KBLB 10-Q
Kraig Biocraft Laboratories, Inc. (KBLB)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from_____ to _____
Commission
File Number:
(Exact Name of Registrant as Specified in Charter)
(State or Other Jurisdiction of Incorporation) |
(I.R.S. Employer Identification No.) |
| (Address of Principal Executive Offices) |
(Registrant’s telephone number, including area code)
(Former name and address, if changed since last report)
Copies to:
Hunter Taubman Fischer & Li LLC
800 Third Ave., Suite 2800
New York, NY 10022
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
| None | - | - |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and emerging growth company in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller
reporting company | ||
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐
As of August 12, 2021, there were shares of the issuer’s Class A common stock, no par value per share, outstanding, 0 shares of the issuer’s Class B common stock, no par value per share, outstanding and 2 shares of preferred stock, no par value per share, outstanding.
TABLE OF CONTENTS
| 2 |
PART I
ITEM 1. FINANCIAL STATEMENTS
Kraig Biocraft Laboratories, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Balance Sheets
| June 30, 2021 | December 31, 2020 | |||||||
| (Unaudited)) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Property and Equipment, net | ||||||||
| Operating lease right-of-use asset, net | ||||||||
| Security deposit | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Note payable - related party | ||||||||
| Royalty agreement payable - related party | ||||||||
| Accounts payable and accrued expenses - related party | ||||||||
| Operating lease liability, current | ||||||||
| Loan payable | ||||||||
| Convertible note payable, net of debt discount of $ | ||||||||
| SBA Paycheck Protection Loan | - | |||||||
| Total Current Liabilities | ||||||||
| Long Term Liabilities | ||||||||
| Loan payable, net of current | ||||||||
| Operating lease liability, net of current | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | - | - | ||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock, |
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| Preferred stock Series A, |
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| Common stock Class A, and shares issued and outstanding, respectively |
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| Common stock Class B, |
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| Common Stock Issuable, and shares, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
| 3 |
Kraig Biocraft Laboratories, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
(Unaudited)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | |||||||||||||
| 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) | - | - | - | |||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of original issue discount | ( | ) | - | ( | ) | - | ||||||||||
| 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 | ||||||||||||||||
| 4 |
Kraig Biocraft Laboratories, Inc. and Subsidiary
Condensed Consolidated Statement of Changes in Stockholders Deficit
For the three and six months ended June 30, 2021
(Unaudited)
| Common Stock - | ||||||||||||||||||||||||||||||||||||||||||||
| Class A Shares | ||||||||||||||||||||||||||||||||||||||||||||
| 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, March 31, 2021 (Unaudited) | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Warrants issued for services - related parties | - | $ | - | $ | $ | - | $ | $ | - | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Warrants issued for services | - | $ | - | $ | $ | - | $ | $ | - | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Exercise of warrants for cash | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Convertible debt conversion into common stock ($0.0868-$/Sh) | $ | $ | $ | $ | $ | - | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Imputed interest - related party | - | $ | - | $ | $ | - | $ | $ | - | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Beneficial conversion feature | - | $ | - | $ | $ | - | $ | $ | - | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2021 | - | $ | - | $ | $ | - | $ | $ | - | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Balance, June 30, 2021 (Unaudited) | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Common Stock - | ||||||||||||||||||||||||||||||||||||||||||||
| Class A Shares | ||||||||||||||||||||||||||||||||||||||||||||
| 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 | - | $ | - | $ | $ | - | $ | $ | - | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Cancellations of warrants | - | $ | - | $ | $ | - | $ | $ | - | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||||||
| Exercise of warrants in exchange for cash | $ | $ | $ | $ | $ | - | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||||||
| Convertible debt conversion into common stock ($-$0.1232/Sh) | $ | $ | $ | $ | $ | - | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Imputed interest - related party | - | $ | - | $ | $ | - | $ | $ | - | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Beneficial conversion feature | - | $ | - | $ | $ | - | $ | $ | - | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Net loss for the six months ended June 30, 2021 | - | $ | - | $ | $ | - | $ | $ | - | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Balance, June 30, 2021 (Unaudited) | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| 5 |
Kraig Biocraft Laboratories, Inc. and Subsidiary
Condensed Consolidated Statement of Changes in Stockholders Deficit
For the three and six months ended June 30, 2020
(Unaudited)
| Common Stock - | ||||||||||||||||||||||||||||||||||||||||||||
| Class A Shares | ||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock - Series A | Common
Stock - Class A | Common Stock - Class B | To be issued | |||||||||||||||||||||||||||||||||||||||||
| Shares | Par | Shares | Par | Shares | Par | Shares | Par | APIC | Accumulated Deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2020 (Unaudited) | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Warrants issued for services - related parties | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Contributed capital - related party | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Imputed interest - related party | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2020 | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balance, June 30, 2020 (Unaudited) | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Common Stock - | ||||||||||||||||||||||||||||||||||||||||||||
| Class A Shares | ||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock - Series A | Common
Stock - Class A | Common Stock - Class B | To be issued | |||||||||||||||||||||||||||||||||||||||||
| Shares | Par | Shares | Par | Shares | Par | Shares | Par | APIC | Accumulated Deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 (Audited) | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Warrants issued for services - related parties | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Warrants issued for services | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Contributed capital - related party | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Imputed interest - related party | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Net loss for the six months ended June 30, 2020 | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balance, June 30, 2020 (Unaudited) | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| 6 |
Kraig Biocraft Laboratories, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the six months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| 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) | ( | ) | - | |||||
| Amortization of debt discount | - | |||||||
| Imputed interest - related party | ||||||||
| Fair value of options issued for services | - | |||||||
| Warrants issued/(cancelled) to consultants | - | |||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease (Increase) in prepaid expenses | ||||||||
| Operating lease right-of-use, net | ||||||||
| Increase in accrued expenses and other payables - related party | ||||||||
| (Decrease)Increase in accounts payable | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net Cash Used In Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows From Investing Activities: | ||||||||
| Purchase of Fixed Assets | ( | ) | - | |||||
| Net Cash Used In Investing Activities | ( | ) | - | |||||
| Cash Flows From Financing Activities: | ||||||||
| Proceeds from notes payable - related party | - | |||||||
| Proceeds from convertible note payable, net of original issue discount | - | |||||||
| Principal payments on debt | ( | ) | ( | ) | ||||
| Proceeds from warrant exercise | - | |||||||
| Contributed capital - related party | - | |||||||
| Proceeds from SBA Paycheck Protection Loan | - | |||||||
| Net Cash Provided by Financing Activities | ||||||||
| Net Increase (Decrease) in Cash | ( | |||||||
| ) | ||||||||
| Cash at Beginning of Period | ||||||||
| Cash at End of Period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Shares issued in connection with cashless warrants exercise | $ | $ | ||||||
| Beneficial conversion feature in connection with convertible debt | $ | $ | ||||||
| Adoption of lease standard ASC 842 | $ | $ | ||||||
| Cancellation and forgiveness of lease - related party | $ | $ | ||||||
| 7 |
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Consolidated Financial Statements as of June 30, 2021 and 2020
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in The United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information necessary for a comprehensive presentation of financial position and results of operations.
It is management’s opinion, however that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statements presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year.
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 assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.
Cash
For
the purposes of the cash flow statements, 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
| 8 |
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 June 30, 2021 and December 31, 2020, warrants were not included in the computation of income/ (loss) per share because their inclusion is anti-dilutive.
The computation of basic and diluted loss per share for June 30, 2021 and 2020 excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive:
| June 30, 2021 | December 31, 2020 | |||||||
| Stock Warrants (Exercise price - $ | ||||||||
| 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.
Income Taxes
The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC No. 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC No. 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company accounts for stock-based compensation for employees and directors in accordance with ASC 718, Compensation (“ASC 718”). ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their fair values. Under the provisions of ASC 718, stock-based compensation costs are measured at the grant date, based on the fair value of the award, and are recognized as expense over the employee’s requisite service period (generally the vesting period of the equity grant). The fair value of the Company’s common stock options are estimated using the Black Scholes option-pricing model with the following assumptions: expected volatility, dividend rate, risk free interest rate and the expected life. The Company expenses stock-based compensation by using the straight-line method. In accordance with ASC 718 and, excess tax benefits realized from the exercise of stock-based awards are classified as cash flows from operating activities. All excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) are recognized as income tax expense or benefit in the condensed consolidated statements of operations.
The Company accounts for stock-based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in ASU 2018-07.
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.
| 9 |
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in the ASU include removing exceptions to incremental intraperiod tax allocation of losses and gains from different financial statement components, exceptions to the method of recognizing income taxes on interim period losses, and exceptions to deferred tax liability recognition related to foreign subsidiary investments. In addition, the ASU requires that entities recognize franchise tax based on an incremental method and requires an entity to evaluate the accounting for step-ups in the tax basis of goodwill as inside or outside of a business combination. The amendments in the ASU are effective for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The ASU is currently not expected to have a material impact on our financial statements.
In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU simplifies the accounting for convertible instruments by removing certain separation models in ASC 470- 20, Debt—Debt with Conversion and Other Options, for convertible instruments. The ASU updates the guidance on certain embedded conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, such that those features are no longer required to be separated from the host contract. The convertible debt instruments will be accounted for as a single liability measured at amortized cost. This will also result in the interest expense recognized for convertible debt instruments to be typically closer to the coupon interest rate when applying the guidance in Topic 835, Interest. Further, the ASU made amendments to the EPS guidance in Topic 260 for convertible instruments, the most significant impact of which is requiring the use of the if-converted method for diluted EPS calculation, and no longer allowing the net share settlement method. The ASU also made revisions to Topic 815-40, which provides guidance on how an entity must determine whether a contract qualifies for a scope exception from derivative accounting. The amendments to Topic 815-40 change the scope of contracts that are recognized as assets or liabilities. The ASU is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted for periods beginning after December 15, 2020. Adoption of the ASU can either be on a modified retrospective or full retrospective basis. The ASU is currently not expected to have a material impact on our financial statements.
Recently Adopted Accounting Standards
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, to require financial assets carried at amortized cost to be presented at the net amount expected to be collected based on historical experience, current conditions, and forecasts. Subsequently, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, to clarify that receivables arising from operating leases are within the scope of lease accounting standards. Further, the FASB issued ASU No. 2019-04, ASU No. 2019-05, ASU 2019-10, ASU 2019-11, ASU 2020-02, and ASU 2020-03 to provide additional guidance on the credit losses standard. Adoption of the ASUs is on a modified retrospective basis. We adopted the ASUs on January 1, 2020. The ASUs did not have a material impact on our consolidated financial statements. ASU No. 2016-13 applies to all financial assets including loans, trade receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash. The adoption of this ASU did not have any impact on our 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
| 10 |
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.
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 June 30, 2021 and 2020. | |
| ● | 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. |
| June 30, 2021 | December 31, 2020 | |||||||
| Level 1 | $ | $ | ||||||
| Level 2 | $ | $ | ||||||
| Level 3 | $ | $ | ||||||
| Total | $ | $ |
Revenue Recognition
The Company’s revenues have been generated primarily from a contract with the U.S. Government. The Company performed work under a cost-plus-fixed-fee contract. Under the base phase of that contract, the Company produced recombinant spider silk woven into ballistic shootpack panels. Those shootpack panels were delivered to the U.S. Government customer. Under an option period award starting in July 2017 and ending in September 2018, to that original contract, the Company worked to develop new recombinant silks.
Effective January 1, 2018, the Company adopted ASC No. 606 — Revenue from Contracts with Customers. Under ASC No. 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
For
the three and six months ended June 30, 2021 and 2020, the Company recognized $
| 11 |
On January 25, 2021, the Company signed an amendment to a strategic partnership agreement with Kings Group for and exclusive sales agreement for up to $40 million. On April 8, 2021, the Company and Kings Group formed Spydasilk Enterprises Pte. Ltd., a Singapore company, to formalize this partnership.
Concentration of Credit Risk
The
Company at times has cash in banks in excess of FDIC insurance limits. At June 30, 2021 and December 31, 2020, the Company had approximately
$
For the six months ended June 30, 2021 and 2020, the Company booked $0 and $0 for doubtful accounts.
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 interest expense 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.
Beneficial Conversion Feature
For conventional convertible debt where the rate of conversion is below market value, the Company records a “beneficial conversion feature” (“BCF”) and related debt discount.
When the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument. The discount is amortized to interest expense over the life of the debt.
NOTE 2 GOING CONCERN
As
reflected in the accompanying condensed unaudited 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 June 30, 2021 and December 31, 2020, property and equipment, net, is as follows:
| June 30, 2021 | December 31, 2020 | |||||||
| Automobile | $ | $ | ||||||
| Laboratory Equipment | ||||||||
| Office Equipment | ||||||||
| Leasehold Improvements | ||||||||
| Less: Accumulated Depreciation | ( | ) | ( | ) | ||||
| Total Property and Equipment, net | $ | $ | ||||||
| 12 |
Depreciation
expense for the six months ended June 30, 2021 and 2020, was $
Depreciation
expense for the three months ended June 30, 2021 and 2020, was $
NOTE 4 - RIGHT TO USE ASSETS AND LEASE LIABILITITY
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
On
September 5, 2019, we signed a two-year lease for a
On
May 9, 2019 the Company signed a 5 year property lease with the Socialist Republic of Vietnam which consists of
| 13 |
Right to use assets is summarized below:
| June 30, 2021 | ||||
| Right to use assets, net | ||||
| Right to use assets, net | ||||
| Total | $ | |||
During the six months ended June 30, 2021, the Company recorded $87,874 as lease expense to current period operations.
Lease liability is summarized below:
| June 30, 2021 | ||||
| Operating lease liability, net | ||||
| Operating lease liability, net | ||||
| Total | ||||
| Less: short term portion | ( | ) | ||
| Long term position | $ | |||
Lease expense for the six months ended June 30, 2021 was comprised of the following:
| Operating lease expense | $ | |||
| Operating lease expense | $ | |||
| Operating lease expense – related party | $ |
NOTE 5 ACCRUED INTEREST – RELATED PARTY
On
June 6, 2016, the Company received a $
| 14 |
NOTE 6 NOTE 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
April 16, 2020, the Company, was granted a loan (the “Loan”) from The Huntington National Bank, in the aggregate amount of
$
NOTE 7 CONVERTIBLE NOTES
The
Company issued a $
Additionally,
the Company issued
| Stock Price | $ | |||
| Exercise price | $ | |||
| Expected term (in years) | ||||
| Expected volatility | % | |||
| Annual rate of quarterly dividends | % | |||
| Risk free interest rate | % |
The Company has determined that ASC 815 does not apply since the Company has unlimited authorized shares, which in turn satisfies the requirement of having sufficient authorized shares available to settle any potential instruments that may require physical net-share settlement.
| 15 |
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 one year, unsecured, convertible note in the aggregate principal amount of $
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
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 $
| 16 |
The following represents a summary of the Company’s convertible debt at June 30, 2021:
Convertible Note Payable
| Amounts | In-Default | |||||||
| Balance – December 31, 2020 | ||||||||
| Proceeds – net | - | |||||||
| Debt discount recorded | ( | ) | - | |||||
| Amortization of debt discount | - | |||||||
| Balance – June 30, 2021 | $ | $ | ||||||
Accrued Interest Payable
| Amounts | In-Default | |||||||
| Balance – December 31, 2020 | ||||||||
| Interest Expense June 30, 2021 | - | |||||||
| Interest conversion into common shares | ( | ) | ||||||
| Balance – June 30, 2021 | $ | $ | ||||||
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
On
May 4, 2021, the Company issued
| 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
March 20, 2019, the Company issued shares of its class A common stock 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 1,479,728 shares of Common stock in connection with the exercise of 1,479,728 warrants for $88,784 (See Note 8 (A)).
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 (See Note 8 (A)).
On February 24, 2021, the Company issued shares of Common stock in connection with the cashless exercise of warrants.
On July 30, 2020, the Company issued shares of Common stock in connection with the cashless exercise of warrants.
On April 27, 2021, the Company extended the expiration date of the warrant issued on October 2, 2016 to October 1, 2026. During the six months ended June 30, 2021 the Company recorded an additional $ as an expense for the warrant extension.
| Expected dividends | % | |||
| Expected volatility | % | |||
| Expected term | years | |||
| Risk free interest rate | % | |||
| Expected forfeitures | % |
On February 2, 2021, the Company extended the expiration date of the warrant to May 29, 2026. During the six months ended June 30, 2021 the Company recorded an additional $ as an expense for the warrant extension.
| Expected dividends | % | |||
| Expected volatility | % | |||
| Expected term | ||||
| Risk free interest rate | % | |||
| Expected forfeitures | % |
On
January 1, 2016, the Company issued 3-year warrant to purchase
| Expected dividends | % | |||
| Expected volatility | % | |||
| Expected term | ||||
| Risk free interest rate | % | |||
| Expected forfeitures | % |
| 18 |
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 $
| Expected dividends | % | |||
| Expected volatility | % | |||
| Expected term | ||||
| 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 $
| Expected dividends | % | |||
| Expected volatility | % | |||
| Expected term | ||||
| Risk free interest rate | % | |||
| Expected forfeitures | % |
On
February 19, 2020 the Company issued a 7-year option to purchase shares of common stock at an exercise price of $ per
share to employees for services rendered. The options had a fair value of $
| Expected dividends | % | |||
| Expected volatility | % | |||
| Expected term | ||||
| Risk free interest rate | % | |||
| Expected forfeitures | % |
On
August 8, 2019, the Company issued a 3-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 $
| Expected dividends | % | |||
| Expected volatility | % | |||
| Expected term | ||||
| Risk free interest rate | % | |||
| Expected forfeitures | % |
| 19 |
On
August 8, 2019, the Company issued a 2-year options 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 $
| Expected dividends | % | |||
| Expected volatility | % | |||
| Expected term | years | |||
| Risk free interest rate | % | |||
| Expected forfeitures | % |
On
August 8, 2019, the Company issued a 2-year options 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 $
| Expected dividends | % | |||
| Expected volatility | % | |||
| Expected term | years | |||
| Risk free interest rate | % | |||
| Expected forfeitures | % |
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in Years) | ||||||||||
| Balance, December 31, 2020 | ||||||||||||
| Granted | - | |||||||||||
| Exercised | ( | ) | - | |||||||||
| Cancelled/Forfeited | ( | ) | - | |||||||||
| Balance, June 30, 2021 | ||||||||||||
| Intrinsic Value | $ | |||||||||||
| 20 |
For the six months ended June 30, 2021, the following warrants were outstanding:
| Exercise Price Warrants Outstanding | Warrants Exercisable | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
For the year ended December 31, 2020, the following warrants were outstanding:
| Exercise Price Warrants Outstanding | Warrants Exercisable | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
For the six months ended June 30, 2021, the following options were outstanding:
Weighted Average | ||||||||||||||
| Exercise | Options | Options | Remaining | |||||||||||
| Price | Outstanding | Exercisable | Contractual Life | |||||||||||
| $ | ||||||||||||||
| 21 |
For the year ended December 31, 2020, the following options were outstanding:
| Weighted Average | ||||||||||||||
| Exercise | Options | Options | Remaining | |||||||||||
| Price | Outstanding | Exercisable | Contractual Life | |||||||||||
| $ | ||||||||||||||
(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, unlimited number of shares authorized, no par value |
| ● | Common stock Class B, unlimited number of shares authorized, no par value |
| ● | Preferred stock, unlimited number of shares authorized, no par value |
Effective December 17, 2013, the Company amended its articles of incorporation to designate a Series A no par value preferred stock. Two shares of Series A Preferred stock have been authorized.
(E) Common Stock Issued for Debt
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 $
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. The term of the agreement is a
| 22 |
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 $
| ● | The
Company maintaining $ |
| ● | Upon
the transfer of ownership of more than |
| ● | Upon the fifth year anniversary of the salary increase and the bonus issuance. |
As
of June 30, 2021 and December 31, 2020, the Company owes $
On
October 21, 2019, the Company signed an agreement to increase Mr. Rice’s base salary by $
| ● | The
Company maintaining $ |
| ● | Upon
the transfer of ownership of more than |
| ● | Upon the fifth year anniversary of the salary increase and the bonus issuance. |
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 $
| 23 |
(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 $
On December 30, 2015, the Company entered into a cooperative agreement for the research and pilot production of hybrid silkworms in Vietnam. Under this agreement, the Company will establish a subsidiary in Vietnam where it will develop and produce hybrid silkworms. 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.
(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
On
January 23, 2017 the Company signed an
| 24 |
On
September 13, 2017, the Company signed a new two year lease with a 2 year option commencing on October 1, 2017 and ending on September
31, 2019. The Company paid an annual rent of $
NOTE 10 RELATED PARTY TRANSACTIONS
On
December 26, 2006, the Company entered into an addendum to the intellectual property transfer agreement with Mr. Thompson, its CEO. Pursuant
to the addendum, the Company agreed to issue either preferred shares with the following preferences; no dividends and
On
November 10, 2010, the Company entered into an employment agreement, with its CEO, effective January 1, 2011 through the December 31,
2015. Subsequently, on January 1, 2018 the agreement renewed with the same terms for another 5 years with an annual salary of $
On
January 14, 2016, the Company signed a new employment agreement with Mr. Rice, the Company’s COO. The 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 annual cash compensation of $
| ● | The
Company maintaining $ | |
| ● | Upon
the transfer of ownership of more than | |
| ● | Upon the fifth year anniversary of the salary increase and the bonus issuance. |
As
of June 30, 2021 and December 31, 2020, the Company owes $
| 25 |
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 an annual cash compensation of $
June
6, 2016, the Company received a $
On
January 23, 2017, the Company signed an 8 year property lease with the Company’s President for land in Texas. The Company pays
$
As
of June 30, 2021 and December 31, 2020, there was $
As
of June 30, 2021, there was $
As
of December 31, 2020, there was $
As
of June 30, 2021, the Company owes $
As
of December 31, 2020, the Company owes $
The
Company owes $
| 26 |
NOTE 11 SUBSEQUENT EVENTS
The Company has analyzed its operations subsequent to August 12, 2021 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
July 1, 2021, the Company signed a
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 $
| 27 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
The following information should be read in conjunction with Kraig Biocraft Laboratories, Inc. and its subsidiaries (“we”, “us”, “our”, or the “Company”) condensed unaudited financial statements and the notes thereto contained elsewhere in this report. Information in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Form 10-Q that does not consist of historical facts, are “forward-looking statements.” Statements accompanied or qualified by, or containing words such as “may,” “will,” “should,” “believes,” “expects,” “intends,” “plans,” “projects,” “estimates,” “predicts,” “potential,” “outlook,” “forecast,” “anticipates,” “presume,” and “assume” constitute forward-looking statements, and as such, are not a guarantee of future performance.
Forward-looking statements are subject to risks and uncertainties, certain of which are beyond our control. Actual results could differ materially from those anticipated as a result of the factors described in the “Risk Factors” and detailed in our other Securities and Exchange Commission (“SEC”) filings. Risks and uncertainties can include, among others, international, national and local general economic and market conditions: demographic changes; the ability of the Company to sustain, manage or forecast its growth; the ability of the Company to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to obtain sufficient financing to continue and expand business operations; the ability to develop technology and products; changes in technology and the development of technology and intellectual property by competitors; the ability to protect technology and develop intellectual property; and other factors referenced in this and previous filings. Consequently, investors should not place undue reliance on forward-looking statements as predictive of future results.
Because of these risks and uncertainties, the forward-looking events and circumstances discussed in this report or incorporated by reference might not transpire. Factors that cause actual results or conditions to differ from those anticipated by these and other forward-looking statements include those more fully described elsewhere in this report and in the “Risk Factors” section of our registration statement on Form S-1.
The Company disclaims any obligation to update the forward-looking statements in this report.
| 28 |
Overview
Kraig Biocraft Laboratories, Inc. is a corporation organized under the laws of Wyoming on April 25, 2006. We were 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 to create our recombinant spider silk. Applications include performance apparel, workwear, filtration, luxury fashion, flexible composites, medical implants, 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. 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.
On April 16, 2020, we announced that we successfully developed a new technology platform, based on a non-CRISPR gene editing knock-in knock-out technology. CRISPR is the most recent and efficient gene editing technology2 CRISPR stands for “Clustered regularly interspaced short palindromic repeats.” This is our first knock-in knock-out technology of essentially pure spider silk transgenic. This new system is built on our eco-friendly and cost-effective silkworm production system, which we believe is significantly more advanced than any competing methods. Knock-in knock-out technology allows for the targeting of specific locations and genetic traits for modification, addition, and removal. This new capability will accelerate new product developments, which should allow us to 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 studies, the new technology has a purity rate that is significantly greater than Dragon Silk, a fiber that we developed with our previous tools. Samples of Dragon Silk has already demonstrated to be tougher than many fibers used in bullet proof vests and we expect that the increased spider silk purity, created using this new approach, will yield materials beyond those capabilities. This new system utilizes our eco-friendly and cost-effective silkworm production system, which we believe is significantly more advanced than any of the competing methods. We have already begun the validation process for the first of these new transgenics and anticipate that U.S. production will be possible as early as 2022 or 2023.
This does not affect our current work of overseeing our production facility to ramp up our production of Dragon SilkTM and Monster Silk®, as these fibers are designed to address their own markets.
In August 2019, we received authorization to begin rearing genetically enhanced silkworms at our production facility in Vietnam. We received our investment registration certificate for the facility in April 2018. In October 2019, we delivered the first batch of these silkworms and began operations. These silkworms will serve 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 the restrictions imposed due to the global pandemic further delayed our operations in 2020 by about 4-6 months. However, we were able to resume production operations of our specialized silk in October 2020, once travel and work restrictions for COVID-19 were lifted. In January 2021, we delivered the first sample silk shipment from this factory. We believe that we will be able to target a capacity of 40 metric tons 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.
| 29 |
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.
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
The Report of Independent Registered Public Accounting Firm to our financial statements as of June 30, 2021 include an explanatory paragraph stating that our net loss from operations and net capital deficiency at June 30, 2021 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:
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| ● | We plan to develop a line of fabrics and apparent under joint venture with Kings, creating a line of fashion wear under the Company 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 accelerate both our microbiology and selective breeding programs as well as provide more resources for our material testing protocols. We spent approximately $209,000 over the last 6 months on research and development of high strength polymers. In the first half of 2021, we directed our research and development efforts on growing our internal capabilities; we plan to continue to dedicate our efforts in 2021/2022 to grow our internal research and development programs. |
| ● | 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 both private and university 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 the remainder of 2021 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 |
| ● | We have initiated and plan to accelerate our efforts for large scale U.S. production. This work will include the research and possible production of a new transgenic tailored specifically domestic production. |
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 on its current trajectory 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. As stated above, U.S. travel restrictions impacted our ability to ship eggs to our Vietnam facility and without such eggs, we cannot conduct operations there. In October of 2020, with restrictions lifted, we were able to deliver silkworm eggs to the Vietnam facility and production resumed. In January 2021 we delivered the first sample silk shipment from the factory. 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. The Company’s manufacturing facilities support business that have been deemed essential by their respective state governments and remain operational. We have taken every precaution possible to ensure the safety of our employees.
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On March 19, 2020, we furloughed non-essential staff consistent with leading health official recommendations in order to help prevent the spread of COVID-19. This decision was made in an abundance of caution and will primarily impact staff at our fully owned subsidiary, Prodigy Textiles, in Vietnam and will result 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 temporary suspension of rearing operations resulted in a delay of 4-6 months in the Company’s production expansion schedule. The Company supported its furloughed staff and paid their salaries through June 30, 2020. During the duration of the furlough, the Company CEO did not receive or accrue any salary. On July 1, 2020, furloughed staff returned to work preparing the factory in Vietnam to receive the next shipment of silkworm eggs. On October 24, 2020, silk production operations at the factory resumed. In January 2021, we delivered the first sample silk shipment from the factory. The global pandemic of COVID-19 continues to evolve rapidly, and 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-19, 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.
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Three months ended June 30, 2021 compared to the three months ended June 30, 2020
Our revenue, operating expenses, and net loss from operations for the three month period ended June 30, 2021 as compared to the six month period ended June 30, 2020, were as follows – some balances on the prior period’s combined financial statements have been reclassified to conform to the current period presentation:
Three Months Ended June 30, | % Change Increase (Decrease) | |||||||||||||||
| 2021 | 2020 | Change | ||||||||||||||
| NET REVENUES | $ | - | $ | - | - | - | ||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| General and Administrative | 369,312 | 348,278 | 21,034 | 6.04 | % | |||||||||||
| Professional Fees | 119,038 | 31,100 | 87,938 | 282.76 | % | |||||||||||
| Officer’s Salary | 171,694 | 54,853 | 116,841 | 213.01 | % | |||||||||||
| Rent - Related Party | 410 | 3,128 | (2,718 | ) | -86.89 | % | ||||||||||
| Research and Development | 44,726 | 32,970 | 11,756 | 35.66 | % | |||||||||||
| Total operating expenses | 705,180 | 470,329 | 234,851 | 49.93 | % | |||||||||||
| Loss from operations | (705,180 | ) | (470,329 | ) | (234,851 | ) | 49.93 | % | ||||||||
| Interest expense | (199,619 | ) | (98,468 | ) | (101,151 | ) | 102.72 | % | ||||||||
| Amortization of original issue discount | (1,848,976 | ) | - | (1,848,976 | ) | -100.00 | % | |||||||||
| Net Loss | $ | (2,753,775 | ) | $ | (568,797 | ) | (2,184,978 | ) | 384.14 | % | ||||||
Net Revenues: During the three months ended June 30, 2021, we realized $0 of revenues from our business. During the three months ended June 30, 2020, we realized $0 of revenues from our business. The change in revenues between the quarter ended June 30, 2021 and 2020 was $0 or 0%.
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Cost of Revenues: Costs of revenues for the three months ended June 30, 2021 were $0, as compared to $0 for the three months ended June 30, 2020, a change of $0 or 0%.
Gross Profit: During the three months ended June 30, 2021, we realized a gross profit of $0, as compared to $0 for the three months ended June 30, 2020, a change of $0 or 0%.
Research and development expenses: During the three months ended June 30, 2021, we incurred $44,726 of research and development expenses. During the three months ended June 30, 2020, we incurred $32,970 of research and development expenses. This was an increase of $11,756 or 35.66% in 2021 compared with the same period in 2020. This increase was due to an increase in research spending.
Professional Fees: During the three months ended June 30, 2021, we incurred $119,038 of professional expenses, which increased by $87,938 or 282.76% from $31,100 for the three months ended June 30, 2020. This increase was primarily due to an increase in professional fees and an increase in investor relations services.
Officers Salary: During the three months ended June 30, 2021, officers’ salary expenses increased to $171,694 or 213.01% from $54,853 for the three months ended June 30, 2020. This increase was primarily due to a 6% annual increase for the Company’s CEO and a reinstatement of salary for the CEO, which he voluntarily suspended during the forced shutdown of the Company’s Vietnam operations due to COVID in 2020.
General and Administrative Expense: General and administrative expenses increased by $21,034 or 6.04% to $369,312 for the three months ended June 30, 2021 from $348,278 for the three months ended June 30, 2020. Our general and administrative expenses for the three months ended June 30, 2021 consisted of other general and administrative expenses (which includes expenses such as auto, business development, SEC filings, investor relations, general office, warrants issued for services) of $344,743, travel of $3,420, and office salary of $21,149 for a total of $369,312. Our general and administrative expenses for the three months ended June 30, 2020 consisted of other general and administrative expenses (which includes expenses such as auto, business development, SEC filings, investor relations, general office, warrants issued for services) of $292,470 and office salary of $55,808, for a total of $348,278.
Rent – Related Party: During the three months ended June 30, 2021, rent- related party expense decreased to $410 or 4.40% from $3,128 for the three months ended June 30, 2020. 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.
Interest Expense: Interest expense increased by $101,151 to $199,619 for the three month period ended June 30, 2021 from $98,468 for the three month period ended June 30, 2020. The increase was primarily due to interest on certain Company loans.
Amortization of original issue and debt discounts: Amortization of original issue and debt discount increased to $1,848,976, or 100% for the three months ended June 30, 2021 compared to $0 for the three months ended June 30, 2020. The increase was primarily due to amortization of original issue and debt discounts on convertible loans.
Net Loss: Net loss increased by $2,184,978, or 384.14 %, to a net loss of $2,753,775 for the three month period ended June 30, 2021 from a net loss of $568,797 for the three month period ended June 30, 2020. This increase in net loss was primarily attributable to increases in amortization of original issue debt discount, professional fees, and officer’s salary due to a reinstatement of salary for the CEO, which he voluntarily suspended during the forced shutdown of the Company’s Vietnam operations due to COVID in 2020.
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Six months ended June 30, 2021 compared to the six months ended June 30, 2020
Our revenue, operating expenses, and net loss from operations for the six month period ended June 30, 2021 as compared to the six month period ended June 30, 2020, were as follows – some balances on the prior period’s combined financial statements have been reclassified to conform to the current period presentation:
Six Months Ended June 30, | % Change Increase (Decrease) | |||||||||||||||
| 2021 | 2020 | Change | ||||||||||||||
| NET REVENUES | $ | - | $ | - | - | - | ||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| General and Administrative | 675,899 | 3,141,059 | (2,465,160 | ) | -78.48 | % | ||||||||||
| Professional Fees | 226,523 | 50,474 | 176,049 | 348.79 | % | |||||||||||
| Officer’s Salary | 331,592 | 199,415 | 132,177 | 66.28 | % | |||||||||||
| Rent - Related Party | 3,683 | 6,263 | (2,580 | ) | -41.19 | % | ||||||||||
| Research and Development | 132,494 | 37,782 | 94,712 | 250.68 | % | |||||||||||
| Total operating expenses | 1,370,191 | 3,434,993 | (2,064,802 | ) | -60.11 | % | ||||||||||
| Loss from operations | (1,370,191 | ) | (3,434,993 | ) | 2,064,802 | -60.11 | % | |||||||||
| Interest expense | (329,878 | ) | (185,143 | ) | (144,735 | ) | 78.17 | % | ||||||||
| Amortization of original issue discount | (2,084,468 | ) | - | (2,084,468 | ) | -100.00 | % | |||||||||
| Gain on debt extinguishment (PPP) | 90,100 | - | 90,100 | 100.00 | % | |||||||||||
| Net Loss | $ | (3,694,437 | ) | $ | (3,620,136 | ) | 74,301 | 2.05 | % | |||||||
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Net Revenues: During the six months ended June 30, 2021, we realized $0 of revenues from our business. During the six months ended June 30, 2020, we realized $0 of revenues from our business. The change in revenues between the quarter ended June 30, 2021 and 2020 was $0 or 0%.
Cost of Revenues: Costs of revenues for the six months ended June 30, 2021 were $0, as compared to $0 for the six months ended June 30, 2020, a change of $0 or 0%.
Gross Profit: During the six months ended June 30, 2021, we realized a gross profit of $0, as compared to $0 for the six months ended June 30, 2020, a change of $0 or 0%.
Research and development expenses: During the six months ended June 30, 2021, we incurred $132,494 of research and development expenses. During the six months ended June 30, 2020, we incurred $37,782 of research and development expenses. This was an increase of $94,712 or 250.68% in 2021 compared with the same period in 2020. This increase was due to an increase in research spending.
Professional Fees: During the six months ended June 30, 2021, we incurred $226,523 of professional expenses, which increased by $176,049 or 348.79% from $50,474 for the six months ended June 30, 2020. This increase was primarily due to an increase in professional fees and an increase in investor relations services.
Officers Salary: During the six months ended June 30, 2021, officers’ salary expenses increased to $331,592 or 66.28% from $199,415 for the six months ended June 30, 2020. This increase was primarily due to a 6% annual increase for the Company’s CEO, a reinstatement of salary for the CEO, which he voluntarily suspended during the forced shutdown of the Company’s Vietnam operations due to COVID in 2020, and partial payment of accrued officer salaries.
General and Administrative Expense: General and administrative expenses decreased by $2,465,160 or 78.48% to $675,899 for the six months ended June 30, 2021 from $3,141,059 for the six months ended June 30, 2020. Our general and administrative expenses for the six months ended June 30, 2021 consisted of other general and administrative expenses (which includes expenses such as auto, business development, SEC filings, investor relations, general office, warrants issued for services) of $548,574, travel of $6,515, and office salary of $120,810 for a total of $675,899. Our general and administrative expenses for the six months ended June 30, 2020 consisted of other general and administrative expenses (which includes expenses such as auto, business development, SEC filings, investor relations, general office, warrants issued for services) of $3,023,867, travel of $14 and office salary of $117,178, for a total of $3,141,059.
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Rent – Related Party: During the six months ended June 30, 2021, rent- related party expense decreased to $3,683 or 41.19% from $6,263 for the six months ended June 30, 2020. 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.
Interest Expense: Interest expense increased by $144,735 to $329,878 for the six month period ended June 30, 2021 from $185,143 for the six month period ended June 30, 2020. The increase was primarily due to interest on certain Company loans.
Amortization of original issue and debt discounts: Amortization of original issue and debt discount increased to $2,084,468, or 100% for the six months ended June 30, 2021 compared to $0 for the six months ended June 30, 2020. The increase was primarily due to amortization of original issue and debt discounts on convertible loans.
Gain on Debt Extinguishment: On March 5, 2021, the Paycheck Protection Program (“PPP”) loan was 100% forgiven by the SBA. As a result, the Company recorded a gain on the forgiveness of the loan in the amount of $90,100.
Net Loss: Net loss increased by $74,301, or 2.05 %, to a net loss of $3,694,437 for the six month period ended June 30, 2021 from a net loss of $3,620,136 for the six month period ended June 30, 2020. This increase in net loss was primarily attributable to increases in amortization of original issue debt discount and officer’s salary due to a reinstatement of salary for the CEO, which he voluntarily suspended during the forced shutdown of the Company’s Vietnam operations due to COVID in 2020 and offset by a decreases in warrant expense and general and administrative expenses.
Capital Resources and Liquidity
Our financial statements have been presented on the basis that are a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As presented in the financial statements, we incurred a net loss of $3,694,437 during the six months ended June 30, 2021, and losses are expected to continue in the near term. The accumulated deficit is $38,463,620 at June 30, 2021. 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 June 30, 2021, we had $3,667,540 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.
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Cash, total current assets, total assets, total current liabilities and total liabilities as of June 30, 2021 as compared to December 31, 2020, were as follows:
| June 30, 2021 | December 31, 2020 | |||||||
| Cash | $ | 3,667,540 | $ | 816,907 | ||||
| Prepaid expenses | $ | 1,698 | $ | 2,588 | ||||
| Total current assets | $ | 3,669,238 | $ | 819,495 | ||||
| Total assets | $ | 4,085,891 | $ | 1,277,285 | ||||
| Total current liabilities | $ | 8,752,062 | $ | 7,450,794 | ||||
| Total liabilities | $ | 9,100,996 | $ | 7,850,849 | ||||
At June 30, 2021, we had a working capital deficit of $5,082,824 compared to a working capital deficit of $6,631,299 at December 31, 2020. Current liabilities increased to $8,752,062 at June 30, 2021 from $7,450,794 at December 31, 2020, primarily as a result of accounts payable, note payable and accrued compensation.
For the six months ended June 30, 2021, net cash used in operations of $966,805 was the result of a net loss of $3,694,437 offset by depreciation expense of $13,446, gain on debt extinguishment of PPP loan of $90,100, amortization of debt discount of $2,084,468, warrants issuance of $319,911, imputed interest on related party loans of $41,085, decrease in prepaid expenses of $890 and a decrease in operating lease right of use of $112,673, an increase of accrued expenses and other payables-related party of $224,653, increase in accounts payable of $135,503 and a decrease in operating lease liabilities of $114,897. For the six months ended June 30, 2020, net cash used in operations of $697,909 was the result of a net loss of $3,620,136 offset by offset by depreciation expense of $13,118, options issuance to related parties of $2,655,124, imputed interest on related party loans of $21,972, decrease in prepaid expenses of $23,273 and a decrease in operating lease right of use of $57,993, an increase of accrued expenses and other payables-related party of $277,050, decrease in accounts payable of $72,448 and a decrease in operating lease liabilities of $53,855.
Net cash used in our investing activities were $5,120 and $0 for the six months ended June 30, 2021 and June 30, 2020, respectively.
Our financing activities resulted in a cash inflow of $3,822,558 for the six months ended June 30, 2021, which is represented by proceeds from convertible notes payable, net of $3,670,000, $25,000 loan repayment and proceeds from a warrant exercise for $177,558. Our financing activities resulted in a cash inflow of $627,595 for the six months ended June 30, 2020, which is represented by $30,000 loan repayment, $550,000 proceeds from a shareholder note payable, $17,495 contributed capital from a shareholder and $90,100 proceeds from the SBA Paycheck Protection Loan.
Critical Accounting Policies
Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2020, for disclosures regarding the Company’s critical accounting policies and estimates, as well as updates further disclosed in our interim financial statements as described in this Form 10-Q.
Recent Accounting Pronouncements
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 consolidated financial position, results of operations, stockholders’ deficit, cash flows, or presentation thereof.
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In June 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 October 1, 2023, and early adoption is permitted. The Company has not completed its review of the impact of this standard on its consolidated 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 consolidated 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 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 material effect on the Company’s consolidated 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 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 did not have material effect on the Company’s consolidated financial statements
All other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of our fiscal quarter ended June 30, 2021, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon those evaluations, management concluded that our disclosure controls and procedures were not effective as of June 30, 2021, to cause the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods prescribed by SEC, and that such information is accumulated and communicated to management, including our chief executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
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Going forward from this filing, the Company intends to work on establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
During the quarter covered by this Report, there were no changes in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. Although we continue to educate our management personnel to increase its ability to comply with the disclosure requirements and financial reporting controls and management oversight of accounting and reporting functions in the future, as we stated in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, we do not expect to remediate the weaknesses in our internal controls over financial reporting until the time when we start to commercialize a recombinant fiber or such time as we have sufficient cash flow to carry out our remediation plans.
Part II – Other Information
Item 1. Legal Proceedings
From time to time, the Company may become a party to litigation or other legal proceedings that it considers to be a part of the ordinary course of its business. To the best of our knowledge, the Company is not currently involved in any legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations; however, the Company may become involved in material legal proceedings in the future.
Item 1A. Risk Factors
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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.
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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.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
| (a) | Not applicable. |
| (b) | None. |
ITEM 6. EXHIBITS
EXHIBIT INDEX
| 1. | Incorporated by reference to our Registration Statement on Form SB-2 (Reg. No. 333-146316) filed with the SEC on September 26, 2007. |
| 2. | Incorporated by reference to our Registration Statement on Form S-1 (Reg. No. 333-162316) filed with the SEC on October 2, 2009. |
| 3. | Incorporated by reference to our Current Report on Form 8-K filed with the SEC on November 22, 2013. |
| 4. | Incorporated by reference to our Current Report on Form 8-K filed with the SEC on December 19, 2013. |
| 5. | Incorporated by reference to our Annual Report on Form 10-K filed with the SEC on March 22, 2017. |
| 6. | Incorporated by reference to our Current Report on Form 8-K filed with the SEC on January 21, 2015. |
| 7. | Incorporated by reference to our Current Report on Form 8-K filed with the SEC on March 11, 2019. |
| 8. | Incorporated by reference to our Current Report on Form 8-K filed with the SEC on March 26, 2021. |
| 9. | Incorporated by reference to our Current Report on Form 8-K filed with the SEC on January 26, 2021. |
| 41 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf of the undersigned thereunto duly authorized.
| Kraig Biocraft Laboratories, Inc. | |||
| (Registrant) | |||
| Date: | August 12, 2021 | By: | /s/ Kim Thompson |
| Kim Thompson | |||
| President, Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial and Accounting Officer) | |||
| 42 |