Mori By Modifying Sericin Expression | Patent Cooperation Treaty | PCT/US2021/041968 | 16-Jul-2021 | Published | ||||||||
| Synthesis Of Non-Native Proteins In Bombyx Mori By Modifying Sericin Expression | European Patent Convention | 21843411.6 | 20-Jan-2023 | Pending |
* The terms in this column have the following meanings:
Published: Pending patent applications that have been published by a corresponding state Patent Office (e.g., the U.S. Patent and Trademark Office) or international patent authority (e.g., the World Intellectual Property Association).
| 12 |
Pending: Patent applications that have been submitted to a corresponding state Patent Office for examination but that have not been issued or abandoned.
Under Exam: Pending patent applications currently being examined by a corresponding state Patent Office.
Granted: Patent applications that have been allowed by a corresponding state Patent Office and that have passed through the registration process; a granted patent application is synonymous with a “patent” and is conferred the associated patent rights for the given jurisdiction.
In addition to patent protection for intellectual property developed by the Company and through its collaborative research agreements, the Company has developed specialized skills and knowledge in the field of selective breeding, performance selection, and husbandry. This information is considered to be trade secrets and will play a critical role in the development of unique strains of new transgenic with diverse mechanical properties. These operations and knowledge held as trade secrets provide an additional layer of security and protection for the products and technologies we seek to develop.
In 2014, the following six trademarks were issued to the Company; the Company shall use these trademarks for product branding in the future:
Marks
Monster SilkTM
SpiderpillarTM
SpilkTM
Monster WormTM
Spider WormTM
Spider MothTM
In 2021, through its Singapore based joint venture the following four trademarks were issued. The Company shall use these trademarks to brand fabrics and apparel using its recombinant spider silk technologies.
Notre Dame Agreements
As discussed above, in 2007 we entered into the first series of Notre Dame Agreements. We provided financial support to ongoing research and development of transgenic silkworms and the creation of recombinant silk fibers. In exchange, we have an option to obtain the exclusive global commercialization rights to the technology developed pursuant to the research effort.
Following the first agreement, we entered into successive intellectual property and collaborative research agreements with Notre Dame to provide different levels of financial support. The trend had been for an increase in financial support for the research and development in nearly every successive agreement. In June 2012, we entered into an Intellectual Property / Collaborative Research Agreement with Notre Dame (“2012 Notre Dame Research Agreement”). On March 4, 2015, we entered into a new Intellectual Property / Collaborative Research Agreement with Notre Dame extending the agreement through March 2016 (“2015 Notre Dame Research Agreement”). Under the 2015 Notre Dame Research agreement, the Company provided approximately $534,000 in financial support. On September 20, 2015, the 2015 Notre Dame Research Agreement was amended to increase the total funding by approximately $179,000; in February 2016, the 2015 Notre Dame Research Agreement was extended to July 31, 2016 and in August 2016, the 2015 Notre Dame Research Agreement was extended to December 31, 2016. In May 2017, the 2015 Notre Dame Research Agreement was amended to increase the total funding by approximately $189,000 and the duration of the 2015 Notre Dame Research Agreement was extended to September 30, 2017. With the funding we received from the U.S. Army, we were able to conduct our research and development in-house, at less cost, and therefore we did not extend the 2015 Notre Dame Research Agreement after September 30, 2017, but in the future we may consider forming new collaborative research agreements.
In 2011, we exercised our option to obtain the global commercialization rights to the technology developed under the Notre Dame Agreements, which resulted in a separate license agreement with Notre Dame (the “2011 Notre Dame Agreement”). Pursuant to the 2011 Notre Dame Agreement, Notre Dame filed an international patent application and numerous national patent applications on technology relating to the creation and use of recombinant spider silks and we received exclusive and non-exclusive rights to certain spider silk and gene splicing technologies including commercial rights with the right to sublicense such intellectual property. The 2011 Notre Dame Agreement obligates us to reimburse Notre Dame for costs associated with the filing, prosecuting and maintaining of such patents and patent applications. In exchange for the rights to commercialization, Notre Dame has received 2,200,000 shares of our Common Stock and we have agreed to pay Notre Dame royalties equal to 2% of our gross sales of the licensed products and 10% of any sublicensing fees received by the Company on licensed technology. We have also agreed to pay to Notre Dame $50,000 a year, which will be reduced from the total amount of royalties paid in the same year. The $50,000 payment to Notre Dame is not owed for any year in which the Company is sponsoring research within Notre Dame.
Cooperative Agreement in Vietnam
On December 30, 2015, we entered into a cooperative agreement with a provincial government office in Vietnam for the research and pilot production of hybrid silkworms. In April 2018, we received our investment registration certificate for our facility in Vietnam. Later that month the Company was issued its ERC so that it could begin operations in Vietnam. We have established a subsidiary in Vietnam which is currently producing our recombinant spider silk in small quantities. Management believes the ERC puts the Company on a path to scale at a much greater level by harnessing existing silk production infrastructure with the capacity to match the existing demand for their spider silk materials.
| 13 |
Other Agreements
On October 15, 2013, we entered into an intellectual property agreement with a scientific researcher relating to the development of new recombinant silk fibers. Under the terms of that agreement, the scientific researcher transferred his rights of intellectual property, inventions and trade secrets which the researcher develops relating to recombinant silk to us. Upon signing, the researcher received 8,000,000 common stock purchase warrants from the Company, exercisable 24 months from the date of the agreement. As per the terms of the agreement, the researcher received an additional 10,000,000 warrants after creating a new recombinant silk fiber for us that met specified performance characteristics and another 8,000,000 warrants for performing the contract in good faith. The warrants described above all contain a cashless exercise provision and are exercisable on the 24-month anniversary of the date on which they were issuable under the agreement.
Governmental Regulations
We are subject to U.S. federal, state and local laws and regulations, as well as Vietnam central, provisional, and district laws and regulations. These laws and regulations govern, among other things, labor relations, the labeling and safety of the products we sell, the methods we use to sell these products and/or the production of the products we sell. We believe that we are in material compliance with all such applicable laws and regulations, although no assurance can be provided that this will remain true in the future. Laws and their interpretations can change. With regards to areas where law is vague, lacking, or could be subject to interpretation we endeavor to conform to wide spread industry norms.
Environment
Kraig Labs is fully committed to its vision of bringing spider silk technologies to commercial markets while maintaining the highest levels of environmental responsibility. We believe our technology, built on a renewable resource, has a positive environmental impact and offers significant benefits over competing synthetic textiles. Our production system is derived from nature and does not use any petrochemicals as an input into our fibers.
We seek to comply with and exceed all applicable statutory and administrative requirements concerning environmental quality. Expenditures for compliance with federal state and local environmental laws have not had, and are not expected to have, a material effect on our capital expenditures, results of operations or competitive position.
While being environmentally conscious is the objective of all producers in this industry, the fermentation process used by our competitors produces high levels of carbon dioxide. CO2 is a greenhouse gas and is argued to be the leading cause of global warming. In stark contrast, Kraig Labs’ mulberry trees and the silk from silkworms have proven to be effective at sequestering carbon dioxide and are renewable resources. Mulberry trees are also very low maintenance, while still providing essential global green-cover and significantly help in reducing soil erosion in areas.
In addition to climate impacts of the fermentation approach, solvents typically used to wet-spin fibers can have significant environmental impacts. DMSO, a common wet-spinning solvent, can be absorbed directly through human skin, carrying with it potentially dangerous side effects. This is another reason we pride ourselves on the use of silkworms, which do not require the use of DMSO, to produce our products.
Competition
We compete directly with numerous other companies with similar product lines and/or distribution that have extensive capital, resources, market share, and brand recognition.
There are presently three primary competitors that we face in our industry, but there are few barriers to entry in our industry. This creates the strong possibility of new competitors emerging, and of others succeeding in developing the same or similar fibers for application that we are trying to develop. The effects of this increased competition may be materially adverse to us and our stockholders. As this is an emergent industry there is no one producer that has captured a significant portion of the market. Bolt Threads, Inc. based in California and Spiber Inc. based in Japan are competitors which have raised the largest amounts of investment capital to date. We also compete with AMSilk, which is based in Germany. We believe that our technology offers more cost-effective methods with lower environmental impact than technologies used by our identified competitors, however, new technologies could be developed that remove this advantage.
| 14 |
These competitors have raised and spent 100’s of millions of dollars in pursuit of the same results that we have achieved, but through different and more complex means. The Company believes that its competitors will continue to overspend while struggling to deliver the results that we have been able to achieve utilizing the existing global infrastructure.
Based on our research and internal assessments, the following chart illustrates why we believe we have a competitive advantage over our three main, known competitors:
Employees
The Company currently employs between 8-11 people at its U.S. facilities, 6 full-time and up to 5 part-time, including Kim Thompson, our officer and sole director and Jonathan R. Rice, our Chief Operating Officer. The Company employs between 8-30 full time personnel at its Vietnamese subsidiary depending on the production cycle. We plan to hire more persons on as-needed basis.
ITEM 1A. RISK FACTORS.
As the Company is a smaller reporting company, this item is not applicable.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
As the Company is a smaller reporting company, this item is not applicable.
ITEM 2. DESCRIPTION OF PROPERTY.
Our principal executive office is located at 2723 South State St., Suite 150, Ann Arbor, Michigan. We pay an annual rent of $2,508 for conference facilities, mail, fax, and reception services located at this location.
On January 23, 2017, we signed an 8-year property lease with the Kim Thompson, our Chief Executive Officer, Chief Financial Officer, President, sole director, and controlling shareholder, for land in Texas where the Company grows its mulberry, at a monthly rent of $960. We ended this lease agreement on April 5, 2021.
On May 9, 2019, we signed a 5-year property lease for 4,560.57 square meters of space in the Socialist Republic of Vietnam at a rent of approximately $91,791 in each of year one and two and with a 5% increase per year for years three through five. On August 1, 2021, the Company terminated this lease and moved operations to a better facility at a lower lease rate. We entered into that new lease on July 21, 2021 as described below.
| 15 |
On September 5, 2019, we signed a new two-year lease for a 5,000 square foot property in Lansing, MI that commenced on October 1, 2019 and ends on September 30, 2021, for its research and development headquarters. Pursuant to the lease, it was an annual rent of $42,000 for year one of the lease and $44,800 for year two of the lease. On April 16, 2021, we signed a two year amendment to this lease, pursuant to which, commencing on July 1, 2021 and ending on September 30, 2022, we pay an annualized rent of $42,000 and from October 1, 2022 through September 30, 2023, we will pay an annual rent of $44,800.
On July 1, 2021, the Company signed a 5-year property lease in the Socialist Republic of Vietnam which consists of 30,000 square meters of property and 6,000 square meter of buildings, which it leases at a rate of approximately $8,645 per year for each of the five years.
ITEM 3. LEGAL PROCEEDINGS.
We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business.
To the knowledge of our management, we are currently not a party to any material legal or administrative proceedings and are not aware of any pending or threatened legal or administrative proceedings against us.
ITEM 4. MINE SAFETY DISCLOSURES.
As the Company is a smaller reporting company, this item is not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our common stock trades on the OTCQB system under the symbol “KBLB.” Our CUSIP number is 50075W.
You should be aware that over-the-counter market quotations may reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions. The high and low bid quotations for our shares of our common stock for each full quarterly period within the two most recent fiscal years are (prices set forth below represent inter-dealer quotations, without retail markup, markdown or commission and may not be reflective of actual transactions):
| High | Low | |||||||
| Fiscal 2021 | ||||||||
| Quarter ended March 31, 2021 | $ | 0.198 | $ | 0.1237 | ||||
| Quarter ended June 30, 2021 | $ | 0.17 | $ | 0.11 | ||||
| Quarter ended September 30, 2021 | $ | 0.1225 | $ | 0.075 | ||||
| Quarter ended December 31, 2021 | $ | 0.102 | $ | 0.06 | ||||
| Fiscal 2022 | ||||||||
| Quarter ended March 31, 2022 | $ | 0.11 | $ | 0.07 | ||||
| Quarter ended June 30, 2022 | $ | 0.09 | $ | 0.06 | ||||
| Quarter ended September 30, 2022 | $ | 0.07 | $ | 0.05 | ||||
| Quarter ended December 31, 2022 | $ | 0.05 | $ | 0.03 | ||||
As of March 28, 2023, the last reported sale price of our Common Stock on the OTCQB was $0.03475 per share.
| 16 |
Holders
As of March 29, 2023 in accordance with our transfer agent records, we had 33 record holders of our Class A common stock and 0 holders of our Class B common stock; there is 1 holder of Series A Preferred Stock. This number excludes any estimate by us of the number of beneficial owners of shares held in street name, the accuracy of which cannot be guaranteed.
Dividends
We have never paid cash dividends on any of our capital stock and we currently intend to retain our future earnings, if any, to fund the development and growth of our business. We do not intend to pay cash dividends to holders of our common stock in the foreseeable future.
Securities Authorized for Issuance under Equity Compensation Plans
The following table discloses information as of December 31, 2022, with respect to compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance, aggregated as follows:
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||||
| (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by security holders | 0 | 0 | 0 | |||||||||
| Equity compensation plans not approved by security holders | 26,520,000 | 0 | 123,203,751 | |||||||||
| Total | 26,520,000 | 0 | 123,203,751 | |||||||||
2019 Employee Stock Option Plan
Effective December 9, 2019, we adopted the 2019 Employee Stock Option Plan (“Plan”), with 80,000,000 shares issuable pursuant to the Plan. Beginning on January 1, 2020 and continuing on each January 1st that the Plan is in place, an additional number of shares equal to the lesser of: (i) 2% of the number of shares of Common Stock outstanding (fully-diluted) on the immediately preceding December 31 and (ii) such lower number of shares as may be determined by the Board or committee, shall be added to the number of shares issuable under the Plan. As of the date hereof, 29,840,000 options have been issued pursuant to the Plan (although some have been cancelled) and 123,203,751 shares remain issuable pursuant to the Plan, based on the terms of the Plan as set forth above.
Eligibility. The Plan provides for the grant of incentive stock options to our employees and any parent and subsidiary corporations’ employees and for the grant of nonqualified share options, restricted shares, restricted share units, share appreciation rights, share bonuses and performance awards to our employees, directors and consultants and our parent and subsidiary corporations employees and consultants.
Administration. The Plan is administered by the Board or by a committee of not fewer than 2 members, each of whom is an outside Director and all of whom are disinterested, designated by the Board to administer the Plan. The plan administrator determines the terms of all awards.
Types of Awards. The Plan allows for the grant of nonqualified stock options, incentive stock options, restricted share options, restricted stock units, stock appreciation rights, stock bonuses and performance awards.
| 17 |
Award Agreements. All awards under the Plan are evidenced by an award agreement which shall set forth the number of shares subject to the award and the terms and conditions of the award, which shall be consistent with the Plan.
Term of Awards. The term of awards granted under the Plan is ten years.
Vesting Schedule and Price. The plan administrator has the sole discretion in setting the vesting period and, if applicable, exercise schedule of an award, determining that an award may not vest for a specified period after it is granted and accelerating the vesting period of an award. The plan administrator determines the exercise or purchase price of each award, to the extent applicable.
Transferability. Unless the plan administrator provides otherwise, the Plan does not allow for the transfer of awards other than by will or the laws of descent and distribution. Unless otherwise permitted by the plan administrator, options may be exercised during the lifetime of the optionee only by the optionee or the optionee’s guardian or legal representative.
Adjustments. In the event the Board or committee determines that any dividend or distribution, recapitalization, stock split, reorganization, merger, consolidate, split-up, spin-off, or other similar corporate transact or event affects the shares subject to the Plan such that an adjustment is determined by the Board or committee to be appropriate to prevent dilution or enlargement of the benefits intended to be made under the Plan, appropriate adjustments will be made to the share maximums and exercise prices, as applicable.
Governing Law and Compliance with Law. The Plan and awards granted under it are governed by and construed in accordance with the laws of the Wyoming. Shares will not be issued under an award unless the issuance is permitted by applicable law.
Amendment and Termination. The Plan terminates ten years from the date it was approved, unless it is terminated earlier by our Board. The Board may amend, alter, suspend, discontinue, or terminate the plan, including, without limitation, any amendment, alternation, suspension, discontinuation, or termination that would impart the rights of any participant, or any other holder or beneficiary of any award thertofore granted, without the consent of any share owner, participant, other holder or beneficiary of an award, or other person, unless required by applicable law.
Sale of Unregistered Securities
Information regarding any equity securities we have sold during the period covered by this Report that were not registered under the Securities Act of 1933, as amended is set forth below. Each such transaction was exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) of the Securities Act or Rule 506 of Regulation D promulgated by the SEC, unless otherwise noted. Unless stated otherwise: (i) the securities were offered and sold only to accredited investors; (ii) there was no general solicitation or general advertising related to the offerings; (iii) each of the persons who received these unregistered securities had knowledge and experience in financial and business matters which allowed them to evaluate the merits and risk of the receipt of these securities, and that they were knowledgeable about our operations and financial condition; (iv) no underwriter participated in, nor did we pay any commissions or fees to any underwriter in connection with the transactions; and, (v) each certificate issued for these unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.
| 18 |
On March 2, 2021, the Company issued 1,479,728 shares of Common Stock in exchange for $88,783.68, per the terms of a cash stock warrant exercise.
On March 25, 2021, the Company entered into a securities purchase agreement with YA II PN, LTD., a Cayman Islands exempt company (“Yorkville”), pursuant to which Yorkville purchased secured convertible debentures (the “Securities Purchase Agreement”) in the aggregate principal amount of USD$4,000,000 (the “Convertible Debentures”), which are convertible into shares of Common Stock (as converted, the “Conversion Shares”), of which a secured convertible debenture (the “First Convertible Debenture”) in the principal amount of $500,000 (the “First Convertible Debenture Purchase Price”) shall be issued within 1 business day following the initial closing, a secured convertible debenture (the “Second Convertible Debenture”) in the principal amount of $500,000 (the “Second Convertible Debenture Purchase Price”) shall be issued within 1 business day following the satisfaction of conditions for a second closing and a secured convertible debenture (the “Third Convertible Debenture,” together with the First Convertible Debenture and the Second Convertible Debenture, each a “Convertible Debenture” and collectively, the “Convertible Debentures”) in the principal amount of $3,000,000 (the “Third Convertible Debenture Purchase Price”) shall be issued within 1 business day following satisfaction of conditions for a third closing (the first closing, second closing and third closing are each referred to as a “Closing” or collectively as the “Closings) and (collectively, the First Convertible Debenture Purchase Price, the Second Convertible Debenture Purchase Price and the Third Convertible Debenture Purchase Price shall collectively be referred to as the “Purchase Price”) (the “Yorkville Transaction”).
In connection with the Securities Purchase Agreement, the Company also entered into a Registration Rights Agreement with Yorkville, pursuant to which the Company agreed to register the shares of common stock underling the Debentures and the Yorkville Warrant.
Following fulfillment of the requirements in the Securities Purchase Agreement, on April 6, 2021, the Company issued the Second Convertible Debenture to Yorkville in the amount of $500,000.
Following fulfillment of the requirements in the Securities Purchase Agreement, on April 22, 2021, the Company issued the Third Convertible Debenture to Yorkville in the amount of $3,000,000.
On April 23, 2021, the Company issued 836,574 shares of Common Stock in exchange for conversion of $100,000 of principle balance on a convertible debenture and $1,644 of accrued interest.
On April 26, 2021, the Company issued 2,063,391 shares of Common Stock in exchange for conversion of $250,000 of principle balance on a convertible debenture and $3,178 of accrued interest.
On April 30, 2021, the Company issued 2,058,686 shares of Common Stock in exchange for conversion of $250,000 of principle balance on a convertible debenture and $3,630 of accrued interest.
On May 4, 2021, the Company issued 1,479,728 shares of Common stock in connection with the exercise of 1,479,728 warrants for $88,784.
On June 7, 2021, the Company issued 2,431,506 shares of Common Stock in exchange for conversion of $200,000 of principle balance on a convertible debenture and $25,644 of accrued interest.
On June 23, 2021, the Company issued 2,422,195 shares of Common Stock in exchange for conversion of $200,000 of principle balance on a convertible debenture and $10,247 of accrued interest.
On July 6, 2021, the Company issued 2,343,919 shares of Common Stock in exchange for conversion of $200,000 of principle balance on a convertible debenture and $7,671 of accrued interest.
On July 20, 2021, the Company issued 1,664,823 shares of Common Stock in exchange for conversion of $100,000 of principle balance on a convertible debenture and $60,822 of accrued interest.
On July 29, 2021, the Company issued 3,101,546 shares of Common Stock in exchange for conversion of $200,000 of principle balance on a convertible debenture and $11,836 of accrued interest.
On August 16, 2021, the Company issued 2,277,273 shares of Common Stock in exchange for conversion of $150,000 of principle balance on a convertible debenture and $6,904 of accrued interest.
On August 23, 2021, the Company issued 3,454,203 shares of Common Stock in exchange for conversion of $200,000 of principle balance on a convertible debenture and $11,397 of accrued interest.
On August 30, 2021, the Company issued 2,284,808 shares of Common Stock in exchange for conversion of $150,000 of principle balance on a convertible debenture and $3,082 of accrued interest.
On September 3, 2021, the Company issued 3,000,000 shares of its common stock for services rendered, with a fair value of $242,100 ($0.0807/share) on the date of grant.
On September 8, 2021, the Company issued 4,311,269 shares of Common Stock in exchange for conversion of $250,000 of principle balance on a convertible debenture and $6,521 of accrued interest.
| 19 |
On September 14, 2021, the Company issued 2,936,668 shares of Common Stock in exchange for conversion of $200,000 of principle balance on a convertible debenture and $2,630 of accrued interest.
On September 20, 2021, the Company issued 4,138,369 shares of Common Stock in exchange for conversion of $250,000 of principle balance on a convertible debenture and $4,095 of accrued interest.
On October 4, 2021, the Company issued 2,957,622 shares of Common Stock in exchange for conversion of $200,000 of principle balance on a convertible debenture and $2,301 of accrued interest.
On October 12, 2021, the Company issued 4,205,118 shares of Common Stock in exchange for conversion of $250,000 of principle balance on a convertible debenture and $5,671of accrued interest.
On October 25, 2021, the Company issued 3,043,955 shares of Common Stock in exchange for conversion of $200,000 of principle balance on a convertible debenture and $1,205 of accrued interest.
On November 10, 2021, the Company issued 3,528,221 shares of Common Stock in exchange for conversion of $200,000 of principle balance on a convertible debenture and $5,342 of accrued interest.
On November 22, 2021, the Company issued 3,561,885 shares of Common Stock in exchange for conversion of $200,000 of principle balance on a convertible debenture and $1,603 of accrued interest.
On December 6, 2021, the Company issued 5,175,822 shares of Common Stock in exchange for conversion of $250,000 of principle balance on a convertible debenture and $1,027 of accrued interest.
On December 20, 2021, the Company issued 5,874,062 shares of Common Stock in exchange for conversion of $250,000 of principle balance on a convertible debenture and $35,479 of accrued interest.
On January 18, 2022, we entered into another securities purchase agreement with Yorkville, pursuant to which Yorkville purchased secured convertible debentures (the “Securities Purchase Agreement”) in the aggregate principal amount of USD$3,000,000 (the “Convertible Debentures”), which are convertible into shares of Common Stock (as converted, the “Conversion Shares”), of which a secured convertible debenture (the “First Convertible Debenture”) in the principal amount of $1,500,000 (the “First Convertible Debenture Purchase Price”) shall be issued upon signing the Securities Purchase Agreement and a secured convertible debenture (the “Second Convertible Debenture,” together with the First Convertible Debenture, each a “Convertible Debenture” and collectively, the “Convertible Debentures”) in the principal amount of $1,500,000 (the “Second Convertible Debenture Purchase Price”) shall be issued on or about the date that the Securities and Exchange Commission declares the registration statement registering the shares of common stock underlying the notes effective (collectively, the First Convertible Debenture Purchase Price and the Second Convertible Debenture Purchase Price shall collectively be referred to as the “Purchase Price”) (the “Yorkville Transaction”). These additional funds, together with those from the previously completed transactions we conducted with Yorkville between December 2020 and March 2021, account for an $8 million total Yorkville investment; as of November 17, 2022 all debentures to Yorkville thereto have been satisfied. The Company also issued Yorkville a warrant to purchase 12,500,000 shares of the Company’s Common Stock, at an initial exercise price of $0.12 per share and a warrant to purchase 4,285,714 shares of the Company’s Common Stock, at an initial exercise price of $0.14 per share. The warrants have a term of five (5) years and can be exercised via cashless exercise. If the Company issues or sells securities at a price less than the applicable warrant exercise price, the exercise price of the applicable warrant shall be reduced to such lower price. The warrants also have the same ownership cap as set forth in the Convertible Debentures, as described below.
| 20 |
In connection with the Securities Purchase Agreement, the Company also entered into a Registration Rights Agreement with Yorkville, pursuant to which the Company agreed to register all of the shares of Common Stock underlying the Convertible Debentures and warrants and with respect to subsequent registration statements, if any, such number of shares of Common Stock as requested by Yorkville not to exceed 300% of the maximum number of shares of Common Stock issuable upon conversion of all Convertible Debentures then outstanding (assuming for purposes hereof that (x) such Convertible Debentures are convertible at the then current conversion price and (y) any such conversion shall not take into account any limitations on the conversion of the Convertible Debentures set forth therein, in each case subject to any cutbacks set forth in the Registration Rights Agreement.
Upon signing the letter of intent for the Yorkville Transaction, the Company paid $10,000 to an affiliate of Yorkville, for due diligence and structuring.
On January 21, 2022, the Company issued 3,935,417 shares of Common Stock in exchange for conversion of $250,000 of principle balance on a convertible debenture and $2,260 of accrued interest.
On January 31, 2022, the Company issued 4,569,059 shares of Common Stock in exchange for conversion of $250,000 of principle balance on a convertible debenture and $42,877 of accrued interest.
On February 16, 2022, the Company issued 3,924,443 shares of Common Stock in exchange for conversion of $250,000 of principle balance on a convertible debenture and $1,164 of accrued interest.
On April 14, 2022, the Company issued 2,358,380 shares of Common Stock in exchange for conversion of $150,000 of principle balance on a convertible debenture and $1,644 of accrued interest.
On April 29, 2022, the Company issued 4,373,417 shares of Common Stock in exchange for conversion of $250,000 of principle balance on a convertible debenture and $5,918 of accrued interest.
On July 19, 2022, the Company issued 4,364,987 shares of Common Stock in exchange for conversion of $200,000 of principle balance on a convertible debenture and $6,027 of accrued interest.
On October 11, 2022, the Company issued 2,907,240 shares of Common Stock in exchange for conversion of $100,000 of principle balance on a convertible debenture and $1,753 of accrued interest.
On October 18, 2022, the Company issued 4,782,778 shares of Common Stock in exchange for conversion of $150,000 of principle balance on a convertible debenture and $658 of accrued interest.
On October 26, 2022, the Company issued 5,487,951 shares of Common Stock in exchange for conversion of $150,000 of principle balance on a convertible debenture and $370 of accrued interest.
On October 31, 2022, the Company issued 6,510,348 shares of Common Stock in exchange for conversion of $150,000 of principle balance on a convertible debenture and $28,384 of accrued interest.
On November 1, 2022, the Company issued 9,236,212 shares of Common Stock in exchange for conversion of $250,000 of principle balance on a convertible debenture and $301 of accrued interest.
On November 14, 2022, the Company issued 5,974,335 shares of Common Stock in exchange for conversion of $150,000 of principle balance on a convertible debenture and $1,151 of accrued interest.
On November 17, 2022, the Company issued 5,935,360 shares of Common Stock in exchange for conversion of $150,000 of principle balance on a convertible debenture and $164 of accrued interest.
On February 16, 2023, the Company issued 2,434,211 shares of Common Stock in exchange for the cashless exercise of 2,500,000 warrants.
Repurchases of Equity Securities
None.
ITEM 6. RESERVED
| 21 |
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Caution Regarding Forward-Looking Information
The following discussion and analysis of our financial condition and result of operations should be read in conjunction with our audited consolidated financial statements and the notes to those financial statements appearing elsewhere in this Form 10-K. This discussion contains forward-looking statements and involves numerous risks and uncertainties contained in this report and the other reports we file with the Securities and Exchange Commission. Our actual results may differ materially from those contained in any forward-looking statements.
The following section reflects management’s views on the financial condition as of December 31, 2022 and 2021, and the results of operations and cash flows for the fiscal years ended December 31, 2022 and 2021. This section is provided as a supplement to, and should be read in conjunction with, the Company’s audited consolidated financial statements and related notes to the consolidated financial statements contained elsewhere 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.
In 2020, we developed a new technology platform, based on a non-CRISPR Cas9 gene editing knock-in knock-out technology. This is our first knock-in knock-out technology which we are now using for the development of advanced materials. This system is 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. This capability should allow us to accelerate new product developments and bring products to market more quickly. This capability also allows for genetic trait modifications that were previously impractical, creating opportunities for products outside of silk fibers and increased flexibility in production location.
Based on our internal analysis, management believes that this new platform technology will allow us to outpace and surpass 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.
| 22 |
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 pandemic further delayed our operations in 2020. In January of 2021 we received the first shipment of silk from our factory in Vietnam. We believe that we will be able to target metric tons of capacity of our recombinant spider silk fiber per annum from this factory once it reaches maximum utilization. This capacity will allow us to address 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.
Under the terms of the Agreement, the Company granted the joint venture and the SpydaSilk brand an exclusive geographic license to all the Company’s technologies for the Association of Southeast Asian Nations, in exchange for a 4-year firm commitment to purchase up to $32 million of the Company’s raw recombinant spider silk over the 4-year period, with an initial payment of $250,000 to the Company. Kings is projected to purchase an additional $8 million of material in the fourth year, but there is no guarantee that such additional purchase will be made.
In consideration for its ownership position in the joint venture, the Company shall issue 1,000,000 shares of its common stock to Kings. The Agreement has a 60-month term, which can be terminated at any time by mutual agreement following a consultation period of 120 days, or such other period as agreed by the parties. If applicable, the parties will honor their share of committed expenditures of the joint venture and King will repay the Company any unused brand funds.
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. |
| ● | 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 operations at our facilities in Quang Nam, Vietnam in accordance with our investment and enterprise registration certificates, including the planting of additional mulberry fields in collaboration with local farming cooperatives and the hiring of additional direct staff for our factory, as needed. |
| ● | 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 and 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 $177,000 over the last 12 months on research and development of high strength polymers. In 2022, we directed our research and development efforts on growing our internal capabilities; we plan to continue to dedicate our efforts in 2023 to grow our internal research and development programs. |
| 23 |
| ● | 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. |
| ● | We will also actively consider pursuing collaborative research opportunities with private laboratories in areas of research which overlap the company’s existing research and development. One such potential area for collaborative research which 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. |
| ● | 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 to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The coronavirus and actions taken to mitigate it have had and 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 the outbreak continues 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 precaution possible to ensure the safety of our employees.
2 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5131771/
https://www.yourgenome.org/facts/what-is-genome-editing
https://ghr.nlm.nih.gov/primer/genomicresearch/genomeediting
| 24 |
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.
The global COVID pandemic and government regulations associated with the pandemic continue to evolve. We will continue to monitor the situation closely, including its potential effect on our plans and timelines. The actions of governments in response to COVID, both domestic and foreign, have 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.
Note Financing
December 2020
On December 11, 2020, the Company issued a $1,000,000, thirteen-month (13), unsecured, convertible note, which was due and paid on January 11, 2022. The convertible note had an interest at 10%, with a 5% original issue discount ($50,000), resulting in net proceeds of $950,000. The note contained a discount to market feature, whereby, the lender was able to purchase stock at 90% of the lowest trading price for a period of ten (10) days preceding the conversion date. As a result, we issued approximately 15,000,000 shares upon conversion of the note. Additionally, the Company issued 3,125,000 five-year (5) warrants to the note holder. The warrants had a fair value of $2,599,066, based upon using a black-scholes option pricing model.
March 2021
On March 25, 2021, the Company entered into a securities purchase agreement with YA II PN, LTD., a Cayman Islands exempt company (“Yorkville”), pursuant to which Yorkville purchased secured convertible debentures (the “Securities Purchase Agreement”) in the aggregate principal amount of USD$4,000,000 (the “Convertible Debentures”), which are convertible into shares of Common Stock (as converted, the “Conversion Shares”), of which a secured convertible debenture (the “First Convertible Debenture”) in the principal amount of $500,000 (the “First Convertible Debenture Purchase Price”) shall be issued within 1 business day following the initial closing, a secured convertible debenture (the “Second Convertible Debenture”) in the principal amount of $500,000 (the “Second Convertible Debenture Purchase Price”) shall be issued within 1 business day following the satisfaction of conditions for a second closing and a secured convertible debenture (the “Third Convertible Debenture,” together with the First Convertible Debenture and the Second Convertible Debenture, each a “Convertible Debenture” and collectively, the “Convertible Debentures”) in the principal amount of $3,000,000 (the “Third Convertible Debenture Purchase Price”) shall be issued within 1 business day following satisfaction of conditions for a third closing (the first closing, second closing and third closing are each referred to as a “Closing” or collectively as the “Closings) and (collectively, the First Convertible Debenture Purchase Price, the Second Convertible Debenture Purchase Price and the Third Convertible Debenture Purchase Price shall collectively be referred to as the “Purchase Price”) (the “Yorkville Transaction”).
| 25 |
In connection with the Securities Purchase Agreement, the Company also entered into a Registration Rights Agreement with Yorkville, pursuant to which the Company agreed to register the shares of common stock underling the Debentures and the Yorkville Warrant.
Following fulfillment of the requirements in the Securities Purchase Agreement, on April 6, 2021, the Company issued the Second Convertible Debenture to Yorkville in the amount of $500,000.
Following fulfillment of the requirements in the Securities Purchase Agreement, on April 22, 2021, the Company issued the Third Convertible Debenture to Yorkville in the amount of $3,000,000.
As of February 16, 2022, all of the Convertible Debentures issued pursuant to the Security Purchase Agreement signed with Yorkville on March 25, 2021 have been converted and there is no remaining balance.
January 2022
On January 18, 2022, we entered into a securities purchase agreement with YA II PN, LTD., a Cayman Islands exempt company (“Yorkville”), pursuant to which Yorkville purchased secured convertible debentures (the “Securities Purchase Agreement”) in the aggregate principal amount of USD$3,000,000 (the “Convertible Debentures”), which are convertible into shares of Common Stock (as converted, the “Conversion Shares”), of which a secured convertible debenture (the “First Convertible Debenture”) in the principal amount of $1,500,000 (the “First Convertible Debenture Purchase Price”) shall be issued upon signing the Securities Purchase Agreement and a secured convertible debenture (the “Second Convertible Debenture,” together with the First Convertible Debenture, each a “Convertible Debenture” and collectively, the “Convertible Debentures”) in the principal amount of $1,500,000 (the “Second Convertible Debenture Purchase Price”) shall be issued on or about the date that the Securities and Exchange Commission declares the registration statement registering the shares of common stock underlying the notes effective (collectively, the First Convertible Debenture Purchase Price and the Second Convertible Debenture Purchase Price shall collectively be referred to as the “Purchase Price”) (the “Yorkville Transaction”). These additional funds, together with those from the previously completed transactions we conducted with Yorkville between December 2020 and March 2021, account for an $8 million total Yorkville investment; as of November 17, 2022, all debentures to Yorkville pursuant thereto have been satisfied. The Company also issued Yorkville a warrant to purchase 12,500,000 shares of the Company’s Common Stock, at an initial exercise price of $0.12 per share and a warrant to purchase 4,285,714 shares of the Company’s Common Stock, at an initial exercise price of $0.14 per share. The warrants have a term of five (5) years and can be exercised via cashless exercise. If the Company issues or sells securities at a price less than the applicable warrant exercise price, the exercise price of the applicable warrant shall be reduced to such lower price. The warrants also have the same ownership cap as set forth in the Convertible Debentures, as described below.
In connection with the Securities Purchase Agreement, the Company also entered into a Registration Rights Agreement with Yorkville, pursuant to which the Company agreed to register all of the shares of Common Stock underlying the Convertible Debentures and warrants and with respect to subsequent registration statements, if any, such number of shares of Common Stock as requested by Yorkville not to exceed 300% of the maximum number of shares of Common Stock issuable upon conversion of all Convertible Debentures then outstanding (assuming for purposes hereof that (x) such Convertible Debentures are convertible at the then current conversion price and (y) any such conversion shall not take into account any limitations on the conversion of the Convertible Debentures set forth therein, in each case subject to any cutbacks set forth in the Registration Rights Agreement.
Upon signing the letter of intent for the Yorkville Transaction, the Company paid $10,000 to an affiliate of Yorkville, for due diligence and structuring.
The Securities Purchase Agreement also contained customary representation and warranties of the Company and the Investor, indemnification obligations of the Company, termination provisions, and other obligations and rights of the parties.
The foregoing description of the Securities Purchase Agreement, Convertible Debentures, Warrant, Security Agreement, IP Security Agreement, Registration Rights Agreement and Guaranty Agreement is qualified by reference to the full text of the forms of Securities Purchase Agreement, Convertible Debenture and Warrant, which are filed as Exhibits hereto and incorporated herein by reference.
Maxim Group LLC received a cash placement agent fee of $230,000.
| 26 |
Results of Operations for the Years ended December 31, 2022 and 2021
Our revenue, operating expenses, and net loss from operations for the years ended December 31, 2022 as compared to the year ended December 31, 2021, were as follows – some balances on the prior period’s combined financial statements have been reclassified to conform to the current period presentation:
| Years Ended | % Change | |||||||||||||||
| December 31, | Increase | |||||||||||||||
| 2022 | 2021 | Change | (Decrease) | |||||||||||||
| NET REVENUES | $ | - | $ | - | - | - | ||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| General and Administrative | 825,460 | 1,496,725 | (671,265 | ) | -44.85 | % | ||||||||||
| Professional Fees | 339,710 | 326,982 | 12,728 | 3.89 | % | |||||||||||
| Officer’s Salary | 779,742 | 734,427 | 45,315 | 6.17 | % | |||||||||||
| Rent - Related Party | - | 3,683 | (3,683 | ) | -100.00 | % | ||||||||||
| Research and Development | 176,431 | 197,745 | (21,314 | ) | -10.78 | % | ||||||||||
| Total operating expenses | 2,121,343 | 2,759,562 | (638,219 | ) | -23.13 | % | ||||||||||
| Loss from operations | (2,121,343 | ) | (2,759,562 | ) | 638,219 | -23.13 | % | |||||||||
| Interest expense | (609,129 | ) | (660,419 | ) | 51,290 | -7.77 | % | |||||||||
| Amortization of debt issue costs | (1,111,580 | ) | (4,702,918 | ) | 3,591,338 | -76.36 | % | |||||||||
| Net change in unrealized appreciation on investment in gold bullion | 38 | (13,004 | ) | 13,042 | -100.00 | % | ||||||||||
| Gain on debt extinguishment (PPP) | - | 90,100 | (90,100 | ) | -100.00 | % | ||||||||||
| Net Loss | $ | (3,842,014 | ) | $ | (8,045,803 | ) | 4,203,789 | -52.25 | % | |||||||
| 27 |
Net Revenues: During the year ended December 31, 2022, we realized $0 of revenues from our business. During the year ended December 31, 2021, we realized $0 of revenues from our business. Accordingly, there was no change in revenues between the years ended December 31, 2022 and 2021.
Research and development expenses: During year ended December 31, 2022, we incurred $176,431 research and development expenses. During year ended December 31, 2021, we incurred $197,745 of research and development expenses, a decrease of $21,314 or 10.78% compared with the same period in 2021. The research and development expenses are attributable to the research and development with the Notre Dame University; the decrease was due to the timing of research related activity and costs by insources the Company’s research operations.
Professional Fees: During year ended December 31, 2022, we incurred $339,710 professional expenses, which increased by $12,728 or 3.89% from $326,982 for year ended December 31, 2021. The increase in professional fees expense was attributable to increased expenses related to investor relations services during year ended December 31, 2022.
Officers Salary: During year ended December 31, 2022, officers’ salary expenses increased to $779,742 or 6.17% compared to $734,427 for year ended December 31, 2021. The increase is due to contractual terms of employment.
General and Administrative Expense: General and administrative expenses decreased by $671,265 or 44.85% to $825,460 for year ended December 31, 2022 from $1,496,725 for year ended December 31, 2021. Our general and administrative expenses for year ended December 31, 2022 consisted of other general and administrative expenses (which includes expenses such as Auto, Business Development, SEC Filing, Investor Relations, General Office, warrant Compensation) of $416,221, Travel of $25,231, office salary of $259,008, and consulting of $80,000 for a total of $825,460. Our general and administrative expenses for year ended December 31, 2021 consisted of other general and administrative expenses (which includes expenses such as Auto, Business Development, SEC Filing, Investor Relations, General Office, warrant Compensation) of $856,158, Travel of $13,957, office salary of $266,190 for a total of $1,496,725. The primary reason for the decrease in general and administrative expenses comparing the year ended December 31, 2022 to the corresponding period for 2021 was mainly due to warrants issuances and consulting expenses.
Rent – Related Party: During the year ended December 31 2022, rent-related party expense decreased to $0 or 0% compared to $3,683 for the year ended December 31, 2021. The rent-related party expense was attributable to the Company signing an eight-year property lease with the Company’s President on January 23, 2017. On April 5, 2021, the Company ended this lease agreement with its President resulting in the decrease.
Interest Expense: Interest expense decreased to $609,129, or 7.77% for the year ended December 31, 2022 compared to $660,419 for the year ended December 31, 2021. The decrease was primarily due to interest on the related party loans and accounts payable and accrued expenses to the related parties.
Net Change in Unrealized Depreciation on Investment in Gold Bullion: Net change in unrealized appreciation on investment in gold bullion increased by $13,042 to $38 for the year ended December 31, 2022 from depreciation of $13,004 for the year ended December 31, 2021. The increase was primarily due to a net change in unrealized depreciation on investment in gold bullion.
Amortization of original issue and debt discounts: Amortization of original issue and debt discount decreased to $1,111,580, or 76.36% for the year ended December 31, 2022 compared to $4,702,918 for the year ended December 31, 2021. The decrease was primarily due to amortization of original issue and debt discounts on convertible loans.
| 28 |
Net Loss: Net loss decreased by $4,203,789, or 52.25%, to a net loss of $3,842,014 for the year ended December 31, 2022 from a net loss of $8,045,803 for the year ended December 31, 2021. This decrease in net loss was driven primarily by a decrease in warrant compensation, amortization of original issue discount and general administrative fees and slightly offset by an increase in officer’s salary expense.
Capital Resources and Liquidity
Our financial statements have been presented on the basis that we have a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As presented in the financial statements, we incurred a net loss of $3,842,014 during the year ended December 31, 2022, and losses are expected to continue in the near term. The accumulated deficit is $46,657,000 at December 31, 2022. 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.
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 December 31, 2022, we had $3,862,716 of cash 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, total current assets, total assets, total current liabilities and total liabilities as of December 31, 2022 as compared to December 31, 2021, were as follows:
| December 31, 2022 | December 31, 2021 | |||||||
| Cash | $ | 3,862,716 | $ | 2,355,060 | ||||
| Inventory | $ | 6,580 | $ | - | ||||
| Prepaid expenses | $ | 15,665 | $ | 11,055 | ||||
| Deposits | $ | 98,480 | $ | - | ||||
| Total current assets | $ | 3,983,441 | $ | 2,366,115 | ||||
| Total assets | $ | 5,439,867 | $ | 3,021,912 | ||||
| Total current liabilities | $ | 8,072,083 | $ | 8,162,646 | ||||
| Total liabilities | $ | 8,092,780 | $ | 8,317,787 | ||||
At December 31, 2022, we had a working capital deficit of $4,088,642, compared to a working capital deficit of $5,796,531 at December 31, 2021. Current liabilities decreased to $8,072,083 at December 31, 2022 from $8,162,646 at December 31, 2021, primarily as a result of accounts payable and convertible note payable.
| 29 |
For the year ended December 31, 2022, net cash used in operations of $1,887,187 was the result of a net loss of $3,842,014 offset by depreciation expense of $28,103, net change in unrealized appreciation in gold bullions of $38, amortization of debt discount of $1,111,580, warrants issuance of $234,698, imputed interest on related party loans of $80,849, increase in prepaid expenses of $4,610 and a decrease in operating lease right of use of $45,275, an increase of accrued expenses and other payables-related party of $470,448, increase in accounts payable of $138,159 and a decrease in operating lease liabilities of $44,577.
For the year ended December 31, 2021, net cash used in operations of $1,800,809 was the result of a net loss of $8,045,803 offset by depreciation expense of $26,137, gain on debt extinguishment of PPP loan of $90,100, net change in unrealized depreciation in gold bullions of $13,004, stock issued for services of $242,100, loss on disposal of fixed assets of $49,321, amortization of debt discount of $4,702,918, warrants issuance of $600,278, imputed interest on related party loans of $82,851, increase in prepaid expenses of $8,467 and a decrease in operating lease right of use of $90,072, an increase of accrued expenses and other payables-related party of $441,574, increase in accounts payable of $199,723 and a decrease in operating lease liabilities of $104,417.
Net cash used in our investing activities were $5,021 and $547,370 for the years ended December 31, 2022 and 2021, respectively. Our cash outflow of $5,021, is represented by purchase of fixed assets of $5,021.
Our financing activities resulted in a cash inflow of $3,399,864 for the year ended December 31, 2022, which is represented by proceeds from convertible notes payable, net of $2,990, $60 loan repayment and proceeds from a warrant exercise for $739,864.
Our financing activities resulted in a cash inflow of $3,850,985 for the year ended December 31, 2021, which is represented by proceeds from convertible notes payable, net of $3,670,000, $50,000 loan repayment and proceeds from a warrant exercise for $266,332.
Critical Accounting Policies
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, and revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Our significant accounting policies are summarized in Note 1 of our financial statements. While all these significant accounting policies impact its financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our results of operations, financial position or liquidity for the periods presented in this report.
Recent Accounting Pronouncements
Changes to accounting principles are established by the FASB in the form of ASU’s to the FASB’s Codification. We consider the applicability and impact of all ASU’s on our financial position, results of operations, stockholders’ deficit, cash flows, or presentation thereof.
| 30 |
In June 2016, the FASB issued ASU 2016-13 - Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial Instruments. Codification Improvements to Topic 326, Financial Instruments – Credit Losses, have been released in November 2018 (2018-19), November 2019 (2019-10 and 2019-11) and a January 2020 Update (2020-02) that provided additional guidance on this Topic. This guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For SEC filers meeting certain criteria, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. For SEC filers that meet the criteria of a smaller reporting company (including this Company) and for non-SEC registrant public companies and other organizations, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently in the process of its analysis of the impact of this guidance on its financial statements and does not expect the adoption of this guidance to have a material impact on the Company’s financial statements.
In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” This guidance, among other provisions, eliminates certain exceptions to existing guidance related to the approach for intra period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax law. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We adopted this pronouncement on January 1, 2021; however, the adoption of this standard will not have a material effect on the Company’s financial statements.
In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, to reduce complexity in applying U.S. GAAP to certain financial instruments with characteristics of liabilities and equity. ASU 2020-06 is effective for interim and annual periods beginning after December 15, 2023, with early adoption permitted. We adopted this pronouncement on January 1, 2021; however, the adoption of this standard will not have a material effect on the Company’s financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As the Company is a smaller reporting company, this item is not applicable.
| 31 |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CONTENTS
| 32 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Kraig Biocraft Laboratories, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Kraig Biocraft Laboratories, Inc. (the Company) as of December 31, 2022 and 2021, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for each of the years in the two-years ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the two years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered net losses from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are discussed in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB ..
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and the significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Going Concern
Due to the net loss, negative cash flows from operations for the year, and working capital deficiency, the Company evaluated the need for a going concern listed in note 2.
Auditing management’s evaluation of a going concern can be a significant judgment given the fact that the Company uses management estimates on future revenues and expenses, which are not able to be easily substantiated.
We evaluated the appropriateness of the going concern, we examined and evaluated the financial information along with management’s plans to mitigate the going concern and management’s disclosure on going concern.
/s/
We have served as the Company’s auditor since 2013
March 29, 2023
| F-1 |
Kraig Biocraft Laboratories, Inc. and Subsidiary
Consolidated Balance Sheets
| December 31, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Inventory | ||||||||
| Prepaid expenses | ||||||||
| Deposit | ||||||||
| 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 | $ | $ | ||||||
Accounts payable and accrued expenses - related party | ||||||||
| Note payable - related party | ||||||||
Loan payable | ||||||||
| Royalty agreement payable - related party | ||||||||
| Operating lease liability, current | ||||||||
| Convertible
note payable, net of debt discount of $ | ||||||||
| Total Current Liabilities | ||||||||
| Long Term Liabilities | ||||||||
| Loan payable, net of current | ||||||||
| 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 value | ||||||||
| Common Stock Issuable, and shares, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
| F-2 |
Kraig Biocraft Laboratories, Inc. and Subsidiary
Consolidated Statements of Operations
| For the Years Ended | ||||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Revenue | $ | $ | ||||||
| Operating Expenses | ||||||||
| General and Administrative | ||||||||
| Professional Fees | ||||||||
| Officer’s Salary | ||||||||
| Rent - Related Party | ||||||||
| Research and Development | ||||||||
| Total Operating Expenses | ||||||||
| Loss from Operations | ( | ) | ( | ) | ||||
| Other Income/(Expenses) | ||||||||
| Gain on debt extinguishment (PPP) | ||||||||
| Net change in unrealized depreciation on investment in gold bullion | ( | ) | ||||||
| Interest expense | ( | ) | ( | ) | ||||
| Amortization of debt issue costs | ( | ) | ( | ) | ||||
| Total Other Income/(Expenses) | ( | ) | ( | ) | ||||
| Net (Loss) before Provision for Income Taxes | ( | ) | ( | ) | ||||
| Provision for Income Taxes | ||||||||
| Net (Loss) | $ | ( | ) | $ | ( | ) | ||
| Net Income (Loss) Per Share - Basic and Diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of shares outstanding during the period - Basic and Diluted | ||||||||
| F-3 |
Kraig Biocraft Laboratories, Inc. and Subsidiary
Consolidated Statements of Cash Flows
| For the years ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operations | ||||||||
| Depreciation expense | ||||||||
| Gain on debt extinguishment (PPP) | ( | ) | ||||||
| Net change in unrealized appreciation and depreciation in gold bullions | ( | ) | ||||||
| Stock issued for services | ||||||||
| Loss on disposal of fixed assets | ||||||||
| Amortization of debt discount | ||||||||
| Imputed interest - related party | ||||||||
| Warrants issued/(cancelled) to consultants | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) in inventory | ( | ) | ||||||
| (Increase) in prepaid expenses | ( | ) | ( | ) | ||||
| (Increase) in deposits | ( | ) | ||||||
| Operating lease right-of-use, net | ||||||||
| Increase in accrued expenses and other payables - related party | ||||||||
| Increase in accounts payable | ||||||||
| Operating lease liabilities, current | ( | ) | ( | ) | ||||
| Net Cash Used In Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows From Investing Activities: | ||||||||
| Investment in gold bullions | ( | ) | ||||||
| Purchase of Fixed Assets | ( | ) | ( | ) | ||||
| Net Cash Used In Investing Activities | ( | ) | ( | ) | ||||
| Cash Flows From Financing Activities: | ||||||||
| Repayment of notes payable - related party | ( | ) | ||||||
| Proceeds from convertible note payable, net of original issue discount | ||||||||
| Principal payments on debt | ( | ) | ( | ) | ||||
| Proceeds from warrant exercise | ||||||||
| Net Cash Provided by Financing Activities | ||||||||
| Net Increase in Cash | ||||||||
| Cash at Beginning of Year | ||||||||
| Cash at End of Year | $ | $ | ||||||
| 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 | $ | $ | ||||||
| Warrant discount in connection with convertible debt | $ | $ | ||||||
| Adoption of lease standard ASC 842 | $ | $ | ||||||
| Cancellation and forgiveness of lease - related party | $ | $ | ||||||
| Cancellation and forgiveness of lease | $ | $ | ||||||
| Shares issued in connection with convertible note payable | $ | $ | ||||||
| F-4 |
Kraig Biocraft Laboratories, Inc. and Subsidiary
Consolidated Statement of Changes in Stockholders’ Deficit
For the years ended December 31, 2022 and 2021
| 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, December 31, 2020 (Audited) | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Warrants issued for services - related parties | - | $ | - | $ | $ | - | $ | $ | - | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Warrants issued for services | - | $ | - | $ | $ | - | $ | $ | - | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Common stock issued for services | - | $ | $ | $ | - | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
| Cancellations of warrants | - | $ | - | $ | $ | - | $ | $ | - | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||||||
| Exercise of warrants in exchange for stock | - | $ | $ | $ | - | $ | $ | - | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||||
| Convertible
debt conversion into common stock ($ | - | $ | $ | $ | - | $ | $ | - | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Contributed capital - related party | - | $ | - | $ | $ | - | $ | $ | - | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Imputed interest - related party | - | $ | - | $ | $ | - | $ | $ | - | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Beneficial conversion feature | - | $ | - | $ | $ | - | $ | $ | - | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Net loss for the years ended December 31, 2021 | - | $ | - | $ | $ | - | $ | $ | - | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| 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 | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Warrant discount | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Net loss for the years ended December 31, 2022 | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 (Audited) | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| F-5 |
Kraig Biocraft Laboratories, Inc.
Notes to Consolidated Financial Statements as of December 31, 2022 and 2021
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
Organization
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.
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
The Company considers all highly liquid investments with original maturities of three months
or less at the time of purchase to be cash equivalents. There were
| F-6 |
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 December 31, 2022 and December 31, 2021, warrants were not included in the computation of income/ (loss) per share because their inclusion is anti-dilutive.
SCHEDULE OF ANTIDILUTIVE SECURITIES OF EARNINGS PER SHARE
| December 31, 2022 | December 31, 2021 | |||||||
| Stock Warrants (Exercise price - $- $/share) | ||||||||
| Stock Options (Exercise price - $/Share) | ||||||||
| Convertible Debt | ||||||||
| Convertible Preferred Stock | ||||||||
| Total | ||||||||
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 the years ended December 31, 2022 and 2021, the Company had $
Advertising Expense
The Company follows the policy of charging the costs of advertising to expense as incurred. There was no advertising expense in the years ended December 31, 2022 and 2021.
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.
SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES
| 2022 | 2021 | |||||||
| Expected income tax (recovery) expense at the statutory rate of | $ | ( | ) | $ | ( | ) | ||
| Tax effect of expenses that are not deductible for income tax purposes (net of other amounts deductible for tax purposes) | ||||||||
| Change in valuation allowance | ||||||||
| Provision for income taxes | $ | $ | ||||||
The components of deferred income taxes are as follows:
SCHEDULE OF COMPONENTS DEFERRED INCOME TAXES
| Years Ended December, | ||||||||
| 2022 | 2021 | |||||||
| Deferred tax liability: | $ | $ | ||||||
| Deferred tax asset | ||||||||
| Net Operating Loss Carryforward | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax asset | ||||||||
| Net deferred tax liability | $ | $ | ||||||
| F-7 |
The valuation allowance was established to reduce the deferred tax asset to the amount that will more likely than not be realized. This is necessary due to the Company’s continued operating losses and the uncertainty of the Company’s ability to utilize all of the net operating loss carryforwards before they will expire through the year 2041.
The
net change in the valuation allowance for the year ended December 31, 2022 and 2021 was an increase of $
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.
Recent Accounting Pronouncements
Changes to accounting principles are established by the FASB in the form of ASU’s to the FASB’s Codification. We consider the applicability and impact of all ASU’s on our financial position, results of operations, stockholders’ deficit, cash flows, or presentation thereof. Management has evaluated all recent accounting pronouncements as issued by the FASB in the form of Accounting Standards Updates (“ASU”) through the date these financial statements were available to be issued and found no recent accounting pronouncements issued, but not yet effective accounting pronouncements, when adopted, will have a material impact on the financial statements of the Company.
In September 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Measurement of Credit Losses on Financial Instruments, which supersedes current guidance by requiring recognition of credit losses when it is probable that a loss has been incurred. The new standard requires the establishment of an allowance for estimated credit losses on financial assets including trade and other receivables at each reporting date. The new standard will result in earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842), which extends the effective date of Topic 326 for certain companies until fiscal years beginning after December 15, 2022. The new standard will be effective for the Company in the first quarter of fiscal year beginning January 1, 2023, and early adoption is permitted. We adopted this pronouncement on January 1, 2021; however, the adoption of this standard did not have a material effect on the Company’s financial statements.
| F-8 |
In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” This guidance, among other provisions, eliminates certain exceptions to existing guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax law. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We adopted this pronouncement on January 1, 2021; however, the adoption of this standard did not have a material effect on the Company’s financial statements. However, based on the Company’s history of immaterial credit losses from trade receivables, management does not expect that the adoption of this standard will have a material effect on the Company’s financial statements.
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, 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.
| F-9 |
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 December 31, 2022 and 2021. | |
| ● | 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. |
SCHEDULE OF FAIR VALUE OF FINANCIAL INSTRUMENTS
| December 31, 2022 | December 31, 2021 | |||||||
| Level 1 – Investment in Gold | $ | $ | ||||||
| Level 2 | $ | $ | ||||||
| Level 3 | $ | $ | ||||||
| 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 following tables summarize activity in gold bullion for the quarter ended December 31, 2022:
SCHEDULE OF GOLD IN BULLION
| Year Ended December 31, 2022 | Ounces | Cost | Fair Value | |||||||||
| Beginning balance | $ | $ | ||||||||||
| Investment in Gold bullion | ||||||||||||
| Net change in unrealized loss | ( | ) | ||||||||||
| Balance December 31, 2021 | $ | $ | ||||||||||
| Net change in unrealized gain | ||||||||||||
| Balance December 31, 2022 | $ | $ | ||||||||||
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 years ended December 31, 2022 and 2021, the Company recognized $ and $ respectively in revenue.
Concentration of Credit Risk
The
Company at times has cash in banks in excess of FDIC insurance limits. At December 31, 2022 and December 31, 2021, the Company had approximately
$
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.
| F-10 |
Deposit
During the year ended December 31, 2022, the Company paid $
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.
NOTE 3 EQUIPMENT
At December 31, 2022 and December 31, 2021, property and equipment, net, is as follows:
SCHEDULE OF PROPERTY AND EQUIPMENT
| December 31, 2022 | December 31, 2021 | Estimated Useful Lives (Years) | ||||||||
| Automobile | $ | $ | ||||||||
| Laboratory Equipment | ||||||||||
| Office Equipment | ||||||||||
| Leasehold Improvements | ||||||||||
| Less: Accumulated Depreciation | ( | ) | ( | ) | ||||||
| Total Property and Equipment, net | $ | $ | ||||||||
Depreciation
expense for the years ended December 31, 2022 and 2021, was $
NOTE 4 - RIGHT TO USE ASSETS AND LEASE LIABILITITY
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 f. 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.
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
January 23, 2017 the Company signed an
| F-11 |
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 December 31, 2022;
At December 31, 2022 and 2021, the Company had no financing leases as defined in ASC 842, “Leases.”
SCHEDULE OF OPERATING LEASES
December 31, 2022 | December 31, 2021 | |||||||
| Assets | ||||||||
| Operating lease - right-of-use asset - non-current | $ | $ | ||||||
| Liabilities | ||||||||
| Operating lease liability | $ | $ | ||||||
| Weighted-average remaining lease term (years) | ||||||||
| 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 | $ | $ | ||||||
Future minimum lease payments required under leases that have initial or remaining non-cancelable lease terms in excess of one year at December 31, 2022:
SCHEDULE OF MINIMUM LEASE PAYMENTS
| 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
On
June 6, 2016, the Company received a $
| F-12 |
On
January 26, 2022, the Company repaid $
Total
loan payable to principal stockholder for as of December 31, 2022 is $
Total
loan payable to this principal stockholder as of December 31, 2021 is $
During
the year ended December 31, 2022, the Company recorded $
During
the year ended December 31, 2021, 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 is $
| 1. | $ |
| 2. | Final
payment of the remaining balance in the amount of $ |
NOTE 7 CONVERTIBLE NOTES
The
Company issued a $
Additionally,
the Company issued
SCHEDULE OF FAIR VALUE WARRANTS
| Stock Price | $ | |||
| Exercise price | $ | |||
| Expected term (in years) | ||||
| Expected volatility | % | |||
| Annual rate of quarterly dividends | % | |||
| Risk free interest rate | % |
| F-13 |
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.
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 $
| F-14 |
The
Company issued a $
Additionally,
the Company issued
| Stock Price | $ | |||
| Exercise 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 $
As of December 31, 2022, the above three notes were fully converted, with the no remaining balance due.
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
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 $
| F-15 |
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 $
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 $
The following represents a summary of the Company’s convertible debt at December 31, 2022:
SUMMARY OF CONVERTIBLE DEBT
Convertible Note Payable
| Amounts | In-Default | |||||||
| Balance – December 31, 2020 | $ | |||||||
| Proceeds | ||||||||
| Debt discount recorded | ( | ) | ||||||
| Conversion of debt into common shares | ( | ) | ||||||
| Amortization of debt discount | ||||||||
| 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 | $ | $ | ||||||
| F-16 |
Accrued Interest Payable
| Amounts | In-Default | |||||||
| Balance – December 31, 2020 | $ | |||||||
| Interest Expense 2021 | ||||||||
| Interest conversion into common shares | ( | ) | ||||||
| Balance – December 31, 2021 | $ | |||||||
| Interest Expense December 31, 2022 | - | |||||||
| Interest conversion into common shares | ( | ) | ||||||
| Balance – December 31, 2022 | $ | $ | ||||||
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 $ |
On March 2, 2021, the Company determined to amend and extend the expiration of the warrants expiring on March 8, 2021 as follows:
| ● | ||
| ● | ||
| ● | ||
| ● | ||
| ● |
On
March 2, 2021, the Company issued shares of Common stock in connection with the exercise of
On
May 4, 2021, the Company issued shares of Common stock in connection with the exercise of
On
December 6, 2021, 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
February 15, 2022, the Company issued shares of Common stock in connection with the
exercise of
| F-17 |
(B) Common Stock Issued for Services
Shares issued for services as mentioned below were valued at the closing price of the stock on the date of grant.
On
September 3, 2021, the Company issued shares of its class A common stock for services with a fair value of $
(C) Common Stock Warrants and Options
On March 5, 2021, the Company issued shares of Common stock in connection with the cashless exercise of warrants.
On
March 2, 2021, the Company issued shares of Common stock in connection with the exercise of
On
May 4, 2021, the Company issued shares of Common stock in connection with the exercise of
On
December 6, 2021, 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
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 year ended December 31, 2022, the Company recorded $ as an expense for options issued.
| Expected dividends | % | |||
| Expected volatility | % | |||
| Expected term | years | |||
| Risk free interest rate | % | |||
| Expected forfeitures | % |
| F-18 |
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 year ended December 31, 2022, the Company recorded $ as an expense for options issued
| Expected dividends | % | |||
| Expected volatility | % | |||
| Expected term | years | |||
| Risk free interest rate | % | |||
| Expected forfeitures | % |
Warrant activity for the years ended December 31, 2022 and 2021 are summarized as follows:
SCHEDULE OF WARRANTS ACTIVITY
| Weighted | ||||||||||||||||
| Average | ||||||||||||||||
| Weighted | Remaining | Aggregate | ||||||||||||||
| Warrants | Number of Warrants | Average Exercise Price | Contractual Term (Years) | Intrinsic Value | ||||||||||||
| Outstanding - December 31, 2020 | $ | $ | ||||||||||||||
| Exercisable - December 31, 2020 | $ | $ | ||||||||||||||
| Granted | $ | - | ||||||||||||||
| Exercised | ( | ) | $ | - | ||||||||||||
| Cancelled/Forfeited | ( | ) | $ | - | - | |||||||||||
| Outstanding - December 31, 2021 | $ | $ | ||||||||||||||
| Exercisable - December 31, 2021 | $ | $ | ||||||||||||||
| Granted | $ | - | ||||||||||||||
| Exercised | ( | ) | $ | - | - | |||||||||||
| Cancelled/Forfeited | $ | - | - | |||||||||||||
| Outstanding - December 31, 2022 | $ | $ | ||||||||||||||
| Exercisable - December 31, 2022 | $ | $ | ||||||||||||||
For the year ended December 31, 2022, the following warrants were outstanding:
SCHEDULE OF WARRANTS OUTSTANDING
| Exercise Price Warrants Outstanding | Warrants Exercisable | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| F-19 |
For the year ended December 31, 2021, the following warrants were outstanding:
| Exercise Price Warrants Outstanding | Warrants Exercisable | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
Options activity for the years ended December 31, 2022 and 2021 are summarized as follows:
SCHEDULE OF OPTIONS ACTIVITY
| Options | Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||
| Outstanding - December 31, 2020 | $ | $ | ||||||||||||||
| Exercisable - December 31, 2020 | $ | $ | ||||||||||||||
| Granted | $ | |||||||||||||||
| Exercised | ( | ) | $ | |||||||||||||
| Cancelled/Forfeited | ( | ) | $ | |||||||||||||
| Outstanding - December 31, 2021 | $ | $ | ||||||||||||||
| Exercisable - December 31, 2021 | $ | $ | ||||||||||||||
| Granted | $ | - | - | |||||||||||||
| Exercised | $ | - | - | |||||||||||||
| Cancelled/Forfeited | ( | ) | $ | |||||||||||||
| Outstanding - December 31, 2022 | $ | $ | ||||||||||||||
| Exercisable - December 31, 2022 | $ | $ | ||||||||||||||
SCHEDULE OF OPTIONS OUTSTANDING
| Weighted Average | ||||||||||||||
| Exercise | Options | Options | Remaining | |||||||||||
| Price | Outstanding | Exercisable | Contractual Life (in Years) | |||||||||||
| $ | ||||||||||||||
For the year ended December 31, 2021, the following options were outstanding:
| Weighted Average | ||||||||||||||
| Exercise | Options | Options | Remaining | |||||||||||
| Price | Outstanding | Exercisable | Contractual Life (in Years) | |||||||||||
| $ | ||||||||||||||
(D) 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
(E) Common Stock Issued for Debt
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 $
| F-20 |
On
November 1, 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 17, 2022, the Company issued shares of Common Stock in exchange for conversion of $
As of November 17, 2022, the Company has satisfied all debentures to Yorkville Advisors.
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 $
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 $
| F-21 |
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 $
On
April 23, 2021, the Company issued shares of Common Stock in exchange for conversion of $
On
April 26, 2021, the Company issued shares of Common Stock in exchange for conversion of $
On
April 30, 2021, the Company issued shares of Common Stock in exchange for conversion of $
On
June 7, 2021, the Company issued shares of Common Stock in exchange for conversion of $
On
June 23, 2021, the Company issued shares of Common Stock in exchange for conversion of $
On
July 6, 2021, the Company issued shares of Common Stock in exchange for conversion of $
On
July 20, 2021, the Company issued shares of Common Stock in exchange for conversion of $
On
July 29, 2021, the Company issued shares of Common Stock in exchange for conversion of $
On
August 16, 2021, the Company issued shares of Common Stock in exchange for conversion of $
On
August 23, 2021, the Company issued shares of Common Stock in exchange for conversion of $
On
August 30, 2021, the Company issued shares of Common Stock in exchange for conversion of $
On
September 8, 2021, the Company issued shares of Common Stock in exchange for conversion of $
On
September 14, 2021, the Company issued shares of Common Stock in exchange for conversion of $
On
September 20, 2021, the Company issued shares of Common Stock in exchange for conversion of $
| F-22 |
On
October 4, 2021, the Company issued shares of Common Stock in exchange for conversion of $
On
October 12, 2021, the Company issued shares of Common Stock in exchange for conversion of $
On
October 25, 2021, the Company issued shares of Common Stock in exchange for conversion of $
On October 28, 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 (See Note 7).
On
November 10, 2021, the Company issued shares of Common Stock in exchange for conversion of $
On
November 22, 2021, the Company issued shares of Common Stock in exchange for conversion of $
On
December 6, 2021, the Company issued shares of Common Stock in exchange for conversion of $
On
December 21, 2021, 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.
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 $
| F-23 |
As
of December 31, 2022 and December 31, 2021, 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 $
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 $
| F-24 |
(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 $
On
January 23, 2017 the Company signed an
NOTE 10 RELATED PARTY TRANSACTIONS
Accounts payable and accrued expenses – related party consists of the following:
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES RELATED PARTY
| As of | As of | |||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Accounts payable - related party | $ | $ | ||||||
| Accrued expenses - related party | ||||||||
| Accrued interest - related party | ||||||||
| Total accounts payable and accrued expenses - related party | $ | $ | ||||||
| F-25 |
June
6, 2016, the Company received a $
On
January 26, 2022, the Company repaid $
Total
loan payable to principal stockholder for as of December 31, 2022 is $
Total
loan payable to this principal stockholder as of December 31, 2021 is $
During
the year ended December 31, 2022, the Company recorded $
During
the year ended September 30, 2021, the Company recorded $
On
January 23, 2017, the Company signed an
As of December 31, 2022, and December 31, 2021, there was $
As of December 31, 2022, and December 31, 2021, there was $
As of December 31, 2022, and December 31, 2021, there was $
In aggregate as of December 31, 2022, and December 31, 2021, the Company
owed $
NOTE 11 SUBSEQUENT EVENTS
The Company has analyzed its operations subsequent to March 29, 2023 through the date these financial statements were issued, and has determined that, other than disclosed below, it does not have any material subsequent events to disclose.
On February 16, 2023, the Company issued shares of Common Stock in exchange for the cashless exercise of warrants.
| F-26 |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of December 31, 2022. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are not effective as of December 31, 2022, to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting.
Our Chief Executive Officer, as the principal executive officer (chief executive officer) and principal financial officer (chief financial officer), is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) or 15d-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, our internal controls and procedures may not prevent or detect misstatements. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. 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. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022. The framework used by management in making that assessment was the criteria set forth in the document entitled “ Internal Control – Integrated Framework” (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, our management has determined that as of December 31, 2022, the Company’s internal control over financial reporting was not effective for the purposes for which it is intended based on the following material weaknesses:
| – | Lack of internal audit function. During 2021, the Company, upon review of the independent auditors, made some adjustments to its financial statements, including, adjusting salary amounts and the related tax accruals, correcting warrant expense for a warrant issued to a related party, and adding the liability due to our attorney that should have been recorded. Management believes that the foregoing is due to the fact that the Company lacks qualified resources to perform the internal audit functions properly and that the scope and effectiveness of the internal audit function are yet to be developed. Specifically, the reporting mechanism between the accounting department and the Board of Directors and the CEO was not effective, therefore resulting in the delay of recording and reporting. |
| – | No Segregation of Duties Ineffective controls over financial reporting: As of December 31, 2022, we had no full-time employees with the requisite expertise in the key functional areas of finance and accounting. As a result, there is a lack of proper segregation of duties necessary to insure that all transactions are accounted for accurately and in a timely manner. |
| 33 |
| – | Lack of a functioning audit committee: Due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, and no audit committee has been elected, the oversight in the establishment and monitoring of required internal controls and procedures is inadequate. |
| – | Written Policies & Procedures: Due to lack of written policies and procedures for accounting and financial reporting, the Company did not establish a formal process to close our books monthly and account for all transactions. |
| – | Lack of controls over related party transactions: As of December 31, 2022, the Company did not establish a formal written policy for the approval, identification and authorization of related party transactions. |
We are developing a plan to ensure that all information will be recorded, processed, summarized and reported accurately, and as of the date of this report, we have hired a payroll service firm to manage all payroll functions including tax withholdings. We will take the following steps to address the above-referenced material weaknesses in our internal control over financial reporting:
| 1. | We will continue to educate our management personnel to increase its ability to comply with the disclosure requirements and financial reporting controls; and |
| 2. | We will increase management oversight of accounting and reporting functions in the future; and |
| 3. | As soon as we can raise sufficient capital or our operations generate sufficient cash flow, we will hire personnel to handle our accounting and reporting functions. |
While the first two steps of our remediation process are ongoing, 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 (and, therefore, may have sufficient cash flow for hiring personnel to handle our accounting and reporting functions).
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the SEC that permit us to provide only management’s report in this report.
Changes in Internal Control over Financial Reporting
No change in our system of internal control over financial reporting occurred during the fourth quarter of the fiscal year ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Our executive officers and sole director as of the date of this report are as follows:
| NAME | AGE | POSITION | DATE APPOINTED | |||
| Kim Thompson | 61 | President, Chief Executive Officer, Chief Financial Officer and Director | April 25, 2006 | |||
| Jonathan R. Rice | 43 | Chief Operating Officer | January 20, 2015 | |||
| Kenneth Le | 59 | President of Prodigy Textiles | July 2019 |
The following summarizes the occupation and business experience during the past five years for our officers and sole director.
| 34 |
KIM THOMPSON
Mr. Kim Thompson was a founder of the California law firm of Ching & Thompson, which was established in 1997. His work focused primarily on commercial litigation. He has been a founder and partner in the Illinois law firm of McJessy, Ching & Thompson, where he also emphasizes commercial and civil rights litigation. In his civil rights practice, Mr. Thompson was, and remains a staunch defender of constitutional rights with a focus on freedom of speech, Fourth Amendment protections, and combating racial discrimination. Prior to founding Kraig Labs, Mr. Thompson joined the firm of Shearson, Lehman, Hutton where he specialized in equity trading and research of small-cap companies. His experience in those small-cap equity markets has proven to be invaluable both in his legal and business successes. Mr. Thompson received his bachelor’s degree in applied economics from James Madison College, Michigan State University, and his Juris Doctorate from the University of Michigan. Mr. Thompson is a member of the Triple Nine Society for persons with documented genius level IQs (having tested above the 99.9th percentile). He is the named inventor or co-inventor on a number of issued patents, pending patent applications, and provisional patent applications, including inventions relating to biotechnology and mechanics. Mr. Thompson is the inventor of the technology concept that led to the formation of the Company. For his efforts in disrupting the textile markets, Mr. Thompson was recognized as one of the top 20 Pioneering CEO’s of 2019. We believe that Mr. Thompson is well suited to serve as our director because of his knowledge of biotechnology, legal expertise, and business background.
JONANTHAN R. RICE
Jonathan R. Rice had worked at Ultra Electronics, Adaptive Materials Inc., a Michigan company (“UEA”) since 2002. At UEA, he worked as the Director of Advanced Technologies, where he was responsible for new products development and commercialization. He was also the Corporate Facility Security Officer for UEA since 2006, where Mr. Rice ensured UEA’s compliance with federal regulations under the National Industrial Security Program Operating Manual and completed its annual security audit. During 2004 through 2007 while working as an Engineering Manager at UEA, Mr. Rice, among other things, led the design and development of multiple fuel cell and power management systems, established a team to identify and eliminate production and performance limitation, authored technical progress and final reports for customers and provided training to military personnel on use of fuel cell systems. From 2002 through 2005, Mr. Rice had also served as UEA’s Production Manager in charge of developing manufacturing process and techniques and sourcing the production equipment for UEA’s products. Mr. Rice graduated from Michigan Technological University in 2002 with a degree of Bachelors of Science Chemical Engineering. Mr. Rice received his Masters of Business Administration at Michigan State University in 2016.
KENNETH LE
Mr. Le was appointed as our Director of government relations and the President of Prodigy Textiles in July 2019. In light of his position with our subsidiary and the duties associated with such position, we believe Mr. Le meets the definition of “executive officer” as such term is defined in the Exchange Act. Kenneth Le has over 25 years of successful international business experience specializing in entrepreneurial enterprises. As previous managing partner of Pacific Bay Ventures, Mr. Le worked on a joint venture developing 1,550 hectares as a mixed use residential industrial park in conjunction with Dat Quang Chu Lai Industrial Park, JSP in Tam An city in Chu Lai province, Vietnam’s first international open economic trade zone. He was Managing Director of Minh Nhat Company which was developing Da Deh Lake, an eco-resort of over 500 hectares in a surrounded lake in the Lam Dong province, the third and the largest plateau province on the Central Highlands three hours outside of Ho Chi Minh City in Vietnam. Mr. Le has extensive high-level business contacts in Southeast Asia, many of which he has helped bring together acting as international liaison. Management believes that Mr. Le’s work has been instrumental in helping the Company establish and grow its operations in Southeast Asia.
Term of Office
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board. Mr. Thompson is employed as the CEO and CFO of the company pursuant to a five year employment contract.
| 35 |
Our sole director was appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
Involvement in Certain Legal Proceedings
To the best of the Company’s knowledge, none of the following events occurred during the past ten years that are material to an evaluation of the ability or integrity of any of our executive officers, directors or promoters:
(1) A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
(2) Convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
(3) Subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:
(i) Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
(ii) Engaging in any type of business practice; or
(iii) Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
(4) Subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described y such activity;
(5) Found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;
(6) Found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
(7) Subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
(i) Any Federal or State securities or commodities law or regulation; or
(ii) Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
(iii) Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
(8) Subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S. C 78c(a)(26)), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Committees
Our board of directors has not established any committees, including an audit committee, a compensation committee, a nominating committee or any committee performing a similar function. The functions of those committees are being undertaken by our sole Board member. Because we have only one director and do not have any independent directors, the establishment of committees of the Board of Directors would not provide any benefits to our company and could be considered more form than substance. In addition, we do not have an “audit committee financial expert,” because our sole director does not qualify as such within the applicable definition of the Securities and Exchange Commission.
| 36 |
Meetings of the Board of Directors
During its fiscal year ended December 31, 2022, the Board of Directors did not meet on any occasion, but rather transacted business by unanimous written consent.
Code of Ethics
The Company has adopted a Code of Ethics applicable to its Chief Executive Officer and Chief Financial Officer. This Code of Ethics was previously filed as an exhibit to our annual report on Form 10-KSB on March 26, 2008 and has been included in this annual report as Exhibit 14.1.
Corporate Governance
The business and affairs of the Company are managed under our sole board member. In addition to the contact information in this annual report, each stockholder will be given specific information on how he/she can direct communications to the officers and directors of the Company at our annual stockholders meetings. All communications from stockholders are relayed to the board of member.
Family Relationships
There are no family relationships by between or among the members of the Board or other executive officers of the Company.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officer during the years ended December 31, 2022 and 2021 in all capacities for the accounts of our executive, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO):
During the period the Company’s staff was furloughed (March 19, 2020 – June 30, 2020), due to the COVID pandemic, the CEO did not receive or accrue any salary.
SUMMARY COMPENSATION TABLE
| Name and principal position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||||
| Kim Thompson President, CEO, CFO and Director | 2022 | $ | 424,517 | (1) | $ | 84,5129 | (2) | $ | - | $ | - | $ | - | $ | 43,373 | (3) | $ | 552,402 | ||||||||||||||||||
| 2021 | $ | 398,643 | (4) | $ | 79,729 | (5) | $ | - | $ | - | $ | - | $ | 42,050 | (6) | $ | 520,422 | |||||||||||||||||||
| Jonathan R. Rice COO | 2022 | $ | 180,000 | (7) | $ | 30,000 | (8) | $ | - | $ | - | $ | - | $ | - | $ | 3,960 | (9) | $ | 214,496 | ||||||||||||||||
| 2021 | $ | 180,000 | (10) | $ | - | (11) | $ | - | $ | - | $ | - | $ | - | $ | 4,040 | (12) | $ | 184,040 | |||||||||||||||||
| Kenneth Le President of Prodigy Textiles(13) | 2021 | $ | 60,000 | (14) | $ | - | $ | - | $ | - | $ | - | $ | -0 | $ | - | $ | 60,000 | ||||||||||||||||||
| 2020 | $ | 60,000 | (14) | $ | - | $ | - | $ | - | $ | - | $ | -0 | $ | - | $ | 60,000 | |||||||||||||||||||
| (1) | This represents the annual salary payable to Mr. Thompson pursuant to the then current terms of his employment agreement. See the section, “Employment Agreements” below for additional information regarding certain accruals and deferrals regarding Mr. Thompson’s compensation. |
| (2) | This represents the annual bonus payable to Mr. Thompson pursuant to the then current terms of his employment agreement. See the section, “Employment Agreements” below for additional information regarding certain accruals and deferrals regarding Mr. Thompson’s compensation. . |
| 37 |
| (3) | This amount includes: $41,488 in medical insurance and medical reimbursement we agreed to cover for Mr. Thompson pursuant to his employment agreement and $1,925 in reimbursement for office and travel related expenses. |
| (4) | This represents the annual salary payable to Mr. Thompson pursuant to the then current terms of his employment agreement. See the section, “Employment Agreements” below for additional information regarding certain accruals and deferrals regarding Mr. Thompson’s compensation. . |
| (5) | This represents the annual bonus payable to Mr. Thompson pursuant to the then current terms of his employment agreement. See the section, “Employment Agreements” below for additional information regarding certain accruals and deferrals regarding Mr. Thompson’s compensation. . |
| (6) | This amount includes: $37,072 in medical insurance and medical reimbursement we agreed to cover for Mr. Thompson pursuant to his employment agreement and $4,978 in reimbursement for office and travel related expenses. |
| (7) | This represents the annual salary paid to Mr. Rice pursuant to the then current terms of his employment agreement. In 2022, Mr. Rice’s annual base salary was $180,000. In addition to his annual base salary Mr. Rice was reimbursed for $3,000 in medical insurance premiums and $960 in phone service expenses, pursuant to his employment agreement recorded and reported under “all other compensation”. |
| (8) | This represents the annual bonus payable to Mr. Rice pursuant to the then current terms of his employment agreement. |
| (9) | In 2022, Mr. Rice received $3,000 in medical insurance and medical reimbursement and $960 in phone service expenses, pursuant to his employment agreement. |
| (10) | This represents the annual salary paid to Mr. Rice pursuant to the then current terms of his employment agreement. In 2020, Mr. Rice’s annual base salary was $180,000. In addition to his annual base salary Mr. Rice was reimbursed for $3,000 in medical insurance premiums and $1,040 in phone service expenses, pursuant to his employment agreement recorded and reported under “all other compensation”. |
| (11) | This represents the annual bonus payable to Mr. Rice pursuant to the then current terms of his employment agreement. |
| (12) | In 2021, Mr. Rice received $3,000 in medical insurance and medical reimbursement and $1,040 in phone service expenses, pursuant to his employment agreement. |
| (13) | This represents the annual salary paid to Mr. Le pursuant to the then current terms of his employment agreement. |
| (14) | This represents the annual salary paid to Mr. Le pursuant to the then current terms of his employment agreement. |
Employment Agreements
CEO
On November 10, 2010, the Company entered into an employment agreement with Kim Thompson, its President, Chief Executive Officer, Chief Financial Officer and sole director, effective January 1, 2011 through the December 31, 2015. The agreement was for a term of five years at an annual salary of $210,000 in 2011, with a 6% annual increase thereafter. For the year ended December 31, 2015, the annual salary was $281,027, but in light of the Company’s cash position, Mr. Thompson deferred such compensation. On January 1, 2016, the agreement was renewed with the same terms for another 5 years with an annual salary of $297,889 for the year ended December 31, 2016, but in light of the Company’s cash position, Mr. Thompson deferred such compensation. On January 1, 2017, the agreement renewed with the same terms for another 5 years, but with an annual salary of $315,764 for the year ended December 31, 2017, but in light of the Company’s cash position, Mr. Thompson deferred such compensation. On January 1, 2018, the agreement renewed again with the same terms for another 5 years, but with an annual salary of $334,708 for the year ended December 31, 2018, but in light of the Company’s cash position, Mr. Thompson deferred such compensation. On January 1, 2019, the agreement renewed again with the same terms for another 5 years, but with an annual salary of $354,791 for the year ended December 31, 2019. On January 1, 2020, the agreement renewed again with the same terms for another 5 years, but with an annual salary of $376,078 for the year ended December 31, 2020. On January 1, 2021, the agreement renewed again with the same terms for another 5 years, but with an annual salary of $422,561 for the year ended December 31, 2022. As of December 31, 2022, the accrued salary balance is $3,077,393. See, “Certain Relationships And Related Transactions, And Director Independence - Accrued Salaries and Officer Loans – Mr. Thompson, CEO/President.”
Base pay will be increased each January 1st, for the subsequent twelve month periods by 6%. Mr. Thompson will also be entitled to life, disability, health and dental insurance as well as an annual bonus in an amount equal to 20% of the base salary. In light of the Company cash position, Mr. Thompson declined the life and disability insurance.
The agreement also calls for the retention of the executive as a consultant following the termination of employment with compensation during such consultancy based upon the Company reaching certain milestones:
| 38 |
Upon the expiration or termination of this agreement for any reason, or by either party, Company agrees that it will employ Executive as a consultant for a period of four (4) years and at a rate of $4,500 per month.
| (a) | In the event that Company achieves gross sales of five million dollars ($5,000,000) or more, or one million dollars ($1,000,000) or more in net income, in any year during the term of this agreement, or upon the Company’s achieving an average market capitalization over a 240 consecutive calendar day period, in excess of $70,000,000 during the term of this agreement, then the consulting period will be for five (5) years and the consulting rate will be increased to $5,500 per month. |
| (b) | In the event that Company achieves gross sales of ten million dollars ($10,000,000) or more, or two million dollars ($2,000,000) or more in net income, in any year during the term of this agreement, or upon the Company’s achieving an average market capitalization over a 240 consecutive calendar day period, in excess of $90,000,000 during the term of this agreement, then the consulting period will be for six (6) years and the consulting rate will be increased to $7,500 per month. |
COO
On January 20, 2015, the Company entered into an at-will employment agreement with Mr. Jonathan R. Rice, its Chief Operating Officer (the “2015 COO Employment Agreement”). Although the 2015 COO Employment Agreement has been superseded (as described below), on January 23, 2015, Mr. Rice was issued a three-year warrant to purchase 2,000,000 shares of common stock of the Company at an exercise price of $0.001 per share pursuant to the COO Employment Agreement (the “January 2015 Warrant”) and on May 28, 2015, the Company issued a three-year warrant to purchase 3,000,000 shares of common stock of the Company at an exercise price of $0.001 per share (the “May 2015 Warrant”). The May 2015 share warrant fully vested on October 28, 2016 and will expire on May 28, 2022. For the twelve months ended December 31, 2015, the Company recorded $121,448 for the warrants issued to Mr. Rice.
On January 14, 2016, the Company entered into a new at-will employment agreement with Mr. Rice (the “2016 COO Employment Agreement”). The 2016 COO Employment Agreement had a term of one year and can be terminated by either the Company or Mr. Rice at any time. Under the 2016 COO Employment Agreement, Mr. Rice is entitled to an annual cash compensation of $140,000, which includes salary, health insurance, 401K retirement plan contributions, and other benefits. In addition, on March 30, 2016, Mr. Rice was issued a three-year warrant to purchase 6,000,000 shares of common stock of the Company at an exercise price of $0.001 per share pursuant to the 2016 COO Employment Agreement; this warrant fully vested on February 20, 2017 and will expire on May 20, 2026. Additionally, on August 4, 2016, the Company approved a performance retention bonus to Mr. Rice of $20,000 which was paid in 2021. For the twelve months ended December 31, 2022, the Company recorded $0 for the warrants issued to related party.
The Company extended the 2016 COO Employment Agreement to a term ending on January 31, 2019. On March 25, 2019, the Company signed an extension of its at-will employment agreement with its COO, extending the term to January 31, 2020. On May 19, 2020, the Company signed an extension of its at-will employment agreement with its COO, extending the term to January 31, 2021. On March 5, 2021, the Company signed an extension of its at-will employment agreement with its COO, extending the term to January 1, 2022. On February 24, 2022, the Company signed an extension of its at-will employment agreement with its COO, extending the term to January 1, 2023. The COO Employment Agreement can be terminated by either the Company or Mr. Rice at any time. For the twelve months ended December 31, 2022, the Company recorded $0 for the warrants issued to related party.
On January 9, 2018, the Company extended the expiration date of the January 2015 Warrant from January 19, 2018 to January 31, 2020. On January 10, 2020, the Company extended the expiration date of the January 2015 Warrant from January 31, 2020 to January 10, 2025.
On April 26, 2019, the Company signed an agreement to increase Mr. Rice’s base salary by $20,000 per year and issue a one-time $20,000 bonus.
On October 21, 2019, the Company signed another agreement to increase Mr. Rice’s base salary by another $20,000 per year (effective August 15, 2019).
On August 8, 2019, Mr. Rice was issued a set of three five-year warrants to purchase a total of 6,000,000 shares of common stock of the Company at an exercise price of $0.2299 per share pursuant to his employment agreement.
| 39 |
Compensation of Directors
Directors are permitted to receive fixed fees and other compensation for their services as directors. The Board of Directors has the authority to fix the compensation of directors. No amounts have been paid to, or accrued to, directors in such capacity.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding the beneficial ownership of our Common Stock and Series A Preferred Stock as of the date hereof by (a) each stockholder who is known to us to own beneficially 5% or more of our outstanding Common Stock, (b) directors, (c) our executive officers, and (d) all executive officers and directors as a group. Beneficial ownership is determined according to the rules of the SEC, and generally means that person has beneficial ownership of a security if he or she possesses sole or shared voting or investment power of that security and includes options, warrants and other securities convertible or exercisable into shares of Common Stock, provided that such securities are currently exercisable or convertible or exercisable or convertible within 60 days of the date hereof. Each director or officer, as the case may be, has furnished us with information with respect to their beneficial ownership. Except as otherwise indicated, all persons listed below have (i) sole voting power and investment power with respect to their Common Stock, except to the extent that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership with respect to their Common Stock.
| Title of Class | Name and Address of Beneficial Owner | Amount and Nature of Beneficial | Percent of Class (1) | Percent of All Voting Classes | ||||||||||
| Class A Common Stock | ||||||||||||||
| Kim Thompson | 201,587,923 | (2) | 19.51 | % | 14.06 | % | ||||||||
| 2723 South State St Suite 150 | ||||||||||||||
| Ann Arbor, MI 48104 | ||||||||||||||
| Jonathan R. Rice | 17,702,49 | (3) | 1.67 | % | 0.98 | % | ||||||||
| 2723 South State St Suite 150 | ||||||||||||||
| Ann Arbor, MI 48104 | ||||||||||||||
| Anurag Gupta | - | - | ||||||||||||
| 2723 South State St Suite 150 | ||||||||||||||
| Ann Arbor, MI 48104 | ||||||||||||||
| Julie R. Bishop | - | - | ||||||||||||
| 2723 South State St Suite 150 | ||||||||||||||
| Ann Arbor, MI 48104 | ||||||||||||||
| Greg Scheessele | - | - | ||||||||||||
| 2723 South State St Suite 150 | ||||||||||||||
| Ann Arbor, MI 48104 | ||||||||||||||
| Kenneth Le | 7,800,000 | (4) | 0.75 | % | 0.54 | % | ||||||||
| 2723 South State St Suite 150 | ||||||||||||||
| Ann Arbor, MI 48104 | ||||||||||||||
| All executive officers and directors as a group (6 Persons) | 226,608,412 | 21.93 | % | 15.81 | % | |||||||||
| George Roland Gill 160 King Street Sydney NSW 2000, Australia | 60,634,347 | (5) | 5.87 | % | 4.23 | % | ||||||||
| Series A Preferred Stock | ||||||||||||||
| Kim Thompson | 2 | 100 | % | 27.91 | % | |||||||||
| 2723 South State St Suite 150 | ||||||||||||||
| Ann Arbor, MI 48104 | ||||||||||||||
| Jonathan R. Rice | - | - | - | |||||||||||
| 2723 South State St Suite 150 | ||||||||||||||
| Ann Arbor, MI 48104 | ||||||||||||||
| Anurag Gupta | - | - | - | |||||||||||
| 2723 South State St Suite 150 | ||||||||||||||
| Ann Arbor, MI 48104 | ||||||||||||||
| Julie R. Bishop | - | - | - | |||||||||||
| 2723 South State St Suite 150 | ||||||||||||||
| Ann Arbor, MI 48104 | ||||||||||||||
| Greg Scheessele | - | - | - | |||||||||||
| 2723 South State St Suite 150 | ||||||||||||||
| Ann Arbor, MI 48104 | ||||||||||||||
| Kenneth Le | - | - | - | |||||||||||
| 2723 South State St Suite 150 | ||||||||||||||
| Ann Arbor, MI 48104 | ||||||||||||||
| All executive officers and directors as a group (6 Persons) | 2 | 100 | % | 27.91 | % | |||||||||
(1) The percent of class is based on 1,033,374,219 shares of our Common Stock issued and outstanding as of the date hereof.
(2) Such shares include 201,587,924 shares of Common Stock that are owned by Mr. Thompson, and 2 shares of Common Stock that may be issued upon conversion of the Series A Preferred Stock that are owned by Mr. Thompson. In addition to this, Mr. Thompson own 20,000,000 warrant shares of Common Stock that may be issued upon exercise of outstanding warrants no sooner than February 19, 2025.
(3) Such shares include 3,202,491 shares of Common Stock that are owned by Mr. Rice and 14,500,000 shares of Common Stock that may be issued upon exercise of warrants Mr. Rice owns. Additionally, Mr. Rice owns warrants to purchase up to 4,000,000 shares of Common Stock, which are not exercisable at this time.
(4) These shares represent shares of Common Stock that may be issued upon exercise of warrants Mr. Le owns.
(5) Such Shares include 56,935,028 shares of Common Stock that are controlled by Mr. Gill and 3,699,319 share of Common Stock that may be issued upon exercise of warrants Mr. Gill owns.
| 40 |
Change in Control
As of the date of this Report, there were no arrangements which may result in a change in control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION, AND DIRECTOR INDEPENDENCE
Except as disclosed herein, no director, executive officer, shareholder holding at least 5% of shares of our common stock, or any family member thereof, had any material interest, direct or indirect, in any transaction, or proposed transaction since January 1, 2021, in which the amount involved in the transaction exceeds the lesser of $120,000 or one percent of the average of our total assets at the year-end for the last two completed fiscal years.
Related Party Transactions
Accrued Salaries and Officer Loans
Mr. Thompson, CEO/President
Mr. Thompson agreed to defer a significant portion of the compensation and other payments, as set forth below, owed to him. Mr. Thompson also agreed not to collect or accrue any salary while the Company had employees furloughed over concerns regarding the current global pandemic.
| ● | Annual Compensation: Between December 31, 2016 and December 31, 2022, Kim Thompson, our CEO accrued $3,077,393 of unpaid salary, which represents a portion of the annual compensation owed to him pursuant to the terms of his employment agreements during such time period. As of December 31, 2021, there was $2,991,191 in accrued interest on Mr. Thompson’s accrued salary; such interest accrues at the rate of 3% per annum. As a result of these accruals, as of December 31, 2022, we owed Mr. Thompson $5,290,822 in salary and interest related payments. | |
| ● | Company Loans: As of December 31, 2022, Mr. Thompson loaned the Company an aggregate of $1,657,000 and has been repaid $40,000, leaving a balance of $1,617,000. As of December 31, 2022, there was $2,213,429 in loan interest; such interest accrues at the rate of 3% per annum. | |
| ● | Royalty Payments: Mr. Thompson was entitled to certain royalties as compensation for the transfer of intellectual property he owned to the Company. As of December 31, 2022, there was $65,292 in royalty payments payable to Mr. Thompson. | |
| ● | As of December 31, 2022, there was $356,191 included in accounts payable and accrued expense payable to Mr. Thompson, which includes rent payments owed on the Texas Property (as hereinafter defined). |
On September 30, 2010, the Company agreed to issue preferred stock to Mr. Thompson in exchange for $650,000 in forgiveness of back salary. On December 19, 2013, the Company issued Mr. Thompson two shares of Series A Preferred Stock, which entitles him to a total of 400,000,000 votes on all matters, in consideration for his agreement to extend the Company’s repayment of the aforementioned debts owed to him to October 30, 2014 and to forgive an additional $30,000 in compensation that the Company previously owed to him.
| 41 |
Property Lease
On January 23, 2017, the Company signed an 8-year property lease with the Company’s CEO, President and controlling shareholder for land in Texas (the “Texas Property”). The Company pays $960 per month starting on February 1, 2017 and uses this facility to grow mulberry for its U.S. silk operations. The CEO and the Company mutually agreed to end this lease on April 5, 2021.
The Company is not a subsidiary of any company.
Loans
On January 26, 2022, the Company repaid $40,000 of loan principal to Mr. Thompson.
Director Independence
Nasdaq listing standards require that a majority of our board of directors be independent within one year of our initial public offering. An “independent director” is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. We have identified persons who meet these requirements and are qualified to serve on our board; we anticipate appointing such persons to our Board at such time is required to meet the applicable listing standards.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
| 2022 | 2021 | |||||||
| Audit Fees | $ | 24,500 | $ | 21,000 | ||||
| Audit-Related Fees | $ | 9,000 | $ | 8,000 | ||||
| Tax Fees | $ | 7,100 | $ | 16,750 | ||||
| All Other Fees | $ | - | $ | - | ||||
| Total | $ | 40,600 | $ | 45,750 | ||||
Audit Fees
For the Company’s fiscal years ended December 31, 2022 and 2021, we were billed approximately $24,500 and $21,000 for professional services rendered for the audit and review of our financial statements.
Audit Related Fees
For the Company’s fiscal year ended December 31, 2022 and 2021, we were billed approximately $9,000 and $8,000 for audit related services.
Tax Fees
For the Company’s fiscal year ended December 31, 2022, we were billed approximately $7,100 for professional services rendered for tax compliance, tax advice, and tax planning For the Company’s fiscal year ended December 31, 2021, we were billed $16,750 for professional services rendered for tax compliance, tax advice, and tax planning.
All Other Fees
The Company did not incur any other fees related to services rendered by our principal accountant for the fiscal years ended December 31, 2022 and 2021.
Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before our auditor is engaged by us to render any auditing or permitted non-audit related service, the engagement be:
| ● | approved by our audit committee; or |
| ● | entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee’s responsibilities to management. |
We do not have an audit committee. Our entire board of directors pre-approves all services provided by our independent auditors.
The pre-approval process has just been implemented in response to the new rules. Therefore, our board of directors does not have records of what percentages of the above fees were pre-approved. However, all of the above services and fees were reviewed and approved by the entire board of directors either before or after the respective services were rendered.
| 42 |
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a)
| 1. | The financial statements listed in the “Index to Financial Statements” at page F-1 are filed as part of this report. The financial statements listed in the “Index to Financial Statements” at page F-1 are filed as part of this report. |
| 2. | Financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. |
| 3. | Exhibits included or incorporated herein: see index to Exhibits. |
(b) Exhibits
| 43 |
| 14.1 | Code of Business Conduct and Ethics (13) | |
| 21.1 | Subsidiaries* | |
| 31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.* | |
| 31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.* | |
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | |
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | |
| 101.INS* | Inline XBRL Instance Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Labels Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
* Filed herewith
| 44 |
(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 annual report on Form 10-K for the year ended December 31, 2009 filed with the SEC on April 15, 2010.
(3) Incorporated by reference to our Registration Statement on Form S-1 (Reg. No. 333-162316) filed with the SEC on October 2, 2009.
(4) Incorporated by reference to our Current Report on Form 8-K filed with the SEC on June 29, 2011.
(5) Incorporated by reference to our Quarterly Report on Form 10-Q filed with the SEC on May 15, 2013.
(6) Incorporated by reference to our Current Report on Form 8-K filed with the SEC on November 22, 2013.
(7) Incorporated by reference to our Current Report on Form 8-K filed with the SEC on December 19, 2013.
(8) Incorporated by reference to our Registration Statement on Form S-1 (Reg. No. 333-175936) filed with the SEC on August 1, 2011.
(9) Incorporated by reference to our Registration Statement on Form S-1 (Reg. No. 333-199820) filed with the SEC on November 3, 2014.
(10) Incorporated by reference to our Amendment No. 1 to Registration Statement on Form S-1/A (Reg. No. 333-199820) filed with the SEC on January 7, 2015.
(11) Incorporated by reference to our Current Report on Form 8-K filed with the SEC on January 21, 2015.
(12) Incorporated by reference to our Amendment No. 2 to Registration Statement on Form S-1/A (Reg. No. 333-199820) filed with the SEC on January 30, 2015.
(13) Incorporated by reference to Exhibit 14.1 to our Annual Report on Form 10-KSB for the year ended December 31, 2007 filed with the SEC on March 26, 2008.
(14) Incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-K filed on March 31, 2015
(15) Incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K filed on March 31, 2015
(16) Incorporated by reference to Exhibit 10.16 to the Annual Report on Form 10-K filed on March 27, 2020
(17) Incorporated by reference to our Current Report on Form 8-K filed with the SEC on January 26, 2021.
(18) Incorporated by reference to our Current Report on Form 8-K filed with the SEC on March 26, 2021.
(19) Incorporated by reference to our Current Report on Form 8-K filed with the SEC on January 20, 2022.
Item 16. Form 10-K Summary
Not applicable.
| 45 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Kraig Biocraft Laboratories, Inc. | ||
| Dated: March 29, 2023 | By: | /s/ Kim Thompson |
| Kim Thompson | ||
| President, Chief Executive Officer and Chief Financial Officer | ||
| (Principal Executive Officer and Principal Financial and Accounting Officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
| Signature | Title | Date | ||
| /s/ Kim Thompson | President, Chief Executive Officer, | March 29, 2023 | ||
| Kim Thompson | Chief Financial Officer and Sole Director |
| 46 |
Exhibit 4.2
Description of Securities
General
Our original articles of incorporation authorized 60,000,000 shares of Class A common stock, 25,000,000 shares of Class B common stock with no par value per share and 10,000,000 shares of preferred stock with no par value per share. On March 18, 2009, we amended our articles of incorporation to provide for unlimited authorized shares, no par value, of Class A common stock and Class B common stock, and preferred stock. In December 2013, we further amended our articles of incorporation to designate Series A of the Company’s preferred stock, no par value; there are two shares of Series A preferred stock authorized. There are no provisions in our charter or by-laws that would delay, defer or prevent a change in our control. As of the date hereof, we have 1,033,374,219 shares of Class A common stock, 0 shares of Class B common stock and 2 shares of Series A Preferred Stock outstanding. The Class B common stock is not listed on the OTCQB or any other market and we are not seeking to have it listed on Nasdaq or another national exchange.
Common Stock
As of the date hereof, 1,033,374,219 shares of Class A common stock were issued and outstanding and held by 33 stockholders of record, and we had no shares of Class B common stock issued and outstanding. Holders of our Common Stock are entitled to one vote for each share on all matters submitted to a stockholder vote; Class B common stock does not have any voting rights.
Holders of Common Stock do not have cumulative voting rights.
Holders of a majority of the shares of Common Stock voting for the election of directors can elect all of the directors. Holders of our common stock representing a majority of the voting power of our capital stock issued and outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our Articles of Incorporation.
Although there are no provisions in our charter or by-laws that may delay, defer or prevent a change in control, we are authorized, without stockholder approval, to issue shares of preferred stock that may contain rights or restrictions that could have this effect.
Holders of both classes of common stock are entitled to share in all dividends that the Board, in its discretion, declares from legally available funds. In the event of liquidation, dissolution or winding up, each outstanding share entitles its holder to participate pro rata in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock. Holders of both classes of our common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.
Preferred Stock
Our Board has the authority, without further action by the stockholders, to issue from time to time the preferred stock in one or more series for such consideration and with such relative rights, privileges, preferences and restrictions that the Board may determine. The preferences, powers, rights and restrictions of different series of preferred stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions and purchase funds and other matters. The issuance of preferred stock could adversely affect the voting power or other rights of the holders of common stock.
Effective December 17, 2013, the Company amended its Articles of Incorporation to designate Series A of the Company’s preferred stock, no par value. Under the amendment, there are two shares of Series A preferred stock authorized. The holders of Series A preferred stock are entitled to vote together with the holders of the Company’s common stock on all matters upon which the Company’s stockholders may vote.
Each share of Series A preferred stock is entitled to 200,000,000 votes on all such matters. Each share of Series A preferred stock is convertible into one share of the Company’s common stock at the holder’s option. On December 19, 2013, the Company issued two shares of Series A preferred stock to Kim Thompson, the Company’s founder, CEO, CFO, President, and sole director.
The shares of Series A preferred stock were issued to Mr. Thompson in exchange for an agreement to extend to October, 30, 2014 the date on which the Company would pay certain debts owed to Mr. Thompson. As part of the transaction, Mr. Thompson also agreed to forgive $30,000 which the Company owed to him as compensation. In connection with the transaction, the Company incurred a loss on settlement of debt of $5,187,800.
Dividends
Since inception we have not paid any cash dividends on our capital stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board will have the discretion to declare and pay dividends in the future. Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors, which our Board may deem relevant.
Certain Anti-Takeover Effects
Certain provisions of Wyoming law may have an anti-takeover effect and may delay or prevent a tender offer or other acquisition transaction that a shareholder might consider to be in his or her best interest. The summary of the provisions of Wyoming law set forth below does not purport to be complete and is qualified in its entirety by reference to Wyoming law.
The issuance of shares of preferred stock, the issuance of rights to purchase such shares, and the imposition of certain other adverse effects on any party contemplating a takeover could be used to discourage an unsolicited acquisition proposal. For instance, the issuance of the preferred stock, if the option to acquire such shares is exercised, would impede a business combination by the voting rights that would enable a holder to block such a transaction. In addition, under certain circumstances, the issuance of other preferred stock could adversely affect the voting power of holders of our common stock.
Under Wyoming law, a director, in determining what he reasonably believes to be in or not opposed to the best interests of the corporation, does not need to consider only the interests of the corporation’s stockholders in any takeover matter but may also, in his discretion, may consider any of the following:
| (i) | The interests of the corporation’s employees, suppliers, creditors and customers; | |
| (ii) | The economy of the state and nation; | |
| (iii) | The impact of any action upon the communities in or near which the corporation’s facilities or operations are located; | |
| (iv) | The long-term interests of the corporation and its stockholders, including the possibility that those interests may be best served by the continued independence of the corporation; and | |
| (v) | Any other factors relevant to promoting or preserving public or community interests. |
The outstanding Series A Preferred Stock can deter a takeover.
Because our Board is not required to make any determination on matters affecting potential takeovers solely based on its judgment as to the best interests of our stockholders, our board of directors could act in a manner that would discourage an acquisition attempt or other transaction that some, or a majority, of our stockholders might believe to be in their best interests or in which such stockholders might receive a premium for their stock over the then market price of such stock. Our Board of directors presently does not intend to seek stockholder approval prior to the issuance of currently authorized stock, unless otherwise required by law or applicable stock exchange rules.
Transfer Agent
The transfer agent for our Common Stock is Olde Monmouth Stock Transfer Co., Inc.
Listing
Our Common stock is quoted on the OTCQB under the trading symbol KBLB”. We have applied to have our Common Stock listed on the Nasdaq Capital Market under the symbol “KBLB” and our Purchase Warrants listed on the Nasdaq Capital Market under the symbol “KBLBW”.
Limitation on Liability and Indemnification Matters
Our amended and restated articles of incorporation and amended and restated bylaws include provisions limiting the liability of directors and officers and indemnifying them under certain circumstances. Accordingly, we may indemnify any person (including his estate) made or threatened to be made a party to any suit or proceeding, whether civil or criminal, by reason of the fact that he was one of our directors or officers or served at our request as one of our directors or officers of a subsidiary, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorney fees actually and necessarily incurred as a result of such threat, suit or proceeding, or any appeal therein, to the fullest extent permitted by the General Corporation Law of the State of Wyoming.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Company pursuant to Wyoming law, we are informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Penny Stock Regulation
The SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price of less than Five Dollars ($5.00) per share or an exercise price of less than Five Dollars ($5.00) per share. Such securities are subject to rules that impose additional sales practice requirements on broker-dealers who sell them. For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchaser of such securities and have received the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a disclosure schedule prepared by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, among other requirements, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Exhibit 21.1
SUBSIDIARIES OF REGISTRANT
| Name | State of Incorporation | |
| Prodigy Textiles Ltd | (Vietnam) |
Exhibit 31.1
CERTIFICATION
I, Kim Thompson, certify that:
1. I have reviewed this report on Form 10-K for the year ended December 31, 2022, of Kraig Biocraft Laboratories, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: March 29, 2023 | |
| /s/ Kim Thompson | |
| Kim Thompson | |
| President, Sole Director, Chief Executive Officer, and Secretary (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Kim Thompson, certify that:
1. I have reviewed this report on Form 10-K for the year ended December 31, 2022, of Kraig Biocraft Laboratories, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: March 29, 2023 | |
| /s/ Kim Thompson | |
| Kim Thompson | |
| Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certifies, in his capacity as an officer of Kraig Biocraft Laboratories, Inc. (the “Company”), for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
(1) The Annual Report of the Company on Form 10-K for the year ended December 31, 2022, (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 29, 2023
| /s/ Kim Thompson | |
| Kim Thompson | |
| President, Sole Director, Chief Executive Officer, and Secretary (Principal Executive Officer) |
The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of a separate disclosure document.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certifies, in his capacity as an officer of Kraig Biocraft Laboratories, Inc. (the “Company”), for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
(1) The Annual Report of the Company on Form 10-K for the year ended December 31, 2022, (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 29, 2023
| /s/ Kim Thompson | |
| Kim Thompson | |
|
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of a separate disclosure document.