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 no cash equivalents as of June 30, 2022 or December 31, 2021.
Loss
Per Share
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, 2022 and December 31, 2021, 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, 2022 and 2021 excludes the common stock equivalents of the following potentially
dilutive securities because their inclusion would be anti-dilutive:
SCHEDULE OF ANTI-DILUTIVE SECURITIES OF EARNINGS PER SHARE
| | |
| | | |
| | |
| | |
June 30, 2022 | | |
December 31, 2021 | |
| | |
| | |
| |
| Stock Warrants (Exercise price - $0.001- $0.25/share) | |
| 54,660,034 | | |
| 48,972,277 | |
| Stock Options (Exercise price - $0.1150/Share) | |
| 26,802,500 | | |
| 26,802,500 | |
| Convertible Debt | |
| 18,172,446 | | |
| 6,470,674 | |
| Convertible Preferred Stock | |
| 2 | | |
| 2 | |
| Total | |
| 99,634,982 | | |
| 82,245,453 | |
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.
Stock-Based
Compensation
The
Company accounts for stock-based compensation for employees and directors in accordance with ASC 718, Compensation (“ASC 718”).
ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement
of operations based on their fair values. Under the provisions of ASC 718, stock-based compensation costs are measured at the grant date,
based on the fair value of the award, and are recognized as expense over the employee’s requisite service period (generally the
vesting period of the equity grant). The fair value of the Company’s common stock options are estimated using the Black Scholes
option-pricing model with the following assumptions: expected volatility, dividend rate, risk free interest rate and the expected life.
The Company expenses stock-based compensation by using the straight-line method. In accordance with ASC 718 and, excess tax benefits
realized from the exercise of stock-based awards are classified as cash flows from operating activities. All excess tax benefits and
tax deficiencies (including tax benefits of dividends on share-based payment awards) are recognized as income tax expense or benefit
in the condensed consolidated statements of operations.
The
Company accounts for stock-based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the
fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable,
using the measurement date guidelines enumerated in ASU 2018-07.
Recent
Accounting Pronouncements
Changes
to accounting principles are established by the FASB in the form of ASU’s to the FASB’s Codification. We consider the applicability
and impact of all ASU’s on our financial position, results of operations, stockholders’ deficit, cash flows, or presentation
thereof. Management has evaluated all recent accounting pronouncements as issued by the FASB in the form of Accounting Standards Updates
(“ASU”) through the date these financial statements were available to be issued and found no recent accounting pronouncements
issued, but not yet effective accounting pronouncements, when adopted, will have a material impact on the financial statements of the
Company.
In
September 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-13, Measurement of Credit Losses on Financial Instruments, which supersedes current guidance by requiring recognition of credit
losses when it is probable that a loss has been incurred. The new standard requires the establishment of an allowance for estimated credit
losses on financial assets including trade and other receivables at each reporting date. The new standard will result in earlier recognition
of allowances for losses on trade and other receivables and other contractual rights to receive cash. In November 2019, the FASB issued
ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842),
which extends the effective date of Topic 326 for certain companies until fiscal years beginning after December 15, 2022. The new standard
will be effective for the Company in the first quarter of fiscal year beginning January 1, 2023, and early adoption is permitted. We
adopted this pronouncement on January 1, 2021; however, the adoption of this standard did not have a material effect on the Company’s
financial statements.
In
December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” This guidance, among other provisions,
eliminates certain exceptions to existing guidance related to the approach for intraperiod tax allocation, the methodology for calculating
income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires
an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period
that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes
on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes
the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax
law. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We adopted
this pronouncement on January 1, 2021; however, the adoption of this standard did not have a material effect on the Company’s financial
statements. However, based on the Company’s history of immaterial credit losses from trade receivables, management does not expect
that the adoption of this standard will have a material effect on the Company’s financial statements.
In
August 2020, FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity; Own Equity (“ASU 2020-06”),
as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or
improving the usefulness of the information provided to users of financial statements. Among other changes, the new guidance removes
from GAAP separation models for convertible debt that require the convertible debt to be separated into a debt and equity component,
unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued at a substantial premium.
As a result, after adopting the guidance, entities will no longer separately present such embedded conversion features in equity and
will instead account for the convertible debt wholly as debt. The new guidance also requires use of the “if-converted” method
when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the Company’s current
accounting treatment under the current guidance. The guidance is effective for financial statements issued for fiscal years beginning
after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the
fiscal year. The Company adopted the guidance under ASU 2020-06 on January 1, 2022. The adoption of this guidance and had no material
impact on the Company’s financial statements.
Equipment
The
Company values property and equipment at cost and depreciates these assets using the straight-line method over their expected useful
life.
In
accordance with FASB ASC No. 360, Property, Plant and Equipment, the Company carries long-lived assets at the lower of the carrying
amount or fair value. Impairment is evaluated by estimating future undiscounted cash flows expected to result from the use of the asset
and its eventual disposition. If the sum of the expected undiscounted future cash flow is less than the carrying amount of the assets,
an impairment loss is recognized. Fair value, for purposes of calculating impairment, is measured based on estimated future cash flows,
discounted at a market rate of interest.
There
were no impairment losses recorded for the three and six months ended June 30, 2022 and 2021.
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, 2022 and 2021. |
| |
|
|
| |
● |
Level
2 - Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets
that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term
of the assets or liabilities. |
| |
|
|
| |
● |
Level
3 - Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities. We consider depleting assets, asset retirement obligations and net profit interest liability to be Level 3.
We determine the fair value of Level 3 assets and liabilities utilizing various inputs, including NYMEX price quotations and contract
terms. |
SCHEDULE OF FAIR VALUE OF FINANCIAL INSTRUMENTS
| | |
| | | |
| | |
| | |
June 30, 2022 | | |
December 31, 2021 | |
| Level 1 – Investment in Gold | |
$ | 431,811 | | |
$ | 437,212 | |
| Level 2 | |
$ | - | | |
$ | - | |
| Level 3 | |
$ | - | | |
$ | - | |
| Total | |
$ | 431,811 | | |
$ | 437,212 | |
The
Board of Directors, who serves as the Custodian, is responsible for the safekeeping of gold bullion owned by the Company.
Fair
value of the gold bullion held by the Company is based on that day’s London Bullion Market Association (“LBMA”) Gold
Price PM. “LBMA Gold Price PM” is the price per fine troy ounce of gold, stated in U.S. dollars, determined by ICE Benchmark
Administration (“IBA”) following an electronic auction consisting of one or more 30-second rounds starting at 3:00 p.m. (London
time), on each day that the London gold market is open for business and published shortly thereafter.
The
following tables summarize activity in gold bullion for the quarter ended June 30, 2022:
SCHEDULE OF GOLD IN BULLION
| Quarter Ended June 30, 2022 | |
Ounces | | |
Cost | | |
Fair Value | |
| | |
| | |
| | |
| |
| Balance December 31, 2021 | |
| 239 | | |
$ | 1,884 | | |
$ | 437,212 | |
| Net change in unrealized gain | |
| - | | |
| - | | |
| (5,401 | ) |
| Ending balance | |
| 239 | | |
$ | 1,884 | | |
$ | 431,811 | |
Revenue
Recognition
Effective
January 1, 2018, the Company adopted ASC No. 606 — Revenue from Contracts with Customers. Under ASC No. 606, the Company recognizes
revenue from the commercial sales of products, licensing agreements and contracts by applying the following steps: (1) identify the contract
with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction
price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
For
the three and six months ended June 30, 2022 and 2021, the Company recognized $0 and $0 respectively in revenue.
Concentration
of Credit Risk
The
Company at times has cash in banks in excess of FDIC insurance limits. At June 30, 2022 and December 31, 2021, the Company had approximately
$4,230,341 and $2,092,420, respectively in excess of FDIC insurance limits.
Original
Issue Discount
For
certain notes issued, the Company provides the debt holder with an original issue discount. The original issue discount is recorded as
a debt discount, reducing the face amount of the note, and is amortized to amortization of original issue discount in the consolidated
statements of operations over the life of the debt.
Debt
Issue Cost
Debt
issuance cost paid to lenders, or third parties are recorded as debt discounts and amortized to interest expense in the consolidated
statements of operations, over the life of the underlying debt instrument.
NOTE
2 GOING CONCERN
As
reflected in the accompanying condensed unaudited financial statements, the Company has a working capital deficiency of $4,293,165 and
stockholders’ deficiency of $3,774,804 and used $960,137 of cash in operations for the six months ended June 30, 2022. 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
June 30, 2022 and December 31, 2021, property and equipment, net, is as follows:
SCHEDULE OF PROPERTY AND EQUIPMENT
| | |
| | | |
| | |
| | |
June 30, 2022 | | |
December 31, 2021 | |
| Automobile | |
$ | 41,805 | | |
$ | 41,805 | |
| Laboratory Equipment | |
| 118,890 | | |
| 118,890 | |
| Office Equipment | |
| 7,260 | | |
| 7,260 | |
| Leasehold Improvements | |
| 82,739 | | |
| 82,739 | |
| Less: Accumulated Depreciation | |
| (154,472 | ) | |
| (139,751 | ) |
| Total Property and Equipment, net | |
$ | 96,222 | | |
$ | 110,943 | |
Depreciation
expense for the three months ended June 30, 2022 and 2021, was $7,270 and $6,778, respectively.
Depreciation
expense for the six months ended June 30, 2022 and 2021, was $14,721 and $13,446, respectively.
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 $2,508 for conference facilities, mail, fax, and reception services located at our principal place
of business.
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 three months ended June 30, 2022 and
2021, was $0 and $3,683, respectively (See Note 9). On April 5, 2021, the Company ended this lease agreement with its President and removed
the associated ROU asset and lease liability of $44,419.
On
September 5, 2019, we signed a two-year lease for a 5,000 square foot property in Lansing, MI that commenced on October 1, 2019 and ends
on September 30, 2021, for its research and development headquarters. We pay an annual rent of $42,000 for year one of the lease and
will pay $44,800 for year two of the lease. On April 16, 2021, the Company signed a two year amendment to this lease. Commencing on July
1, 2021 and ending on September 30, 2022, the Company will pay an annualized rent of $42,000. From October 1, 2022 through September
30, 2023, the Company will pay an annual rent of $44,800. The Company recorded ROU asset of $79,862 and lease liability of $79,862 in
accordance with the adoption of the new guidance.
On
May 9, 2019 the Company signed a 5 year property lease with the Socialist Republic of Vietnam which consists of 4,560.57 square meters
of space, which it leases at a current rent of approximately $45,150 per year one and two and with the 5% increase per year for years
three through five. On July 1, 2021, the Company ended this lease agreement, and the company recovered the associated ROU asset and lease
liability of $241,800.
On
July 1, 2021, the Company signed a 5-year property lease with the Socialist Republic of Vietnam which consists of 6,000 square meters
of space, which it leases at a current rent of approximately $8,645 per year.
Right
to use assets is summarized below:
SCHEDULE OF RIGHT USE OF ASSETS
| | |
| | |
| | |
June 30, 2022 | |
| Right to use assets, net | |
| 51,381 | |
| Right to use assets, net | |
| 30,545 | |
| Total | |
$ | 81,926 | |
During
the six months ended June 30, 2022, the Company recorded $27,275 as lease expense to current period operations.
Lease
liability is summarized below:
SCHEDULE OF LEASE LIABILITY
| | |
| | |
| | |
June 30, 2022 | |
| Operating lease liability, net | |
| 52,430 | |
| Operating lease liability, net | |
| 30,545 | |
| Total | |
| 82,975 | |
| Less: short term portion | |
| (47,811 | ) |
| Long term position | |
$ | 35,164 | |
Lease
expense for the six months ended June 30, 2022 was comprised of the following:
SCHEDULE OF LEASE EXPENSES
| | |
| | |
| Operating lease expense | |
$ | 11,477 | |
| Operating lease expense | |
$ | 2,161 | |
NOTE
5 ACCRUED INTEREST – RELATED PARTY
On
June 6, 2016, the Company received a $50,000
loan from our principal stockholder. Subsequently
on December 1, 2017, the Company received an additional $30,000
loan from the same stockholder. On January 8,
2018 and March 31, 2018, the Company received an additional loan of $100,000
and $15,000,
respectively. The Company received additional loan funds from the same stockholder as follows: $20,000
on April 26, 2018; $15,000
on June 21, 2018; $15,000
on June 29, 2018; $20,000
on July 5, 2018; $26,000
on October 1, 2018; $11,000
on October 12, 2018; $20,000
on December 21, 2018; $3,000
on January 4, 2019; $30,000
on January 17, 2019; $30,000
on February 1, 2019; $20,000
on February 15, 2019; $20,000
on March 1, 2019; $17,000
on January 4, 2019, $100,000
on November 20, 2019, $100,000
on December 18, 2019, $100,000
on January 24, 2020, $100,000
on February 19, 2020 $100,000
on March 9, 2020, $100,000
on April 8, 2020, $150,000
on June 3, 2020, $100,000
on July 16, 2020, $100,000
on August 12, 2020,$100,000
on September 10, 2020, $30,000
on October 19, 2020, $30,000
on November 4, 2020, $35,000
on November 17, 2020 and $70,000
on December 1, 2020. Pursuant to the terms of
the loan, the advances bear an interest at 3%,
is unsecured, and due on demand.
On
January 26, 2022, the Company repaid $40,000 of the outstanding loan to its principal stockholder.
Total
loan payable to principal stockholder for as of June 30, 2022 is $1,617,000.
Total
loan payable to this principal stockholder as of December 31, 2021 is $1,657,000.
During
the six months ended June 30, 2022, the Company recorded $40,093 as an in-kind contribution of interest related to the loan and recorded
accrued interest payable of $27,267.
During
the six months ended June 30, 2021, the Company recorded $41,085 as an in-kind contribution of interest related to the loan and recorded
accrued interest payable of $26,662.
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 $265,244 in
exchange for outstanding account payable due to the debtor. Pursuant to the terms of the note, the note bears 10% interest per year from
the date of default until the date the loan is paid in full. The term of the loan is twenty-four months. The loan repayment commenced
immediately over a twenty-four month period according to the following table. During the six months ended June 30, 2022, the Company
paid $30,000 of the loan balance (See Note 8 (A)):
1.
$1,000 per month for the first six months;
2.
$2,000 per month for the months seven and eight;
3.
$5,000 per month for months nine through twenty-three; and,
4.
Final payment of all remaining balance, in the amount of $180,224 in month 24.
On
July 8, 2021, the Company entered into an amendment to the March 1, 2019 agreement. As of the date of the amendment, the remaining outstanding
balance is $180,244. The loan repayment commenced immediately following the amendment and will extend over a fourteen-month period with
the following terms:
| 1. |
$5,000
per month for months one through thirteen. |
| 2. |
Final
payment of the remaining balance in the amount of $115,244 split into two equal payments, of which $57,622 to be paid in month fourteen
and $57,622 paid in month twenty. |
NOTE
7 CONVERTIBLE NOTES
The
Company issued a $1,000,000, thirteen-month (13), unsecured, convertible note on December 11, 2020, which is due January 11, 2022. The
convertible note bears interest at 10%, with a 5% original issue discount ($50,000), resulting in net proceeds of $950,000. The note
contains a discount to market feature, whereby, the lender can purchase stock at 90% of the lowest trading price for a period of ten
(10) days preceding the conversion date.
Additionally,
the Company issued 3,125,000 five-year (5) warrants. The warrants had a fair value of $2,599,066, based upon using a black-scholes option
pricing model with the following inputs:
SCHEDULE OF FAIR VALUE WARRANTS
| Stock Price | |
$ | 0.14 | |
| Exercise price | |
$ | 0.16 | |
| Expected term (in years) | |
| 5 | |
| Expected volatility | |
| 60.64 | % |
| Annual rate of quarterly dividends | |
| 0 | % |
| Risk free interest rate | |
| 0.10 | % |
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 $1,000,000, and was recorded on the commitment date. The discount is amortized to amortization of debt discount over
the life of the underlying convertible note.
The
Company also paid $86,000 as a debt issuance cost to a placement agent for services rendered. These costs are considered to be a component
of the total debt discount.
On
March 25, 2021, the Company entered into one year, unsecured, convertible note in the aggregate principal amount of $4,000,000 for which
the first convertible debenture for $500,000, a one year, unsecured, convertible note on March 25, 2021, which is due March 25, 2022.
The convertible note bears interest at 10%. The note contains a discount to market feature, whereby, the lender can purchase stock at
80% of the lowest trading price for a period of ten (10) days preceding the conversion date. The second convertible debenture of $500,000
was issued on April 6, 2021 and the third convertible debenture of $3,000,000 was issued on April 22, 2021.
Additionally,
the Company issued 8,000,000 five-year (5) warrants. The warrants had a fair value of $3,359,716, based upon using a black-scholes option
pricing model with the following inputs:
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 $3,670,000, and was recorded on the commitment date. The discount is amortized to amortization of debt discount over
the life of the underlying convertible note.
The
Company also paid $330,000 as a debt issuance cost to a placement agent for services rendered. These costs are a component of the total
debt discount.
On
January 21, 2022, the Company issued 3,935,417 shares of Common Stock in exchange for conversion of $250,000 of principle balance on
a convertible debenture and $2,260 of accrued interest. Accordingly, no gain or loss was recognized upon debt conversion.
On
January 31, 2022, the Company issued 4,569,059 shares of Common Stock in exchange for conversion of $250,000 of principle balance on
a convertible debenture and $42,877 of accrued interest. Accordingly, no gain or loss was recognized upon debt conversion.
On
February 16, 2022, the Company issued 3,924,443 shares of Common Stock in exchange for conversion of $250,000 of principle balance on
a convertible debenture and $1,164 of accrued interest. Accordingly, no gain or loss was recognized upon debt conversion.
As
of June 30, 2022, the above two notes were fully converted, with the no remaining balance due.
The
Company issued a $1,500,000, thirteen-month (13), unsecured, convertible note on January 18, 2022, which is due February 18, 2023. The
convertible note bears interest at 10%, with a original issue discount ($10,000), resulting in net proceeds of $1,490,000. The note contains
a discount to market feature, whereby, the lender can purchase stock at 85% of the lowest trading price for a period of ten (10) days
preceding the conversion date.
Additionally,
the Company issued 12,000,000 five-year (5) warrants with an exercise price of $0.12 per share, and 4,285,714 warrants with an exercise
price of $0.14 per share during the three months ended June 30, 2022. The warrants had a fair value of $1,071,437, based upon using a
black-scholes option pricing model with the following inputs:
The
Company has determined that ASC 815 does not apply since the Company has unlimited authorized shares, which in turn satisfies the requirement
of having sufficient authorized shares available to settle any potential instruments that may require physical net-share settlement.
In
connection with $1,500,000 in note issued, the Company issued 16,785,714 warrants, which are accounted for as debt issue costs, having
a fair value of $625,003. The debt issue costs is amortized over the life of the underlying convertible note.
The
Company also paid $115,000 as a debt issuance cost to a placement agent for services rendered. These costs are considered to be a component
of the total debt discount.
On
April 14, 2022, the Company issued 2,358,380 shares of Common Stock in exchange for conversion of $150,000 of principle balance on a
convertible debenture and $1,644 of accrued interest. Accordingly, no gain or loss was recognized upon debt conversion.
On
April 29, 2022, the Company issued 4,272,417 shares of Common Stock in exchange for conversion of $250,000 of principle balance on a
convertible debenture and $5,918 of accrued interest. Accordingly, no gain or loss was recognized upon debt conversion.
On
May 17, 2022, the Company issued 3,628,325 shares of Common Stock in exchange for conversion of $200,000 of principle balance on a convertible
debenture and $5,726 of accrued interest. Accordingly, no gain or loss was recognized upon debt conversion.
On
June 6, 2022, the Company issued 3,549,793 shares of Common Stock in exchange for conversion of $200,000 of principle balance on a convertible
debenture and $5,178 of accrued interest. Accordingly, no gain or loss was recognized upon debt conversion.
On
June 14, 2022, the Company issued 2,902,922 shares of Common Stock in exchange for conversion of $100,000 of principle balance on a convertible
debenture and $60,822 of accrued interest. Accordingly, no gain or loss was recognized upon debt conversion.
On
June 21, 2022, the Company issued 3,393,979 shares of Common Stock in exchange for conversion of $150,000 of principle balance on a convertible
debenture and $3,068 of accrued interest. Accordingly, no gain or loss was recognized upon debt conversion.
On
June 30, 2022, the Company issued 3,401,877 shares of Common Stock in exchange for conversion of $150,000 of principle balance on a convertible
debenture and $3,425 of accrued interest. Accordingly, no gain or loss was recognized upon debt conversion.
The
Company issued a $1,500,000, thirteen-month (13), unsecured, convertible note on April 11, 2022, which is due May 11, 2023. The convertible
note bears interest at 10%. The note contains a discount to market feature, whereby, the lender can purchase stock at 85% of the lowest
trading price for a period of ten (10) days preceding the conversion date.
The
Company also paid $115,000 as a debt issuance cost to a placement agent for services rendered. These costs are considered to be a component
of the total debt discount.
The
following represents a summary of the Company’s convertible debt at June 30, 2022:
SUMMARY OF CONVERTIBLE DEBT
Convertible
Note Payable
| | |
Amounts | | |
In-Default | |
| Balance – December 31, 2021 | |
$ | 503,423 | | |
$ | - | |
| Proceeds – net | |
| 3,000,000 | | |
| - | |
| Debt discount and issue costs recorded | |
| (865,000 | ) | |
| - | |
| Conversion of debt into common shares | |
| (1,950,000 | ) | |
| | |
| Amortization of debt discount | |
| 536,701 | | |
| - | |
| Balance – June 30, 2022 | |
$ | 1,225,124 | | |
$ | - | |
Accrued
Interest Payable
| | |
Amounts | | |
In-Default | |
| Balance – December 31, 2021 | |
$ | 31,657 | | |
$ | - | |
| Interest Expense June 30, 2022 | |
| 236,151 | | |
| - | |
| Interest conversion into common shares | |
| (132,082 | ) | |
| | |
| Balance – June 30, 2022 | |
$ | 135,726 | | |
$ | - | |
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 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 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. |
On
March 2, 2021, the Company determined to amend and extend the expiration of the warrants expiring on March 8, 2021 as follows:
| |
● |
1,479,728
shares of all $0.06 Warrants shall expire on March 8, 2021. |
| |
● |
1,479,728
shares of all $0.06 Warrants shall expire on May 8, 2021 |
| |
● |
1,479,728
shares of all $0.06 Warrants shall expire on July 8, 2021. On June 24, 2021, the Company determined to amend and extend the expiration
of warrants expiring on July 8, 2021, to December 8, 2021. |
| |
● |
1,479,728
shares of all $0.06 Warrants shall expire on September 8, 2021. As of December 31, 2021, the warrants have expired. |
| |
● |
1,479,727
shares of all $0.06 Warrants shall expire on November 8, 2021. As of December 31, 2021, the warrants have expired. |
On
February 15, 2022, the Company issued 7,398,639 shares of Common stock in connection with the exercise of 7,398,639 warrants for $443,918
(See Note 8 (B)).
On
February 15, 2022, the Company issued 3,699,320 shares of Common stock in connection with the exercise of 3,699,320 warrants for $295,946
(See Note 8 (B)).
(B)
Common Stock Warrants and Options
On
February 15, 2022, the Company issued 7,398,639 shares of Common stock in connection with the exercise of 7,398,639 warrants for $443,918
(See Note 8 (C)).
On
February 15, 2022, the Company issued 3,699,320 shares of Common stock in connection with the exercise of 3,699,320 warrants for $295,946
(See Note 8 (C)).
On
April 11, 2022, the Company extended the expiration date of the warrant issued on May 28, 2015 to May 27, 2025. No additional expense
was recorded.
On
January 25, 2021, the Company issued a 7-year option to purchase 2,500,000
shares of common stock at an exercise price of $0.134
per share to a related party for services rendered. The options had a fair value of $310,165,
based upon the Black-Scholes option-pricing model on the date of grant. Options
vest 33.3% on the year one anniversary of the grant date, 33.3% will vest on the second anniversary, and 33.3% will vest on the
third year anniversary as long as the employee remains with the Company at the end of each successive year for three years.
Options will be exercisable on January 25, 2021, and for a period of 7 years expiring on January 25, 2028. During the six months
ended June 30, 2022 the Company recorded $51,363
as an expense for options issued.
SCHEDULE OF OPTION ASSUMPTION
| Expected dividends | |
| 0 | % |
| Expected volatility | |
| 133.22 | % |
| Expected term | |
| 7 years | |
| Risk free interest rate | |
| 1.46 | % |
| Expected forfeitures | |
| 0 | % |
On
February 19, 2020 the Company issued a 10-year option to purchase 6,000,000 shares of common stock at an exercise price of $0.115 per
share to a related party for services rendered. The options had a fair value of $626,047, based upon the Black-Scholes option-pricing
model on the date of grant and 2,000,000 options are fully vested on the date granted and 1,000,000 options vest at the end of each successive
year for four years. Options will be exercisable on February 19, 2021, and for a period of 10 years expiring on February 19, 2030. During
the six months ended June 30, 2022, the Company recorded $51,706 as an expense for options issued.
On
February 19, 2020 the Company issued a 7-year option to purchase 1,340,000 shares of common stock at an exercise price of $0.115 per
share to employees for services rendered. The options had a fair value of $133,063, based upon the Black-Scholes option-pricing model
on the date of grant and 268,000 options are fully vested on the date granted and the remaining option vest equally over the remaining
4 years at the end of each successive year. Options will be exercisable on February 19, 2021, and for a period of 6 years expiring on
February 19, 2027. During the six months ended June 30, 2022, the Company recorded $15,711 as an expense for options issued
SCHEDULE OF WARRANTS ACTIVITY
| | |
Number of Warrants | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Life (in Years) | |
| Balance, December 31, 2021 | |
| 48,972,279 | | |
| - | | |
| 2.64 | |
| Granted | |
| 16,785,714 | | |
| - | | |
| - | |
| Exercised | |
| (11,097,959 | ) | |
| - | | |
| - | |
| Cancelled/Forfeited | |
| - | | |
| - | | |
| - | |
| Balance, June 30, 2022 | |
| 54,660,032 | | |
| - | | |
| 3.65 | |
| Intrinsic Value | |
$ | 701,000 | | |
| | | |
| | |
For
the six months ended June 30, 2022, the following warrants were outstanding:
SCHEDULE OF WARRANTS OUTSTANDING
Exercise Price
Warrants
Outstanding | | |
Warrants
Exercisable | | |
Weighted Average
Remaining
Contractual Life | | |
Aggregate
Intrinsic Value | |
| $ | 0.001 | | |
| 11,000,000 | | |
| 3.94 | | |
$ | 651,000 | |
| $ | 0.056 | | |
| 1,000,000 | | |
| 3.02 | | |
$ | 4,000 | |
| $ | 0.04 | | |
| 2,300,000 | | |
| 4.26 | | |
$ | 46,000 | |
| $ | 0.08 | | |
| 3,699,320 | | |
| 0.68 | | |
$ | - | |
| $ | 0.2299 | | |
| 8,250,000 | | |
| 2.72 | | |
$ | - | |
| $ | 0.16 | | |
| 3,125,000 | | |
| 3.45 | | |
$ | - | |
| $ | 0.25 | | |
| 8,000,000 | | |
| 3.73 | | |
$ | - | |
| $ | 0.1160 | | |
| 500,000 | | |
| 3.02 | | |
$ | - | |
| $ | 0.12 | | |
| 12,500,000 | | |
| 4.55 | | |
$ | - | |
| $ | 0.14 | | |
| 4,285,714 | | |
| 4.55 | | |
$ | - | |
For
the year ended December 31, 2021, the following warrants were outstanding:
Exercise Price
Warrants
Outstanding | | |
Warrants
Exercisable | | |
Weighted Average
Remaining
Contractual Life | | |
Aggregate
Intrinsic Value | |
| $ | 0.001 | | |
| 11,000,000 | | |
| 3.07 | | |
$ | 913,900 | |
| $ | 0.056 | | |
| 1,000,000 | | |
| 3.52 | | |
$ | 27,900 | |
| $ | 0.04 | | |
| 2,300,000 | | |
| 4.75 | | |
$ | 100,970 | |
| $ | 0.06 | | |
| 7,398,639 | | |
| 0.18 | | |
$ | 176,827 | |
| $ | 0.08 | | |
| 3,699,320 | | |
| 0.18 | | |
$ | 14,427 | |
| $ | 0.08 | | |
| 3,699,320 | | |
| 1.18 | | |
$ | 14,427 | |
| $ | 0.2299 | | |
| 8,250,000 | | |
| 3.21 | | |
$ | - | |
| $ | 0.16 | | |
| 3,125,000 | | |
| 4.95 | | |
$ | - | |
| $ | 0.25 | | |
| 8,000,000 | | |
| 4.23 | | |
$ | - | |
| $ | 0.1160 | | |
| 500,000 | | |
| 3.52 | | |
$ | - | |
For
the six months ended June 30, 2022, the following options were outstanding:
SCHEDULE OF OPTIONS OUTSTANDING
| | | |
| | |
| | |
Weighted Average | |
| Exercise | | |
Options | | |
Options | | |
Remaining | |
| Price | | |
Outstanding | | |
Exercisable | | |
Contractual Life | |
| | | | |
| | | |
| | | |
| | |
| $ | 0.115 | | |
| - | | |
| 26,802,500 | | |
| 18.621 | |
For
the year ended December 31, 2021, the following options were outstanding:
| | | |
| | |
| | |
Weighted Average | |
| Exercise | | |
Options | | |
Options | | |
Remaining | |
| Price | | |
Outstanding | | |
Exercisable | | |
Contractual Life | |
| | | | |
| | | |
| | | |
| | |
| $ | 0.115 | | |
| - | | |
| 26,802,500 | | |
| 19.11 | |
(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
June 30, 2022, the Company issued 3,401,877 shares of Common Stock in exchange for conversion of $150,000 of principle balance on a convertible
debenture and $3,425 of accrued interest. Accordingly, no gain or loss was recognized upon debt conversion.
On
June 21, 2022, the Company issued 3,393,979 shares of Common Stock in exchange for conversion of $150,000 of principle balance on a convertible
debenture and $3,068 of accrued interest. Accordingly, no gain or loss was recognized upon debt conversion.
On
June 14, 2022, the Company issued 2,902,922 shares of Common Stock in exchange for conversion of $100,000 of principle balance on a convertible
debenture and $60,822 of accrued interest. Accordingly, no gain or loss was recognized upon debt conversion.
On
June 6, 2022, the Company issued 3,549,793 shares of Common Stock in exchange for conversion of $200,000 of principle balance on a convertible
debenture and $5,178 of accrued interest. Accordingly, no gain or loss was recognized upon debt conversion.
On
May 17, 2022, the Company issued 3,628,325 shares of Common Stock in exchange for conversion of $200,000 of principle balance on a convertible
debenture and $5,726 of accrued interest. Accordingly, no gain or loss was recognized upon debt conversion.
On
April 14, 2022, the Company issued 2,358,380 shares of Common Stock in exchange for conversion of $150,000 of principle balance on a
convertible debenture and $1,644 of accrued interest. Accordingly, no gain or loss was recognized upon debt conversion.
On
April 29, 2022, the Company issued 4,272,417 shares of Common Stock in exchange for conversion of $250,000 of principle balance on a
convertible debenture and $5,918 of accrued interest. Accordingly, no gain or loss was recognized upon debt conversion.
On
February 16, 2022, the Company issued 3,924,443 shares of Common Stock in exchange for conversion of $250,000 of principle balance on
a convertible debenture and $1,164 of accrued interest.
On
January 21, 2022, the Company issued 3,935,417 shares of Common Stock in exchange for conversion of $250,000 of principle balance on
a convertible debenture and $2,260 of accrued interest.
On
January 31, 2022, the Company issued 4,569,059 shares of Common Stock in exchange for conversion of $250,000 of principle balance on
a convertible debenture and $42,877 of accrued interest.
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 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, 2019
the agreement renewed again with the same terms for another 5 years. On January 1, 2022 the agreement renewed again with the same terms,
but with an annual salary of $422,561 for the year ended December 31, 2022. As of June 30, 2022 and 2021, the accrued salary balance
is $2,986,550 and $2,991,191, respectively (See Note 10).
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 2015 Warrant”)
to Mr. Rice. The May 2015 warrant fully vested on October 28, 2016 and will expire on May 28, 2022. 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 (the “May 2016 Warrant”). The
May 2016 warrant fully vested on February 20, 2017 and will expire on May 20, 2026. 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 January 10, 2020 the Company extended the expiration
date of the January 2015 warrant to January 10, 2025 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. On March 5, 2021, the Company signed an extension of its at-will employment
agreement with its COO, extending the term to January 1, 2022. On February 25, 2022, the Company signed an extension of its at-will employment
agreement with its COO, extending the term to January 1, 2023. On August 8, 2019, Mr. Rice was issued a set of three five-year warrants
to purchase a total of 6,000,000 shares of common stock of the Company at an exercise price of $0.2299 per share pursuant to the employment
agreement. On April 26, 2019, the Company signed an agreement to increase Mr. Rice’s base salary by $20,000 per year and issue
a one-time $20,000 bonus. Additionally, on August 15, 2019, the Company signed an agreement to increase Mr. Rice’s base salary
by an additional $20,000 per year.
As
of June 30, 2022 and December 31, 2021, the Company owes $2,663 and $3,195, respectively, to Mr. Rice for payroll payable.
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 $60,000. In addition, Mr. Le was issued
two three-year warrants to purchase 2,000,000 shares of common stock of the Company at an exercise price of $0.2299 per share. As of
June 30, 2022 and December 31, 2021, the accrued salary balance is $888 and $1,065, respectively.
(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. On March 1, 2019, the Company singed an addendum to that agreement. The Company entered into a separate
loan agreement and promissory noted dated March 1, 2019 as a payment for expenses paid by the University prior to January 31, 2019 totaling
$265,244 and issued 4,025,652 shares of Class A common stock with a fair value of $281,659 as payment of certain debt. In the event of
default the license agreement will be terminated. During the six months ended June 30, 2022, the Company paid $30,000 of the balance
(See Notes 6).
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 $120,000 that was due on December 26, 2007. As of June 30, 2022 and December 31, 2021, the outstanding balance is $65,292.
For the six months ended June 30, 2022, the Company recorded $980 in interest expensed and related accrued interest payable.
(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 $2,508 for conference facilities, mail, fax, and reception services located at our principal place
of business.
On
May 9, 2019, the Company signed a 5 year property lease with the Socialist Republic of Vietnam which consists of 4,560.57 square meters
of space, which it leases at a current rent of approximately $45,150 per year one and two and with the 5% increase per year for years
three through five. On July 1, 2021, the Company ended this lease agreement and entered into a new agreement effective July 1, 2021.
On
July 1, 2021, the Company signed a 5 year property lease with the Socialist Republic of Vietnam which consists of 6,000 square meters
of space, which it leases at a current rent of approximately $8,645 per year.
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 years ended December 31, 2021 and 2020,
was $3,683 and $6,263, respectively (See Note 10). On April 5, 2021, the Company ended this lease agreement with its President.
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 $39,200 for the year one of lease and $42,000 for the year two of lease for office and manufacturing
space. On September 5, 2019, the Company signed a new two-year lease for this 5,000 square foot property in Lansing, MI that commenced
on October 1, 2019 and ends on September 30, 2021, for its research and development headquarters. The Company pays an annual rent of
$42,000 for year one of the lease and $44,800 for year two of the lease. On April 16, 2021, the Company signed a two year amendment to
this lease. Commencing on July 1, 2021 and ending on September 30, 2022, the Company will pay an annualized rent of $42,000. From October
1, 2022 through September 30, 2023, the Company will pay an annual rent of $44,800.
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 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 ASC 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, 2021 the outstanding
balance is $65,292. Additionally, the accrued expenses are accruing 7% interest per year. As of June 30, 2022, the Company recorded interest
expense and related accrued interest payable of $980.
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 $422,561
for the year ended December 31, 2022. As of June 30, 2022 and 2021, the accrued salary balance is $2,986,550 and $2,991,191, 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. 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 and on January 10, 2020, the Company extended the expiration date of the warrant
to January 10, 2025 for Mr. Rice. Additionally, on March 15, 2018, the Company signed an extension of its at-will employment agreement
with its COO. On March 5, 2021, the Company signed an extension of its at-will employment agreement with its COO extending until January
1, 2022. On April 26, 2019, the Company signed an agreement to increase Mr. Rice’s base salary by $20,000 per year and issue a
one-time $20,000 bonus. Additionally, on August 15, 2019, the Company signed an agreement to increase Mr. Rice’s base salary by
an additional $20,000 per year.
As
of June 30, 2022 and December 31, 2021, the Company owes $2,663 and $3,195, respectively, to Mr. Rice for payroll payable.
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 $60,000. In addition, Mr. Le was issued
two three-year warrants to purchase 2,000,000 shares of common stock of the Company at an exercise price of $0.2299 per share. As of
June 30, 2022 and December 31, 2021, the accrued salary balance is $888 and $1,065, respectively.
June
6, 2016, the Company received a $50,000 loan from our principal stockholder. Subsequently on December 1, 2017, the Company received an
additional $30,000 loan from the same stockholder. On January 8, 2018 and March 31, 2018 the Company received an additional loan of $100,000
and $15,000, respectively. The Company received additional loan funds from the same stockholder as follows: $20,000 on April 26, 2018;
$15,000 on June 21, 2018; $15,000 on June 29, 2018; $20,000 on July 5, 2018; $26,000 on October 1, 2018; $11,000 on October 12, 2018;
$20,000 on December 21, 2018; $3,000 on January 4, 2019; $30,000 on January 17, 2019; $30,000 on February 1, 2019; $20,000 on February
15, 2019; $20,000 on March 1, 2019; $17,000 on January 4, 2019, $100,000 on November 20, 2019, $100,000 on December 18, 2019, $100,000
on January 24, 2020, $100,000 on February 19, 2020, $100,000 on March 9, 2020, $100,000 on April 8, 2020, $150,000 on June 3, 2020, $100,000
on July 16, 2020, $100,000 on August 12, 2020,$100,000 on September 10, 2020, $30,000 on October 19, 2020, $30,000 on November 4, 2020,
$35,000 on November 17, 2020 and $70,000 on December 1, 2020. Pursuant to the terms of the loan, the advance bears an interest at 3%,
is unsecured, and due on demand.
On
January 26, 2022, the Company repaid $40,000 of the outstanding loan to its principal stockholder.
Total
loan payable to principal stockholder for as of June 30, 2022 is $1,617,000.
Total
loan payable to this principal stockholder as of December 31, 2021 is $1,657,000.
During
the six months ended June 30, 2022, the Company recorded $40,093 as an in-kind contribution of interest related to the loan and recorded
accrued interest payable of $27,267.
During
the six months ended June 30, 2021, the Company recorded $41,085 as an in-kind contribution of interest related to the loan and recorded
accrued interest payable of $26,662.
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 three months ended June 30, 2022 and 2021 was $0 and $3,273, respectively. The Company ended this lease on April 5,
2021.
As
of June 30, 2022 and December 31, 2021, there was $351,054 and $347,156, 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 June 30, 2022 there was $1,859,901 of accrued interest- related party and $163,175 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, 2021, there was $1,703,019 of accrued interest- related party and $135,908 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 June 30, 2022, the Company owes $2,986,550 in accrued salary to its principal stockholder, $2,663 to the Company’s COO, $888
to Director of Prodigy Textiles and $27,493 to its office employees.
As
of December 31, 2021, the Company owes $2,991,191 in accrued salary to its principal stockholder, $3,195 to the Company’s COO,
$1,065 to Director of Prodigy Textiles and $24,048 to its office employees.
The
Company owes $65,292 in royalty payable to related party as of June 30, 2022 and December 31, 2021.
NOTE
11 SUBSEQUENT EVENTS
The
Company has analyzed its operations subsequent to August 1, 2022 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 15, 2022, the Company signed an agreement with Global Silk Solutions Joint Stock Company (GSS). Under this agreement, GSS will serve
as a contract manufacturer for the Company’s recombinant spider silk.
On
July 19, 2022, the Company issued 4,364,987 shares of Common Stock in exchange for conversion of $200,000 of principle balance on a convertible
debenture and $6,027 of accrued interest.
