NOTE
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
ORGANIZATION
(A)
Basis of Presentation
The accompanying
unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in The
United States of America and the rules and regulations of the
Securities and Exchange Commission for interim financial
information. Accordingly, they do not include all the information
necessary for a comprehensive presentation of financial position
and results of operations.
It is management's
opinion, however that all material adjustments (consisting of
normal recurring adjustments) have been made which are necessary
for a fair financial statements presentation. The results for the
interim period are not necessarily indicative of the results to be
expected for the year.
Kraig Biocraft
Laboratories, Inc. (the "Company") was incorporated under the laws
of the State of Wyoming on April 25, 2006. The Company was
organized to develop high strength, protein based fiber, using
recombinant DNA technology, for commercial applications in the
textile and specialty fiber industries.
(B)
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.
(C) Use of Estimates
In preparing
financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and revenues and expenses
during the reported period. Actual results could differ from
those estimates.
(D)
Cash
For the purposes of
the cash flow statements, the Company considers all highly liquid
investments with original maturities of three months or less at the
time of purchase to be cash equivalents. There were no cash
equivalents as of September 30, 2019 or December 31,
2018.
(E)
Loss Per Share
Basic and diluted
net loss per common share is computed based upon the weighted
average common shares outstanding as defined by the Financial
Accounting Standards Board (“FASB” Accounting Standards
Codification (“ASC”) No. 260, “Earnings per
Share.” For September 30, 2019 and September 30, 2018,
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 September 30, 2019 and
September 30, 2018 excludes the common stock equivalents of the
following potentially dilutive securities because their inclusion
would be anti-dilutive:
|
|
|
|
|
Stock Warrants
(Exercise price - $0.001/share)
|
57,495,917
|
36,400,000
|
|
Convertible
Preferred Stock
|
2
|
2
|
|
Total
|
57,495,919
|
36,400,002
|
(F)
Research and Development Costs
The Company
expenses all research and development costs as incurred for which
there is no alternative future use. These costs also include the
expensing of employee compensation and employee stock based
compensation.
Kraig
Biocraft Laboratories, Inc.
Notes
to Consolidated Financial Statements as of September 30, 2019 and
2018
(G)
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.
On December 22, 2017, the 2017 Tax Cuts and Jobs
Act (the “Tax Act”) was enacted into law and the new
legislation contains several key tax provisions that affected us,
including a one-time mandatory transition tax on accumulated
foreign earnings and a reduction of the corporate income tax rate
to 21% effective January 1, 2018, among others. We are required to
recognize the effect of the tax law changes in the period of
enactment, such as determining the transition tax, remeasuring our
U.S. deferred tax assets and liabilities as well as reassessing the
net realizability of our deferred tax assets and liabilities. In
December 2017, the SEC staff issued Staff Accounting Bulletin No.
118, Income Tax Accounting
Implications of the Tax Cuts and Jobs Act (SAB 118), which allows us to record provisional
amounts during a measurement period not to extend beyond one year
of the enactment date. Since the Tax Act was passed late in the
fourth quarter of 2017, and ongoing guidance and accounting
interpretation are expected over the next 12 months, we consider
the accounting of the transition tax, deferred tax re-measurements,
and other items to be incomplete due to the forthcoming guidance
and our ongoing analysis of final year-end data and tax positions.
We expect to complete our analysis within the measurement period in
accordance with SAB 118.
Effective January
1, 2009, the Company adopted guidance regarding accounting for
uncertainty in income taxes. This guidance clarifies the accounting
for income taxes by prescribing the minimum recognition threshold
an income tax position is required to meet before being recognized
in the financial statements and applies to all federal or state
income tax positions. Each income tax position is assessed using a
two-step process. A determination is first made as to whether it is
more likely than not that the income tax position will be
sustained, based upon technical merits, upon examination by the
taxing authorities. If the income tax position is expected to meet
the more likely than not criteria, the benefit recorded in the
financial statements equals the largest amount that is greater than
50% likely to be realized upon its ultimate settlement. As of
December 31, 2018 and December 31, 2017 there were no amounts that
had been accrued in respect to uncertain tax
positions.
Fair value accounting requires bifurcation of
embedded derivative instruments such as conversion features in
convertible debt or equity instruments, and measurement of their
fair value for accounting purposes. In determining the appropriate
fair value, the Company uses the Black-Scholes option-pricing
model. In assessing the convertible debt instruments, management
determines if the convertible debt host instrument is conventional
convertible debt and further if there is a beneficial conversion
feature requiring measurement. If the instrument is not considered
conventional convertible debt, the Company will continue its
evaluation process of these instruments as derivative financial
instruments.
Once determined,
derivative liabilities are adjusted to reflect fair value at each
reporting period end, with any increase or decrease in the fair
value being recorded in results of operations as an adjustment to
fair value of derivatives. In addition, the fair value of
freestanding derivative instruments such as warrants, are also
valued using the Black-Scholes option-pricing
model.
(H)
Stock-Based Compensation
In December 2004,
the FASB issued FASB ASC No. 718, Compensation – Stock
Compensation. Under FASB ASC No. 718, companies are required
to measure the compensation costs of share-based compensation
arrangements based on the grant- date fair value and recognize the
costs in the financial statements over the period during which
employees are required to provide services. Share-based
compensation arrangements include stock options, restricted share
plans, performance-based awards, share appreciation rights and
employee share purchase plans. As such, compensation cost is
measured on the date of grant at their fair value. Such
compensation amounts, if any, are amortized over the respective
vesting periods of the option grant. The Company applies this
statement prospectively.
Equity instruments
(“instruments”) issued to other than employees are
recorded on the basis of the fair value of the instruments, as
required by FASB ASC No. 718. FASB ASC No. 505, Equity Based Payments to Non-Employees
defines the measurement date and recognition period for such
instruments. In general, the measurement date is when either a (a)
performance commitment, as defined, is reached or (b) the earlier
of (i) the non-employee performance is complete or (ii) the
instruments are vested. The measured value related to the
instruments is recognized over a period based on the facts and
circumstances of each particular grant as defined in the FASB
ASC.
Kraig
Biocraft Laboratories, Inc.
Notes
to Consolidated Financial Statements as of September 30, 2019 and
2018
(I)
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02,
“Leases” Topic 842, which amends the guidance in former
ASC Topic 840, Leases. The new standard increases transparency and
comparability most significantly by requiring the recognition by
lessees of right-of-use (“ROU”) assets and lease
liabilities on the balance sheet for all leases longer than 12
months. Under the standard, disclosures are required to meet the
objective of enabling users of financial statements to assess the
amount, timing, and uncertainty of cash flows arising from leases.
For lessees, leases will be classified as finance or operating,
with classification affecting the pattern and classification of
expense recognition in the income statement. The Company adopted
the new lease guidance effective January 1, 2019 using the modified
retrospective transition approach, applying the new standard to all
of its leases existing at the date of initial application which is
the effective date of adoption. Consequently, financial information
will not be updated and the disclosures required under the new
standard will not be provided for dates and periods before January
1, 2019. We elected the package of practical expedients which
permits us to not reassess (1) whether any expired or existing
contracts are or contain leases, (2) the lease classification for
any expired or existing leases, and (3) any initial direct costs
for any existing leases as of the effective date. We did not elect
the hindsight practical expedient which permits entities to use
hindsight in determining the lease term and assessing impairment.
The adoption of the lease standard did not change our previously
reported consolidated statements of operations and did not result
in a cumulative catch-up adjustment to opening equity. As a result,
the Company has recorded Right-to-use assets and corresponding
Lease obligations as more fully discussed in Note
4.
In February 2018, the FASB issued ASU No.
2018-02, Reclassification of Certain Tax Effects from Accumulated
Other Comprehensive Income. The guidance permits entities to
reclassify tax effects stranded in Accumulated Other Comprehensive
Income as a result of tax reform to retained earnings. This new
guidance is effective for annual and interim periods in fiscal
years beginning after December 15, 2018. Early adoption is
permitted in annual and interim periods and can be applied
retrospectively or in the period of adoption. We are evaluating the
impact of adopting this guidance on our Consolidated Financial
Statements.
In March 2018, the
FASB issued ASU No. 2018-05, Income Taxes (Topic 740) - Amendments
to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.
118. The amendment provides guidance on accounting for the impact
of the Tax Cuts and Jobs Act (the “Tax Act”) and allows
entities to complete the accounting under ASC No. 740 within a
one-year measurement period from the Tax Act enactment date. This
standard is effective upon issuance. The Tax Act has several
significant changes that impact all taxpayers, including a
transition tax, which is a one-time tax charge on accumulated,
undistributed foreign earnings. The calculation of accumulated
foreign earnings requires an analysis of each foreign
entity’s financial results going back to 1986. We are
evaluating the impact of adopting this guidance on our Consolidated
Financial Statements.
In June 2018, the FASB issued Accounting
Standards Update (“ASU”) 2018-07, Compensation-Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting, which expands the scope of Topic 718 to include
share-based payment transactions for acquiring goods and services
from nonemployees. An entity should apply the requirements of Topic
718 to nonemployee awards except for specific guidance on inputs to
an option pricing model and the attribution of cost (that is, the
period of time over which share-based payment awards vest and the
pattern of cost recognition over that period). The new guidance is
effective for all entities for annual periods, and interim periods
within those annual periods, beginning after December 15, 2017,
with early adoption permitted. We are evaluating the impact of
adopting this guidance on our Consolidated Financial
Statements.
In August 2018, the FASB issued ASU 2018-13, Fair
Value Measurement (Topic 820), Disclosure Framework – Changes
to the Disclosure Requirements for Fair Value Measurement. The
amendments in this update modify certain disclosure requirements of
fair value measurements and are effective for all entities for
fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2019. Early adoption is permitted. We
are evaluating the impact of adopting this guidance on our
Consolidated Financial Statements.
As a result, a freestanding equity-linked
financial instrument (or embedded conversion option) no longer
would be accounted for as a derivative liability at fair value as a
result of the existence of a down round feature. For freestanding
equity classified financial instruments, the amendments require
entities that present earnings per share (EPS) in accordance with
Topic 260 to recognize the effect of the down round feature when it
is triggered. That effect is treated as a dividend and as a
reduction of income available to common shareholders in basic EPS.
Convertible instruments with embedded conversion options that have
down round features are now subject to the specialized guidance for
contingent beneficial conversion features (in Subtopic 470-20,
Debt—Debt with Conversion and Other Options), including
related EPS guidance (in Topic 260). The amendments in Part II of
this update recharacterize the indefinite deferral of certain
provisions of Topic 480 that now are presented as pending content
in the Codification, to a scope exception.
Those amendments do not have an accounting
effect. For public business entities, the amendments in Part I of
this update are effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2018. Early
adoption is permitted for all entities, including adoption in an
interim period. If an entity early adopts the amendments in an
interim period, any adjustments should be reflected as of the
beginning of the fiscal year that includes that interim period. The
Company is currently reviewing the impact of adoption of ASU
2017-11on its financial statements.
All other newly
issued accounting pronouncements but not yet effective have been
deemed either immaterial or not applicable. The 2018 financial
statements have been reclassified to conform to the 2019
presentation.
Kraig
Biocraft Laboratories, Inc.
Notes
to Consolidated Financial Statements as of September 30, 2019 and
2018
(J) Equipment
The Company values property and equipment at cost
and depreciates these assets using the straight-line method over
their expected useful life. The Company uses a five year life for
automobiles.
In accordance with FASB ASC No. 360,
Property, Plant
and Equipment, the Company
carries long-lived assets at the lower of the carrying amount or
fair value. Impairment is evaluated by estimating future
undiscounted cash flows expected to result from the use of the
asset and its eventual disposition. If the sum of the expected
undiscounted future cash flow is less than the carrying amount of
the assets, an impairment loss is recognized. Fair value, for
purposes of calculating impairment, is measured based on estimated
future cash flows, discounted at a market rate of
interest.
There were no
impairment losses recorded for the nine months ended September 30,
2019 and 2018.
(K)
Fair Value of Financial Instruments
We hold certain financial assets, which are
required to be measured at fair value on a recurring basis in
accordance with the Statement of Financial Accounting Standard No.
157, “Fair Value
Measurements” (“ASC Topic 820-10”). ASC Topic
820-10 establishes a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level
3 measurements). ASC Topic 820-10 defines fair value as the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants on
the measurement date. Level 1 instruments include cash, account
receivable, prepaid expenses, inventory and account payable and
accrued liabilities. The carrying values are assumed to approximate
the fair value due to the short term nature of the
instrument.
The three levels of
the fair value hierarchy under ASC Topic 820-10 are described
below:
o
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 September 30, 2019 and December 31,
2018.
o
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.
o
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.
|
|
|
|
|
Level
1
|
$-
|
$-
|
|
Level
2
|
$-
|
$-
|
|
Level
3
|
$-
|
$-
|
|
Total
|
$-
|
$-
|
(L)
Revenue Recognition
During the year
ended December 31, 2018, the Company’s revenues were
generated primarily from a contract with the U.S. Government. The
Company performs work under this cost-plus-fixed-fee contract.
Under the base phase of that contract the Company produced
recombinant spider silk woven into ballistic shootpack panels.
Those shootpack panels were delivered to the U.S. Government
customer. Under an option period award starting in July 2017, to
that original contract, the Company has worked to develop new
recombinant silks.
Effective January
1, 2018, the Company adopted ASC 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 comparative periods, revenue has
not been adjusted and continues to be reported under ASC No. 605
— Revenue Recognition. Under ASC No. 605, revenue is
recognized when the following criteria are met: (1) persuasive
evidence of an arrangement exists;(2) the performance of service
has been rendered to a customer or delivery has occurred; (3) the
amount of fee to be paid by a customer is fixed and determinable;
and (4) the collectability of the fee is reasonably
assured.
Kraig
Biocraft Laboratories, Inc.
Notes
to Consolidated Financial Statements as of September 30, 2019 and
2018
For the nine months
ended September 30, 2019 and 2018, the Company recognized $0 and
$401,620 respectively in revenue from the Government contract.
These revenues were generated for work performed in the development
and production of the Company’s recombinant silks under the
base and option period phases of our ongoing contract with the US
Army.
On July 24, 2017,
the Company signed a contract option extension with the US Army to
research and deliver recombinant spider silk fibers and threads.
This contract option increased the total contract award by an
additional $921,130 to a total of $1,021,092 and added 12 months to
the contract duration. This effort was scheduled to end on
September 24, 2018, but the Company requested an extension of this
contract option period through April 2019 to complete the work. The
Company has been in communication with the contracting office and
is working with them as they determine the best path forward;
Management believes there is a possibility of securing a follow-up
contract to complete the delivery of all materials for the
contract. The Company is also continuing to pursue additional
contract opportunities with the Department of Defense, Department
of Energy and other governmental agencies.
(M)
Concentration of Credit Risk
The Company at
times has cash in banks in excess of FDIC insurance limits. At
September 30, 2019 and December 31, 2018, the Company had
approximately $33,148 and $0, respectively in excess of FDIC
insurance limits.
For the nine months
ended September 30, 2019 and 2018, the Company had a concentration
of sales of:
|
Customer
|
September
30, 2019
|
September
30, 2018
|
|
Customer
A
|
-
|
100%
|
|
Customer
A
|
$-
|
$401,620
|
For the nine months
ended September 30, 2019 and 2018, the Company booked $0 and $0 for
doubtful accounts.
NOTE 2 GOING
CONCERN
As reflected in the
accompanying financial statements, the Company has a working
capital deficiency of $4,607,848 and stockholders’ deficiency
of $4,605,407 and used $769,583 of cash in operations for nine
months ended September 30, 2019. 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 September 30, 2019 and December 31, 2018,
property and equipment, net, is as
follows:
|
|
|
|
|
Automobile
|
$41,805
|
$41,805
|
|
Laboratory
Equipment
|
80,010
|
73,194
|
|
Office
Equipment
|
7,260
|
7,260
|
|
Leasehold
Improvements
|
74,088
|
7,938
|
|
Less: Accumulated
Depreciation
|
(105,335)
|
(82,887)
|
|
Total Property and
Equipment, net
|
$97,828
|
$47,310
|
Depreciation
expense for the nine months ended September 30, 2019 and 2018, was
$22,448 and $19,809, respectively.
Depreciation
expense for the three months ended September 30, 2019 and 2018, was
$9,044 and $6,774, respectively.
Kraig
Biocraft Laboratories, Inc.
Notes
to Consolidated Financial Statements as of September 30, 2019 and
2018
NOTE
4 - RIGHT TO USE ASSETS AND LEASE LIABILITITY
Since September of
2015, we rent office space at 2723 South State Street, Suite 150,
Ann Arbor, Michigan 48104, which is our principal place of
business. We pay an annual rent of $2,508 for conference
facilities, mail, fax, and reception services located at our
principal place of business.
On January 23, 2017
the Company signed an 8 year property lease with the
Company’s President for land in Texas where the Company grows
its mulberry. The Company pays a monthly rent of $960. Rent expense
– related party for the nine months ended September 30, 2019
and 2018, was $11,913 and $5,760, respectively (See Note
9).
On September 13,
2017, the Company signed a new two year lease commencing on October
1, 2017 and ending on September 30, 2019. The Company pays an
annual rent of $39,200 for the year one of lease and $42,000 for
the year two of lease for office and manufacturing
space.
On May 9, 2019 the
Company signed a 5 year property lease with the Socialist Republic
of Vietnam which consists of 4,560.57 square meters of space, which
it leases at a current rent of approximately $45,150 per year one
and two and with the 5% increase per year for years three through
five.
In February 2016, the FASB issued ASU 2016-02,
“Leases” Topic 842, which amends the guidance in former
ASC Topic 840, Leases. The new standard increases transparency and
comparability most significantly by requiring the recognition by
lessees of right-of-use (“ROU”) assets and lease
liabilities on the balance sheet for all leases longer than 12
months. Under the standard, disclosures are required to meet the
objective of enabling users of financial statements to assess the
amount, timing, and uncertainty of cash flows arising from leases.
For lessees, leases will be classified as finance or operating,
with classification affecting the pattern and classification of
expense recognition in the income
statement.
The Company adopted
the new lease guidance effective January 1, 2019 using the modified
retrospective transition approach, applying the new standard to all
of its leases existing at the date of initial application which is
the effective date of adoption. Consequently, financial information
will not be updated and the disclosures required under the new
standard will not be provided for dates and periods before January
1, 2019. We elected the package of practical expedients which
permits us to not reassess (1) whether any expired or existing
contracts are or contain leases, (2) the lease classification for
any expired or existing leases, and (3) any initial direct costs
for any existing leases as of the effective date. We did not elect
the hindsight practical expedient which permits entities to use
hindsight in determining the lease term and assessing impairment.
The adoption of the lease standard did not change our previously
reported consolidated statements of operations and did not result
in a cumulative catch-up adjustment to opening equity. The adoption
of the new guidance resulted in the recognition of ROU assets of
$529,135 and lease liabilities of $531,462.
The interest rate implicit in lease contracts is
typically not readily determinable. As such, the Company utilizes
its incremental borrowing rate, which is the rate incurred to
borrow on a collateralized basis over a similar term an amount
equal to the lease payments in a similar economic environment. In
calculating the present value of the lease payments, the Company
elected to utilize its incremental borrowing rate based on the
remaining lease terms as of the January 1, 2019 adoption date. This
rate was determined to be 8% and the Company determined the initial
present value, at inception, of
$559,568.
Operating lease ROU
assets and operating lease liabilities are recognized based on the
present value of the future minimum lease payments over the lease
term at the commencement date. The operating lease ROU asset also
includes any lease payments made and excludes lease incentives and
initial direct costs incurred, if any.
The Company has
elected the practical expedient to combine lease and non-lease
components as a single component. The lease expense is recognized
over the expected term on a straight-line basis. Operating leases
are recognized on the balance sheet as right-of-use assets, current
operating lease liabilities and non-current operating lease
liabilities.
The new standard
also provides practical expedients and certain exemptions for an
entity’s ongoing accounting. We have elected the short-term
lease recognition exemption for all leases that qualify. This
means, for those leases where the initial lease term is one year or
less or for which the ROU asset at inception is deemed immaterial,
we will not recognize ROU assets or lease liabilities. Those leases
are expensed on a straight line basis over the term of the
lease
Right to use assets
is summarized below:
|
|
|
|
Right to use
assets, net – related party
|
$79,100
|
|
Right to use
assets, net
|
55,942
|
|
Right to use
assets, net
|
366,403
|
|
Total
|
$501,445
|
Kraig
Biocraft Laboratories, Inc.
Notes
to Consolidated Financial Statements as of September 30, 2019 and
2018
During
the nine months ended September 30, 2019, the Company recorded
$75,575 as lease expense to current period operations.
During the nine
months ended September 30, 2019, the Company recorded $11,913 as
lease expense – related party to current period
operations.
Lease liability is
summarized below:
|
|
|
|
Right to use
liability, net – related party
|
57,120
|
|
Right to use
liability, net
|
79,864
|
|
Right to use
liability, net
|
368,983
|
|
Total
|
505,967
|
|
Less: short term
portion
|
$(107,661)
|
|
Long term
position
|
$398,306
|
Lease expense for
the nine months ended September 30, 2019 was comprised of the
following:
|
Operating lease
expense
|
$22,522
|
|
Operating lease
expense
|
$16,733
|
|
Operating lease
expense – related party
|
$11,913
|
NOTE
5 ACCRUED INTEREST – RELATED PARTY
On June 6, 2016,
the Company received a $50,000 loan from our principal stockholder.
Subsequently on December 1, 2017, the Company received an
additional $30,000 loan from the same stockholder. On January 8,
2018 and March 31, 2018 the Company received an additional loan of
$100,000 and $15,000, respectively. The Company received additional
loan funds from the same stockholder as follows: $20,000 on April
26, 2018; $15,000 on June 21, 2018; $15,000 on June 29, 2018;
$20,000 on July 5, 2018; $26,000 on October 1, 2018; $11,000 on
October 12, 2018; $20,000 on December 21, 2018; $3,000 on January
4, 2019; $30,000 on January 17, 2019; $30,000 on February 1, 2019;
$20,000 on February 15, 2019; $20,000 on March 1, 2019; and $17,000
on January 4, 2019. Pursuant to the terms of the loan, the advance
bears an interest at 3%, is unsecured, and due on demand. Total
loan payable to principal stockholder for as of December 31, 2018
is $322,000. Total loan payable to this principal stockholder
as of September 30, 2019 is $442,000. During the nine months
ended September 30, 2019, the Company recorded $16,027 as an
in-kind contribution of interest related to the loan and recorded
accrued interest payable of $10,624. During the nine months ended
September 30, 2018, the Company recorded $8,097 as an in-kind
contribution of interest related to the loan and recorded accrued
interest payable of $4,968.
NOTE
6 NOTE PAYABLE
On March 1, 2019,
the Company entered into an unsecured promissory note with Notre
Dame - an unrelated party in the amount of $265,244 in exchange for
outstanding account payable due to the debtor. Pursuant to the
terms of the note, the note bears 10% interest per year from the
date of default until the date the loan is paid in full. The term
of the loan is twenty four months. The loan repayment commenced
immediately over a twenty-four month period according to the
following table. During the nine months ended September 30, 2019,
the Company paid $8,000 of the loan balance (See Note 8
(A):
1. $1,000 per month
for the first six months;
2. $2,000 per month
for the months seven and eight;
3. $5,000 per month
for months nine through twenty three; and,
4. Final payment of
all remaining balance, in the amount of $180,224 in month
24.
Kraig
Biocraft Laboratories, Inc.
Notes
to Consolidated Financial Statements as of September 30, 2019 and
2018
NOTE
7 STOCKHOLDERS' DEFICIT
(A)
Common Stock Issued for Cash
On March 9, 2019,
the Company entered into a purchase agreement with one investor
(the “Purchase Agreement”). Pursuant to the Purchase
Agreement, the Company issued the investor 14,797,278 Units at a
purchase price of $0.06758 per Unit, for total gross proceeds to
the Company of $1,000,000. The Units consist of 14,797,278 shares
of the Company’s Class A Common Stock (the “Common
Stock”) and two warrants (the “Warrants”): (i)
one warrant entitles the investor to purchase up to 14,797,278
shares of Common Stock at an exercise price of $0.06 per share (the
“6 Cent Warrants”) and (ii) one warrant entitles the
investor to purchase up to 7,398,639 shares of Common Stock at an
exercise price of $0.08 per share (the “8 Cent
Warrant”). The Warrants shall be exercisable at any time from
the issuance date until the following expiration
dates:
●½ of
all $0.06 Warrants shall expire on March 8,
2021;
●½ of
all $0.06 Warrants shall expire on March 8,
2022;
●½ of
all $0.08 Warrants shall expire on March 8, 2022;
and,
●½ of
all $0.08 Warrants shall expire on March 8,
2023.
(B) Common Stock Issued for
Services
Shares issued for services as mentioned below
were valued at the closing price of the stock on the date of
grant.
On March 20, 2019,
the Company issued 4,052,652 shares of its class A common stock
with a fair value of $281,659 ($0.0695/share) on the date of
settlement. The Company settled $243,159 of accounts payable to the
University of Notre Dame. The Company recorded an additional amount
of $38,500 based on the fair value of the shares on the date of
settlement. See Note 8 (A).
On April 6, 2018,
the Company issued 36,000 shares with a fair value of $1,076
($0.0299/share) to a consultant as consideration for consulting
fees owed from October 1, 2014 through December 31, 2018 of
$21,000. The issuance of shares resulted in gain on settlement of
accounts payable of $19,924. See Note 8(B).
(C)
Common Stock Warrants and Options
On August 8, 2019,
the Company issued a 2-year option to purchase 2,000,000 shares of
common stock at an exercise price of $0.2299 per share to a related
party for services rendered. The options had a fair value of
$267,574, based upon the Black-Scholes option-pricing model on the
date of grant and are fully vested on the date granted. Options
will be exercisable on August 8, 2020, and for a period of 3 years
expiring on August 8, 2024. During the nine months ended September
30, 2019, the Company recorded $267,574 as an expense for options
issued.
|
Expected
dividends
|
0%
|
|
Expected
volatility
|
105.73%
|
|
Expected
term
|
|
|
Risk free
interest rate
|
1.62%
|
|
Expected
forfeitures
|
0%
|
On August 8, 2019,
the Company issued a 2-year option to purchase 2,000,000 shares of
common stock at an exercise price of $0.2299 per share to a related
party for services rendered. The options had a fair value of
$267,574, based upon the Black-Scholes option-pricing model on the
date of grant and is fully vested on August 8, 2020. Options will
be exercisable on August 8, 2022, and for a period of 3 years
expiring on August 8, 2025. During the nine months ended September
30, 2019, the Company recorded $38,747 as an expense for options
issued.
|
Expected
dividends
|
0%
|
|
Expected
volatility
|
105.73%
|
|
Expected
term
|
|
|
Risk free
interest rate
|
1.62%
|
|
Expected
forfeitures
|
0%
|
On August 8, 2019,
the Company issued a 3-year option to purchase 2,000,000 shares of
common stock at an exercise price of $0.2299 per share to a related
party for services rendered. The options had a fair value of
$291,842, based upon the Black-Scholes option-pricing model on the
date of grant and is fully
vested on August 8, 2021. Options will be exercisable on August 8,
2023, and for a period of 3 years expiring on August 8, 2026.
During the nine months
ended September 30, 2019, the Company recorded $21,160 as an
expense for options issued.
|
Expected
dividends
|
0%
|
|
Expected
volatility
|
105.73%
|
|
Expected
term
|
|
|
Risk free
interest rate
|
1.54%
|
|
Expected
forfeitures
|
0%
|
Kraig
Biocraft Laboratories, Inc.
Notes
to Consolidated Financial Statements as of September 30, 2019 and
2018
On August 8, 2019,
the Company issued a 2-year option to purchase 1,000,000 shares of
common stock at an exercise price of $0.2299 per share to a related
party for services rendered. The options had a fair value of
$118,874, based upon the Black-Scholes option-pricing model on the
date of grant and are fully vested on the date granted. Options
will be exercisable on August 8, 2020, and for a period of 3 years
expiring on August 8, 2023. During the nine months ended September
30, 2019, the Company recorded $118,874 as an expense for options
issued.
|
Expected
dividends
|
0%
|
|
Expected
volatility
|
105.73%
|
|
Expected
term
|
|
|
Risk free
interest rate
|
1.62%
|
|
Expected
forfeitures
|
0%
|
On August 8, 2019,
the Company issued a 2-year option to purchase 1,000,000 shares of
common stock at an exercise price of $0.2299 per share to a related
party for services rendered. The options had a fair value of
$118,874, based upon the Black-Scholes option-pricing model on the
date of grant and are fully vested on the date granted. Options
will be exercisable on August 8, 2021, and for a period of 3 years
expiring on August 8, 2024. During the nine months ended September
30, 2019, the Company recorded $118,874 as an expense for options
issued.
|
Expected
dividends
|
0%
|
|
Expected
volatility
|
105.73%
|
|
Expected
term
|
|
|
Risk free
interest rate
|
1.62%
|
|
Expected
forfeitures
|
0%
|
On August 8, 2019,
the Company issued a 2-year option to purchase 125,000 shares of
common stock at an exercise price of $0.2299 per share to an
employee for services rendered. The options had a fair value of
$14,859, based upon the Black-Scholes option-pricing model on the
date of grant and are fully vested on the date granted. Options
will be exercisable on August 8, 2020, and for a period of 3 years
expiring on August 8, 2023. During the nine months ended September
30, 2019, the Company recorded $14,859 as an expense for options
issued.
|
Expected
dividends
|
0%
|
|
Expected
volatility
|
105.73%
|
|
Expected
term
|
|
|
Risk free
interest rate
|
1.62%
|
|
Expected
forfeitures
|
0%
|
On August 8, 2019,
the Company issued a 2-year option to purchase 125,000 shares of
common stock at an exercise price of $0.2299 per share to a related
party for services rendered. The options had a fair value of
$16,723, based upon the Black-Scholes option-pricing model on the
date of grant and are fully vested on August 8, 2020. Options will
be exercisable on August 8, 2022, and for a period of 3 years
expiring on August 8, 2025. During the nine months ended September
30, 2019, the Company recorded $2,422, as an expense for options
issued.
|
Expected
dividends
|
0%
|
|
Expected
volatility
|
105.73%
|
|
Expected
term
|
|
|
Risk free
interest rate
|
1.62%
|
|
Expected
forfeitures
|
0%
|
Kraig
Biocraft Laboratories, Inc.
Notes
to Consolidated Financial Statements as of September 30, 2019 and
2018
On August 8, 2019,
the Company issued a 2-year options to purchase 125,000 shares of
common stock at an exercise price of $0.2299 per share to a related
party for services rendered. The options had a fair value of
$18,240, based upon the Black-Scholes option-pricing model on the
date of grant and are fully vested on August 8, 2021. Options will
be exercisable on August 8, 2023, and for a period of 3 years
expiring on August 8, 2026. During the nine months ended September
30, 2019, the Company recorded $1,322, as an expense for options
issued.
|
Expected
dividends
|
0%
|
|
Expected
volatility
|
105.73%
|
|
Expected
term
|
|
|
Risk free
interest rate
|
1.54%
|
|
Expected
forfeitures
|
0%
|
On August 8, 2019,
the Company issued a 2-year options to purchase 125,000 shares of
common stock at an exercise price of $0.2299 per share to a related
party for services rendered. The options had a fair value of
$19,525, based upon the Black-Scholes option-pricing model on the
date of grant and are fully vested on August 8, 2022. Options will
be exercisable on August 8, 2024, and for a period of 3 years
expiring on August 8, 2027. During the nine months ended September
30, 2019, the Company recorded $944, as an expense for options
issued.
|
Expected
dividends
|
0%
|
|
Expected
volatility
|
105.73%
|
|
Expected
term
|
|
|
Risk free
interest rate
|
1.54%
|
|
Expected
forfeitures
|
0%
|
On February 9,
2018, the Company issued a 3-year o to purchase 3,000,000 shares of
common stock at an exercise price of $0.056 per share to a
consultant for services rendered. The options had a fair value of
$52,660, based upon the Black-Scholes option-pricing model on the
date of grant and are fully vested on the date granted. Options
will be exercisable on August 9, 2019, and for a period of 2 years
expiring on August 9, 2021. During the year ended December 31,
2018, the Company recorded 52,660 as an expense for options
issued.
|
Expected
dividends
|
0%
|
|
Expected
volatility
|
96.95%
|
|
Expected
term
|
|
|
Risk free
interest rate
|
2.26%
|
|
Expected
forfeitures
|
0%
|
On March 20, 2018,
the Company issued a 4-year warrant to purchase 600,000 shares of
common stock at an exercise price of $0.001 per share to a
consultant for services rendered. The warrants had a fair value of
$19,915, based upon the Black-Scholes option-pricing model on the
date of grant and are fully vested on March 20, 2018. Warrants will
be exercisable on March 20, 2019, and for a period of 3 years
expiring on March 20, 2022. During the year ended December 31,
2018, the Company recorded $19,915 as an expense for warrants
issued. On April 5, 2019, the Company cancelled 600,000 warrant
issued to a consultant on February 20, 2018 in exchange for $6,000
cash payment. In addition the Company also recorded a $19,915
reduction to warrant expense related to the warrant
cancellation.
|
Expected
dividends
|
0%
|
|
Expected
volatility
|
97.56%
|
|
Expected
term
|
|
|
Risk free
interest rate
|
2.65%
|
|
Expected
forfeitures
|
0%
|
Kraig
Biocraft Laboratories, Inc.
Notes
to Consolidated Financial Statements as of September 30, 2019 and
2018
On
September 26, 2019, the Company issued 766,667 shares in connection
with the cashless exercise of the 1,000,000
warrants.
On August 14, 2019,
the Company issued 7,967,871 shares in connection with the cashless
exercise of the 8,000,000 warrants.
|
|
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Life (in Years)
|
|
Balance, December
31, 2018
|
35,800,000
|
|
3.0
|
|
Granted
|
30,695,917
|
-
|
2.94
|
|
Exercised
|
(9,000,000)
|
-
|
|
|
Cancelled/Forfeited
|
(600,000)
|
-
|
|
|
Balance, September
30, 2019
|
57,495,917
|
|
3.02
|
|
Intrinsic
Value
|
$11,786,663
|
|
|
For the nine months
ended September 30, 2019, the following warrants were
outstanding:
Exercise
Price Warrants Outstanding
|
|
Weighted
Average Remaining Contractual Life
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
$0.001
|
30,500,000
|
1.8
|
$10,059,538
|
|
$0.056
|
3,000,000
|
1.86
|
$615,000
|
|
$0.04
|
2,300,000
|
1.90
|
$471,500
|
|
$0.06
|
7,398,639
|
1.44
|
$1,516,721
|
|
$0.06
|
7,398,639
|
2.44
|
$1,516,721
|
|
$0.08
|
3,699,320
|
2.44
|
$758,360
|
|
$0.08
|
3,699,320
|
3.44
|
$758,360
|
|
$0.2299
|
8,500,000
|
5.64
|
$1,742,500
|
|
|
|
|
|
For the year ended
December 31, 2018, the following warrants were
outstanding:
Exercise
Price Warrants Outstanding
|
|
Weighted
Average Remaining Contractual Life
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
$0.001
|
31,100,000
|
2.9
|
$1,523,900
|
|
$0.056
|
3,000,000
|
2.6
|
$147,000
|
|
$0.04
|
2,300,000
|
2.7
|
$112,700
|
(D)
Amendment to Articles of Incorporation
On February 16,
2009, the Company amended its articles of incorporation to amend
the number and class of shares the Company is authorized to issue
as follows:
●Common stock
Class A, unlimited number of shares authorized, no par
value
●Common stock
Class B, unlimited number of shares authorized, no par
value
●Preferred
stock, unlimited number of shares authorized, no par
value
Effective December
17, 2013, the Company amended its articles of incorporation to
designate a Series A no par value preferred stock. Two shares of
Series A Preferred stock have been authorized.
(E)
Common Stock Issued for Debt
None
Kraig
Biocraft Laboratories, Inc.
Notes
to Consolidated Financial Statements as of September 30, 2019 and
2018
NOTE
8 COMMITMENTS AND CONTINGENCIES
On November 10,
2010, the Company entered into an employment agreement with its
CEO, effective January 1, 2011 through the December 31, 2015. The
term of the agreement is a five year period at an annual salary of
$210,000. There is a 6% annual increase. For the year ending
December 31, 2015, the annual salary was $281,027. The employee is
also to receive a 20% bonus based on the annual based salary. Any
stock, stock options bonuses have to be approved by the board of
directors. On January 1, 2016 the agreement was renewed with the
same terms for another 5 years with an annual salary of $297,889
for the year ended December 31, 2016. On January 1, 2017 the
agreement renewed with the same terms for another 5 years, but with
an annual salary of $315,764 for the year ended December 31, 2017.
On January 1, 2019 the agreement renewed again with the same terms
for another 5 years, but with an annual salary of $354,791 for the
year ended December 31, 2018. As of September 30, 2019 and December
31, 2018, the accrued salary balance is $2,375,547 and $2,109,454,
respectively. (See Note 9).
On January 20,
2015, the board of directors appointed Mr. Jonathan R. Rice as our
Chief Operating Officer. Mr. Rice’s employment agreement has
a term of one year and can be terminated by either the Company or
Mr. Rice at any time. Under the employment agreement, Mr. Rice is
entitled to an annual cash compensation of $120,000, which includes
salary, health insurance, 401K retirement plan contributions, etc.
The Company also agreed to reimburse Mr. Rice for his past
educational expenses of approximately $11,000. In addition, Mr.
Rice was issued a three-year warrant to purchase 2,000,000 shares
of common stock of the Company at an exercise price of $0.001 per
share (the “January 2015 Warrant”) pursuant to the
employment agreement. Additionally, on May 28, 2015, the Company
issued a three-year warrant to purchase 3,000,000 shares of common
stock of the Company at an exercise price of $0.001 per share (the
"May 20165 Warrant") to Mr. Rice. The 2,000,000 share warrant fully
vested on October 28, 2016. For the year ended December 31, 2015,
the Company recorded $121,448 for the warrants issued to Mr. Rice.
On January 14, 2016, the Company signed a new employment agreement
with Mr. Rice. The employment agreement has a term of one year and
can be terminated by either the Company or Mr. Rice at any time.
Under the employment agreement, Mr. Rice is entitled to annual cash
compensation of $140,000, which includes salary, health insurance,
401K retirement plan contributions, etc. In addition, Mr. Rice was
issued a three-year warrant to purchase 6,000,000 shares of common
stock of the Company at an exercise price of $0.001 per share
pursuant to the employment agreement. For the year ended December
31, 2016, the Company recorded $193,652 for the warrants issued to
Mr. Rice in 2016. For the year ended December 31, 2017, the Company
recorded $17,473 for the warrants issued to Mr. Rice in2016. On
January 9, 2018, the Company extended the expiration date of the
January 2015 Warrant from January 19, 2018 to January 31, 2020 and
on March 15, 2018, the Company signed an extension of its at-will
employment agreement with its COO, extending the term to January
31, 2019. On March 25, 2019, the Company signed an extension of its
at-will employment agreement with its COO, extending the term to
January 1, 2020. On April 26, 2019, the Company signed an agreement
to increase Mr .Rice’s base salary by $20,000 per year and
issue a one-time $20,000 bonus. Additionally, on August 15, 2019,
the Company signed an agreement to increase Mr. Rice’s base
salary by an additional $20,000 per year. The salary increase and
the bonus is accrued and to be paid in full earlier by the
direction of the Board or upon the earlier
of
●
The Company
maintaining $6,000,000 or more in working
capital,
●
Upon the transfer
of ownership of more than 50% of the Corporation's voting share or
an assignment for the benefit of creditors or bankruptcy,
or
●
Upon the fifth year
anniversary of the salary increase and the bonus
issuance.
As of September 30,
2019 and December 31, 2018 the Company owes $53,417 and $24,433,
respectively, to Mr. Rice for payroll payable.
On July 3, 2019,
the board of directors appointed Mr. Kenneth Le as the
Company’s Director of Government relations and President of
Prodigy Textiles. Mr. Le’s employment agreement has a term of
one year and can be terminated by either the Company or Mr. Rice at
any time. Under the employment agreement, Mr. Le is entitled to
annual cash compensation of $60,000. In addition, Mr. Le was issued
two three-year warrants to purchase 2,000,000 shares of common
stock of the Company at an exercise price of $0.2299 per share. As
of September 30, 2019, the accrued salary balance is
$1,154.
(A)License
Agreement
On May 8, 2006, the
Company entered into a license agreement. Pursuant to the terms of
the agreement, the Company paid a non-refundable license fee of
$10,000. The Company will pay a license maintenance fee of $10,000
on the one year anniversary of this agreement and each year
thereafter. The Company will pay an annual research fee of $13,700
with first payment due January 2007, then on each subsequent
anniversary of the effective date commencing May 4, 2007. The
annual research fees are accrued by the Company for future payment.
Pursuant to the terms of the agreement the Company may be required
to pay additional fees aggregating up to a maximum of $10,000 a
year for patent maintenance and prosecution relating to the
licensed intellectual property.
Kraig
Biocraft Laboratories, Inc.
Notes
to Consolidated Financial Statements as of September 30, 2019 and
2018
On October 28, 2011, the Company entered into a
license agreement with the University of Notre Dame. Under the
agreement, the Company received exclusive and non-exclusive rights
to certain spider silk technologies including commercial rights
with the right to sublicense such intellectual property. In
consideration of the licenses granted under the agreement, the
Company agreed to issue to the University of Notre Dame 2,200,000
shares of its common stock and to pay a royalty of 2% of net sales.
The license agreement has a term of 20 years which can be extended
on an annual basis after that. It can be terminated by the
University of Notre Dame if the Company defaults on its obligations
under the agreement and fails to cure such default within 90 days
of a written notice by the university. The Company can terminate
the agreement upon a 90 day written notice subject to payment of a
termination fee of $5,000 if the termination takes place within 2
years after its effectiveness, $10,000 if the termination takes
place within 4 years after its effectiveness and $20,000 if the
Agreement is terminated after 4 years. On May 5, 2017, the Company
signed an addendum to that agreement relating to tangible property
and project intellectual property. On March 1, 2019, the Company
singed an addendum to that agreement. The Company entered into a
separate loan agreement and promissory noted dated
March 1, 2019 as a payment for
expenses paid by the University prior to January 31, 2019 totaling
$265,244 and issued 4,025,652 shares of Class A common stock with a
fair value of $281,659 as payment of certain debt. In the event of
default the license agreement will be terminated. During the
nine months ended September 30, 2019, the Company paid $8,000 of
the land balance (See Notes 6).
(B)
Royalty and Research Agreements
On May 1, 2008 the
Company entered into a five year consulting agreement for research
and development. Pursuant to the terms of the agreement, the
Company will be required to pay $1,000 per month, or at the
Company’s option, the consulting fee may be paid in the form
of Company common stock based upon the greater of $0.05 per share
or the average of the closing price of the Company’s shares
over the five days preceding such stock issuance. On April 6, 2018,
the Company issued 36,000 shares with a fair value of $1,076
($0.0299/share) to a consultant as consideration for consulting
fees owed from October 1, 2014 through December 31, 2018 of
$21,000. The issuance of shares resulted in gain on settlement of
accounts payable of $19,924. On April 1, 2018, the Company ended
the consulting agreement and no additional compensation will be
issued. (See Note 7 (B)).
On December 26, 2006, the Company entered into an
addendum to the intellectual property transfer agreement with Mr.
Thompson, its CEO. In accordance with FASB ASC No 480,
Distinguishing
Liabilities from Equity, the
Company determined that the present value of the payment of
$120,000 that was due on December 26, 2007. As of December 31, 2018
and December 31, 2017, the outstanding balance is $65,292. As of
December 31, 2017, the Company recorded interest expense and
related accrued interest payable of $2,623. In 2019 the Company
recorded $1,469 in interest expensed and related accrued interest
payable. As of September 30, 2019, the Company recorded interest
expense and related accrued interest payable of
$6,053.
On December 30,
2015, the Company entered into a cooperative agreement for the
research and pilot production of hybrid silkworms in Vietnam. Under
this agreement, the Company will establish a subsidiary in Vietnam
where it will develop and produce hybrid silkworms. On April 24,
2018, the Company announced that it had received its investment
registration certificate for its new Vietnamese subsidiary Prodigy
Textiles Co., Ltd. On May 1, 2018, the Company announced that it
had received its enterprise registration certificate for its new
Vietnamese subsidiary Prodigy Textiles Co.,
Ltd.
(C)
Consulting Agreement
On February 9,
2018, the Company issued a 3-year warrant to purchase 3,000,000
shares of common stock at an exercise price of $0.056 per share to
a consultant for services rendered. The warrants had a fair value
of $52,660, based upon the Black-Scholes option-pricing model on
the date of grant and are fully vested on the date granted.
Warrants will be exercisable on August 9, 2019, and for a period of
2 years expiring on August 9, 2021. During the year ended December
31, 2018, the Company recorded 52,660 as an expense for warrants
issued (See Note 7 (C)).
On February 20,
2018, the Company signed an agreement with a consultant to provide
services. Under this agreement the consultant will receive a
warrant for 600,000 shares of common stock and may be awarded
additional warrants for up to 3,000,000 shares of common stock if
performance metrics are achieved. On March 20, 2018, the Company
issued a 4-year warrant to purchase 600,000 shares of common stock
at an exercise price of $0.001 per share to a consultant for
services rendered. The warrants had a fair value of $19,915, based
upon the Black-Scholes option-pricing model on the date of grant
and are fully vested on March 20, 2018. Warrants will be
exercisable on March 20, 2019, and for a period of 3 years expiring
on March 20, 2022. During the year ended December 31, 2018, the
Company recorded $19,915 as an expense for warrants issued (See
Note 7 (C)).’ On April 5, 2019, the Company cancelled 600,000
warrant issued to a consultant on February 20, 2018 in exchange for
$6,000 cash payment.
(D) Operating Lease
Agreements
Since September of 2015, we rent office space at
2723 South State Street, Suite 150, Ann Arbor, Michigan 48104,
which is our principal place of business. We pay an annual rent of
$2,508 for conference facilities, mail, fax, and reception services
located at our principal place of
business.
On May 9, 2019 the
Company signed an 5 year property lease Socialist Republic of
Vietnam which consists of 4,560.57 square meters of space, which it
leases at a current rent of approximately $45,150 per year one and
two and with the 5% increase per year for years three through
five.
On January 23, 2017
the Company signed an 8 year property lease with the
Company’s President for land in Texas where the Company grows
its mulberry. The Company pays a monthly rent of $960. Rent expense
– related party for the nine months ended September 30, 2019
and 2018, was $11,913 and $5,760, respectively (See Note
9).
On September 13,
2017, the Company signed a new two year lease commencing on October
1, 2017 and ending on September 30, 2019. The Company pays an
annual rent of $39,200 for the year one of lease and $42,000 for
the year two of lease for office and manufacturing
space.
Kraig
Biocraft Laboratories, Inc.
Notes
to Consolidated Financial Statements as of September 30, 2019 and
2018
NOTE
9 RELATED PARTY TRANSACTIONS
On December 26,
2006, the Company entered into an addendum to the intellectual
property transfer agreement with Mr. Thompson, its CEO. Pursuant to
the addendum, the Company agreed to issue either 200,000 preferred
shares with the following preferences; no dividends and voting
rights equal to 100 common shares per share of preferred stock or
the payment of $120,000, the officer agreed to terminate the
royalty payments due under the agreement and give title to the
exclusive license for the non-protective apparel use of the
intellectual property to the Company. On the date of the agreement,
the Company did not have any preferred stock authorized with the
required preferences. In accordance with FASB ASC No. 480,
Distinguishing Liabilities from
Equity, the Company determined that the present value of the
payment of $120,000 that was due on December 26, 2007, one year
anniversary of the addendum, should be recorded as an accrued
expense until such time as the Company has the ability to assert
that it has preferred shares authorized. As of December 31, 2018
the outstanding balance is $65,292. Additionally, the accrued
expenses are accruing 7% interest per year. As of September 30,
2019, the Company recorded interest expense and related accrued
interest payable of $6,053.
On November 10, 2010, the Company entered into an
employment agreement, with its CEO, effective January 1, 2011
through the December 31, 2015. Subsequently, on January 1, 2018 the
agreement renewed with the same terms for another 5 years with an
annual salary of $334,708 for the year ended December 31, 2018. As
of September 30, 2019 and December 31, 2018, the accrued salary
balance is $2,286,849 and $2,109,454,
respectively.
On January 14, 2016
the Company signed a new employment agreement with Mr. Rice, the
Company's COO. The employment agreement has a term of one year and
can be terminated by either the Company or Mr. Rice at any time.
Under the employment agreement, Mr. Rice is entitled to annual cash
compensation of $140,000, which includes salary, health insurance,
401K retirement plan contributions, etc. In addition, Mr. Rice was
issued a three-year warrant to purchase 6,000,000 shares of common
stock of the Company at an exercise price of $0.001 per share
pursuant to the employment agreement. For the year ended December
31, 2016, the Company recorded $193,654 for the warrants issued to
Mr Rice. For the year ended December 31, 2017 the Company recorded
$17,473 for the warrants issued to Mr. Rice in 2016. On January 9,
2018, the Company extended the expiration date of a warrant for
2,000,000 shares of common stock from January 19, 2018 to January
31, 2020 for Mr Rice. Additionally, on March 15, 2018, the Company
signed an extension of its at-will employment agreement with its
COO. On April 26, 2019, the Company signed an agreement to increase
Mr .Rice’s base salary by $20,000 per year and issue a
one-time $20,000 bonus. Additional, on August 15, 2019, the Company
signed an agreement to increase Mr .Rice’s base salary by an
additional $20,000 per year. The salary increase and the bonus is
accrued and to be paid in full earlier by the direction of the
Board or upon the earlier of:
●
The Company
maintaining $6,000,000 or more in working
capital,
●
Upon the transfer
of ownership of more than 50% of the Corporation's voting share or
an assignment for the benefit of creditors or bankruptcy,
or
●
Upon the fifth year
anniversary of the salary increase and the bonus
issuance.
As of September 30,
2019 and December 31, 2018, the Company owes $46,384 and $24,433,
respectively, to Mr. Rice for payroll payable.
On July 3, 2019,
the board of directors appointed Mr. Kenneth Le as the
Company’s Director of Government relations and President of
Prodigy Textiles. Mr. Le’s employment agreement has a term of
one year and can be terminated by either the Company or Mr. Rice at
any time. Under the employment agreement, Mr. Le is entitled to an
annual cash compensation of $60,000. In addition, Mr. Le was issued
two three-year warrants to purchase 2,000,000 shares of common
stock of the Company at an exercise price of $0.2299 per share. As
of September 30, 2019, the accrued salary balance is
$1,154.
On June 6, 2016,
the Company received a $50,000 loan from our principal stockholder.
Subsequently on December 1, 2017, the Company received an
additional $30,000 loan from the same stockholder. On January 8,
2018 and March 31, 2018 the Company received an additional loan of
$100,000 and $15,000, respectively. The Company received additional
loan funds from the same stockholder as follows: $20,000 on April
26, 2018; $15,000 on June 21, 2018; $15,000 on June 29, 2018;
$20,000 on July 5, 2018; $26,000 on October 1, 2018; $11,000 on
October 12, 2018; $20,000 on December 21, 2018; $3,000 on January
4, 2019; $30,000 on January 17, 2019; $30,000 on February 1, 2019;
$20,000 on February 15, 2019; $20,000 on March 1, 2019; and $17,000
on January 4, 2019. Pursuant to the terms of the loan, the advance
bears an interest at 3%, is unsecured, and due on demand. Total
loan payable to this principal stockholder for as of December 31,
2018 is $322,000. Total loan payable to principal stockholder
for as of September 30, 2019 is $442,000. During the nine
months ended September 30, 2019, the Company recorded $16,027 as an
in-kind contribution of interest related to the loan and recorded
accrued interest payable of $10,624. During the nine months ended
September 30, 2018, the Company recorded $8,097 as an in-kind
contribution of interest related to the loan and recorded accrued
interest payable of $4,968.
On January 23,
2017, the Company signed an 8 year property lease with the
Company’s President for land in Texas. The Company pays $960
per month starting on February 1, 2017 and uses this facility to
grow mulberry for its U.S. silk operations. Rent expense –
related party for nine months ended September 30, 2019 and 2018 was
$11,913 and $5,760, respectively.
Kraig
Biocraft Laboratories, Inc.
Notes
to Consolidated Financial Statements as of September 30, 2019 and
2018
As of
September 30, 2019 and December 31, 2018, there was $297,732 and
$247,652, respectively, included in accounts payable and accrued
expenses - related party, which is owed to the Company’s
Chief Executive Officer and Chief Operations Officer.
As of September 30,
2019, there was $1,124,398 of accrued interest- related party and
$38,759 in shareholder loan interest – related party included
in accounts payable and accrued expenses – related party,
which is owed to the Company’s Chief Executive
officer.
As of December 31,
2018, there was $940,158 of accrued interest- related party and
$28,135 in shareholder loan interest – related party included
in accounts payable and accrued expenses – related party,
which is owed to the Company’s Chief Executive
officer.
As of September 30,
2019, the Company owes $2,375,547 in accrued salary to principal
stockholder, $53,417 to the Company’s COO, $1,153 to Director
of Prodigy Textiles and $4,786 to its office
employees.
As of December 31,
2018, the Company owes $2,109,454 in accrued salary to principal
stockholder, $24,433 to the Company’s COO, and $7,640 to its
office employees.
The Company owes
$65,292 in royalty payable to related party as of September 30,
2019 and December 31, 2018.
NOTE
10 SUBSEQUENT EVENTS
The Company has
analyzed its operations subsequent to November 13, 2019 through the
date these financial statements were issued, and has determined
that, other than disclosed below, it does not have any material
subsequent events to disclose.
On October 8,
2019, the Company delivered the first batch of its transgenic
silkworm eggs to its production factory in Quang Nam, Vietnam for
the purpose of commencing
production at that facility.
On October 21,
2019, the Company signed an agreement to increase Mr .Rice’s
base salary by $20,000 per year (effective August 15, 2019). The
salary increase is accrued and to be paid in full earlier by the
direction of the Board or upon the earlier of:
●The Company
maintaining $6,000,000 or more in working
capital,
●Upon the
transfer of ownership of more than 50% of the Corporation’s
voting share or an assignment for the benefit of creditors or
bankruptcy, or
●Upon the
fifth year anniversary of the salary increase and the bonus
issuance.
On
November 4, 2019, the Company reported that it had successfully
completed rearing the first batch of its transgenic silkworms at
its production factory in Quang Nam, Vietnam. The Company
expects to continue expanding production of its specialized
silk.