REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and
Stockholders
of Kraig Biocraft Laboratories, Inc.
Opinion on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Kraig
Biocraft Laboratories, Inc. (the Company) as of December 31, 2018
and 2017, and the related consolidated statements of operations,
stockholders’ deficit, and cash flows for each of the years
in the two-year period ended December 31, 2018, and the related
notes and schedules (collectively referred to as the financial
statements). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the
Company as of December 31, 2018 and 2017, and the results of its
operations and its cash flows for each of the years in the two-year
period ended December 31, 2018, in conformity with accounting
principles generally accepted in the United States of
America.
Basis for Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the
purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
The
accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note
2 to the financial statements, the Company suffered a net loss from
operations and has a net capital deficiency, which raises
substantial doubt about its ability to continue as a going concern.
Management’s plans regarding those matters are described in
Note 2. The financial statements do not include any adjustments
that might result from the outcome of this
uncertainty.
/s/
M&K CPAS, PLLC
We have
served as the Company’s audit since 2013.
Houston,
TX
March
29, 2019
Kraig
Biocraft Laboratories, Inc. and Subsidiary
|
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
Cash
|
$
13,697
|
$
18,150
|
Accounts
receivable, net
|
-
|
25,872
|
Prepaid
expenses
|
6,858
|
4,465
|
Total
Current Assets
|
20,555
|
48,487
|
|
|
|
Property and
Equipment, net
|
47,310
|
62,494
|
Security
deposit
|
3,518
|
3,518
|
|
|
|
Total
Assets
|
$
71,383
|
$
114,499
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
Current
Liabilities
|
|
|
Accounts payable
and accrued expenses
|
$
793,482
|
$
678,157
|
Note payable -
related party
|
322,000
|
80,000
|
Royalty agreement
payable - related party
|
65,292
|
65,292
|
Accounts payable
and accrued expenses - related party
|
3,349,832
|
2,666,856
|
Total
Current Liabilities
|
4,530,606
|
3,490,305
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
Stockholders'
Deficit
|
|
|
Preferred
stock Series A, no par value;
|
|
|
2 and 2 shares
issued and outstanding, respectively
|
5,217,800
|
5,217,800
|
Common
stock Class A, no par value; unlimited shares
authorized,
|
|
|
816,883,910 and
816,847,910 shares issued and outstanding,
respectively
|
15,145,798
|
15,144,722
|
Common
stock Class B, no par value; unlimited shares
authorized,
|
|
|
no shares issued
and outstanding
|
-
|
-
|
Common
Stock Issuable, 1,122,311 and 1,122,311 shares,
respectively
|
22,000
|
22,000
|
Additional
paid-in capital
|
2,043,235
|
1,958,751
|
Accumulated
Deficit
|
(26,888,056
)
|
(25,719,079
)
|
|
|
|
Total
Stockholders' Deficit
|
(4,459,223
)
|
(3,375,806
)
|
|
|
|
Total
Liabilities and Stockholders' Deficit
|
$
71,383
|
$
114,499
|
Kraig
Biocraft Laboratories, Inc. and Subsidiary
|
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
401,620
|
$
97,318
|
|
|
|
Operating
Expenses
|
|
|
General and
Administrative
|
515,875
|
1,217,050
|
Professional
Fees
|
157,976
|
322,215
|
Officer's
Salary
|
528,127
|
444,596
|
Rent - Related
Party
|
11,520
|
10,560
|
Research and
Development
|
148,069
|
258,892
|
Total
Operating Expenses
|
1,361,567
|
2,253,313
|
|
|
|
Loss
from Operations
|
(959,947
)
|
(2,155,995
)
|
|
|
|
Other
Income/(Expenses)
|
|
|
Gain on forgiveness
of debt
|
19,924
|
-
|
Interest
expense
|
(228,954
)
|
(177,105
)
|
Total
Other Income/(Expenses)
|
(209,030
)
|
(177,105
)
|
|
|
|
Net
(Loss) before Provision for Income Taxes
|
(1,168,977
)
|
(2,333,100
)
|
|
|
|
Provision
for Income Taxes
|
-
|
-
|
|
|
|
Net
(Loss)
|
$
(1,168,977
)
|
$
(2,333,100
)
|
|
|
|
Net
Income (Loss) Per Share - Basic and Diluted
|
$
(0.00
)
|
$
(0.00
)
|
|
|
|
Weighted
average number of shares outstanding
|
|
|
during
the period - Basic and Diluted
|
816,874,442
|
791,393,428
|
Kraig
Biocraft Laboratories, Inc. and Subsidiary
|
Consolidated
Statements of Cash Flows
|
|
For
the Years Ended December 31,
|
|
|
|
|
|
|
Cash
Flows From Operating Activities:
|
|
|
Net
Loss
|
$
(1,168,977
)
|
$
(2,333,100
)
|
Adjustments
to reconcile net loss to net cash used in operations
|
|
|
Depreciation
expense
|
26,632
|
20,291
|
Gain
on forgiveness of debt
|
(19,924
)
|
-
|
Imputed
interest - related party
|
11,909
|
2,623
|
Warrants
issued to consultants
|
72,575
|
848,011
|
Warrants
issued to related party
|
-
|
17,473
|
Changes
in operating assets and liabilities:
|
|
|
(Increase)
Decrease in prepaid expenses
|
(2,394)
|
(6,658
)
|
(Increase)
Decrease in accounts receivables, net
|
25,872
|
5,986
|
Increase
in accrued expenses and other payables - related party
|
682,976
|
551,237
|
Increase
in accounts payable
|
136,326
|
164,595
|
Net
Cash Used In Operating Activities
|
(235,005
)
|
(729,542
)
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
Purchase of Fixed
Assets and Domain Name
|
(11,448
)
|
(31,167
)
|
Net
Cash Used In Investing Activities
|
(11,448
)
|
(31,167
)
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
Proceeds from Notes
Payable - related party
|
242,000
|
30,000
|
Proceeds from
issuance of common stock
|
-
|
450,000
|
Net
Cash Provided by Financing Activities
|
242,000
|
480,000
|
|
|
|
Net
Increase in Cash
|
(4,453
)
|
(280,709
)
|
|
|
|
Cash at Beginning
of Period
|
18,150
|
298,859
|
|
|
|
Cash
at End of Period
|
$
13,697
|
$
18,150
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
Cash paid for
interest
|
$
10
|
$
-
|
Cash paid for
taxes
|
$
-
|
$
-
|
|
|
|
Supplemental
disclosure of non-cash investing and financing
activities:
|
|
|
Shares
issued in connection with cashless warrants exercise
|
$
-
|
$
1,703,115
|
Shares
issued from stock payable
|
$
-
|
$
-
|
Settlement of accounts payable with stock issuance
|
$
1,076
|
$
32,850
|
Kraig Biocraft
Laboratories, Inc. and Subsidiary
|
Conolidated Statement
of Changes in Stockholders Deficit
|
For
the years ended December 31, 2018 and 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock - Series A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2016
|
2
|
$
5,217,800
|
773,627,964
|
$
12,958,757
|
|
-
|
$
-
|
5,778,633
|
$
279,754
|
$
2,568,855
|
$
(23,385,979
)
|
$
(2,360,813
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for
cash ($0.0491/share)
|
-
|
$
-
|
9,167,259
|
$
450,000
|
|
-
|
$
-
|
-
|
$
-
|
$
-
|
$
-
|
$
450,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued for
services - related party
|
-
|
$
-
|
-
|
$
-
|
|
-
|
$
-
|
-
|
$
-
|
$
17,473
|
$
-
|
$
17,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued for
services
|
-
|
$
-
|
-
|
$
-
|
|
-
|
$
-
|
-
|
$
-
|
$
848,011
|
$
-
|
$
848,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of
30,000,000 warrants in exchange for stock
|
-
|
$
-
|
29,396,365
|
$
1,478,211
|
|
-
|
$
-
|
|
|
$
(1,478,211
)
|
$
-
|
$
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued shares for
warrant exercise issuable as of December 31, 2016
|
-
|
$
-
|
3,906,322
|
$
224,904
|
|
-
|
$
-
|
(3,906,322
)
|
$
(224,904
)
|
$
-
|
$
-
|
$
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued shares for
services issuable as of December 31, 2016
|
-
|
$
-
|
750,000
|
$
32,850
|
|
-
|
$
-
|
(750,000
)
|
$
(32,850
)
|
$
-
|
$
-
|
$
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest -
related party
|
-
|
$
-
|
-
|
$
-
|
|
-
|
$
-
|
-
|
$
-
|
$
2,623
|
$
-
|
$
2,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the
years ended December 31, 2017
|
-
|
$
-
|
-
|
$
-
|
|
-
|
$
-
|
-
|
$
-
|
$
-
|
$
(2,333,100
)
|
$
(2,333,100
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2017
|
2
|
$
5,217,800
|
816,847,910
|
$
15,144,722
|
|
-
|
$
-
|
1,122,311
|
$
22,000
|
$
1,958,751
|
$
(25,719,079
)
|
$
(3,375,806
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued for
services
|
-
|
$
-
|
-
|
$
-
|
|
-
|
$
-
|
-
|
$
-
|
$
72,575
|
$
-
|
$
72,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for
services ($0.0299/Sh)
|
-
|
$
-
|
36,000
|
$
1,076
|
|
-
|
$
-
|
-
|
$
-
|
$
-
|
$
-
|
$
1,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest -
related party
|
-
|
$
-
|
-
|
$
-
|
|
-
|
$
-
|
-
|
$
-
|
$
11,909
|
$
-
|
$
11,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the
year ended December 31, 2018
|
-
|
$
-
|
-
|
$
-
|
|
-
|
$
-
|
-
|
$
-
|
$
-
|
$
(1,168,977
)
|
$
(1,168,977
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2018
|
2
|
$
5,217,800
|
816,883,910
|
$
15,145,798
|
|
-
|
$
-
|
1,122,311
|
$
22,000
|
$
2,043,235
|
$
(26,888,056
)
|
$
(4,459,223
)
|
Kraig
Biocraft Laboratories, Inc.
Notes to Consolidated Financial Statements
As of December 31, 2018 and 2017
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES AND ORGANIZATION
(A) Organization
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.
(B) Foreign Currency
The
assets and liabilities of Prodigy Textiles, Co., Ltd. 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.
(C) 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.
(D) Cash
For
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 no cash equivalents as of
December 31, 2018 or December 31, 2017.
(E) Loss Per Share
Basic
and diluted net loss per common share is computed based upon the
weighted average common shares outstanding as defined by FASB
Accounting Standards Codification No. 260, “Earnings per
Share.” For December 31, 2018 and 2017, 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 December 31,
2018 and September 30, 2017 excludes the common stock equivalents
of the following potentially dilutive securities because their
inclusion would be anti-dilutive:
|
|
|
Stock Warrants
(Exercise price - $0.001/share)
|
36,400,000
|
47,800,000
|
Convertible
Preferred Stock
|
2
|
2
|
Total
|
36,400,002
|
47,800,002
|
(F) 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.
Kraig
Biocraft Laboratories, Inc.
Notes to Consolidated Financial Statements
As of December 31, 2018 and 2017
(G)
Income Taxes
The
Company accounts for income taxes under FASB Codification Topic
740-10-25 (“ASC 740-10-25”). Under ASC
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 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 net
deferred tax liability in the accompanying balance sheets includes
the following amounts of deferred tax assets and
liabilities:
|
|
|
|
|
|
Expected income tax
recovery (expense) at the statutory rate of 34% in 2017; 21% in
2018
|
$
(1,412,328
)
|
$
(793,170
)
|
Tax effect of
expenses that are not deductible for income tax purposes (net of
other amounts deductible for tax purposes)
|
11,057
|
294,265
|
Change in valuation
allowance
|
(1,423,384)
|
498,906
|
|
|
|
Provision for
income taxes
|
$
-
|
$
-
|
|
|
|
The
components of deferred income taxes are as follows
:
|
|
|
|
|
|
|
|
Deferred tax
liability:
|
$
-
|
$
-
|
Deferred tax
asset
|
|
|
Net
Operating Loss Carryforward
|
2,910,863
|
4,334,248
|
Valuation
allowance
|
(2,910,863
)
|
(4,334,248
)
|
Net
deferred tax asset
|
-
|
-
|
Net
deferred tax liability
|
$
-
|
$
-
|
|
|
|
The valuation allowance was established to reduce the deferred tax
asset to the amount that will more likely than not be
realized. This is necessary due to the Company’s
continued operating losses and the uncertainty of the
Company’s ability to utilize all of the net operating loss
carryforwards before they will expire through the year
2038.
The net change in the valuation allowance for the year ended
December 31, 2018 and 2017 was a decrease of $1,412,328 and an
increase of $498,906 respectively.
On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the Tax Act)
was enacted into law and the new legislation contains several key
tax provisions that affected us, including a one-time mandatory
transition tax on accumulated foreign earnings and a reduction of
the corporate income tax rate to 21% effective January 1, 2018,
among others. We are required to recognize the effect of the tax
law changes in the period of enactment, such as determining the
transition tax, remeasuring our U.S. deferred tax assets and
liabilities as well as reassessing the net realizability of our
deferred tax assets and liabilities. In December 2017, the SEC
staff issued Staff Accounting Bulletin No.
118,
Income Tax Accounting
Implications of the Tax Cuts and Jobs Act
(SAB 118), which allows us to record provisional
amounts during a measurement period not to extend beyond one year
of the enactment date. Since the Tax Act was passed late in the
fourth quarter of 2017, and ongoing guidance and accounting
interpretation are expected over the next 12 months, we consider
the accounting of the transition tax, deferred tax re-measurements,
and other items to be incomplete due to the forthcoming guidance
and our ongoing analysis of final year-end data and tax positions.
We expect to complete our analysis within the measurement period in
accordance with SAB 118.
Effective
January 1, 2009, the Company adopted guidance regarding accounting
for uncertainty in income taxes. This guidance clarifies the
accounting for income taxes by prescribing the minimum recognition
threshold an income tax position is required to meet before being
recognized in the financial statements and applies to all federal
or state income tax positions. Each income tax position is assessed
using a two-step process. A determination is first made as to
whether it is more likely than not that the income tax position
will be sustained, based upon technical merits, upon examination by
the taxing authorities. If the income tax position is expected to
meet the more likely than not criteria, the benefit recorded in the
financial statements equals the largest amount that is greater than
50% likely to be realized upon its ultimate settlement. As of
December 31, 2018 and December 31, 2017 there were no amounts that
had been accrued in respect to uncertain tax
positions.
Kraig
Biocraft Laboratories, Inc.
Notes to Consolidated Financial Statements
As of December 31, 2018 and 2017
Fair
value accounting requires bifurcation of embedded derivative
instruments such as conversion features in convertible debt or
equity instruments, and measurement of their fair value for
accounting purposes. In determining the appropriate fair value, the
Company uses the Black-Scholes option-pricing model. In assessing
the convertible debt instruments, management determines if the
convertible debt host instrument is conventional convertible debt
and further if there is a beneficial conversion feature requiring
measurement. If the instrument is not considered conventional
convertible debt, the Company will continue its evaluation process
of these instruments as derivative financial
instruments.
Once
determined, derivative liabilities are adjusted to reflect fair
value at each reporting period end, with any increase or decrease
in the fair value being recorded in results of operations as an
adjustment to fair value of derivatives. In addition, the fair
value of freestanding derivative instruments such as warrants, are
also valued using the Black-Scholes option-pricing
model.
(H) Stock-Based Compensation
In
December 2004, the FASB issued FASB Accounting Standards
Codification No. 718,
Compensation – Stock
Compensation
. Under FASB Accounting Standards
Codification No. 718, companies are required to measure the
compensation costs of share-based compensation arrangements based
on the grant-date fair value and recognize the costs in the
financial statements over the period during which employees are
required to provide services. Share-based compensation arrangements
include stock options, restricted share plans, performance-based
awards, share appreciation rights and employee share purchase
plans. As such, compensation cost is measured on the
date of grant at their fair value. Such compensation
amounts, if any, are amortized over the respective vesting periods
of the option grant. The Company applies this statement
prospectively.
Equity
instruments (“instruments”) issued to other than
employees are recorded on the basis of the fair value of the
instruments, as required by FASB Accounting Standards Codification
No. 718. FASB Accounting Standards Codification No.
505,
Equity Based Payments to
Non-Employees
defines the measurement date and
recognition period for such instruments. In general, the
measurement date is when either a (a) performance commitment, as
defined, is reached or (b) the earlier of (i) the non-employee
performance is complete or (ii) the instruments are vested. The
measured value related to the instruments is recognized over a
period based on the facts and circumstances of each particular
grant as defined in the FASB Accounting Standards
Codification.
The
Company operates in one segment and therefore segment information
is not presented.
(I)
Recent Accounting Pronouncements
In February 2018, the FASB issued ASU No. 2018-02, Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income
. The guidance permits entities to reclassify tax effects
stranded in Accumulated Other Comprehensive Income as a result of
tax reform to retained earnings. This new guidance is effective for
annual and interim periods in fiscal years beginning after December
15, 2018. Early adoption is permitted in annual and interim periods
and can be applied retrospectively or in the period of adoption. We
are evaluating the impact of adopting this guidance on our
Consolidated Financi
al
Statements.
In
March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic
740) - Amendments to SEC Paragraphs Pursuant to SEC Staff
Accounting Bulletin No. 118. The amendment provides guidance on
accounting for the impact of the Tax Cuts and Jobs Act (the
“Tax Act”) and allows entities to complete the
accounting under ASC 740 within a one-year measurement period from
the Tax Act enactment date. This standard is effective upon
issuance. The Tax Act has several significant changes that impact
all taxpayers, including a transition tax, which is a one-time tax
charge on accumulated, undistributed foreign earnings. The
calculation of accumulated foreign earnings requires an analysis of
each foreign entity’s financial results going back to 1986.
We are evaluating the impact of adopting this guidance on our
Consolidated Financial Statements.
In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-07, Compensation-Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting , which expands the
scope of Topic 718 to include
share-based payment transactions for
acquiring goods and services from
nonemployees. An entity should apply
the requirements of Topic 718
to nonemployee awards except for specific
guidance on inputs to an option pricing model and the attribution
of cost (that is, the period of time over which share-based payment
awards vest and the pattern of cost recognition over that period).
The new guidance is effective for all entities for annual periods,
and interim periods within those annual periods, beginning
after December 15, 2017, with
early adoption permitted. We are evaluating the
impact of adopting this guidance on our Consolidated Financial
Statements.
In August 2018, the FASB issued ASU 2018-13, Fair
Value Measurement (Topic 820), Disclosure Framework – Changes
to the Disclosure Requirements for Fair Value Measurement.
The amendments in this Update modify certain disclosure requirements of fair value measurements and are effective for all entities for fiscal
years, and interim periods within
those fiscal years, beginning after
December 15, 2019. Early adoption
is permitted. We are evaluating the impact of adopting
this guidance on our Consolidated Financial
Statements.
In
January 2017, the FASB issued Accounting Standards Update
(“ASU”) 2017-04, Intangibles – Goodwill and Other
(Topic 350). The amendments in this update simplify the test for
goodwill impairment by eliminating Step 2 from the impairment test,
which required the entity to perform procedures to determine the
fair value at the impairment testing date of its assets and
liabilities following the procedure that would be required in
determining fair value of assets acquired and liabilities assumed
in a business combination. The amendments in this update are
effective for public companies for annual or any interim goodwill
impairment tests in fiscal years beginning after December 15, 2019.
We are evaluating the impact of adopting this guidance on our
Consolidated Financial Statements.
In
January 2017, the FASB issued ASU 2017-01, Business Combinations
(Topic 805); Clarifying the Definition of a Business. The
amendments in this update clarify the definition of a business to
help companies evaluate whether transactions should be accounted
for as acquisitions or disposals of assets or businesses. The
amendments in this update are effective for public companies for
annual periods beginning after December 15, 2017, including interim
periods within those periods. We are evaluating the impact of
adopting this guidance on our Consolidated Financial
Statements.
In July
2017, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) No. 2017-11,
Earnings Per Share (Topic 260), Distinguishing Liabilities from
Equity (Topic 480), Derivatives and Hedging (Topic 815). The
amendments in Part I of this Update change the classification
analysis of certain equity-linked financial instruments (or
embedded features) with down round features. When determining
whether certain financial instruments should be classified as
liabilities or equity instruments, a down round feature no longer
precludes equity classification when assessing whether the
instrument is indexed to an entity’s own stock. The
amendments also clarify existing disclosure requirements for
equity-classified instruments.
As a
result, a freestanding equity-linked financial instrument (or
embedded conversion option) no longer would be accounted for as a
derivative liability at fair value as a result of the existence of
a down round feature. For freestanding equity classified financial
instruments, the amendments require entities that present earnings
per share (EPS) in accordance with Topic 260 to recognize the
effect of the down round feature when it is triggered. That effect
is treated as a dividend and as a reduction of income available to
common shareholders in basic EPS. Convertible instruments with
embedded conversion options that have down round features are now
subject to the specialized guidance for contingent beneficial
conversion features (in Subtopic 470-20, Debt—Debt with
Conversion and Other Options), including related EPS guidance (in
Topic 260). The amendments in Part II of this Update recharacterize
the indefinite deferral of certain provisions of Topic 480 that now
are presented as pending content in the Codification, to a scope
exception.
Those
amendments do not have an accounting effect. For public business
entities, the amendments in Part I of this Update are effective for
fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2018. Early adoption is permitted for
all entities, including adoption in an interim period. If an entity
early adopts the amendments in an interim period, any adjustments
should be reflected as of the beginning of the fiscal year that
includes that interim period.
The
Company is currently reviewing the impact of adoption of ASU
2017-11on its financial statements.
Kraig
Biocraft Laboratories, Inc.
Notes to Consolidated Financial Statements
As of December 31, 2018 and 2017
All other newly issued accounting pronouncements but not yet
effective have been deemed either immaterial or not
applicable
The
2017 financial statements have been reclassified to conform to the
2018 presentation.
(J) Equipment
The
Company values property and equipment at cost and depreciates these
assets using the straight-line method over their expected useful
life. The Company uses a five year life for
automobiles.
In
accordance with FASB Accounting Standards Codification 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 no impairment losses recorded for the year ended December 31,
2018 and 2017.
(K) 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 December 31, 2018 and
December 31, 2017.
|
°
|
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.
|
Kraig
Biocraft Laboratories, Inc.
Notes to Consolidated Financial Statements
As of December 31, 2018 and 2017
|
|
|
Level
1
|
$
-
|
$
-
|
Level
2
|
$
-
|
$
-
|
Level
3
|
$
-
|
$
-
|
Total
|
$
-
|
$
-
|
(L)
Revenue Recognition
During 2017 and the year ended December 31, 2018 the
Company’s revenues were generated primarily from a contract
with the U.S. Government. The Company performs work under this
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, to that original contract, the Company has worked to develop
new recombinant silks.
Effective January 1, 2018, the Company adopted ASC 606 —
Revenue from Contracts with Customers. Under ASC 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 comparative periods, revenue has
not been adjusted and continues to be reported under ASC 605
— Revenue Recognition. Under ASC 605, revenue is recognized
when the following criteria are met: (1) persuasive evidence of an
arrangement exists;(2) the performance of service has been rendered
to a customer or delivery has occurred; (3) the amount of fee to be
paid by a customer is fixed and determinable; and (4) the
collectability of the fee is reasonably
assured.
For the year ended December 31, 2018 and 2017, the Company
recognized $401,620 and $0 respectively in revenue from the
Government contract. These revenues were generated for work
performed in the development and production of the Company’s
recombinant silks under the base and option period phases of our
ongoing contract with the US Army.
On July 24, 2017, the Company signed a
contract option extension with the US Army to research and deliver
recombinant spider silk fibers and threads. This contract option
increased the total contract award by an additional $921,130 to a
total of $1,021,092 and added 12 months to the contract duration.
This effort was scheduled to end on September 24, 2018, but the
Company requested an extension of this contract option period
through April 2019
to complete the work. The Company has been
in communication with the contracting office and is working with
them as they determine the best path forward.
Management
believes there is a possibility of securing a follow-up contract to
complete the delivery of all materials for the contract. The
Company is also continuing to pursue additional contract
opportunities with the Department of Defense, Department of Energy
and other governmental agencies.
(
M)
Concentration of Credit Risk
The Company at times has cash in banks in excess of FDIC insurance
limits. At December 31, 2018 and December 31, 2017, the Company had
approximately $0 and $0, respectively in excess of FDIC insurance
limits.
At December 31, 2018 and December 31, 2017, the Company had a
concentration of accounts receivable of:
Customer
|
|
|
Customer
A
|
-
|
100
%
|
Customer
A
|
$
-
|
$
25,872
|
For the year ended December 31, 2018 and 2017, the Company had a
concentration of sales of:
Customer
|
|
|
Customer
A
|
100
%
|
0
%
|
Customer
A
|
$
401,620
|
$
--
|
For the
year ended December 31, 2018 and 2017, the Company booked $0 and $0
for doubtful accounts.
Kraig
Biocraft Laboratories, Inc.
Notes to Consolidated Financial Statements
As of December 31, 2018 and 2017
NOTE 2
GOING CONCERN
As
reflected in the accompanying financial statements, the Company has
a working capital deficiency of $4,510,051 and stockholders’
deficiency of $4,459,223 and used $235,005 of cash in operations
for year ended December 31, 2018. This raises
substantial doubt about its ability to continue as a going
concern. The ability of the Company to continue as a
going concern is dependent on the Company’s ability to raise
additional capital and implement its business plan. The
financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going
concern.
Management
believes that actions presently being taken to obtain additional
funding and implement its strategic plans provide the opportunity
for the Company to continue as a going concern.
NOTE 3 EQUIPMENT
At
December 31, 2018 and December 31, 2017, property and equipment,
net, is as follows:
|
|
|
Automobile
|
$
41,805
|
$
41,805
|
Laboratory Equipment
|
73,194
|
61,746
|
Office Equipment
|
7,260
|
7,260
|
Leasehold
Improvements
|
7,938
|
7,938
|
Less: Accumulated
Depreciation
|
(82,887
)
|
(56,255
)
|
Total Property and Equipment,
net
|
$
47,310
|
$
62,494
|
Depreciation
expense for the year ended December 31, 2018 and 2017 was $26,632
and $20,291 respectively.
NOTE 4 ACRRUED INTEREST – RELATED
PARTY
On June
6, 2016, the Company received $50,000 from a principal
stockholder. Subsequently on December 1, 2017, the Company
received an additional $30,000 from a principal stockholder. On
January 8, 2018 and March 31, 2018 the Company received an
additional $100,000 and $15,000, respectively. On April 26,
2018, the Company received $20,000 from a principal stockholder,
$15,000 on June 21, 2018, $15,000 on June 29, 2018, $26,000 on
October 1, 2018, $11,000 on October 12, 2018 and $20,000 on October
21, 2018. Pursuant to the terms of the loan, the advance bears an
interest at 3%, is unsecured, and due on demand. Total loan payable
to principal stockholder for as of December 31, 2018 is $322,000.
Pursuant to the terms of the loans, the advances bear an interest
at 3%, is unsecured and due on demand. During the year ended
December 31, 2018 the Company recorded $11,909 as an in-kind
contribution of interest related to the loan and recorded accrued
interest payable of $7,071. During the year ended December
31, 2017, the Company recorded accrued interest payable of $1,621
and $2,623 as an in-kind contribution of interest related to the
loan.
NOTE 5 STOCKHOLDERS' DEFICIT
(A) Common Stock Issued
for Cash
On
January 25, 2017, the Company issued 2,678,571 share of common
stock for $150,000 ($0.056/share).
On
April 6, 2017, the Company issued 2,083,333 share of common stock
for $100,000 ($0.05/share).
On
June 12, 2017, the Company issued 2,268,603 shares of common stock
for $100,000 ($0.044/share)
On June
15, 2017, the Company issued 2,136,752 shares of common stock for
$100,000 ($0.047/share)
(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
December 30, 2016, the Company recorded 3,906,322 issuable shares
with a fair value of $224,904 ($0.0575/share) to two consultants
for services rendered. Those shares were issued on January 23,
2017.
On
January 25, 2017, the Company issued 750,000 shares of common stock
previously recorded as common stock issuable for the year end
December 31, 2016 (See Note 6 (C)).
Kraig
Biocraft Laboratories, Inc.
Notes to Consolidated Financial Statements
As of December 31, 2018 and 2017
On
April 6, 2018, the Company issued 36,000 shares with a fair value
of $1,076 ($0.0299/share) to a consultant as consideration for
consulting fees owed from October 1, 2014 through December 31, 2018
of $21,000. The issuance of shares resulted in gain on settlement
of accounts payable of $19,924 (See Note 6(B)).
(C)
Common Stock Warrants
On
January 1, 2016, the Company issued 3-year warrant to purchase
6,000,000 shares of common stock at $0.001 per share to a related
party for services to be rendered. The warrants had a fair value of
$142,526, based upon the Black-Scholes option-pricing model on the
date of grant and vested on February 20, 2017, and became
exercisable commencing on February 20, 2018, and for a period
expiring on February 20, 2021. During the year ended December 31,
2016, the Company recorded $17,473 as an expense for warrants
issued to related party.
Expected
dividends
|
0
%
|
Expected
volatility
|
78.58
%
|
Expected
term
|
|
Risk free
interest rate
|
1.32
%
|
Expected
forfeitures
|
0
%
|
On July
26, 2016, the Company issued 4-year warrant to purchase 10,000,000
shares of common stock at $0.001 per share to a consultant for
services rendered. The warrants had a fair value of $365,157, based
upon the Black-Scholes option-pricing model on the date of grant
and are fully vested on the date granted. Warrants became
exercisable on July 26, 2018, and for a period of 4 years expiring
on July 26, 2022. During the years ended December 31, 2016, the
Company recorded $365,157 as an expense for such warrants
issued.
Expected
dividends
|
0
%
|
Expected
volatility
|
93.6
%
|
Expected
term
|
|
Risk free
interest rate
|
1.01
%
|
Expected
forfeitures
|
0
%
|
On July
26, 2016, the Company issued 4-year warrant to purchase 8,000,000
shares of common stock at a price of $0.001 per share to a
consultant for services rendered. The warrants had a fair value of
$292,126, based upon the Black-Scholes option-pricing model on the
date of grant and are fully vested on the date granted. Warrants
became exercisable on July 26, 2018, and for a period of 4 years
expiring on July 26, 2022. During the years ended December 31,
2016, the Company recorded $292,126 as an expense for such warrants
issued.
Expected
dividends
|
0
%
|
Expected
volatility
|
93.60
%
|
Expected
term
|
|
Risk free
interest rate
|
1.01
%
|
Expected
forfeitures
|
0
%
|
On
October 2, 2016, the Company issued 2-year warrant to purchase
2,300,000 shares of common stock at an exercise price of $0.04 per
share to a consultant for services rendered. The warrants had a
fair value of $68,686, based upon the Black-Scholes option-pricing
model on the date of grant and are fully vested on the date
granted. Warrants will become exercisable on August 25, 2019, and
for a period of 2 years expiring on August 25, 2021. During the
year ended December 31, 2016, the Company recorded $68,686 as an
expense for such warrants issued (See Note 6(C)).
Expected
dividends
|
0
%
|
Expected
volatility
|
107.51
%
|
Expected
term
|
|
Risk free
interest rate
|
0.82
%
|
Expected
forfeitures
|
0
%
|
Kraig
Biocraft Laboratories, Inc.
Notes to Consolidated Financial Statements
As of December 31, 2018 and 2017
On
December 8, 2016, the Company issued 4-year warrant to purchase
15,000,000 shares of common stock at an exercise price of $0.001
per share to a consultant for services rendered. The warrants had a
fair value of $630,259, based upon the Black-Scholes option-pricing
model on the date of grant and are fully vested on the date
granted. Warrants became exercisable on June 12, 2017, and for a
period of 2 years expiring on December 8, 2019. During the years
ended December 31, 2016, the Company recorded $630,259 as an
expense for warrants.
On
December 30, 2016, the Company recorded stock issuable of 1,953,161
shares in connection with the cashless exercise of the 1,500,000
warrants. The shares were subsequently issued on January 23,
2017.
On
December 30, 2016, the Company recorded stock issuable of 1,953,161
shares in connection with the cashless exercise of the 1,500,000
warrants. The shares were subsequently issued on January 23,
2017.
On
February 6, 2017, the Company issued 4-year warrant to purchase
750,000 shares of common stock at an exercise price of $0.03 per
share to a consultant for services rendered. The warrants had a
fair value of $44,421, based upon the Black-Scholes option-pricing
model on the date of grant and are fully vested on March 6, 2018 as
long as the employee remains as full time. Warrants will be
exercisable on October 6, 2019, and for a period of 3 years
expiring on October 6, 2022. During the year ended December 31,
2017, the Company recorded $5,161 as an expense for warrants
issued. On May 2, 2017, the Company cancelled a 750,000 share
warrant with a consultant as the consultant was terminated and the
option expense was recaptured by the Company.
Expected
dividends
|
0
%
|
Expected
volatility
|
106.40
%
|
Expected
term
|
|
Risk free
interest rate
|
1.43
%
|
Expected
forfeitures
|
0
%
|
On June
26, 2017, the Company issued 2-year warrant to purchase 15,000,000
shares of common stock at an exercise price of $0.001 per share to
a consultant for services rendered. The warrants had a fair value
of $848,011, based upon the Black-Scholes option-pricing model on
the date of grant and are fully vested on the date granted.
Warrants became exercisable on December 26, 2017, and for a period
of 2 years expiring on June 26, 2019. During the year ended
December 31, 2017, the Company recorded 848,011 as an expense for
warrants issued.
On July
14, 2017 the Company granted 14,745,203 shares in connection with
the cashless exercise of the 15,000,000 warrants. (See Note 6
(C)).
Expected
dividends
|
0
%
|
Expected
volatility
|
106.57
%
|
Expected
term
|
|
Risk free
interest rate
|
1.15
%
|
Expected
forfeitures
|
0
%
|
On
December 27, 2017, the Company issued of 14,651,162 shares in
connection with the cashless exercise of the 15,000,000 warrants.
The shares were issued on December 29, 2017. (See Note 6
(C)).
Expected
dividends
|
0
%
|
Expected
volatility
|
102.65
%
|
Expected
term
|
|
Risk free
interest rate
|
1.38
%
|
Expected
forfeitures
|
0
%
|
On
February 9, 2018, the Company issued 3-year warrant to purchase
3,000,000 shares of common stock at an exercise price of $0.056 per
share to a consultant for services rendered. The warrants had a
fair value of $52,660, based upon the Black-Scholes option-pricing
model on the date of grant and are fully vested on the date
granted. Warrants will be exercisable on August 9, 2019, and
for a period of 2 years expiring on August 9, 2021. During the year
ended December 31, 2018, the Company recorded 52,660 as an expense
for warrants issued.
Kraig
Biocraft Laboratories, Inc.
Notes to Consolidated Financial Statements
As of December 31, 2018 and 2017
Expected
dividends
|
0
%
|
Expected
volatility
|
96.95
%
|
Expected
term
|
|
Risk free
interest rate
|
2.26
%
|
Expected
forfeitures
|
0
%
|
On
March 20, 2018, the Company issued 4-year warrant to purchase
600,000 shares of common stock at an exercise price of $0.001 per
share to a consultant for services rendered. The warrants had a
fair value of $19,915, based upon the Black-Scholes option-pricing
model on the date of grant and are fully vested on March 20,
2018. Warrants will be exercisable on March 20, 2019, and for
a period of 3 years expiring on March 20, 2022. During the year
ended December 31, 2018, the Company recorded $19,915 as an expense
for warrants issued.
Expected
dividends
|
0
%
|
Expected
volatility
|
97.56
%
|
Expected
term
|
|
Risk free
interest rate
|
2.65
%
|
Expected
forfeitures
|
0
%
|
|
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Life (in Years)
|
Balance, December
31, 2017
|
32,800,000
|
|
3.0
|
Granted
|
3,600,000
|
-
|
|
Exercised
|
-
|
-
|
|
Cancelled/Forfeited
|
-
|
-
|
|
Balance, December
31, 2018
|
36,400,000
|
|
2.9
|
Intrinsic
Value
|
$
1,783,600
|
|
|
For the year ended December 31, 2018, the following warrants were
outstanding:
Exercise
Price Warrants Outstanding
|
|
Weighted Average Remaining Contractual
Life
|
Aggregate Intrinsic
Value
|
|
|
|
|
$
0.001
|
31,100,000
|
2.9
|
$
1,523,900
|
$
0.056
|
3,000,000
|
2.6
|
$
147,000
|
$
0.04
|
2,300,000
|
2.7
|
$
112,700
|
For the year ended December 31, 2017 the following warrants were
outstanding:
Exercise Price Warrants Outstanding
|
Warrants Exercisable
|
Weighted Average Remaining Contractual
Life
|
Aggregate Intrinsic Value
|
|
|
|
|
$0.001
|
30,500,000
|
2.5
|
$2,639,000
|
$0.04
|
2,300,000
|
3.1
|
$133,400
|
Kraig
Biocraft Laboratories, Inc.
Notes to Consolidated Financial Statements
As of December 31, 2018 and 2017
(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.
NOTE 6 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 five year period at
an annual salary of $210,000. There is a 6% annual
increase. For the year ending December 31,
2015, the annual salary was $281,027. The employee is
also to receive a 20% bonus based on the annual based
salary. Any stock, stock options bonuses have to be
approved by the board of directors. On January 1, 2016 the
agreement was renewed with the same terms for another 5 years with
an annual salary of $297,889 for the year ended December 31, 2016.
On January 1, 2017 the agreement renewed with the same terms for
another 5 years, but with an annual salary of $315,764 for the year
ended December 31, 2017. On January 1, 2018 the agreement
renewed again with the same terms for another 5 years, but with an
annual salary of $334,708 for the year ended December 31, 2018. As
of December 31, 2018 and December 31, 2017, the accrued salary
balance is $2,109,454 and $1,707,804, respectively. (See Note
7).
On
October 2, 2014, the Company entered into a letter agreement for an
equity line of financing up to $7,500,000 (the
“Letter Agreement”) with Calm Seas Capital, LLC
(“Calm Seas”).
Under
the Letter Agreement, over a 24 month period from the effective
date of a registration statement covering shares issuable to Calm
Seas (the "Effective Date"), we may put to Calm Seas up to an
aggregate of $7,500,000 in shares of our Class A common stock for a
purchase price equal to 80% of the lowest price of our Class A
common stock during the five consecutive trading days immediately
following the date we deliver notice to Calm Seas of our election
to put shares pursuant to the Letter Agreement. We may
put shares bi-monthly. The dollar value that will be
permitted for each put pursuant to the Letter Agreement
will be the lesser of: (A) the product of (i) 200% of the average
daily volume in the US market of our Class A common stock for the
ten trading days prior to the date we deliver our put notice to
Calm Seas multiplied by (ii) the average of the daily closing
prices for the ten (10) trading days immediately preceding the date
we deliver our put notice to Calm Seas, or (B)
$100,000. We will automatically withdraw our put notice
to Calm Seas if the lowest closing bid price used to determine the
purchase price of the put shares is not at least equal to
seventy-five percent (75%) of the average closing “bid”
price for our Class A common stock for the ten (10) trading days
prior to the date we deliver our put notice to Calm Seas.
Notwithstanding the $100,000 ceiling for each bi-monthly put,
as described above, we may at any time request Calm Seas to
purchase shares in excess of such ceiling, either as a part of
bi-monthly puts or as an additional put(s) during such
month. If Calm Seas, in its sole discretion, accepts
such request to purchase additional shares, then we may include the
put for additional shares in our monthly put request or submit an
additional put for such additional shares in accordance with the
procedure set forth above.
The
Letter Agreement will terminate when any of the following events
occur:
●
|
Calm
Seas has purchased an aggregate of $7,500,000 of our Class A common
stock; or
|
●
|
The
second anniversary from the Effective Date.
|
As of December 31, 2018, 78,089,079 shares of class A common stock
were issued pursuant to the Letter Agreement and the Letter
Agreement was terminated passing the second
anniversary
from
the Effective Date.
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
$120,000, which includes salary, health insurance, 401K retirement
plan contributions, etc. The Company also agreed to reimburse Mr.
Rice for his past educational expenses of approximately $11,000. In
addition, Mr. Rice was issued a three-year warrant to purchase
2,000,000 shares of common stock of the Company at an exercise
price of $0.001 per share (the “January 2015 Warrant”)
pursuant to the employment agreement. Additionally, on May 28,
2015, the Company issued a three-year warrant to purchase 3,000,000
shares of common stock of the Company at an exercise price of
$0.001 per share (the "May 20165 Warrant") to Mr. Rice. The
2,000,000 share warrant fully vested on October 28, 2016. For the
year ended December 31, 2015, the Company recorded $121,448 for the
warrants issued to Mr. Rice. On January 14, 2016, the Company
signed a new employment agreement with Mr. Rice. 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
$140,000, which includes salary, health insurance, 401K retirement
plan contributions, etc. In addition, Mr. Rice was issued a
three-year warrant to purchase 6,000,000 shares of common stock of
the Company at an exercise price of $0.001 per share pursuant to
the employment agreement. For the year ended December 31, 2016, the
Company recorded $193,652 for the warrants issued to Mr. Rice in
2016. For the year ended December 31, 2017, the Company recorded
$17,473 for the warrants issued to Mr. Rice in 2016. On January 9,
2018, the Company extended the expiration date of the January 2015
Warrant from January 19, 2018 to January 31, 2020 and on March 15,
2018, the Company signed an extension of its at-will employment
agreement with its COO, extending the term to January 31,
2019. On March 25, 2019, the Company signed an extension of
its at-will employment agreement with its COO, extending the term
to January 1, 2020.
As of December 31, 2018 the
Company owes $24,433 to Mr. Rice for payroll payable.
Kraig
Biocraft Laboratories, Inc.
Notes to Consolidated Financial Statements
As of December 31, 2018 and 2017
(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 $10,000. The Company
will pay a license maintenance fee of $10,000 on the one year
anniversary of this agreement and each year
thereafter. The Company will pay an annual research fee
of $13,700 with first payment due January 2007, then on each
subsequent anniversary of the effective date commencing May 4,
2007. The annual research fees are accrued by the Company for
future payment. Pursuant to the terms of the agreement the Company
may be required to pay additional fees aggregating up to a maximum
of $10,000 a year for patent maintenance and prosecution relating
to the licensed intellectual property.
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 2,200,000 shares of its common
stock and to pay a royalty of 2% of net sales. The license
agreement has a term of 20 years which can be extended on an annual
basis after that. It can be terminated by the University of Notre
Dame if the Company defaults on its obligations under the agreement
and fails to cure such default within 90 days of a written notice
by the university. The Company can terminate the agreement upon a
90 day written notice subject to payment of a termination fee of
$5,000 if the termination takes place within 2 years after its
effectiveness, $10,000 if the termination takes place within 4
years after its effectiveness and $20,000 if the Agreement is
terminated after 4 years. On May 5, 2017 the Company signed
an addendum to that agreement relating to tangible property and
project intellectual property.
(B) Royalty and Research Agreements
On May
1, 2008 the Company entered into a five year consulting agreement
for research and development. Pursuant to the terms of the
agreement, the Company will be required to pay $1,000 per month, or
at the Company’s option, the consulting fee may be paid in
the form of Company common stock based upon the greater of $0.05
per share or the average of the closing price of the
Company’s shares over the five days preceding such stock
issuance. On April 6, 2018, the Company issued 36,000 shares
with a fair value of $1,076 ($0.0299/share) to a consultant as
consideration for consulting fees owed from October 1, 2014 through
December 31, 2018 of $21,000. The issuance of shares resulted in
gain on settlement of accounts payable of $19,924. On April 1,
2018, the Company ended the consulting agreement and no additional
compensation will be issued. (See Note 5
(B)).
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 Accounting Standards
Codification No 480,
Distinguishing Liabilities from Equity
,
the Company determined that the present value of the payment of
$120,000 that was due on December 26, 2007. As
of December 31, 2018 and December 31, 2017, the outstanding
balance is $65,292. As of December 31, 2017, the Company recorded
interest expense and related accrued interest payable of $2,623. In
2018 the Company recorded $1,960 in interest expensed and relted
accrued interest payable. As of December 31, 2018 the Company
recorded interest expense and related accrued interest payable of
$4,583.
On June
6, 2012, the Company entered into a consulting agreement for
intellectual property and collaborative research and development
with The University of Notre Dame.
On March 4, 2015,
the Company entered into a new collaborative research agreements
(
“
2015 Notre Dame Research
Agreement
”
)
extending the duration of the agreement through March 2016; in
February 2016 the agreement was extended to July 31,
2016. Under the agreement the Company will provide
approximately $534,000 in financial support.
In May 2017
this agreement was amended to increase the total funding by
approximately $189,000 and the duration of this agreement was
extended to September 30, 2017. The Company did not extend the
agreement after September 30, 2017. As of December 31, 2018 no new
agreement has been signed.
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
(C) Consulting Agreement
On
August 25, 2016, the Company entered into an agreement with a
consultant to provide consulting services in helping the Company
expand its operations. The agreement commenced on August 25, 2016
and will continue for 18 months. On January 24, 2017, the
Company agreed to continue the agreement and agreed to advance
$10,000 for costs and expenses incurred.
On
December 4, 2016, the Company entered into an agreement with a
consultant to provide investor relations services. The agreement
commenced on December 4, 2016 and will continue for twelve months.
As consideration for the services performed, the Company will issue
750,000 shares with a fair value of $32,850 ($0.0321/share) to this
consultant. For the year ended December 31, 2016, the Company
recorded 750,000 as common stock issuable. Shares were subsequently
issued on January 25, 2017 (See Note 5).
Kraig
Biocraft Laboratories, Inc.
Notes to Consolidated Financial Statements
As of December 31, 2018 and 2017
On June
26, 2017, the Company entered into an agreement with a consultant
to provide investor relations services for nine
months. As consideration for the services performed, the
Company agrees to issue a 2-year warrant to purchase 15,000,000
shares of common stock at a price of $0.001 per share with a
cashless exercise provision. On June 26, 2016, the company issued
such warrant with a fair value of $848,011. On December 27, 2017,
the Company issued of 14,651,162 shares in connection with the
cashless exercise of the 15,000,000 warrants. The shares were
issued on December 29, 2017. (See Note 5 (C)).
On
February 9, 2018, the Company issued a 3-year warrant to purchase
3,000,000 shares of common stock at an exercise price of $0.056 per
share to a consultant for services rendered. The warrants had a
fair value of $52,660, based upon the Black-Scholes option-pricing
model on the date of grant and are fully vested on the date
granted. Warrants will be exercisable on August 9, 2019, and
for a period of 2 years expiring on August 9, 2021. During the year
ended December 31, 2018, the Company recorded 52,660 as an expense
for warrants issued (See Note 5 (C)).
On
February 20, 2018, the Company signed an agreement with a
consultant to provide services. Under this agreement the
consultant will receive a warrant for 600,000 shares of common
stock and may be awarded additional warrants for up to 3,000,000
shares of common stock if performance metrics are achieved. On
March 20, 2018, the Company issued a 4-year warrant to purchase
600,000 shares of common stock at an exercise price of $0.001 per
share to a consultant for services rendered. The warrants had a
fair value of $19,915, based upon the Black-Scholes option-pricing
model on the date of grant and are fully vested on March 20,
2018. Warrants will be exercisable on March 20, 2019, and for
a period of 3 years expiring on March 20, 2022. During the year
ended December 31, 2018, the Company recorded $19,915 as an expense
for warrants issued (See Note 5 (C)).
(D) Operating Lease Agreements
Starting
in February of 2015, we rent additional office space in East
Lansing, Michigan. In July 2015, the Company signed a
new lease for its East Lansing, Michigan office space. On February
1, 2016 the Company signed a six (6) month lease extension for its
East Lansing office. In July 2016 the Company signed a twelve (12)
month lease extension for its East Lansing office. The Company pays
an annual rent of $5,187 for office space, conference facilities,
mail, fax, and reception services. In July 2017 the Company signed
a twelve (12) month lease extension for its East Lansing office.
The Company pays an annual rent of $4,804.68 for office space,
conference facilities, mail, fax, and reception services. In
October 2017 the Company ended this lease.
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 $2,508 for conference
facilities, mail, fax, and reception services located at our
principal place of business.
On June
29, 2016 the Company signed a twelve (12) month lease for new
office space in Vietnam. The Company pays an annual rent of $2,329
for office space and reception services. The company ended this
lease on June 29, 2017.
On
July 19, 2016 the Company signed a month to month lease for a
production facility in Indiana. The Company pays a monthly rent of
$670 for office space light industrial manufacturing space. In
November 2017 the Company ended this lease.
Rent
expense for the year ended December 31, 2018 and 2017 was $41,885
and $19,880, respectively.
On
January 23, 2017 the Company signed an 8 year property lease with
the Company’s President for land in Texas where the Company
grows its mulberry. The Company pays a monthly rent of $960. Rent
expense – related party for the year ended December 31, 2018
and 2017, was $11,520 and $7,680, respectively (See Note
7).
On
September 13, 2017, the Company signed a new two year lease
commencing on October 1, 2017 and ending on September 30, 2019. The
Company pays an annual rent of $39,200 for the year one of lease
and $42,000 for the year two of lease for office and manufacturing
space. For the year ended December 31, 2018 the Company paid
$41,885. For the year ended December 31, 2017 the Company paid
$9,800 for office and manufacturing space.
NOTE 7 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 200,000 preferred shares with the following preferences; no
dividends and voting rights equal to 100 common shares per share of
preferred stock or the payment of $120,000, the officer agreed to
terminate the royalty payments due under the agreement and give
title to the exclusive license for the non-protective apparel use
of the intellectual property to the Company. On the date
of the agreement, the Company did not have any preferred stock
authorized with the required preferences. In accordance with
FASB Accounting Standards Codification No. 480,
Distinguishing Liabilities from Equity
,
the Company determined that the present value of the payment of
$120,000 that was due on December 26, 2007, one year anniversary of
the addendum, should be recorded as an accrued expense until such
time as the Company has the ability to assert that it has preferred
shares authorized. As of December 31, 2017 the
outstanding balance is $65,292. Additionally, the
accrued expenses are accruing 7% interest per year. As
of December 31, 2018, the Company recorded interest expense and
related accrued interest payable of $4,593.
Kraig
Biocraft Laboratories, Inc.
Notes to Consolidated Financial Statements
As of December 31, 2018 and 2017
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 $334,708 for the year ended December 31, 2018. As
of December 31, 2018 and December 31, 2017, the accrued salary
balance is $2,109,454 and $1,707,804, respectively.
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 $140,000, which includes salary, health
insurance, 401K retirement plan contributions, etc. In addition,
Mr. Rice was issued a three-year warrant to purchase 6,000,000
shares of common stock of the Company at an exercise price of
$0.001 per share pursuant to the employment agreement. For the year
ended December 31, 2016, the Company recorded $193,654 for the
warrants issued to Mr Rice. For the year ended December 31, 2017
the Company recorded $17,473 for the warrants issued to Mr. Rice in
2016. On January 9, 2018, the Company extended the expiration date
of a warrant for 2,000,000 shares of common stock from January 19,
2018 to January 31, 2020 for an employee. Additionally, on March
15, 2018, the Company signed an extension of its at-will employment
agreement with its COO.
On
January 1, 2016, the Company issued 3-year warrant for 6,000,000
shares to a related party, with an exercise price of $0.001 per
share. The warrants were granted for services to be rendered. The
warrants had a fair value of $142,526, based upon the Black-Scholes
option-pricing model on the date of grant and vesting on February
20, 2017, and will be exercisable on February 20, 2018, and for a
period expiring on February 20, 2021. During the year ended
December 31, 2017, the Company recorded $17,473 as an expense for
warrants issued to related party.
On June
6, 2016, the Company received $50,000 from a principal
stockholder. Subsequently on December 1, 2017, the Company
received an additional $30,000 from a principal stockholder. On
January 8, 2018 and March 31, 2018 the Company received an
additional $100,000 and $15,000, respectively. On April 26,
2018, the Company received $20,000 from a principal stockholder,
$15,000 on June 21, 2018, $15,000 on June 29, 2018, $26,000 on
October 1, 2018, $11,000 on October 12, 2018 and $20,000 on October
21, 2018. Pursuant to the terms of the loan, the advance bears an
interest at 3%, is unsecured, and due on demand. Total loan payable
to principal stockholder for as of December 31, 2018 is $322,000.
Pursuant to the terms of the loans, the advances bear an interest
at 3%, is unsecured and due on demand. During the year ended
December 31, 2018 the Company recorded $11,909 as an in-kind
contribution of interest related to the loan and recorded accrued
interest payable of $7,071. During the year ended December
31, 2017, the Company recorded accrued interest payable of $1,621
and $2,623 as an in-kind contribution of interest related to the
loan.
On
August 4, 2016 the Company issued a bonus of $20,000 payable to Mr.
Rice if he remains employed with the Company through March 30,
2018.
On
January 23, 2017 the Company signed an 8 year property lease with
the Company’s President for land in Texas. The Company pays
$960 per month starting on February 1, 2017 and uses this facility
to grow mulberry for its U.S. silk operations. Rent expense –
related party for the year ended December 31, 2018 was $7,680 and
$4,800, respectively.
As of
December 31, 2018 and December 31, 2017, there was $247,652 and
$184,439, respectively, included in accounts payable and accrued
expenses - related party, which is owed to the Company’s
Chief Executive Officer and Chief Operations
Officer.
As
of December 31, 2018 there was $940,158 of accrued interest-
related party and $28,135 in shareholder loan interest –
related party included in accounts payable and accrued expenses
– related party, which is owed to the Company’s Chief
Executive officer.
As of
December 31, 2017 there was $732,147 of accrued interest- related
party and $19,111 in shareholder loan interest – related
party included in accounts payable and accrued expenses –
related party, which is owed to the Company’s Chief Executive
officer.
As of
December 31, 2018, the Company owes $2,109,454 in accrued salary to
principal stockholder, $24,433 to the Company’s COO, and
$7,640 to its office employees.
As of
December 31, 2017, the Company owes $1,707,804 in accrued salary to
principal stockholder, $23,354 to the Company’s COO, and
$3,554 to its office employees.
The
Company owes $65,292 in royalty payable to related party as of
December 31, 2018 and December 31, 2017.
NOTE 8 SUBSEQUENT EVENTS
The
Company has analyzed its operations subsequent to December 31, 2018
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 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
14,797,278 Units at a purchase price of $0.06758 per Unit, for
total gross proceeds to the Company of $1,000,000. The Units
consist of 14,797,278 shares of the Company’s Class A Common
Stock (the “Common Stock”) and two warrants (the
“Warrants”): (i) one warrant entitles the investor to
purchase up to 14,797,278 shares of Common Stock at an exercise
price of $0.06 per share (the “6 Cent Warrants”)
and (ii) one warrant entitles the investor to purchase up to
7,398,639 shares of Common Stock at an exercise price of $0.08 per
share (the “8 Cent Warrant”). The Warrants shall be
exercisable at any time from the issuance date until the following
expiration dates:
● ½ of all $0.06 Warrants shares shall expire on March
8, 2021;
●½ of all $0.06 Warrants shall expire on March 8,
2022;
●½ of all $0.08 Warrants shall expire on March 8, 2022;
and,
●½ of all $0.08 Warrants shall expire on March 8,
2023.
The
securities sold in the private placement were issued in reliance on
an exemption from registration under Regulation S of the
Securities Act of 1933, as amended (“Regulation S”).
The bases for the availability of this exemption include the facts
that the sales of the securities were made to a non-U.S. person (as
defined under Rule 902 section
(k)(2)(i) of Regulation S), pursuant to an
offshore transaction, and no directed selling efforts were made in
the United States by the issuer, a distributor, any of their
respective affiliates, or any person acting on behalf of any of the
foregoing.
On
March 20, 2019, the Company issued 4,052,652 shares of its class A
common stock as payment for $243,159 of certain debt owed to the
University of Notre Dame.