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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For The Fiscal Year Ended December 31, 2023

 

TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File No. 000-56232

 

KRAIG BIOCRAFT LABORATORIES, INC.

(Exact name of issuer as specified in its charter)

 

Wyoming   83-0459707

(State or Other Jurisdiction

of Incorporation)

 

(I.R.S. Employer

Identification No.)

 

2723 South State St. Suite 150

Ann Arbor, Michigan 48104

  (734) 619-8066
(Address of Principal Executive Offices)   (Registrant’s Telephone Number)

 

Securities registered under Section 12(b) of the Exchange Act: None.

 

Securities registered under Section 12(g) of the Exchange Act: Class A Common Stock, no par value.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer Smaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officer during the relevant recovery period pursuant to Section 240.10D-1(b). ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on June 30, 2023 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $42,268,343. The aggregate market value was computed by reference to the last sale price ($0.041) price per share) of such common equity as of that date.

 

As of April 1, 2024, the registrant had 1,038,374,219 shares of common stock issued and outstanding.

 

 

 

 

 

 

INTRODUCTORY NOTE

 

“Kraig”, “Kraig Biocraft” “KBLB”, “the Company”, “we”, “us” and “our” refer to Kraig Biocraft Laboratories, Inc., a Wyoming corporation, unless the context otherwise requires.

 

Special Note Regarding Forward-Looking Statements

 

This report contains forward-looking statements and information that are based on the beliefs of our management as well as assumptions made by and information currently available to us. Such statements should not be unduly relied upon. Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts or that are not present facts or conditions. Forward-looking statements and information can generally be identified by the use of forward-looking terminology or words, such as “anticipate,” “approximately,” “believe,” “continue,” “estimate,” “expect,” “forecast,” “intend,” “may,” “ongoing,” “pending,” “perceive,” “plan,” “potential,” “predict,” “project,” “seeks,” “should,” “views” or similar words or phrases or variations thereon, or the negatives of those words or phrases, or statements that events, conditions or results “can,” “will,” “may,” “must,” “would,” “could” or “should” occur or be achieved and similar expressions in connection with any discussion, expectation or projection of future operating or financial performance, costs, regulations, events or trends. The absence of these words does not necessarily mean that a statement is not forward-looking.

 

Forward-looking statements and information are based on management’s current expectations and assumptions, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. These statements reflect our current view concerning future events and are subject to risks, uncertainties and assumptions. There are important factors that could cause actual results to vary materially from those described in this report as anticipated, estimated or expected, as well as general conditions in the economy, petrochemicals industry and capital markets, Securities and Exchange Commission (the “SEC”) regulations which affect trading in the securities of “penny stocks,” and other risks and uncertainties. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future. Depending on the market for our stock and other conditional tests, a specific safe harbor under the Private Securities Litigation Reform Act of 1995 may be available. Notwithstanding the above, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), expressly state that the safe harbor for forward-looking statements does not apply to companies that issue penny stock. Because we may from time to time be considered to be an issuer of penny stock, the safe harbor for forward-looking statements may not apply to us at certain times.

 

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TABLE OF CONTENTS

 

      Page
PART I      
       
ITEM 1. BUSINESS   4
ITEM 1A. RISK FACTORS   15
ITEM 1B. UNRESOLVED STAFF COMMENTS   16
ITEM 1C. CYBERSECURITY   16
ITEM 2. DESCRIPTION OF PROPERTY   16
ITEM 3. LEGAL PROCEEDINGS   16
ITEM 4. MINE SAFETY DISCLOSURES   16
       
PART II      
       
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY; RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES   16
ITEM 6. RESERVED   19
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   19
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA   28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE   29
ITEM 9A. CONTROLS AND PROCEDURES   29
ITEM 9B. OTHER INFORMATION   30
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS   30
       
PART III      
       
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   31
ITEM 11. EXECUTIVE COMPENSATION   34
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS   38
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE   39
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES   40
       
PART IV      
       
ITEM 15. EXHIBITS   42
ITEM 16. FORM 10-K SUMMARY   43
       
SIGNATURES   44

 

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PART I

 

ITEM 1. DESCRIPTION OF BUSINESS.

 

Overview

 

Kraig Biocraft Laboratories, Inc., a Wyoming corporation, is a corporation organized to develop high strength fibers using recombinant DNA technology for commercial applications in technical textile. We use genetically engineered silkworms that produce spider silk proteins to create our recombinant spider silk. Applications include performance apparel, workwear, filtration, luxury fashion, flexible composites, medical implants, cosmetics and more. We believe that we have been a leader in the research and development of commercially scalable and cost effective spider silk for technical textile and non-fibrous applications. Our primary proprietary fiber technology utilizes natural and engineered variants of spider silk produced in domesticated mulberry silkworms. Our business brings twenty-first century biotechnology to the historical silk industry, permitting us to introduce materials with innovative properties and claims into an established commercial ecosystem of silkworm rearing, silk spinning and weaving, and manufacture of garments and other products that can include our specialty fibers and textiles. Specialty fibers are engineered for specific uses that require exceptional strength, flexibility, heat resistance and/or chemical resistance. The specialty fiber market is exemplified by two synthetic fiber products that come from petroleum derivatives: (1) aramid fibers; and (2) ultra-high molecular weight polyethylene fibers. The technical textile industry involves products for both industrial and consumer products, such as filtration fabrics, medical textiles (e.g., sutures and artificial ligaments), safety and protective clothing and fabrics used in military and aerospace applications (e.g., high-strength composite materials).

 

We are using genetic engineering technologies to develop fibers with greater strength, resiliency and flexibility for use in our target markets, namely the specialty fiber and technical textile industries. We believe that the genetically engineered protein-based fibers we seek to produce have properties that are in some ways superior to the materials currently available in the marketplace. Our technology holds, what we believe to be, the potential for life-saving ballistic resistant materials. Other potential applications for spider silk based recombinant fibers include use as structural material and for any application in which light weight and high strength are required. We believe that fibers made with recombinant protein-based polymers will make significant inroads into the specialty fiber and technical textile markets.

 

Through our technologies, the introduction of the gene sequence based on those found in native spider silk, results in a germline transformation and is therefore self-perpetuating. Our recombinant spider silk fibers incorporate the silk proteins found in spider silk with native silkworm silk proteins. This combination of native silkworm proteins combined with spider silk protein structures results in new and unique recombinant silk fibers. This technology is in essence a protein expression platform which has other potential applications including diagnostics and pharmaceutical production. Moreover, our technologies are “green” inasmuch as our fibers and textiles are derived from nature and do not use any petrochemicals as an input into the fibers.

 

The Report of Independent Registered Public Accounting Firm to our financial statements as of December 31, 2023 include an explanatory paragraph stating that our net loss from operations and net capital deficiency at December 31, 2023 raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

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Corporate Information

 

Kraig was incorporated in Wyoming in 2006. Our principal executive offices are located at 2723 South State St. Suite 150, Ann Arbor, Michigan 48104. Our website is located at www.kraiglabs.com and we make available, free of charge, on or through our website all of our periodic reports, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and current reports on Form 8-K, as soon as reasonably practicable after we file such reports with the SEC. Our website and the information contained on our website is not incorporated by reference and is not a part of this Annual Report.

 

Recent Developments

 

In January 2022, we completed production of the first Dragon Silk yarn produced entirely in Vietnam. The finished recombinant spider silk yarn was spun from raw recombinant spider silk produced at Prodigy Textiles. . While Prodigy Textiles remains focused on ramping up the output of silk cocoons, supporting vendors will play an essential role in processing that silk into finished goods for a wide range of consumer markets. Once we achieve commercial scale production, we plan to ship some of this Dragon Silk yarn to SpydaSilk Enterprises in Singapore, a joint venture partially owned by the Company for weaving into fabrics and finished garments. The Company expects that Prodigy Textiles will leverage any expanding silk production to address the material needs of SpydaSilk and make additional materials available for purchase to fill the numerous and backlogged material requests it has received.

 

On July 15, 2022, we signed an agreement with Global Silk Solutions Joint Stock Company (GSS). Under this agreement, GSS agreed to serve as a contract manufacturer.

 

In 2023 the Company implemented a concentrated program to strengthen our production silkworm strains with the goal of increasing their robustness and tolerance for the commercial production environment. We undertook this program because our study of previous attempts to increase production indicated that our laboratory strains may have lacked the necessary robustness to carry out our production objectives. This process involved selective breeding over many generations and isolating target traits while crossbreeding with more robust specimens. The ultimate goal is to create two, and ultimately four, separate strains of our silkworm, which, when crossed with each other, would produce significant hybrid vigor. We are now concentrated on six strains, half of which are ready or nearly ready for field trials. As of December 2023, we achieved homozygous for the transgene in one of those strains. We achieved homozygosity of a second strain in the first quarter of 2024.

 

On January 24, 2024, we signed a memorandum of understand with the Vietnam Sericulture Association (VSA) and the Lam Dong Agro-Forestry Research & Experiment Center (LAREC) to enhance sericulture in Vietnam through the expanded application of the Company’s spider silk silkworm technology.

 

Strategic Partnership

 

On November 23, 2020, we entered into a Strategic Partnership Agreement ((as amended in January 2021, the “SPA”) with Mthemovement Kings Pte Ltd (“Kings”). Kings is an eco-friendly luxury streetwear apparel line, part of the Kings Group of Companies and its affiliated companies.

 

Pursuant to the SPA, the parties have formed a joint venture to develop and sell the Company’s spider silk fibers under the new innovative apparel and fashion brand, trade named SpydaSilk™ and potential other trademarks to be announced. All trademarks and branding related intellectual property related to the SpydaSilk™ brand name, will be jointly owned by the Company and Kings. Under the terms of the Agreement, the Company granted the joint venture and the SpydaSilk Enterprises Pte. Ltd. brand an exclusive geographic license for distribution of the Company’s products for the Association of Southeast Asian Nations.

 

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The Agreement has a 60-month term, which can be terminated at any time by mutual agreement following a consultation period of 120 days, or such other period as agreed by the parties. If applicable, the parties will honor their share of committed expenditures of the joint venture and King will repay the Company any unused brand funds.

 

Yorkville Transaction

 

On January 18, 2022, we entered into a securities purchase agreement with YA II PN, LTD., a Cayman Islands exempt company (“Yorkville”), pursuant to which Yorkville purchased secured convertible debentures (the “Securities Purchase Agreement”) in the aggregate principal amount of USD$3,000,000 (the “Convertible Debentures”), which are convertible into shares of Common Stock (as converted, the “Conversion Shares”), of which a secured convertible debenture (the “First Convertible Debenture”) in the principal amount of $1,500,000 (the “First Convertible Debenture Purchase Price”) shall be issued upon signing the Securities Purchase Agreement and a secured convertible debenture (the “Second Convertible Debenture,” together with the First Convertible Debenture, each a “Convertible Debenture” and collectively, the “Convertible Debentures”) in the principal amount of $1,500,000 (the “Second Convertible Debenture Purchase Price”) shall be issued on or about the date that the Securities and Exchange Commission declares the registration statement registering the shares of common stock underlying the notes effective (collectively, the First Convertible Debenture Purchase Price and the Second Convertible Debenture Purchase Price shall collectively be referred to as the “Purchase Price”) (the “Yorkville Transaction”). These additional funds, together with those from the previously completed transactions we conducted with Yorkville between December 2020 and March 2021, account for an $8 million total Yorkville investment; as of November 17, 2022, all debentures to Yorkville pursuant thereto have been satisfied. The Company also issued Yorkville a warrant to purchase 12,500,000 shares of the Company’s Common Stock, at an initial exercise price of $0.12 per share and a warrant to purchase 4,285,714 shares of the Company’s Common Stock, at an initial exercise price of $0.14 per share. The warrants have a term of five (5) years and can be exercised via cashless exercise. If the Company issues or sells securities at a price less than the applicable warrant exercise price, the exercise price of the applicable warrant shall be reduced to such lower price. The warrants also have the same ownership cap as set forth in the Convertible Debentures, as described below.

 

In connection with the Securities Purchase Agreement, the Company also entered into a Registration Rights Agreement with Yorkville, pursuant to which the Company agreed to register all of the shares of Common Stock underlying the Convertible Debentures and warrants and with respect to subsequent registration statements, if any, such number of shares of Common Stock as requested by Yorkville not to exceed 300% of the maximum number of shares of Common Stock issuable upon conversion of all Convertible Debentures then outstanding (assuming for purposes hereof that (x) such Convertible Debentures are convertible at the then current conversion price and (y) any such conversion shall not take into account any limitations on the conversion of the Convertible Debentures set forth therein, in each case subject to any cutbacks set forth in the Registration Rights Agreement.

 

Upon signing the letter of intent for the Yorkville Transaction, the Company paid $10,000 to an affiliate of Yorkville, for due diligence and structuring.

 

The Securities Purchase Agreement also contained customary representation and warranties of the Company and the Investor, indemnification obligations of the Company, termination provisions, and other obligations and rights of the parties.

 

The foregoing description of the Securities Purchase Agreement, Convertible Debentures, Warrant, Security Agreement, IP Security Agreement, Registration Rights Agreement and Guaranty Agreement is qualified by reference to the full text of the forms of Securities Purchase Agreement, Convertible Debenture and Warrant, which are filed as Exhibits hereto and incorporated herein by reference.

 

Maxim Group LLC received a cash placement agent fee of $230,000.

 

Covid-19

 

On March 19, 2020, we furloughed non-essential staff in response to governmental regulations relating to COVID. This decision primarily impacted staff at our fully owned subsidiary, Prodigy Textiles, in Vietnam and resulted in the temporary closing of silk rearing operations at that facility. As of the date hereof, we have resumed silk production operations in Vietnam. The Company supported its furloughed staff and paid their salaries during all mandatory closures. During the duration of the furlough, the Company’s CEO voluntarily waved the payment or accrual of his salary. The Company leveraged this forced closure time to improve its production infrastructure based on the lessons learned from its operations. After the mandated closure, the Company has enhanced its production operations with process automation, moved its production headquarters to a facility designed for silk production, created a more self-reliant supply chain, and established a microbiology laboratory in its facilities for enhanced quality control. The global COVID pandemic and government regulations associated with the pandemic continue to evolve. We will continue to monitor the situation closely, including its potential effect on our plans and timelines.

 

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The Product

 

Our products exploit the unique characteristics of spider silk, specifically dragline silk from Nephila clavipes (golden orb-web spider) and variants thereof. Such fibers possess unique mechanical properties in terms of strength, resilience and flexibility. Through the use of genetic engineering, we believe that we have produced a variety of unique transgenic silkworm strains that produce recombinant spider silk. Our recombinant spider silk fiber incorporate the silk proteins found in spider silk with the native silkworm silk proteins. This combination of native silkworm proteins combined with spider silk protein structures results in a new and unique recombinant silk fiber.

Monster Silk®

 

Monster Silk® was the first recombinant spider silk fiber product we developed. Monster Silk incorporates the natural elasticity of spider silk to make a silk fiber which is more flexible that conventional silk fibers and textiles. We have produced sample products using Monster Silk® including knit fabrics, gloves, and shirts in collaboration with textile mills. We expect that Monster Silk® will have market applications across the traditional textile markets where its increased flexibility will provide increased durability and comfort.

 

Dragon SilkTM

 

Dragon SilkTM is the next evolution in recombinant spider silk, combining the elasticity of Monster Silk® with additional high strength elements of native spider silk. Some samples of Dragon SilkTM have demonstrated strength beyond that of native spider silk. This combination of strength and elasticity results in a silk fiber which is soft and flexible, yet tougher than leading synthetic fiber available on the market. Based on inquires we have received from end market leaders, we believe that Dragon SilkTM- will have applications in performance apparel, durable workwear, luxury goods, and composites.

 

Other Products

 

We are continuing to develop new recombinant silks and other protein-based fibers and materials using our genetic engineering capabilities. The Company leverages the latest in genetic engineering technology to develop new silk and protein technologies that it believes will have significant advantages over our legacy technology which created Dragon Silk and Monster Silk. Chief among these is the potential to produce spider silks with greatly increased purity and performance. Due to the biocompatible and biodegradable properties of silk, we believe that the materials developed using this process will create opportunities for products in the medical industry, including sutures, grafts, and implants.

 

Our Technology

 

Our technology builds upon the unique advantages of the domesticated silkworm. The silkworm is an efficient commercial and industrial producer of protein based polymers, and forty percent (40%) of the caterpillars’ weight is devoted to the silk glands. The silk glands produce large amounts of an insoluble protein called fibroin, which the silkworm spins into a composite protein thread (silk).

 

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We use our genetic engineering technology to create proprietary recombinant silk polymers from the silkworms. On September 29, 2010, we, along with our collaborators at Notre Dame created approximately twenty different strains of transgenic silkworm which produce recombinant silk polymers. In October of 2017, with the support of funding from the U.S. Army, we transitioned our research operations out of Notre Dame and into our own research and development headquarters.

 

Our transgenic silkworms are created by inserting the genes expressing spider silk with either natural or engineered amino acid sequences into the embryos of the silkworm. The spider silk sequence is introduced to the embryo of the silkworm and incorporated into the silkworm genome using state of the art molecular biology approaches. The spider sequence is created on a circular loop of DNA called a plasmid. We developed a method to alter the plasmid DNA to more readily allow the mixing and matching of various targeted traits including spider DNA genes, disease resistance, commercially marketable proteins and other physical properties. In this way, we can combine different genetic cassettes to create fibers and proteins with the modified chemical, physical, and mechanical properties more rapidly than through conventional methods.

 

Production of this material in commercial quantities holds the potential of a life-saving ballistic resistant material, which is lighter, more flexible, and tougher than steel. However, the Company does not currently have any life-saving ballistic products and could be some time before we are able to produce such a product. Other potential applications for spider silk based recombinant fibers include use as structural material and for any application in which light weight and high strength are required. We believe that fibers made with recombinant protein-based polymers will make significant inroads into the specialty fiber and technical textile markets. Our interactions with manufacturers of high performance textiles, convince us that there is an eager commercial market for our innovative, sustainable, and differentiated technology and products.

 

Manufacturing

 

Our spider silk technology is designed for plug and play incorporation into the existing silk production model. We manufacture and plan to continue to manufacture our proprietary spider silk fibers using traditional silkworm production practices (sericulture).

 

Working with our contractors we identified robustness and acclimation of our silkworm strain to the local climate as one of the most significant challenges to production. In 2023 the Company implemented a concentrated program to strengthen our production silkworm strains with the goal of increasing their robustness and tolerance for the commercial production environment. This process involved selective breeding over many generations and isolating target traits while crossbreeding with more robust specimens. The ultimate goal is to create two, and ultimately four, separate strains of our silkworm, which, when crossed with each other, would produce significant hybrid vigor. We are now concentrated on six strains, half of which are ready or nearly ready for field trials. As of December 2023, we achieved homozygosity for the transgene in one of those strains. We achieved homozygosity of a second strain in the first quarter of 2024. Our work in this area is continuing and accelerating.

 

The Company, through Prodigy Textiles, has hired local workers with experience in sericulture production to care for and raise our silkworms through the five instars, or stages, of the silkworm life cycle, including the final instar when the mature caterpillars produce a cocoon comprised of pure silk. These cocoons are then reeled to our specifications to form the final spider silk threads such as Dragon SilkTM and Monster Silk®.

 

By utilizing existing production methodology in traditional silk regions to produce our high performance materials, we leverage historical knowledge, available labor and existing capital infrastructure for production, spinning, and weaving of our spider silk materials. This approach reduces the risk to our manufacturing operations and decreases our need for upfront capital expenditure.

 

We believe that we will be able to target metric tons of capacity of spider silk fiber per annum from our operations when fully developed. This capacity will allow us to address our anticipated initial demand for applications in the protective, performance, and luxury textile markets.

 

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The Market

 

We are focusing our work on the creation of new fibers with unique properties including fibers with potential high performance and technical fiber applications for the performance fiber market. The performance fiber market is currently dominated by two classes of product: aramid fibers, and ultra-high molecular weight polyethylene fibers. These existing products serve the need for materials with high strength, resilience, but are unable to delivery flexibility. Because these synthetic performance fibers are stronger and tougher than steel, they are used in a wide variety of military, industrial, and consumer applications.

 

The military and police are among the users of performance fibers for its ballistic protection. The materials are also used for industrial applications requiring superior strength and toughness, e.g., critical cables and abrasion/impact resistant components. Performance fibers are also employed in safety equipment, high strength composite materials for the aero-space industry and for ballistic protection by the defense industry.

 

The global market for technical textiles was estimated at greater than $184 billion in 2020 and projected to reach $250 billion by 20271.

 

These are industrial materials which have become essential products for both industrial and consumer applications. The market for technical textiles can be defined as consisting of:

 

Medical textiles;
   
Geotextiles;
   
Textiles used in Defense and Military;
   
Safe and Protective Clothing;
   
Filtration Textiles;
   
Textiles used in Transportation;
   
Textiles used in Buildings;
   
Composites with Textile Structure; and,
   
Functional and Sportive Textiles.

 

We believe that the superior mechanical characteristics of the next generation of protein-based polymers (in other words, genetically engineered silk fibers), will open up new applications for the technology. The materials which we are working to produce are tougher and stronger than steel.

 

We are actively pursuing relationships within target end markets to secure product collaborations with key market channel leaders. Due to the unique nature of our product, we received numerous unsolicited requests from leading businesses across a range of attractive end markets requesting materials for applications development. This substantial interest in spider silk materials across the broad spectrum of applications for high performance fibers and textiles, combined with the limited initial production capacity, has, we believe, provided the opportunity to be selective in choosing market channel partners best able to bring our product to market at scale. We are working under non-disclosure agreements to secure these collaborative development agreements and to establish limited channel exclusivity for firms we believe mirror our culture of innovation. In January 2021 the Company entered into a partnership and exclusive purchase agreement with M the Movement by Kings Group. This partnership is designed to establish a jointly owned apparel and fashion brand headquarter in Singapore focuses on sales to the ASEAN region.

 

 

1https://www.grandviewresearch.com/industry-analysis/technical-textiles-market#:~:text=Report%20Overview,4.5%25%20from%202020%20to%202027.

 

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Research and Development

 

In 2007, we entered into the first series of the Notre Dame Agreements to develop new transgenic silkworms. In 2010, we achieved our longstanding goal of producing new silk fibers composed of recombinant proteins. In 2016, we received a contract from the U.S. Army to deliver the first samples of its recombinant spider silk materials. In 2017, this contract was expanded to include research into the development of stronger silk materials. As a result of that contract, the Company brought its research operations in-house, opening its own research laboratories and expanding its scientific staff. This transition to in-house operations has led to a series of new technical breakthroughs and is believed to have accelerated the pace of new development. We intend to turn its technology to the development and production of high performance polymers.

 

During the fiscal years ended December 31, 2023 and 2022, we have spent approximately 15,126 hours and 10,375 hours, respectively, on research and development activities, which consisted primarily of laboratory research on genetic engineering by our in-house research operations.

 

We have initiated production of our recombinant materials, which we have named Monster Silk® and Dragon SilkTM. Additionally, we plan to accelerate both our microbiology and selective breeding programs, as well as providing more resources for their material and genetic testing protocols.

 

A key aspect of our research program is designed to target the biggest immediate hurdle to production, the robustness of our silkworms within the large-scale production environment. Working with our contractors we have identified robustness and acclimation of our silkworm lines to the local climate as one of the most significant challenges to production. Our research department has initiated, and we are accelerating a hybridization program, which is explicitly designed to increase robustness and cocoon size.

 

Our Intellectual Property Approach

 

Our intellectual property strategy utilizes a blended approach of licensed technologies and in-house developments. As part of our intellectual property portfolio, we have licensed the exclusive right to use certain patented gene-splicing technologies for use in silkworm.

 

Under the Notre Dame Agreements, we exercised our right to exclusive commercial use for spider silk technologies developed under that agreement. We have worked collaboratively with the university to develop fibers with the mechanical characteristics of spider silk. We are applying this proprietary genetic engineering technology to domesticated silkworms, which we believe is the best path to economical, commercial scale production of spider silk.

 

In 2017, we opened a research and development facility to expand on the work conducted at Notre Dame. Since opening this new facility, we have expanded our intellectual property portfolio with multiple additional provisional and utility patent filings based on new discoveries and inventions. We will continue to utilize our in-house research capabilities to expand and strengthen its patent portfolio while also maintaining and growing our trade secrets relating to genetic advancement and spider silk. We are actively working to develop new approaches to the development of genetically engineering silkworms, underlying construction techniques, and fundamental genetic sequences for improved material performance.

 

The Notre Dame Agreements will last for the duration of the patented materials that we developed with Notre Dame. The new technologies that we are developing in our internal research labs does not rely on the Notre Dame patented materials and as a result will not be impacted by an expiration of those agreements.

 

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License Agreements/Intellectual Property

 

We have obtained certain rights to use a number of university created, and patented gene splicing and spider silk protein technologies.

 

As part of the joint development program with the University of Notre Dame and the Notre Dame Agreements, Kraig Labs negotiated an option for exclusive global commercial rights to technologies jointly developed with Notre Dame. Kraig Labs has exercised that option. As of the date of this filing, four patents relating to the jointly developed technologies have been issued, number 10-1926286 in South Korea, number 2011314072 in Australia, number 26612 in Vietnam, and number 2,812,791 in Canada. These jurisdictions are a mix of silk producing and consuming countries. We believe protecting our technologies in these countries will be beneficial to our future operations.

 

In addition to the patents related to licensed technologies from Notre Dame listed above, Kraig Labs has filed a number of patent applications and provisional applications based on technologies developed solely within the Company’s own laboratories. Kraig has filed two such patent applications and four provisional patent applications based on technologies developed and discoveries from our own independent research operations.

 

Table of Patent Applications and Status

 

Title   Country   Application No.   Filing Date   Patent No.   Patent Date   Status
Transgenic Silkworms Capable of Producing Chimeric Spider Silk Polypeptides and Fibers   United States of America   14/754946   30-Jun-2015           Under Exam
Chimeric Spider Silk and Uses Thereof   Japan   2017-038829   01-Mar-2017           Under Exam
Chimeric Spider Silk and Uses thereof   China (People’s Republic)   201180057127.1   28-May-2013           Pending
Chimeric Spider Silk and Uses thereof   Korea, Republic of   10-2017-7005086   22-Feb-2017   10-1926286   30-Nov-2018   Granted
A Nucleic Acid Encoding a Chimeric Spider Silk Polypeptide, Chimeric Spider Silk Polypeptide, Composite Fiber Comprising the Chimeric Spider Silk Polypeptide and Method of Preparing a Transgenic Silkworm   Vietnam   1-2013-01306   25-Apr-2013   26612   03-Nov-2020   Granted
Chimeric Spider Silk and Uses thereof   Canada   2812791   28-Sep-2011   2812791   14-Jul-2020   Granted
Chimeric Spider Silk Polypeptides and Fibers Uses Thereof   United States of America   14/754916   30-Jun-2015           Under Exam
Chimeric Spider Silk and Uses thereof   Japan   2013-530432   26-Mar-2013           Pending
Chimeric Spider Silk and Uses thereof   France   11833071.1   26-Apr-2013   2621957   02-Jun-2021   Granted
Chimeric Spider Silk and Uses thereof   India   3574/DELNP/2013   22-Apr-2013           Under Exam
Chimeric Spider Silk and Uses thereof   Germany   11833071.1   26-Apr-2013   602011071095.8   02-Jun-2021   Granted
Chimeric Spider Silk and Uses Thereof   United States of America   61/387332   28-Sep-2010           Expired
Chimeric Spider Silk and Uses thereof   China (People’s Republic)   201710335250.4    12-May-2017            

 

* The terms in this column have the following meanings:

 

11

 

 

Published: Pending patent applications that have been published by a corresponding state Patent Office (e.g., the U.S. Patent and Trademark Office) or international patent authority (e.g., the World Intellectual Property Association).

 

Pending: Patent applications that have been submitted to a corresponding state Patent Office for examination but that have not been issued or abandoned.

 

Under Exam: Pending patent applications currently being examined by a corresponding state Patent Office.

 

Granted: Patent applications that have been allowed by a corresponding state Patent Office and that have passed through the registration process; a granted patent application is synonymous with a “patent” and is conferred the associated patent rights for the given jurisdiction.

 

In addition to patent protection for intellectual property developed by the Company and through its collaborative research agreements, the Company has developed specialized skills and knowledge in the field of selective breeding, performance selection, and husbandry. This information is considered to be trade secrets and will play a critical role in the development of unique strains of new transgenics with diverse mechanical properties. These operations and knowledge held as trade secrets provide an additional layer of security and protection for the products and technologies we seek to develop.

 

In 2014, the following six trademarks were issued to the Company; the Company shall use these trademarks for product branding in the future:

 

Marks

 

Monster Silk®

Spiderpillar®

Spilk®

Monster Worm®

Spider Worm®

Spider Moth®

Dragon SilkTM

 

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In 2021, through its Singapore based joint venture the following four trademarks were issued.

 

 

 

 

 

Notre Dame Agreements

 

As discussed above, in 2007 we entered into the first series of Notre Dame Agreements. We provided financial support to ongoing research and development of transgenic silkworms and the creation of recombinant silk fibers. In exchange, we have an option to obtain the exclusive global commercialization rights to the technology developed pursuant to the research effort.

 

Following the first agreement, we entered into successive intellectual property and collaborative research agreements with Notre Dame to provide different levels of financial support. The trend had been for an increase in financial support for the research and development in nearly every successive agreement. In June 2012, we entered into an Intellectual Property / Collaborative Research Agreement with Notre Dame (“2012 Notre Dame Research Agreement”). On March 4, 2015, we entered into a new Intellectual Property / Collaborative Research Agreement with Notre Dame extending the agreement through March 2016 (“2015 Notre Dame Research Agreement”). Under the 2015 Notre Dame Research agreement, the Company provided approximately $534,000 in financial support. On September 20, 2015, the 2015 Notre Dame Research Agreement was amended to increase the total funding by approximately $179,000; in February 2016, the 2015 Notre Dame Research Agreement was extended to July 31, 2016 and in August 2016, the 2015 Notre Dame Research Agreement was extended to December 31, 2016. In May 2017, the 2015 Notre Dame Research Agreement was amended to increase the total funding by approximately $189,000 and the duration of the 2015 Notre Dame Research Agreement was extended to September 30, 2017. With the funding we received from the U.S. Army, we were able to conduct our research and development in-house, at less cost, and therefore we did not extend the 2015 Notre Dame Research Agreement after September 30, 2017.

 

In 2011, we exercised our option to obtain the global commercialization rights to the technology developed under the Notre Dame Agreements, which resulted in a separate license agreement with Notre Dame (the “2011 Notre Dame Agreement”). Pursuant to the 2011 Notre Dame Agreement, Notre Dame filed an international patent application and numerous national patent applications on technology relating to the creation and use of recombinant spider silks and we received exclusive and non-exclusive rights to certain spider silk and gene splicing technologies including commercial rights with the right to sublicense such intellectual property. The 2011 Notre Dame Agreement obligates us to reimburse Notre Dame for costs associated with the filing, prosecuting and maintaining of such patents and patent applications. In exchange for the rights to commercialization, Notre Dame has received 2,200,000 shares of our Common Stock and we have agreed to pay Notre Dame royalties equal to 2% of our gross sales of the licensed products and 10% of any sublicensing fees received by the Company on licensed technology.

 

13

 

 

Cooperative Agreement in Vietnam

 

On December 30, 2015, we entered into a cooperative agreement with a provincial government office in Vietnam for the research and pilot production of hybrid silkworms. In April 2018, we received our investment registration certificate for our facility in Vietnam. Later that month the Company was issued its ERC so that it could begin operations in Vietnam. We have established a subsidiary in Vietnam which is currently producing our spider silk in small quantities. Management believes the ERC puts the Company on a path to scale at a much greater level by harnessing existing silk production infrastructure with the capacity to match the existing demand for their spider silk materials.

 

Other Agreements

 

On October 15, 2013, we entered into an intellectual property agreement with a scientific researcher relating to the development of new recombinant silk fibers. Under the terms of that agreement, the scientific researcher transferred his rights of intellectual property, inventions and trade secrets which the researcher develops relating to recombinant silk to us. Upon signing, the researcher received 8,000,000 common stock purchase warrants from the Company, exercisable 24 months from the date of the agreement. As per the terms of the agreement, the researcher received an additional 10,000,000 warrants after creating a new recombinant silk fiber for us that met specified performance characteristics and another 8,000,000 warrants for performing the contract in good faith. The warrants described above all contain a cashless exercise provision and are exercisable on the 24-month anniversary of the date on which they were issuable under the agreement. All warrant under this agreement were exercised.

 

Governmental Regulations

 

We are subject to U.S. federal, state and local laws and regulations, as well as Vietnam central, provisional, and district laws and regulations. These laws and regulations govern, among other things, labor relations, the labeling and safety of our products, the environment, distribution of products, the production of products, and our molecular biology based technologies. We believe that we are in material compliance with all such applicable laws and regulations, although no assurance can be provided that this will remain true in the future or that interpretation of laws and regulations will remain a constant. Laws and particularly their interpretations and enforcement can and do change. Social and political trends shift in ways that we can not predict and which could become less favorable to our technology. With regards to areas where law is vague, lacking, or could be subject to interpretation we endeavor to conform to industry norms.

 

Environment

 

Kraig Labs is fully committed to its vision of bringing spider silk technologies to commercial markets while maintaining the highest levels of environmental responsibility. We believe our technology, built on a renewable resource, has a positive environmental impact and offers significant benefits over competing synthetic textiles. Our production system is derived from nature and does not use any petrochemicals as an input into our fibers.

 

We seek to comply with and exceed all applicable statutory and administrative requirements concerning environmental quality. Expenditures for compliance with federal state and local environmental laws have not had, and are not expected to have, a material effect on our capital expenditures, results of operations or competitive position.

 

While being environmentally conscious is the objective of all producers in this industry, the fermentation process used by our competitors produces high levels of carbon dioxide. CO2 is a greenhouse gas and is argued to be a leading cause of global warming. In stark contrast, Kraig Labs’ mulberry trees and the silk from silkworms have proven to be effective at sequestering carbon dioxide and are renewable resources. Mulberry trees also provide essential global green-cover and significantly help in reducing soil erosion in areas.

 

14

 

 

Competition

 

We compete directly with numerous other companies with similar product lines and/or distribution that have extensive capital, resources, market share, and brand recognition.

 

There are presently three primary competitors that we face in the fledgling spider silk industry, but there are few barriers to entry in our industry. This creates the strong possibility of new competitors emerging, and of others succeeding in developing the same or similar fibers for application that we are trying to develop. The effects of this increased competition may be materially adverse to us and our stockholders. As this is an emergent industry there is no one producer that has captured a significant portion of the market. Bolt Threads, Inc. based in California and Spiber Inc. based in Japan are competitors which have raised the largest amounts of investment capital to date. We also compete with AMSilk, which is based in Germany. We believe that our technology offers more cost-effective methods with lower environmental impact than technologies used by our identified competitors, however, new technologies could be developed that remove this advantage.

 

These competitors have raised and spent 100’s of millions of dollars in pursuit of spider silk production. The Company believes that its competitors will continue to overspend while struggling to deliver cost effective results.

 

Employees

 

The Company currently employs between 10-14 people at its U.S. facilities, 7 full-time and up to 7 part-time, including Kim Thompson, our officer and sole director and Jonathan R. Rice, our Chief Operating Officer. The Company employs between 8-30 full time personnel at its Vietnamese subsidiary depending on the production cycle. We plan to hire more persons on as-needed basis.

 

ITEM 1A. RISK FACTORS.

 

As the Company is a smaller reporting company, this item is not applicable.

 

15

 

 

ITEM 1B. UNRESOLVED STAFF COMMENTS.

 

As the Company is a smaller reporting company, this item is not applicable.

 

ITEM 1C. CYBERSECURITY

 

We do not believe our business has any relevant cybersecurity issues to disclose at this time.

 

ITEM 2. DESCRIPTION OF PROPERTY.

 

Our principal executive office is located at 2723 South State St., Suite 150, Ann Arbor, Michigan. We pay an annual rent of $2,508 for conference facilities, mail, fax, and reception services located at this location.

 

On 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. Pursuant to the lease, it was an annual rent of $42,000 for year one of the lease and $44,800 for year two of the lease. On April 16, 2021, we signed a two year amendment to this lease, pursuant to which, commencing on July 1, 2021 and ending on September 30, 2022, we pay an annualized rent of $42,000 and from October 1, 2022 through September 30, 2023, we will pay an annual rent of $44,800. On October 1, 2023, the Company extended the terms of the lease through September 30, 2025. From October 1, 2023, through September 30, 2024, the Company will pay an annual rent of $44,800. From October 1, 2024, through September 30, 2025, the Company will pay an annual rent of $47,600.

 

On July 1, 2021, the Company signed a 5-year property lease in the Socialist Republic of Vietnam which consists of 30,000 square meters of property and 6,000 square meter of buildings, which it leases at a rate of approximately $8,645 per year for each of the five years.

 

On January 31, 2024, the Company signed a five-year lease for a 700 square meter facility in Lam Dong, Vietnam that commenced on February 1, 2024 and ends on January 31, 2029. We pay an annual rent of approximately $7,284 for year one and two of the lease. For years 3-5 the price will increase with Vietnam’s state land price bracket, not to exceed 10%.

 

ITEM 3. LEGAL PROCEEDINGS.

 

We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business.

 

To the knowledge of our management, we are currently not a party to any material legal or administrative proceedings and are not aware of any pending or threatened legal or administrative proceedings against us.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

As the Company is a smaller reporting company, this item is not applicable.

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Market Information

 

Our common stock trades on the OTCQB system under the symbol “KBLB.” Our CUSIP number is 50075W.

 

16

 

 

You should be aware that over-the-counter market quotations may reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions. The high and low bid quotations for our shares of our common stock for each full quarterly period within the two most recent fiscal years are (prices set forth below represent inter-dealer quotations, without retail markup, markdown or commission and may not be reflective of actual transactions):

 

   High   Low 
Fiscal 2022          
Quarter ended March 31, 2022  $0.11   $0.07 
Quarter ended June 30, 2022  $0.09   $0.06 
Quarter ended September 30, 2022  $0.07   $0.05 
Quarter ended December 31, 2022  $0.05   $0.03 
Fiscal 2023          
Quarter ended March 31, 2023  $0.05   $0.03 
Quarter ended June 30, 2023  $0.07   $0.04 
Quarter ended September 30, 2023  $0.04   $0.03 
Quarter ended December 31, 2023  $0.05   $0.03 
Fiscal 2024          
Quarter ended March 31, 2024  $0.1496   $0.0349 

 

As of March 28, 2024, the last reported sale price of our Common Stock on the OTCQB was $0.0979 per share.

 

Holders

 

As of April 1, 2024 in accordance with our transfer agent records, we had 33 record holders of our Class A common stock and 0 holders of our Class B common stock; there is 1 holder of Series A Preferred Stock. This number excludes any estimate by us of the number of beneficial owners of shares held in street name, the accuracy of which cannot be guaranteed.

 

Dividends

 

We have never paid cash dividends on any of our capital stock and we currently intend to retain our future earnings, if any, to fund the development and growth of our business. We do not intend to pay cash dividends to holders of our common stock in the foreseeable future.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The following table discloses information as of December 31, 2023, with respect to compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance, aggregated as follows:

 

Plan category  Number of securities to be issued upon exercise of outstanding options, warrants and rights   Weighted-average exercise price of outstanding options, warrants and rights   Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) 
    (a)    (b)    (c) 
Equity compensation plans approved by security holders   0    0    0 
Equity compensation plans not approved by security holders   46,520,000    0    103,203,751 
Total   46,520,000    0    103,203,751 

 

17

 

 

2019 Employee Stock Option Plan

 

Effective December 9, 2019, we adopted the 2019 Employee Stock Option Plan (“Plan”), with 80,000,000 shares issuable pursuant to the Plan. Beginning on January 1, 2020 and continuing on each January 1st that the Plan is in place, an additional number of shares equal to the lesser of: (i) 2% of the number of shares of Common Stock outstanding (fully-diluted) on the immediately preceding December 31 and (ii) such lower number of shares as may be determined by the Board or committee, shall be added to the number of shares issuable under the Plan. As of the date hereof, 49,940,000 options have been issued pursuant to the Plan (although some have been cancelled) and 123,871,235 shares remain issuable pursuant to the Plan, based on the terms of the Plan as set forth above.

 

Eligibility. The Plan provides for the grant of incentive stock options to our employees and any parent and subsidiary corporations’ employees and for the grant of nonqualified share options, restricted shares, restricted share units, share appreciation rights, share bonuses and performance awards to our employees, directors and consultants and our parent and subsidiary corporations employees and consultants.

 

Administration. The Plan is administered by the Board or by a committee of not fewer than 2 members, each of whom is an outside Director and all of whom are disinterested, designated by the Board to administer the Plan. The plan administrator determines the terms of all awards.

 

Types of Awards. The Plan allows for the grant of nonqualified stock options, incentive stock options, restricted share options, restricted stock units, stock appreciation rights, stock bonuses and performance awards.

 

Award Agreements. All awards under the Plan are evidenced by an award agreement which shall set forth the number of shares subject to the award and the terms and conditions of the award, which shall be consistent with the Plan.

 

Term of Awards. The term of awards granted under the Plan is ten years.

 

Vesting Schedule and Price. The plan administrator has the sole discretion in setting the vesting period and, if applicable, exercise schedule of an award, determining that an award may not vest for a specified period after it is granted and accelerating the vesting period of an award. The plan administrator determines the exercise or purchase price of each award, to the extent applicable.

 

Transferability. Unless the plan administrator provides otherwise, the Plan does not allow for the transfer of awards other than by will or the laws of descent and distribution. Unless otherwise permitted by the plan administrator, options may be exercised during the lifetime of the optionee only by the optionee or the optionee’s guardian or legal representative.

 

Adjustments. In the event the Board or committee determines that any dividend or distribution, recapitalization, stock split, reorganization, merger, consolidate, split-up, spin-off, or other similar corporate transact or event affects the shares subject to the Plan such that an adjustment is determined by the Board or committee to be appropriate to prevent dilution or enlargement of the benefits intended to be made under the Plan, appropriate adjustments will be made to the share maximums and exercise prices, as applicable.

 

Governing Law and Compliance with Law. The Plan and awards granted under it are governed by and construed in accordance with the laws of the Wyoming. Shares will not be issued under an award unless the issuance is permitted by applicable law.

 

Amendment and Termination. The Plan terminates ten years from the date it was approved, unless it is terminated earlier by our Board. The Board may amend, alter, suspend, discontinue, or terminate the plan, including, without limitation, any amendment, alternation, suspension, discontinuation, or termination that would impart the rights of any participant, or any other holder or beneficiary of any award theretofore granted, without the consent of any share owner, participant, other holder or beneficiary of an award, or other person, unless required by applicable law.

 

Sale of Unregistered Securities

 

Information regarding any equity securities we have sold during the period covered by this Report that were not registered under the Securities Act of 1933, as amended is set forth below. Each such transaction was exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) of the Securities Act or Rule 506 of Regulation D promulgated by the SEC, unless otherwise noted. Unless stated otherwise: (i) the securities were offered and sold only to accredited investors; (ii) there was no general solicitation or general advertising related to the offerings; (iii) each of the persons who received these unregistered securities had knowledge and experience in financial and business matters which allowed them to evaluate the merits and risk of the receipt of these securities, and that they were knowledgeable about our operations and financial condition; (iv) no underwriter participated in, nor did we pay any commissions or fees to any underwriter in connection with the transactions; and, (v) each certificate issued for these unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

 

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.

 

18

 

 

On February 16, 2022, the Company issued 3,924,443 shares of Common Stock in exchange for conversion of $250,000 of principle balance on a convertible debenture and $1,164 of accrued interest.

 

On April 14, 2022, the Company issued 2,358,380 shares of Common Stock in exchange for conversion of $150,000 of principle balance on a convertible debenture and $1,644 of accrued interest.

 

On April 29, 2022, the Company issued 4,273,417 shares of Common Stock in exchange for conversion of $250,000 of principle balance on a convertible debenture and $5,918 of accrued interest.

 

On 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.

 

On July 19, 2022, the Company issued 4,364,987 shares of Common Stock in exchange for conversion of $200,000 of principle balance on a convertible debenture and $6,027 of accrued interest.

 

On August 18, 2022, the Company issued 4,325,913 shares of Common Stock in exchange for conversion of $200,000 of principle balance on a convertible debenture and $7,644 of accrued interest. Accordingly, no gain or loss was recognized upon debt conversion.

 

On September 8, 2022, the Company issued 3,396,898 shares of Common Stock in exchange for conversion of $150,000 of principle balance on a convertible debenture and $4,219 of accrued interest. Accordingly, no gain or loss was recognized upon debt conversion.

 

On September 26, 2022, the Company issued 3,605,259 shares of Common Stock in exchange for conversion of $150,000 of principle balance on a convertible debenture and $2,863 of accrued interest. Accordingly, no gain or loss was recognized upon debt conversion.

 

On October 11, 2022, the Company issued 2,907,240 shares of Common Stock in exchange for conversion of $100,000 of principle balance on a convertible debenture and $1,753 of accrued interest.

 

On October 18, 2022, the Company issued 4,782,778 shares of Common Stock in exchange for conversion of $150,000 of principle balance on a convertible debenture and $658 of accrued interest.

 

On October 26, 2022, the Company issued 5,487,951 shares of Common Stock in exchange for conversion of $150,000 of principle balance on a convertible debenture and $370 of accrued interest.

 

On October 31, 2022, the Company issued 6,510,348 shares of Common Stock in exchange for conversion of $150,000 of principle balance on a convertible debenture and $28,384 of accrued interest.

 

On November 1, 2022, the Company issued 9,236,212 shares of Common Stock in exchange for conversion of $250,000 of principle balance on a convertible debenture and $301 of accrued interest.

 

On November 14, 2022, the Company issued 5,974,335 shares of Common Stock in exchange for conversion of $150,000 of principle balance on a convertible debenture and $1,151 of accrued interest.

 

On November 17, 2022, the Company issued 5,935,360 shares of Common Stock in exchange for conversion of $150,000 of principle balance on a convertible debenture and $164 of accrued interest.

 

On February 16, 2023, the Company issued 2,434,211 shares of Common Stock in exchange for the cashless exercise of 2,500,000 warrants.

 

On December 26, 2023, the Company issued 5,000,000 shares of its class A common stock for services with a fair value of $225,000 ($0.045/share) on the date of grant.

 

Repurchases of Equity Securities

 

None.

 

ITEM 6. RESERVED

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Caution Regarding Forward-Looking Information

 

The following discussion and analysis of our financial condition and result of operations should be read in conjunction with our audited consolidated financial statements and the notes to those financial statements appearing elsewhere in this Form 10-K. This discussion contains forward-looking statements and involves numerous risks and uncertainties contained in this report and the other reports we file with the Securities and Exchange Commission. Our actual results may differ materially from those contained in any forward-looking statements.

 

19

 

 

The following section reflects management’s views on the financial condition as of December 31, 2023 and 2022, and the results of operations and cash flows for the fiscal years ended December 31, 2023 and 2022. This section is provided as a supplement to, and should be read in conjunction with, the Company’s audited consolidated financial statements and related notes to the consolidated financial statements contained elsewhere in this report.

 

Overview

 

Kraig Biocraft Laboratories, Inc. is a corporation organized under the laws of Wyoming on April 25, 2006. Kraig Labs was organized to develop high strength fibers using recombinant DNA technology for commercial applications in technical textile. We use genetically engineered silkworms that produce spider silk proteins to create our recombinant spider silk. Applications include performance apparel, workwear, filtration, luxury fashion, flexible composites, medical implants, cosmetics and more. We believe that we have been a leader in the research and development of commercially scalable and cost-effective spider silk for technical textile and non-fibrous applications. Our primary proprietary fiber technology includes natural and engineered variants of spider silk produced in domesticated mulberry silkworms. Our business brings twenty-first century biotechnology to the historical silk industry, permitting us to introduce materials with innovative properties into an established commercial ecosystem of silkworm rearing, silk spinning and weaving, and manufacture of garments and other products that can include our specialty fibers and textiles. Specialty fibers are engineered for specific uses that require exceptional strength, flexibility, heat resistance and/or chemical resistance. The specialty fiber market is exemplified by two synthetic fiber products that come from petroleum derivatives: (1) aramid fibers; and (2) ultra-high molecular weight polyethylene fibers. The technical textile industry involves products for both industrial and consumer products, such as filtration fabrics, medical textiles (e.g., sutures and artificial ligaments), safety and protective clothing and fabrics used in military and aerospace applications (e.g., high-strength composite materials).

 

We are using genetic engineering technologies to develop fibers with greater strength, resiliency and flexibility for use in our target markets, namely the specialty fiber and technical textile industries.

 

We are continuing to work with our non-CRISPR Cas9 platform technology to accelerate our R&D operations. We are refining that approach for our targeted end-market applications. We are simultaneously working with other technologies to advance, accelerate, and broaden our genetic engineering capabilities. All of these systems are built on our eco-friendly and cost-effective silkworm production system, which we believe is more advanced than current competing methods. We are implementing these gene editing technologies to develop new protein structures with the goal of moving well beyond the native spider silk sequences that were used to create our Monster silk and Dragon silk lines.

 

Based on our internal analysis, management believes that this new platform technology will allow us to outpace and surpass Dragon Silk, a fiber that we developed with our previous tools. Samples of Dragon Silk have already demonstrated to be tougher than many fibers used in our target markets. We expect that this new approach will yield materials beyond those capabilities based upon its potential for significantly improved purity.

 

The company manufactures its spider silk materials through its wholly owned Vietnamese subsidiary, Prodigy Textiles. Through Prodigy Textiles the Company operates direct inhouse operations and contract manufacturing operations to develop and grow its production capacity for spider silk. We believe that we will be able to target metric tons of capacity of our spider silk fibers per annum from our operations when fully developed. This capacity will allow us to address initial demand for our products and materials for various applications in the protective, performance, and luxury textile markets.

 

The Report of Independent Registered Public Accounting Firm to our financial statements as of December 31, 2023 includes an explanatory paragraph stating that our net loss from operations and net capital deficiency at December 31, 2023 raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

20

 

 

Plan of Operations

 

During the next twelve months, we expect to take the following steps in connection with the further development of our business and the implementation of our plan of operations:

 

We plan to accelerate and expand commercial scale production of our recombinant spider silk.

   
We plan to expand our research and development to accelerate our work in creating next generation materials and to improve the robustness of our recombinant spider silk lines.
   
We plan to develop a line of fabrics and apparel, to create a line of recombinant spider silk fashion wear under.
   
We plan to continue the expansion of our overseas production operations, including working with local contractors or cooperatives and the hiring of additional direct staff, as needed.
   
We plan to overcome the current bottleneck in production by improving the overall robustness of our recombinant spider silk lines through a combination of climate acclimation and implementation of a multiple-strain hybrid breeding program. This program has already been initiated and is being rapidly accelerated.
   
We plan to accelerate both our microbiology and selective breeding programs, as well as provide more resources for our material testing protocols. In 2023, we directed our research and development efforts on growing our internal capabilities; we plan to continue to dedicate our efforts in 2024 to grow our internal research and development programs.

 

We will consider buying an established revenue producing company in a compatible business, in order to broaden our financial base and facilitate the commercialization of our products; as of the date hereof, we have not had any formal discussion or entered into any definitive agreements regarding any such purchase.
   
We will also actively consider pursuing collaborative research opportunities with private laboratories in areas of research which overlap the company’s existing research and development. If our financing allows, management will strongly consider increasing the breadth of our research to include protein expression platform technologies.
   
We plan to actively pursue collaborative research and product testing opportunities with companies in the biotechnology, materials, textile and other industries.
   
We plan to actively pursue additional collaborative commercialization, marketing and manufacturing opportunities with companies in the textile and material sectors for the fibers we developed and for any new polymers that we create in 2024 and going forward.
   
We plan to actively pursue an uplist to a national exchange if such an opportunity presents itself.

 

Limited Operating History

 

We have not previously demonstrated that we will be able to expand our business through an increased investment in our research and development efforts. We cannot guarantee that the research and development efforts described in this filing will be successful. Our business is subject to risks inherent in growing an enterprise, including limited capital resources, risks inherent in the research and development process and possible rejection of our products in development.

 

If financing is not available on satisfactory terms, we may be unable to continue our research and development and other operations. Equity financing will result in dilution to existing stockholders.

 

21

 

 

Impact of COVID-19 Outbreak

 

On January 30, 2020, the World Health Organization declared the coronavirus outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. While the closures and limitations on movement, domestically and internationally, are expected to be temporary, if the outbreak continues the duration of the supply chain disruption could reduce the availability, or result in delays, of materials or supplies to and from the Company, which in turn could materially interrupt the Company’s business operations. Given the speed and frequency of the continuously evolving developments with respect to this pandemic, the Company cannot reasonably estimate the magnitude of the impact to its consolidated results of operations. We have taken every known precaution possible to ensure the safety of our employees.

 

2 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5131771/

https://www.yourgenome.org/facts/what-is-genome-editing

https://ghr.nlm.nih.gov/primer/genomicresearch/genomeediting

 

On March 19, 2020, we furloughed non-essential staff in response to governmental regulations relating to COVID. This decision primarily impacted staff at our fully owned subsidiary, Prodigy Textiles, in Vietnam and resulted in the temporary closing of silk rearing operations at that facility. As of the date hereof, we have resumed silk production operations at the factory in Vietnam. The Company supported its furloughed staff and paid their salaries during all mandatory closures. During the duration of the furlough, the Company’s CEO voluntarily waved the payment or accrual of his salary. The Company leveraged this forced closure time to improve its production infrastructure based on the lessons learned from its operations. After the mandated closure, the Company has enhanced its production operations with process automation, moved its production headquarters to a facility designed for silk production, created a more self-reliant supply chain, and established a microbiology laboratory in its factory for enhanced quality control. On October 24, 2020, silk production operations at the factory resumed.

 

The global COVID pandemic and government regulations associated with the pandemic continue to evolve. We will continue to monitor the situation closely, including its potential effect on our plans and timelines. The actions of governments in response to COVID, both domestic and foreign, have impacted our ability to transport goods, people, essential equipment, and other items essential to our production. In turn, these restrictions are impacting our ability to produce intermediate and end products and are delaying our timelines for commercialization and revenue.

 

Additionally, it is reasonably possible that estimates made in the financial statements have been, or will be, materially and adversely impacted in the near term as a result of these conditions, including losses on inventory; impairment losses related to goodwill and other long-lived assets and current obligations.

 

Note Financing

 

January 2022

 

On January 18, 2022, we entered into a securities purchase agreement with YA II PN, LTD., a Cayman Islands exempt company (“Yorkville”), pursuant to which Yorkville purchased secured convertible debentures (the “Securities Purchase Agreement”) in the aggregate principal amount of USD$3,000,000 (the “Convertible Debentures”), which are convertible into shares of Common Stock (as converted, the “Conversion Shares”), of which a secured convertible debenture (the “First Convertible Debenture”) in the principal amount of $1,500,000 (the “First Convertible Debenture Purchase Price”) shall be issued upon signing the Securities Purchase Agreement and a secured convertible debenture (the “Second Convertible Debenture,” together with the First Convertible Debenture, each a “Convertible Debenture” and collectively, the “Convertible Debentures”) in the principal amount of $1,500,000 (the “Second Convertible Debenture Purchase Price”) shall be issued on or about the date that the Securities and Exchange Commission declares the registration statement registering the shares of common stock underlying the notes effective (collectively, the First Convertible Debenture Purchase Price and the Second Convertible Debenture Purchase Price shall collectively be referred to as the “Purchase Price”) (the “Yorkville Transaction”). These additional funds, together with those from the previously completed transactions we conducted with Yorkville between December 2020 and March 2021, account for an $8 million total Yorkville investment; as of November 17, 2022, all debentures to Yorkville pursuant thereto have been satisfied. The Company also issued Yorkville a warrant to purchase 12,500,000 shares of the Company’s Common Stock, at an initial exercise price of $0.12 per share and a warrant to purchase 4,285,714 shares of the Company’s Common Stock, at an initial exercise price of $0.14 per share. The warrants have a term of five (5) years and can be exercised via cashless exercise. If the Company issues or sells securities at a price less than the applicable warrant exercise price, the exercise price of the applicable warrant shall be reduced to such lower price. The warrants also have the same ownership cap as set forth in the Convertible Debentures, as described below.

 

22

 

 

In connection with the Securities Purchase Agreement, the Company also entered into a Registration Rights Agreement with Yorkville, pursuant to which the Company agreed to register all of the shares of Common Stock underlying the Convertible Debentures and warrants and with respect to subsequent registration statements, if any, such number of shares of Common Stock as requested by Yorkville not to exceed 300% of the maximum number of shares of Common Stock issuable upon conversion of all Convertible Debentures then outstanding (assuming for purposes hereof that (x) such Convertible Debentures are convertible at the then current conversion price and (y) any such conversion shall not take into account any limitations on the conversion of the Convertible Debentures set forth therein, in each case subject to any cutbacks set forth in the Registration Rights Agreement.

 

Upon signing the letter of intent for the Yorkville Transaction, the Company paid $10,000 to an affiliate of Yorkville, for due diligence and structuring.

 

The Securities Purchase Agreement also contained customary representation and warranties of the Company and the Investor, indemnification obligations of the Company, termination provisions, and other obligations and rights of the parties.

 

The foregoing description of the Securities Purchase Agreement, Convertible Debentures, Warrant, Security Agreement, IP Security Agreement, Registration Rights Agreement and Guaranty Agreement is qualified by reference to the full text of the forms of Securities Purchase Agreement, Convertible Debenture and Warrant, which are filed as Exhibits hereto and incorporated herein by reference.

 

Maxim Group LLC received a cash placement agent fee of $230,000.

 

Results of Operations for the Years ended December 31, 2022 and 2023

 

Our revenue, operating expenses, and net loss from operations for the years ended December 31, 2023 as compared to the year ended December 31, 2023, were as follows – some balances on the prior period’s combined financial statements have been reclassified to conform to the current period presentation:

 

   Year Ended
December 31,
       % Change Increase  
   2023   2022   Change   (Decrease)  
NET REVENUES  $-   $-    -    - 
COSTS OF REVENUES   -    -    -      
Gross Profit   -    -    -      
OPERATING EXPENSES:                    
General and Administrative   1,454,295    825,460    628,835    76.18%
Professional Fees   125,222    339,710    (214,488)   -63.14%
Officer’s Salary   797,406    779,742    17,664    2.27%
Research and Development   237,871    176,431    61,440    34.82%
Total operating expenses   2,614,794    2,121,343    493,451    23.26%
Loss from operations   (2,614,794)   (2,121,343)   (493,451)   23.26%
Interest expense   (484,658)   (609,129)   124,471    -20.43%
Amortization of debt issue costs   -    (1,111,580)   1,111,580    -100.00%
Impairment expense   (95,872)   -    (95,872)   

100,00

%
Net change in unrealized appreciation on investment in gold bullion   55,985    38    55,947    147228.95%
Interest income   109,559    -    109,559    100.00%
Net Loss  $(3,029,780)  $(3,842,014)   812,234    -21.14%

 

23

 

 

Net Revenues: During the year ended December 31, 2023, we realized $0 of revenues from our business. During the year ended December 31, 2022, we realized $0 of revenues from our business. Accordingly, there was no change in revenues between the years ended December 31, 2023 and 2022.

 

Research and development expenses: During year ended December 31, 2023, we incurred $237,871 research and development expenses. During year ended December 31, 2023, we incurred $176,431 of research and development expenses, an increase of $61,440 or 34.82% compared with the same period in 2022. The research and development expenses are attributable to the research and development with the Notre Dame University; the increase was due to the timing of research related activity and costs by insources the Company’s research operations.

 

Professional Fees: During year ended December 31, 2023, we incurred $125,222 professional expenses, which decreased by $214,488 or 63.14% from $339,710 for year ended December 31, 2022. The decrease in professional fees expense was attributable to decreased expenses related to investor relations services during year ended December 31, 2023.

 

Officers Salary: During year ended December 31, 2023, officers’ salary expenses increased to $797,406 or 2.27% compared to $779,742 for year ended December 31, 2022. The increase is due to contractual terms of employment. In order to conserve Company resources, the CEO agreed to accrue and not collect a majority of his salary for 2023.

 

General and Administrative Expense: General and administrative expenses increased by $628,835 or 76.18% to $1,454,295 for year ended December 31, 2023 from $825,460 for year ended December 31, 2022. Our general and administrative expenses for year ended December 31, 2023 consisted of other general and administrative expenses (which includes expenses such as Auto, Business Development, SEC Filing, Investor Relations, General Office, warrant Compensation) of $1,031,363, Travel of $44,629, office salary of $368,683, and consulting of $9,620 for a total of $1,454,295. Our general and administrative expenses for year ended December 31, 2022 consisted of other general and administrative expenses (which includes expenses such as Auto, Business Development, SEC Filing, Investor Relations, General Office, warrant Compensation) of $416,221, Travel of $25,231, office salary of $259,008, and consulting of $80,000 for a total of $825,460.

 

Interest Expense: Interest expense decreased to $484,658, or 20.43% for the year ended December 31, 2023 compared to $609,129 for the year ended December 31, 2022. The decrease was primarily due to interest on the related party loans and accounts payable and accrued expenses to the related parties.

 

24

 

 

Net Change in Unrealized Depreciation on Investment in Gold Bullion: Net change in unrealized appreciation on investment in gold bullion increased by $55,947 to $55,985 for the year ended December 31, 2023 from $38 for the year ended December 31, 2022. The increase was primarily due to a net change in unrealized depreciation on investment in gold bullion.

 

Amortization of original issue and debt discounts: Amortization of original issue and debt discount decreased to $1,111,580, or 100% for the year ended December 31, 2023 compared to $0 for the year ended December 31, 2022. The decrease was primarily due to amortization of original issue and debt discounts on convertible loans.

 

Asset impairment expense: Asset impairment expense increased to $95,872, or 100% for the year ended December 31, 2023, compared to $0 for the year ended December 31, 2022. The increase was primarily due to recognizing impairment expense of a deposit towards the purchase of inventory during the year ended December 31, 2023.

 

Net Loss: Net loss decreased by $812,234, or 21.14%, to a net loss of $3,029,780 for the year ended December 31, 2023 from a net loss of $3,842,014 for the year ended December 31, 2022. This decrease in net loss was driven primarily by a decrease in warrant compensation, amortization of original issue discount and professional fees and slightly offset by an increase in officer’s salary expense and general and administrative expenses and impairment expense.

 

Capital Resources and Liquidity

 

Our financial statements have been presented on the basis that we have a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As presented in the financial statements, we incurred a net loss of $3,029,780 during the year ended December 31, 2023, and losses are expected to continue in the near term. The accumulated deficit is $49,686,780 at December 31, 2023. Refer to Note 2 for our discussion of stockholder deficit. We have been funding our operations through private loans and the sale of common stock in private placement transactions. Refer to Note 6 and Note 7 in the financial statements for our discussion of notes payable and shares issued, respectively. Our cash resources are insufficient to meet our planned business objectives without additional financing. These and other factors raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of our company to continue as a going concern.

 

Management anticipates that significant additional expenditures will be necessary to develop and expand our business before significant positive operating cash flows can be achieved. Our ability to continue as a going concern is dependent upon our ability to raise additional capital and to ultimately achieve sustainable revenues and profitable operations. At December 31, 2023, we had $2,551,834 of cash on hand. These funds are insufficient to complete our business plan and as a consequence, we will need to seek additional funds, primarily through the issuance of debt or equity securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in the case of equity financing.

 

Management has undertaken steps as part of a plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond. These steps include (a) raising additional capital and/or obtaining financing; (b) controlling overhead and expenses; and (c) executing material sales or research contracts. There can be no assurance that the Company can successfully accomplish these steps and it is uncertain that the Company will achieve a profitable level of operations and obtain additional financing. There can be no assurance that any additional financing will be available to the Company on satisfactory terms and conditions, if at all. As of the date of this Report, we have not entered into any formal agreements regarding the above.

 

In the event the Company is unable to continue as a going concern, the Company may elect or be required to seek protection from its creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered this alternative, nor does management view it as a likely occurrence.

 

25

 

 

Cash, total current assets, total assets, total current liabilities and total liabilities as of December 31, 2023 as compared to December 31, 2022, were as follows:

 

   December 31, 2023   December 31, 2022 
Cash  $2,551,834   $3,862,716 
Inventory  $6,884   $6,580 
Prepaid expenses  $14,902   $15,665 
Deposits  $-   $98,480 
Total current assets  $2,573,620   $3,983,441 
Total assets  $3,232,822   $4,570,920 
Total current liabilities  $8,885,610   $8,072,083 
Total liabilities  $8,939,978   $8,092,780 

 

At December 31, 2023, we had a working capital deficit of $6,311,990, compared to a working capital deficit of $4,088,642 at December 31, 2022. Current liabilities increased to $8,885,610 at December 31, 2023 from $8,072,083 at December 31, 2022, primarily as a result of accounts payable.

 

For the year ended December 31, 2023, net cash used in operations of $1,244,483 was the result of a net loss of $3,029,780 offset by depreciation expense of $27,620, asset impairment expense of $95,872, net change in unrealized appreciation in gold bullions of $55,985, stock issued for services of $225,000, warrants issuance of $538,633, imputed interest on related party loans of $80,851, increase in prepaid expenses of $763, decrease in deposits of $2,608, increase in inventory of $304, and a decrease in operating lease right of use of $48,064, an increase of accrued expenses and other payables-related party of $869,640, increase in accounts payable of $1,298 and a decrease in operating lease liabilities of $48,763.

 

For the year ended December 31, 2022, net cash used in operations of $1,887,187 was the result of a net loss of $3,842,014 offset by depreciation expense of $28,103, net change in unrealized appreciation in gold bullions of $38, amortization of debt discount of $1,111,580, warrants issuance of $234,698, imputed interest on related party loans of $80,849, increase in prepaid expenses of $4,610 and a decrease in operating lease right of use of $45,275, an increase of accrued expenses and other payables-related party of $470,448, increase in accounts payable of $138,159 and a decrease in operating lease liabilities of $44,577.

 

Net cash used in our investing activities were $6,399 and $5,021 for the year ended December 31, 2023 and December 31, 2022, respectively. During the year ended December 31, 2023, the Company had net purchases of treasury bills of $2,587,811 and net proceeds from maturities of treasury bills of $2,587,811 and purchase of fixed assets of $6,399. During the year ended December 31, 2022, our cash outflow of $5,021, is represented by purchase of fixed assets of $5,021.

 

Our financing activities resulted in a cash inflow of $60,000 for the year ended December 31, 2023, which is represented by $60,000 loan repayment.

 

Our financing activities resulted in a cash inflow of $3,399,864 for the year ended December 31, 2022, which is represented by proceeds from convertible notes payable of $2,760,000 and repayment of convertible notes of $60,000, repayment of note payable – related party of $40,000, loan repayment of $60,000 and proceeds from a warrant exercise for $739,864.

 

Critical Accounting Policies

 

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, and revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

 

26

 

 

Our significant accounting policies are summarized in Note 1 of our financial statements. While all these significant accounting policies impact its financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our results of operations, financial position or liquidity for the periods presented in this report.

 

Recent Accounting Pronouncements

 

Changes to accounting principles are established by the FASB in the form of Accounting Standards Updates (“ASU’s”) to the FASB’s Codification. We consider the applicability and impact of all ASU’s on our consolidated financial position, results of operations, stockholders’ equity, cash flows, or presentation thereof. Management has evaluated all recent accounting pronouncements issued 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 consolidated financial statements of the Company.

 

In March 2022, the Financial Accounting Standards Board (the “FASB”) issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which eliminates the accounting guidance on troubled debt restructurings (“TDRs”) for creditors in ASC 310, Receivables (Topic 310), and requires entities to provide disclosures about current period gross write-offs by year of origination. Also, ASU 2022-02 updates the requirements related to accounting for credit losses under ASC 326, Financial Instruments – Credit Losses (Topic 326), and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. ASU 2022-02 was effective for the Company January 1, 2023. The adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements.

 

This guidance was adopted on January 1, 2023. The adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements.

 

There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on our consolidated financial position, results of operations or cash flows.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

As the Company is a smaller reporting company, this item is not applicable.

 

27

 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

CONTENTS

 

PAGE F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID 2738)
     
PAGE F-3 CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2023 AND DECEMBER 31, 2022.
     
PAGE F-4 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2023 AND DECEMBER 31, 2022.
     
PAGES F-5 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2023 AND DECEMBER 31, 2022.
     
PAGE F-6 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2023 AND DECEMBER 31, 2022.
     
PAGES F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

 

28

 

 

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, 2023 and 2022, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for each of the years in the two-years ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the two years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered net losses from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are discussed in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB ..

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and the significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe our audits provide a reasonable basis for our opinion.

 

F-1

 

 

Critical Audit Matter

 

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 

Going Concern

 

Due to the net loss, negative cash flows from operations for the year, and working capital deficiency, the Company evaluated the need for a going concern listed in note 2.

 

Auditing management’s evaluation of a going concern can be a significant judgment given the fact that the Company uses management estimates on future revenues and expenses, which are not able to be easily substantiated.

 

We evaluated the appropriateness of the going concern, we examined and evaluated the financial information along with management’s plans to mitigate the going concern and management’s disclosure on going concern.

 

/s/ M&K CPAS, PLLC

 

We have served as the Company’s auditor since 2013

 

The Woodlands, TX

 

April 1, 2024

 

F-2

 

 

Kraig Biocraft Laboratories, Inc. and Subsidiary

Consolidated Balance Sheets

 

   December 31, 2023   December 31, 2022 
ASSETS          
Current Assets          
Cash and cash equivalents  $2,551,834   $3,862,716 
Inventory   6,884    6,580 
Prepaid expenses   14,902    15,665 
Deposit - Related Party   -    98,480 
Total Current Assets   2,573,620    3,983,441 
           
Property and Equipment, net   66,640    87,861 
Investment in gold bullions (cost $450,216 and $450,216, respectively)   493,236    437,251 
Operating lease right-of-use asset, net   95,808    58,849 
Security deposit   3,518    3,518 
           
Total Assets  $3,232,822   $4,570,920 
           
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
Current Liabilities          
Accounts payable and accrued expenses  $541,637   $540,339 
Note payable - related party   1,617,000    1,617,000 
Royalty agreement payable - related party   65,292    65,292 
Accounts payable and accrued expenses - related party   6,584,648    5,715,008 
Operating lease liability, current   41,789    39,200 
Loan payable   35,244    95,244 
Total Current Liabilities   8,885,610    8,072,083 
           
Long Term Liabilities          
Operating lease liability, net of current   54,368    20,697 
Total Liabilities   8,939,978    8,092,780 
           
Commitments and Contingencies (Note 9)   -    - 
           
Stockholders’ Deficit          
Preferred stock, no par value; unlimited shares authorized, none, issued and outstanding   -    - 
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, 1,038,374,219 and 1,030,940,008 shares issued and outstanding, respectively   27,385,611    27,060,611 
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   11,354,213    10,834,729 
Accumulated Deficit   (49,686,780)   (46,657,000)
           
Total Stockholders’ Deficit   (5,707,156)   (3,521,860)
           
Total Liabilities and Stockholders’ Deficit  $3,232,822   $4,570,920 

 

F-3

 

 

Kraig Biocraft Laboratories, Inc. and Subsidiary

Consolidated Statements of Operations

 

   December 31, 2023   December 31, 2022 
   For the Years Ended 
   December 31, 2023   December 31, 2022 
         
Revenue  $-   $- 
           
Operating Expenses          
General and Administrative   1,454,295    825,460 
Professional Fees   125,222    339,710 
Officer’s Salary   797,406    779,742 
Research and Development   237,871    176,431 
Total Operating Expenses   2,614,794    2,121,343 
           
Loss from Operations   (2,614,794)   (2,121,343)
           
Other Income/(Expenses)          
Net change in unrealized depreciation on investment in gold bullion   55,985    38 
Interest expense   (484,658)   (609,129)
Amortization of debt issue costs   -    (1,111,580)
Asset impairment expense   

(95,872

)   - 
Interest income   109,559    - 
Total Other Income/(Expenses)   (414,986)   (1,720,671)
           
Net (Loss) before Provision for Income Taxes   (3,029,780)   (3,842,014)
           
Provision for Income Taxes   -    - 
           
Net (Loss)  $(3,029,780)  $(3,842,014)
           
Other Comprehensive Income          
Change in unrealized value of available-for-sale securities, net of income tax  $-   $- 
Other Comprehensive Income          
           
Total Operating and Comprehensive Loss  $(3,029,780)  $(3,842,014)
           
Net Income (Loss) Per Share - Basic and Diluted  $(0.00)  $(0.00)
           
Weighted average number of shares outstanding during the period - Basic and Diluted   1,033,122,597    974,307,366 

 

F-4

 

 

Kraig Biocraft Laboratories, Inc. and Subsidiary

Consolidated Statement of Changes in Stockholders’ Deficit

For the years ended December 31, 2023 and 2022

 

   Shares   Par   Shares   Par   Shares   Par   Shares   Par   APIC   Deficit   Total 
   Preferred Stock - Series A   Common Stock -
Class A
   Common Stock - Class B   To be issued       Accumulated      
   Shares   Par   Shares   Par   Shares   Par   Shares   Par   APIC   Deficit   Total 
                                             
Balance, December 31, 2021 (Audited)   2   $5,217,800    927,378,166   $22,385,132#   -   $-    1,122,311   $22,000   $9,894,179   $(42,814,986)  $(5,295,875)
                                                        
Warrants issued for services - related parties   -    -    -    -    -    -    -    -    202,895    -    202,895 
                                                        
Warrants issued for services   -    -    -    -    -    -    -    -    31,803    -    31,803 
                                                        
Exercise of warrants in exchange for cash ($0.06/Sh and $0.08/Sh)   -    -    11,097,959    739,864    -    -    -    -    -    -    739,864 
                                                        
Convertible debt and accrued interest conversion into common stock ($0.0253/Sh-$0.06430/Sh)   -    -    92,463,883    3,935,615    -    -    -    -    -    -    3,935,615 
                                                        
Imputed interest - related party   -    -    -    -    -    -    -    -    80,849    -    80,849 
                                                        
Beneficial conversion feature   -    -    -    -    -    -    -    -    625,003    -    625,003 
                                                        
Net loss for the years ended December 31, 2022   -    -    -    -    -    -    -    -    -    (3,842,014)   (3,842,014)
                                                        
Balance, December 31, 2022 (Audited)   2   $5,217,800    1,030,940,008   $27,060,611   -   $-    1,122,311   $22,000   $10,834,729   $(46,657,000)  $(3,521,860)
                                                        
Options issued for services - related parties   -    -    -    -    -    -    -    -    512,039    -    512,039 
                                                        
Warrants issued for services   -    -    -    -    -    -    -    -    26,594    -    26,594 
                                                        
Shares issued for services   -    -    5,000,000    225,000    -    -    -    -    -    -    225,000 
                                                        
Shares issued in connection with cashless warrants exercise   -    -    2,434,211    100,000    -    -    -    -    (100,000)   -    - 
                                                        
Imputed interest - related party   -    -    -    -    -    -    -    -    80,851    -    80,851 
                                                        
Net loss for the year ended December 31, 2023   -    -    -    -    -    -    -    -    -    (3,029,780)   (3,029,780)
                                                        
Balance, December 31, 2023 (Audited)   2   $5,217,800    1,038,374,219   $27,385,611   -   $-    1,122,311   $22,000   $11,354,213   $(49,686,780)   (5,707,156)

 

F-5

 

 

Kraig Biocraft Laboratories, Inc. and Subsidiary

Consolidated Statements of Cash Flows

 

   2023   2022 
   For the Years December 31, 
         
   2023   2022 
Cash Flows From Operating Activities:          
Net Loss  $(3,029,780)  $(3,842,014)
Adjustments to reconcile net loss to net cash used in operations          
Depreciation expense   27,620    28,103 
Asset impairment expense   

95,872

    - 
Net change in unrealized appreciation and depreciation in gold bullions   (55,985)   (38)
Amortization of debt discount   -    1,111,580 
Imputed interest - related party   80,851    80,849 
Stock issuable for services   225,000    - 
Warrants issued/(cancelled) to consultants   538,633    234,698 
Changes in operating assets and liabilities:          
(Increase) in inventory   (304)   (6,580)
Decrease (Increase) prepaid expenses   763    (4,610)
Decrease (Increase) in deposits   2,608    (98,480)
Decrease in operating lease right-of-use, net   48,064    45,275 
Increase in accrued expenses and other payables - related party   869,640    470,448 
Decrease in accounts payable   1,298    138,159 
Decrease in operating lease liabilities, current   (48,763)   (44,577)
Net Cash Used In Operating Activities   (1,244,483)   (1,887,187)
           
Net Cash Flows From Investing Activities          
Purchase of treasury bills   (2,587,811)   - 
Proceeds from maturity of treasury bills   2,587,811    - 
Purchase of fixed assets   (6,399)   (5,021)
Net Cash Provided by Investing Activities   (6,399)   (5,021)
           
Cash Flows From Financing Activities:          
Repayment of notes payable - related party   -    (40,000)
Proceeds from convertible note payable, net of original issue discount   -    2,760,000 
Principal payments on debt   (60,000)   (60,000)
Proceeds from warrant exercise   -    739,864 
Net Cash Used In Financing Activities   (60,000)   3,399,864 
           
Net Change in Cash and Cash Equivalents   (1,310,882)   1,507,656 
           
Cash and Cash Equivalents at Beginning of Year   3,862,716    2,355,060 
           
Cash and Cash Equivalents at End of Year  $2,551,834   $3,862,716 
           
Supplemental disclosure of cash flow information:          
           
Cash paid for interest  $-   $- 
Cash paid for taxes  $-   $- 
           
Supplemental disclosure of non-cash investing and financing activities:          
Shares issued in connection with cashless warrants exercise  $100,000   $- 
Warrant discount in connection with cashless warrant exercise  $-   $625,003 
Adoption of lease standard ASC 842  $85,023   $- 
Shares issued in connection with convertible note payable  $-   $3,935,615 

 

F-6

 

 

Kraig Biocraft Laboratories, Inc.

Notes to Consolidated Financial Statements as of December 31, 2023 and 2022

 

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

 

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

 

Foreign Currency

 

The assets and liabilities of Prodigy Textiles, Co., Ltd. (the Company’s Vietnamese subsidiary) whose functional currency is the Vietnamese Dong, are translated into US dollars at period-end exchange rates prior to consolidation. Income and expense items are translated at the average rates of exchange prevailing during the period. The adjustments resulting from translating the Company’s financial statements are reflected as a component of other comprehensive (loss) income. Foreign currency transaction gains and losses are recognized in net earnings based on differences between foreign exchange rates on the transaction date and settlement date.

 

Use of Estimates

 

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

Cash and cash equivalents consist of demand deposits at financial institutions, money market funds, and highly liquid investments with original maturities of three months or less.

 

As of December 31, 2023 and December 31, 2022, the Company had $2,551,834 and $3,862,716, in cash and cash equivalent accounts.

 

F-7

 

 

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 December 31, 2023 and 2022, 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, 2023 and December 31, 2022 excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive:

 

 SCHEDULE OF ANTIDILUTIVE SECURITIES OF EARNING PER SHARE

   December 31, 2023   December 31, 2022 
         
Stock Warrants (Exercise price - $0.001- $0.25/share)   67,335,714    54,660,032 
Stock Options (Exercise price - $0.1150/Share)   26,520,000    26,520,000 
Convertible Preferred Stock   2    2 
Total   93,855,716    81,180,034 

 

Investments

 

During the year the Company had investments Treasury Bills. The Treasury Bills had remaining terms ranging from one month to three months on December 31, 2023.

 

The Company classifies its investments in Treasury Bills as available-for-sale, accounted for at fair value with unrealized gains and losses recognized in other comprehensive gain on the statement of operations and comprehensive loss.

 

During the year ended December 31, 2023, the Treasury Bills were redeemed, and the remaining balance is $0.

 

The cost and estimated fair value of the Company’s investments are as follows:

 

 SCHEDULE OF COST AND ESTIMATED FAIR VALUE INVESTMENT

   Cost  

Gross

unrealized gain

   Fair value 
December 31, 2022  $-   $-   $- 
Treasury Bills  $2,587,811   $13,021   $2,600,832 
Treasury Bills – Redemption  $2,587,811   $      (13,021)  $(2,600,832)
Total Investments, December 31, 2023  $-   $-   $- 

 

Research and Development Costs

 

The Company expenses all research and development costs as incurred for which there is no alternative future use. These costs also include the expensing of employee compensation and employee stock based compensation.

 

For the years ended December 31, 2023 and 2022, the Company had $237,871 and $176,431 respectively, in research and development costs

 

Advertising Expense

 

The Company follows the policy of charging the costs of advertising to expense as incurred. There was no advertising expense in the years ended December 31, 2023 and 2022.

 

F-8

 

 

Income Taxes

 

The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC No. 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC No. 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

 SCHEDULE OF COMPONENTS OF INCOME TAX EXPENSE (BENEFIT)

   2023   2022 
Expected income tax (recovery) expense at the statutory rate of 21%  $(636,253)  $(806,823)
Tax effect of expenses that are not deductible for income tax purposes (net of other amounts deductible for tax purposes)   180,647    282,808 
Change in valuation allowance   455,606    524,014 
           
Provision for income taxes  $-   $- 

 

The components of deferred income taxes are as follows:

 

 SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES

   2023   2022 
   Years Ended December, 
   2023   2022 
Deferred tax liability:  $-   $- 
Deferred tax asset          
Net Operating Loss Carryforward   5,342,957    4,887,351 
Valuation allowance   (5,342,957)   (4,887,351)
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 2042.

 

The net change in the valuation allowance for the year ended December 31, 2023 and 2022 was an increase of $455,606 and $524,014, respectively.

 

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.

 

F-9

 

 

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

 

In March 2022, the Financial Accounting Standards Board (the “FASB”) issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which eliminates the accounting guidance on troubled debt restructurings (“TDRs”) for creditors in ASC 310, Receivables (Topic 310), and requires entities to provide disclosures about current period gross write-offs by year of origination. Also, ASU 2022-02 updates the requirements related to accounting for credit losses under ASC 326, Financial Instruments – Credit Losses (Topic 326), and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. ASU 2022-02 was effective for the Company January 1, 2023. The adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements.

 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

Changes to accounting principles are established by the FASB in the form of Accounting Standards Updates (“ASU’s”) to the FASB’s Codification. We consider the applicability and impact of all ASU’s on our consolidated financial position, results of operations, stockholders’ equity, cash flows, or presentation thereof. Management has evaluated all recent accounting pronouncements issued 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 consolidated financial statements of the Company.

 

This guidance was adopted on January 1, 2023. The adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements.

 

There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on our consolidated financial position, results of operations or cash flows.

 

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.

 

F-10

 

 

Fair Value of Financial Instruments

 

We hold certain financial assets, which are required to be measured at fair value on a recurring basis in accordance with the Statement of Financial Accounting Standard No. 157, “Fair Value Measurements” (“ASC Topic 820-10”). ASC Topic 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). ASC Topic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Level 1 instruments include cash and cash equivalents, account receivable, prepaid expenses, inventory and account payable and accrued liabilities. The carrying values are assumed to approximate the fair value due to the short term nature of the instrument.

 

The three levels of the fair value hierarchy under ASC Topic 820-10 are described below:

 

  Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. We believe our carrying value of level 1 instruments approximate their fair value at December 31, 2023 and 2022.
     
  Level 2 - Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
     
  Level 3 - Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. We consider depleting assets, asset retirement obligations and net profit interest liability to be Level 3. We determine the fair value of Level 3 assets and liabilities utilizing various inputs, including NYMEX price quotations and contract terms.

 

The following are the major categories of assets measured at fair value on a recurring basis: as of December 31, 2023 and December 31, 2022, using quoted prices in active markets for identical liabilities (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):

 

The Company has consistently applied the valuation techniques in all periods presented. The following table presents the Company’s assets which were measured at fair value at December 31, 2023 and December 31, 2022:

 

 SCHEDULE OF FAIR VALUE OF FINANCIAL INSTRUMENTS

   December 31, 2023   December 31, 2022 
   Fair Value Measurement Using   Fair Value Measurement Using 
   Level 1   Level 2   Level 3   Total   Level 1   Level 2   Level 3   Total 
                                 
Assets:                                        
Investment in gold  $493,236   $      -   $      -   $493,236   $437,251   $    -   $    -   $437,251 
Money market fund  $2,409,486   $-   $-   $2,409,486   $-   $-   $-   $- 
Total  $2,902,722   $-   $-   $2,902,722   $437,251   $-   $-   $437,251 

 

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.

 

F-11

 

 

The fair value of the treasury bills is based on quoted market prices in an active market. The Company has determined the fair value based on financial factors that are considered level 1 inputs in the fair value hierarchy.

 

Money market funds included in cash and cash equivalents and U.S. government-backed securities are measured at fair value based on quoted prices in active markets, which are considered Level 1 inputs. The Company’s policy is to recognize transfers in and/or out of the fair value hierarchy as of the date in which the event or change in circumstances caused the transfer.

 

The following tables summarize activity in gold bullion for the quarter ended December 31, 2023:

 

 SCHEDULE OF GOLD IN BULLION

Year Ended December 31, 2023  Ounces   Cost   Fair Value 
             
Balance December 31, 2021   239   $1,884   $437,212 
Net change in unrealized gain   -    38    38 
Balance December 31, 2022   239   $1,829   $437,251 
Net change in unrealized gain   -    235    55,985 
Balance December 31, 2023   239   $2,064   $493,236 

 

Revenue Recognition

 

Effective January 1, 2018, the Company adopted ASC No. 606 — Revenue from Contracts with Customers. Under ASC No. 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.

 

For the years ended December 31, 2023 and 2022, the Company recognized $0 and $0 respectively in revenue.

 

Concentration of Credit Risk

 

The Company at times has cash and cash equivalents in banks in excess of FDIC insurance limits. At December 31, 2023 and December 31, 2022, the Company had approximately $2,409,486 and $3,285,197, respectively in excess of FDIC insurance limits.

 

On March 12, 2023, the U.S. government took extraordinary steps to stop a potential banking crisis after the historic failure of Silicon Valley Bank, assuring all depositors at the failed institution that they could access all their money quickly, even as another major bank was shut down. The Company had no exposure to a failed bank. The Company averts risks associated with such a crisis by holding minimum cash balances required for uninterrupted operations, federal funds money market fund, and U.S. government-backed securities. As of December 31, 2023, the Company held $2,409,486 million in a federal money market fund (the “Fund”) with an investment objective to seek to provide current income while maintaining liquidity and a stable share price of $1. The Fund invests at least 99.5% of its total assets in cash, U.S. government securities, and/or repurchase agreements that are collateralized solely by U.S. government securities or cash (collectively, government securities). As such it is considered one of the most conservative investment options offered.

 

F-12

 

 

Original Issue Discount

 

For certain notes issued, the Company provides the debt holder with an original issue discount. The original issue discount is recorded as a debt discount, reducing the face amount of the note, and is amortized to amortization of original issue discount in the consolidated statements of operations over the life of the debt.

 

Debt Issue Cost

 

Debt issuance cost paid to lenders, or third parties are recorded as debt discounts and amortized to interest expense in the consolidated statements of operations, over the life of the underlying debt instrument.

 

Deposit– Related Party

 

During the year ended December 31, 2022, the Company paid $98,480 as a deposit towards the purchase of inventory from a related party vendor (an entity in which we hold a 15% ownership interest). As of December 31, 2023, the Company recognized impairment expense of $95,872 related to a deposit towards the purchase of inventory. The remaining balance as of December 31, 2023, is $0 (See Note 10).

 

The Company recognized an impairment expense of $95,872 and $0, respectively, during the years ended December 31, 2023 and 2022, related to a deposit to a related party

 

Investments without a Readily Determinable Fair Value (Cost Method)

 

Investments in nonmarketable entities in which the Company is not able to exercise significant influence, our “Cost Method Investments,” are accounted for at our initial cost, minus any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

 

The Company holds a 15% direct equity investment in Global Silk Solutions Joint Stock Company, a private Company (see deposit on inventory above). We received this investment in exchange for nominal consideration, and carry the investment at $0 on December 31, 2023 and December 31, 2022, respectively.

 

NOTE 2 GOING CONCERN

 

As reflected in the accompanying financial statements, the Company has a working capital deficiency of $6,311,990 and stockholders’ deficiency of $5,707,156 and used $1,244,483 of cash in operations for the year ended December 31, 2023. 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, 2023 and December 31, 2022, property and equipment, net, is as follows:

 

   December 31, 2023   December 31, 2022  

Estimated Useful

Lives (Years)

 
Automobile  $41,805   $41,805    5 
Laboratory Equipment   130,310    123,911    5-10 
Office Equipment   7,260    7,260    5-10 
Leasehold Improvements   82,739    82,739    2-5 
Less: Accumulated Depreciation   (195,474)   (167,854)     
Total Property and Equipment, net  $66,640   $87,861      

 

Depreciation expense for the years ended December 31, 2023 and 2022, was $27,620 and $28,103, respectively.

 

F-13

 

 

NOTE 4 - RIGHT TO USE ASSETS AND LEASE LIABILITY

 

We determine if an arrangement is a lease, or contains a lease, at inception and record the leases in our financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor.

 

We have a lease agreement with lease and non-lease components and have elected to utilize the practical expedient to account for lease and non-lease components together as a single combined lease component, from both a lessee and lessor perspective with the exception of direct sales-type leases and production equipment classes embedded in supply agreements. From a lessor perspective, the timing and pattern of transfer are the same for the non-lease components and associated lease component and, the lease component, if accounted for separately, would be classified as an operating lease.

 

We have elected not to present short-term leases on the balance sheet as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that we are reasonably certain to exercise. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because our lease does not provide an implicit rate of return, we used our incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments.

 

In general, leases, where we are the lessee, may include options to extend the lease term. These leases may include options to terminate the lease prior to the end of the agreed upon lease term. For purposes of calculating lease liabilities, lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise such options.

 

Lease expense for operating leases is recognized on a straight-line basis over the lease term as cost of revenues or operating expenses depending on the nature of the leased asset. Certain operating leases provide for annual increases to lease payments based on an index or rate. We calculate the present value of future lease payments based on the index or rate at the lease commencement date.

 

Differences between the calculated lease payment and actual payment are expensed as incurred. Amortization of finance lease assets is recognized over the lease term as cost of revenues or operating expenses depending on the nature of the leased asset.

 

Interest expense on finance lease liabilities is recognized over the lease term in interest expense.

 

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 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 paid 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 October 1, 2023, the Company extended the terms of the lease through September 30, 2025. From October 1, 2023, through September 30, 2024, the Company will pay an annual rent of $44,800. From October 1, 2024, through September 30, 2025, the Company will pay an annual rent of $47,600. The Company recorded ROU asset of $85,022 and lease liability of $85,022 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 three through five. On July 1, 2021, the Company ended this lease agreement, and the company recorded the associated ROU asset and lease liability of $241,800.

 

F-14

 

 

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.

 

The tables below present information regarding the Company’s operating lease assets and liabilities at December 31, 2023;

 

At December 31, 2023 and December 31, 2022, the Company had no financing leases as defined in ASC 842, “Leases.”

 

   December 31, 2023   December 31, 2022 
Assets          
           
Operating lease - right-of-use asset - non-current  $95,808   $58,849 
           
Liabilities          
           
Operating lease liability  $96,157   $59,897 
           
Weighted-average remaining lease term (three months)   1.95    2.08 
           
Weighted-average discount rate   8%   8%
           
The components of lease expense were as follows:          
           
Operating lease costs          
           
Amortization of right-of-use operating lease asset  $20,194   $52,043 
Total operating lease costs  $20,194   $52,043 
           
Supplemental cash flow information related to operating leases was as follows:          
           
Operating cash outflows from operating lease (obligation payment)  $53,442   $51,344 
Right-of-use asset obtained in exchange for new operating lease liability  $-   $- 

 

Future minimum lease payments required under leases that have initial or remaining non-cancelable lease terms in excess of one year at December 31, 2023: