Notes to Condensed Financial Statements (Unaudited)
As of June 30, 2016 and 2015
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) 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.
(C) Cash
For
purposes of the cash flow statements, the Company considers all
highly liquid investments with original maturities of three months
or less at the time of purchase to be cash
equivalents. There were no cash equivalents as of June
30, 2016 or December 31, 2015.
(D) Loss Per Share
Basic
and diluted net loss per common share is computed based upon the
weighted average common shares outstanding as defined by FASB
Accounting Standards Codification No. 260, “Earnings per
Share.” During the six month periods ended June
30, 2016 and 2015, 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 during the six
months ended June 30, 2016 and 2015 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)
|
16,500,000
|
35,200,000
|
Convertible
Preferred Stock
|
2
|
2
|
Total
|
16,500,002
|
35,200,002
|
(E) 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.
(F) Income Taxes
The
Company accounts for income taxes under FASB Codification Topic
740-10-25 (“ASC 740-10-25”). Under ASC
740-10-25, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or
settled. Under ASC 740-10-25, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
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
June 30, 2016 and December 31, 2015 there were no amounts that had
been accrued in respect to uncertain tax positions.
The
Company’s federal income tax returns, for the fiscal year
ending December 31, 2013, is currently under examination by the
Internal Revenue Service (“IRS”); and all returns from
fiscal 2009 through today remain subject to examination by the IRS
and respective states.
(G) Derivative Financial Instruments
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.
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Financial Statements (Unaudited)
As of June 30, 2016 and 2015
(H) Stock-Based Compensation
In
December 2004, the FASB issued FASB Accounting Standards
Codification No. 718,
Compensation – Stock
Compensation
. Under FASB Accounting Standards
Codification No. 718, companies are required to measure the
compensation costs of share-based compensation arrangements based
on the grant-date fair value and recognize the costs in the
financial statements over the period during which employees are
required to provide services. Share-based compensation arrangements
include stock options, restricted share plans, performance-based
awards, share appreciation rights and employee share purchase
plans. As such, compensation cost is measured on the
date of grant at their fair value. Such compensation
amounts, if any, are amortized over the respective vesting periods
of the option grant. The Company applies this statement
prospectively.
Equity instruments (“instruments”) issued
to other than employees are recorded on the basis of the fair value
of the instruments, as required by FASB Accounting Standards
Codification No. 718. FASB Accounting Standards Codification
No. 505,
Equity Based
Payments to Non-Employees
defines the measurement date
and recognition period for such instruments. In general, the
measurement date is when either a (a) performance commitment, as
defined, is reached or (b) the earlier of (i) the non-employee
performance is complete or (ii) the instruments are vested. The
measured value related to the instruments is recognized over a
period based on the facts and circumstances of each particular
grant as defined in the FASB Accounting Standards
Codification.
(I) Business Segments
The
Company operates in one segment and therefore segment information
is not presented.
(J)
Recent Accounting Pronouncements
In
September, 2015, the FASB issued ASU No. 2015-16, Business
Combinations (Topic 805) (“ASU 2015-16”). Topic 805
requires that an acquirer retrospectively adjust provisional
amounts recognized in a business combination, during the
measurement period. To simplify the accounting for adjustments made
to provisional amounts, the amendments in the Update require that
the acquirer recognize adjustments to provisional amounts that are
identified during the measurement period in the reporting period in
which the adjustment amount is determined. The acquirer is required
to also record, in the same period’s financial statements,
the effect on earnings of changes in depreciation, amortization, or
other income effects, if any, as a result of the change to the
provisional amounts, calculated as if the accounting had been
completed at the acquisition date. In addition an entity is
required to present separately on the face of the income statement
or disclose in the notes to the financial statements the portion of
the amount recorded in current-period earnings by line item that
would have been recorded in previous reporting periods if the
adjustment to the provisional amounts had been recognized as of the
acquisition date. ASU 2015-16 is effective for fiscal years
beginning December 15, 2015. The adoption of ASU 2015-016 is not
expected to have a material effect on the Company’s
consolidated financial statements.
In
August, 2015, the FASB issued ASU No. 2015-14, Revenue from
Contracts with Customers (Topic 606): Deferral of the Effective
Date (“ASU 2015-14”). The amendment in this ASU defers
the effective date of ASU No. 2014-09 for all entities for one
year. Public business entities, certain not-for-profit entities,
and certain employee benefit plans should apply the guidance in ASU
2014-09 to annual reporting periods beginning December 15, 2017,
including interim reporting periods within that reporting period.
Earlier application is permitted only as of annual reporting
periods beginning after December 31, 2016, including interim
reporting periods with that reporting period.
In
April 2015, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) No. 2015-03, Interest–Imputation of
Interest (Subtopic 835-30) (“ASU 2015-03”), which
changes the presentation of debt issuance costs in financial
statements. ASU 2015-03 requires an entity to present such costs in
the balance sheet as a direct deduction from the related debt
liability rather than as an asset. Amortization of the costs will
continue to be reported as interest expense. It is effective for
annual reporting periods beginning after December 15, 2016. Early
adoption is permitted. The new guidance will be applied
retrospectively to each prior period presented. The Company is
currently in the process of evaluating the impact of adoption of
ASU 2015-03 on its balance sheets.
All
other newly issued accounting pronouncements but not yet effective
have been deemed either immaterial or not applicable.
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Financial Statements (Unaudited)
As of June 30, 2016 and 2015
(K) Reclassification
The
2015 financial statements have been reclassified to conform to the
2016 presentation.
(L) Equipment
The
Company values property and equipment at cost and depreciates these
assets using the straight-line method over their expected useful
life. The Company uses a five year life for
automobiles.
In
accordance with FASB Accounting Standards Codification No.
360,
Property, Plant and
Equipment
, the Company carries long-lived assets at the
lower of the carrying amount or fair value. Impairment is evaluated
by estimating future undiscounted cash flows expected to result
from the use of the asset and its eventual disposition. If the sum
of the expected undiscounted future cash flow is less than the
carrying amount of the assets, an impairment loss is recognized.
Fair value, for purposes of calculating impairment, is measured
based on estimated future cash flows, discounted at a market rate
of interest.
There
were no impairment losses recorded during the six months ended June
30, 2016 and 2015.
(M) Fair Value of Financial Instruments
We hold
certain financial assets, which are required to be measured at fair
value on a recurring basis in accordance with the Statement of
Financial Accounting Standard No. 157,
“Fair Value Measurements”
(“ASC Topic 820-10”). ASC Topic 820-10
establishes a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1 measurements)
and the lowest priority to unobservable inputs (Level 3
measurements). ASC Topic 820-10 defines fair value as
the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants on the measurement date. Level 1 instruments include
cash, account receivable, prepaid expenses, inventory and account
payable and accrued liabilities. The carrying values are assumed to
approximate the fair value due to the short term nature of the
instrument.
The
three levels of the fair value hierarchy under ASC Topic 820-10 are
described below:
°
|
Level 1
- Valuations based on quoted prices in active markets for identical
assets or liabilities that an entity has the ability to
access. We believe our carrying value of level 1
instruments approximate their fair value at June 30, 2016 and
December 31, 2015.
|
°
|
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.
|
|
|
|
Level
1
|
$
-
|
$
-
|
Level
2
|
-
|
-
|
Level
3
|
-
|
-
|
Total
|
$
-
|
$
-
|
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Financial Statements (Unaudited)
As of June 30, 2016 and 2015
NOTE 2
GOING CONCERN
As
reflected in the accompanying unaudited financial statements, the
Company has a working capital deficiency of $2,423,136 and
stockholders’ deficiency of $2,365,403 and used $606,276 of
cash in operations for the six months ended June 30,
2016. This raises substantial doubt about its ability to
continue as a going concern. The ability of the Company
to continue as a going concern is dependent on the Company’s
ability to raise additional capital and implement its business
plan. The financial statements do not include any
adjustments that might be necessary if the Company is unable to
continue as a going concern.
Management
believes that actions presently being taken to obtain additional
funding and implement its strategic plans provide the opportunity
for the Company to continue as a going concern.
NOTE 3 EQUIPMENT
At June
30, 2016 and December 31, 2015, property and equipment, net, is as
follows:
|
As of June 30, 2016
(Unaudited)
|
|
Automobile
|
$
41,805
|
$
41,805
|
Laboratory Equipment
|
36,822
|
36,822
|
Office Equipment
|
6,466
|
6,466
|
Less: Accumulated
Depreciation
|
(27,360
)
|
(18,989
)
|
Total Property and Equipment,
net
|
$
57,733
|
$
66,104
|
Depreciation expense for the six months ended June 30, 2016 and
2015 was $8,371 and $6,931 respectively.
Depreciation expense for the three months ended June 30, 2016 and
2015 was $4,186 and $4,299 respectively.
NOTE 4 ACRRUED INTEREST – RELATED
PARTY
On June
6, 2016 the Company received $50,000 from a principal
stockholder. Pursuant to the terms of the loan, the
advance bears interest at 3%, is unsecured and due on demand. The
Company recorded accrued interest payable of $99 as of June 30,
2016.
On
February 25, 2013 the Company received $150,000 from a principal
stockholder. Pursuant to the terms of the loan, the
advance bears interest at 3%, is unsecured and due on demand. At
December 31, 2013 the loan balance was repaid. The
Company recorded accrued interest payable of $2,001 as of June 30,
2016. The Company recorded accrued interest payable of $2,001 as of
December 31, 2015.
NOTE 5 STOCKHOLDERS’
DEFICIT
(A) Common Stock Issued
for Cash
On June
16, 2015, the Company issued 4,675,811 share of common stock for
$150,000 ($0.03/share).
On July
9, 2015, the Company issued 3,731,343 share of common stock for
$100,000 ($0.026/share).
On
August 3, 2015, the Company issued 4,152,824 share of common stock
for $100,000 ($0.024/share).
On
September 28, 2015, the Company issued 4,166,667 share of common
stock for $100,000 ($0.024/share).
On
October 19, 2015, the Company issued 3,894,081 shares of common
stock for $100,000 ($0.026/share).
On
November 16, 2015, the Company issued 4,166,667 shares of common
stock for $100,000 ($0.024/share).
On
December 21, 2015, the Company issued 5,186,722 shares of common
stock for $100,000 ($0.019/share).
On
February 16, 2016 the Company issued 5,630,631 share of common
stock for $100,000 ($0.018/share).
On
March 28, 2016 the Company issued 5,411,255 share of common stock
for $100,000 ($0.018/share).
On
April 25, 2016 the Company issued 5,952,381 share of common stock
for $100,000 ($0.017/share).
On June
28, 2016 the Company issued 7,812,500 share of common stock for
$125,000 ($0.016/share).
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Financial Statements (Unaudited)
As of June 30, 2016 and 2015
(B) Common Stock Issued for Service
Shares
issued for services as mentioned below were valued at the closing
price of the stock on the date of grant.
On
March 5, 2015, the Company issued 10,000 shares with a fair value
of $321 ($0.0321/share) to a consultant as consideration for
consulting fees owed from October 1, 2014 through February 28, 2015
of $10,000. The issuance of shares resulted in gain on settlement
of accounts payable of $9,679.
On
November 9, 2015, the Company issued 14,000 shares with a fair
value of $434 ($0.031/share) to a consultant as consideration for
consulting fees owed from March 1, 2015 through September 30, 2015
of $14,000. The issuance of shares resulted in gain on settlement
of accounts payable of $13,566.
On
April 4, 2016, the Company issued 12,000 shares with a fair value
of $296 ($0.0247/share) to a consultant as consideration for
consulting fees owed from October 1, 2015 through March 31, 2016 of
$6,000. The issuance of shares resulted in gain on settlement of
accounts payable of $5,704.
(C) Common Stock Warrants
On June
23, 2016, the Company issued 12,867,681 shares in connection with
the cashless exercise of the 13,500,000 warrants.
On May
5, 2016, the Company issued 7,627,907 shares in connection with the
cashless exercise of the 8,000,000 warrants.
On
April 7, 2016, the Company issued 958,506 shares in connection with
the cashless exercise of the 1,000,000 warrants.
On
April 7, 2016, the Company issued 958,506 shares in connection with
the cashless exercise of the 1,000,000 warrants.
On
January 21, 2015, the Company issued 2,918,919 shares in connection
with the cashless exercise of the 3,000,000 warrants.
On
January 23, 2015, the Company issued 3-year warrant for 2,000,000
shares to a related party, with an exercise price of $0.001 per
share. The warrants were granted for services to be rendered. The
warrants had a fair value of $72,317, based upon the Black-Scholes
option-pricing model on the date of grant and were fully vested
upon issuance and will be exercisable on February 2, 2016, and for
a period expiring on January 19, 2018.
Grant
Date
Expected
dividends
|
0
%
|
Expected
volatility
|
88.13
%
|
Expected
term
|
|
Risk free
interest rate
|
1.33
%
|
Expected
forfeitures
|
0
%
|
On May
28, 2015, the Company issued 3-year warrant for 3,000,000 shares to
a related party, with an exercise price of $0.001 per share. The
warrants were granted for services to be rendered. The warrants had
a fair value of $117,503, based upon the Black-Scholes
option-pricing model on the date of grant and vesting on October
28, 2016, and will be exercisable on May 28, 2018, and for a period
expiring on May 28, 2022. During the six months ended June 30, 2016
and 2015, the Company recorded $41,432 and $90,335 as an expense
for warrants issued to related party.
Grant Date
Expected
dividends
|
0
%
|
Expected
volatility
|
77.49
%
|
Expected
term
|
|
Risk free
interest rate
|
1.24
%
|
Expected
forfeitures
|
0
%
|
On June
22, 2015, the Company issued 3-year warrant for 15,000,000 shares
to a consultant, with an exercise price of $0.001 per share. The
warrants were granted for services to be rendered. The warrants had
a fair value of $590,335, based upon the Black-Scholes
option-pricing model on the date of grant and were fully vested
upon issuance and will be exercisable on December 28, 2015, and for
a period expiring on June 22, 2018.
Grant Date
Expected
dividends
|
0
%
|
Expected
volatility
|
78.85
%
|
Expected
term
|
|
Risk free
interest rate
|
1.06
%
|
Expected
forfeitures
|
0
%
|
On
January 1, 2016, the Company issued 3-year warrant for 6,000,000
shares to a related party, with an exercise price of $0.001 per
share. The warrants were granted for services to be rendered. The
warrants had a fair value of $234,086, based upon the Black-Scholes
option-pricing model on the date of grant and vesting on February
20, 2017, and will be exercisable on February 20, 2018, and for a
period expiring on February 20, 2021. During the six months ended
June 30, 2016, the Company recorded $101,850 as an expense for
warrants issued to related party.
Grant Date
Expected
dividends
|
0
%
|
Expected
volatility
|
82.95
%
|
Expected
term
|
|
Risk free
interest rate
|
1.31
%
|
Expected
forfeitures
|
0
%
|
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Financial Statements (Unaudited)
As of June 30, 2016 and 2015
On July
2, 2015, the Company issued 1,176,922 shares in connection with the
cashless exercise of the 1,200,000 warrants.
|
|
Weighted Average Exercise
Price
|
Weighted Average Remaining Contractual Life (in
Years
|
Balance, December
31, 2014
|
18,200,000
|
$
0.001
|
2.1
|
Granted
|
20,000,000
|
|
|
Exercised
|
(4,200,000
)
|
|
|
Cancelled/Forfeited
|
-
|
|
|
Balance,
December 31, 2015
|
34,000,000
|
$
0.001
|
1.7
|
Granted
|
6,000,000
|
|
|
Exercised
|
(23,500,000)
|
|
|
Cancelled/Forfeited
|
-
|
|
|
Balance, June
30, 2016
|
16,500,000
|
$
0.001
|
1.5
|
|
|
|
|
Intrinsic
Value
|
$
657,000
|
|
|
For the six months ended June 30, 2016, the following warrants were
outstanding:
Exercise
Price Warrants Outstanding
|
|
Weighted
Average Remaining Contractual Life
|
Aggregate
Intrinsic Value
|
|
|
|
|
$
0.001
|
16,500,000
|
1.5
|
$
657,000
|
For the year ended December 31, 2015, the following warrants were
outstanding:
Exercise
Price Warrants Outstanding
|
|
Weighted
Average Remaining Contractual Life
|
A
ggregate Intrinsic Value
|
|
|
|
|
$
0.001
|
34,000,000
|
1.7
|
$
842,000
|
(D) Amendment to Articles of Incorporation
On
February 16, 2009, the Company amended its articles of
incorporation to amend the number and class of shares the Company
is authorized to issue as follows:
●
|
Common
stock Class A, unlimited number of shares authorized, no par
value
|
●
|
Common
stock Class B, unlimited number of shares authorized, no par
value
|
●
|
Preferred
stock, unlimited number of shares authorized, no par
value
|
Effective
December 17, 2013, the Company amended its articles of
incorporation to designate a Series A no par value preferred
stock. Two shares of Series A Preferred stock have been
authorized.
NOTE 6 COMMITMENTS AND
CONTINGENCIES
On
March 18, 2010, the Company entered into an addendum to the
employment agreement whereby the Company will reimburse the
employee and his family for up to $20,000 of out of pocket medical
and dental care costs, including prescription costs or
co-pays.
On
November 10, 2010, the Company entered into an addendum to the
employment agreement, 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 renewed with the same terms for another 5 years with an
annual salary of $297,889 for the year ended December 31, 2016.
(See Note 8).
On
October 2, 2014, the Company entered into a letter agreement for an
equity line of financing up to $7,500,000 (the
“Letter Agreement”) with Calm Seas Capital, LLC
(“Calm Seas”).
Under
the Letter Agreement, over a 24 month period from the Effective
Date we may put to Calm Seas up to an aggregate of $7,500,000 in
shares of our Class A common stock for a purchase price equal to
80% of the lowest price of our Class A common stock during the five
consecutive trading days immediately following the date we deliver
notice to Calm Seas of our election to put shares pursuant to the
Letter Agreement. We may put shares
bi-monthly. The dollar value that will be
permitted for each put pursuant to the Letter Agreement
will be the lesser of: (A) the product of (i) 200% of the average
daily volume in the US market of our Class A common stock for the
ten trading days prior to the date we deliver our put notice to
Calm Seas multiplied by (ii) the average of the daily closing
prices for the ten (10) trading days immediately preceding the date
we deliver our put notice to Calm Seas, or (B)
$100,000. We will automatically withdraw our put notice
to Calm Seas if the lowest closing bid price used to determine the
purchase price of the put shares is not at least equal to
seventy-five percent (75%) of the average closing “bid”
price for our Class A common stock for the ten (10) trading days
prior to the date we deliver our put notice to Calm Seas.
Notwithstanding the $100,000 ceiling for each bi-monthly put,
as described above, we may at any time request Calm Seas to
purchase shares in excess of such ceiling, either as a part of
bi-monthly puts or as an additional put(s) during such
month. If Calm Seas, in its sole discretion, accepts
such request to purchase additional shares, then we may include the
put for additional shares in our monthly put request or submit an
additional put for such additional shares in accordance with the
procedure set forth above.
The
Letter Agreement will terminate when any of the following events
occur:
●
|
Calm
Seas has purchased an aggregate of $7,500,000 of our Class A common
stock; or
|
●
|
The
second anniversary from the Effective Date.
|
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Financial Statements (Unaudited)
As of June 30, 2016 and 2015
On
January 23, 2015, the board of directors appointed Mr. Jonathan R.
Rice as its 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 will be 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 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 warrant fully vests
on October 28, 2016. For the year ended December 31, 2015, the
Company recorded $121,448 for the warrants issued to related party.
On January 14, 2016 the Company signed and employment agreement
with its 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 an annual
cash compensation of $140,000, which includes salary, health
insurance, 401K retirement plan contributions, etc. In addition,
Mr. Rice will be 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 six
months ended June 30, 2016, the Company recorded $143,056 for the
warrants issued to related party.
(A)License Agreement
On May
8, 2006, the Company entered into a license
agreement. Pursuant to the terms of the agreement, the
Company paid a non-refundable license fee of $10,000. The Company
will pay a license maintenance fee of $10,000 on the one year
anniversary of this agreement and each year
thereafter. The Company will pay an annual research fee
of $13,700 with first payment due January 2007, then on each
subsequent anniversary of the effective date commencing May 4,
2007. The annual research fees are accrued by the Company for
future payment. Pursuant to the terms of the agreement the Company
may be required to pay additional fees aggregating up to a maximum
of $10,000 a year for patent maintenance and prosecution relating
to the licensed intellectual property.
On
October 28, 2011, the Company entered into a license agreement with
the University of Notre Dame. Under the agreement, the Company
received exclusive and non-exclusive rights to certain spider silk
technologies including commercial rights with the right to
sublicense such intellectual property. In consideration of the
licenses granted under the agreement, the Company agreed to issue
to the University of Notre Dame 2,200,000 shares of its common
stock and to pay a royalty of 2% of net sales. On March
4, 2015, the Company entered into a new Intellectual Property /
Collaborative Research Agreement with Notre Dame extending the
duration of the agreement through March 2016. In February of 2016
this agreement was extended to July 31, 2016. Under the
agreement the Company will provide approximately $534,000 in
financial support. 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. The Company is currently working with the University of
Notre Dame to extend this contract, but no final agreement has been
signed as of the date of this report.
(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. As of June 30, 2011, the Company had accrued
$17,000 of accounts payable for the services provided of which was
paid in common stock on July 1, 2009. As of June 30,
2011 the Company issued 280,000 shares of common stock in exchange
for $14,000 of accounts payable for the services
performed. On March 19, 2014, the Company entered into a
five year consulting agreement for general advisor and consulting
services. As consideration for the services performed,
the Company agrees to pay the consultant a fee of $1,000 per
month. At the Company’s option, said consulting
fee may be paid to the consultant in the form of Company stock
based upon the greater of $0.50/share or the average of the closing
price of the Company’s common stock over the five days
preceding such stock issuance. On March 28, 2014, the
Company issued 44,000 shares of common stock as consideration for
consulting fees owed from June 1, 2012 through March 31, 2014. On
October 9, 2014 the Company issued 12,000 shares with a fair value
of $484 ($0.0403/share) to a consultant as consideration for
consulting fees owed from April 1, 2014 through September 30, 2014
of $12,000. The issuance of shares resulted in gain on
settlement of accounts payable of $11,516. The consultant also
received a bonus of 4,000 shares with a fair value of $161
($0.0403/share).
On
December 26, 2006, the Company entered into an addendum to the
intellectual property transfer agreement with an
officer. In consideration of the Company issuing either
200,000 preferred shares with the following preferences; no
dividends and voting rights equal to 100 common shares per share of
preferred stock or the payment of $120,000, the officer agreed to
terminate the royalty payments due under the agreement and give
title to the exclusive license for the non-protective apparel use
of the intellectual property to the Company. On the date
of the agreement, the Company did not have any preferred stock
authorized with the required preferences. In accordance
with FASB Accounting Standards Codification No
480,
Distinguishing
Liabilities from Equity
, the Company determined that the
present value of the payment of $120,000 that was due on December
26, 2007, the 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 March 31, 2010, the Company has
recorded $120,000 in accrued expenses- related party. On
December 21, 2007 the officer extended the due date to July 30,
2008. On May 30, 2008 the officer extended the due date
to December 31, 2008. On October 10, 2008, the officer
extended the due date to the earlier of (a) March 30, 2010 or (b)
upon demand by the officer. The due date was extended to
March 31, 2011. On September 8, 2009, a payment of
$15,000 was paid to the officer. An additional payment of $10,000
was made on October 19, 2009 and December 1, 2009,
respectfully. Additionally, the accrued expenses are
accruing 7% interest per year. On January 15, 2010 an additional
payment of $10,000 was made. During the quarter ending
September 30, 2010 an additional payment of $8,000 was made. During
the quarter ending September 30, 2012 an additional payment of
$1,000 was made. During the year ended December 31,
2013, an additional payment of $1,280 was made. During
the year ended December 31, 2014, an additional loan of $572 was
made. As of June 30, 2016 and December 31, 2015 the
outstanding balance is $65,292. As of June 30, 2016 the Company
recorded interest expense and related accrued interest payable of
$980.
On June
6, 2012 the Company entered into a consulting agreement for
intellectual property and collaborative research and development
with an American university. The agreement covers
ongoing research and development work performed by the university
at the Company’s behest and with the Company’s
assistance. On March 4, 2015, the Company entered into a new
Intellectual Property / Collaborative Research Agreement with Notre
Dame extending the duration of the agreement through March
2016. Pursuant to the terms of the agreement the Company will
be required to pay approximately $534,000 for research and
development over the two year period. For the six months ended June
30, 2016 and 2015, respectively, the company recorded $250,534 and
$223,089 in research and development fees. On September 20, 2015
this agreement was amended to increase the total funding by
approximately $179,000. In February 2016 this agreement was
extended to July 31, 2016.
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. As of June 30, 2016, the subsidiary was not yet
established and no work has been performed in Vietnam for the six
months ended June 30, 2016. The Company delayed the announcement of
this agreement until late in February, 2016. This additional time
was used to confirm this agreement with higher level authorities
and outside review.
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Financial Statements (Unaudited)
As of June 30, 2016 and 2015
(C) Consulting Agreement
On July
9, 2013, the Company entered into an agreement with a consultant to
provide investor relations services in exchange for a warrant for
10,000,000 common shares at $.001 with a cashless provision and a
five year term.
On
September 30, 2013 the Company entered into a Collaborative Yarn
and Textile Development Agreement with a technical textile
manufacturing company. Pursuant to the terms of that
agreement the Company has agreed to supply the technical textile
manufacturing company with sample quantities of the Company’s
recombinant spider silk for the purpose of developing and testing
new textiles which are made from, or which incorporate recombinant
spider silk. The agreement provides that the two
companies will jointly share, on an equal basis, any intellectual
property, including any utility patents, which are developed as a
result of this collaboration. Such intellectual property
potentially includes utility patents on textile
designs. The Company has agreed that it will pay half of
the cost associated with the filing and prosecution of utility
patents relating to intellectual property which is developed
through its collaboration with the technical textile manufacturing
company.
On
October 15, 2013 the Company 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 will transfer to the Company
his rights to intellectual property, inventions and trade secrets
which the researcher develops relating to recombinant
silk. The researcher will receive 8,000,000 warrants of
the Company’s stock, exercisable 24 months from the date of
the agreement. The researcher will also receive
additional warrants when and if the researcher develops advanced
recombinant silk fibers for the Company’s
use. Under the terms of the agreement the researcher
will receive 10,000,000 warrants in the event that he develops a
new recombinant silk fiber with certain performance
characteristics, and another 10,000,000 warrants if he develops a
second recombinant silk fiber with certain
characteristics. If the consultant performs the contract
in good faith the consultant will be entitled to an additional
8,000 warrants. The warrants described in this note 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.
On
February 17, 2014, the Company entered into two consulting
agreements with two consultants for independent technical expertise
to further the Company’s business plans and scientific
research and development. As consideration for the
services performed, the Company agrees to issue the following to
each of the consultants:
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●
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Within
30 days of the date of this agreement, a warrant for six hundred
thousand shares of the Company’s common stock to be
exercisable on the 14 month anniversary of this agreement for a
period of 12 months with a cashless exercise
provision.
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|
●
|
Within
30 days of the date of this agreement, a warrant for one million
shares of the Company’s common stock to be exercisable on the
20 month anniversary of this agreement for a period of 12 months
with a cashless exercise provision.
|
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●
|
Within
30 days of the date of this agreement, a warrant for two million
shares of the Company’s common stock to be exercisable on the
32 month anniversary of this agreement for a period of 12 months
with a cashless exercise provision.
|
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●
|
Based
on the consultants reaching two sets of benchmarks, two separate
warrants for one million five hundred thousand shares of the
Company’s common stock to be exercisable on the 28 month
anniversary of this agreement for a period of 12 months with a
cashless exercise provision.
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|
●
|
On the
three year anniversary, assuming the consultant acted in good faith
and the Company’s board of directors approval, a warrant for
one million five hundred thousand shares of the Company’s
common stock to be exercisable on the 28 month anniversary of this
agreement for a period of 12 months with a cashless exercise
provision.
|
On June
22, 2015 the Company entered into an agreement with a consultant to
provide investor relations services. The agreement
commenced on June 22, 2015 and ended on December 16,
2015. As consideration for the services performed,
the Company agrees to issue a warrant for 15,000,000 shares of
common stock $0.001 with a cashless exercise provision and a three
year term. On June 22,
2015, the company issued a warrant for 15,000,000 shares of common
stock with a fair value of $590,335 (See Note
6(C)).
On
November 11, 2015 the Company entered into an agreement with a
consultant to provide advisory services. As consideration for the
services performed, the Company agreed to pay the consultant
$10,000.
On
January 23, 2016, the Company entered into an agreement with a
consultant to provide investor relations services. The agreement
commenced on January 23, 2016 and will continue for four months. As
consideration for the services performed, the Company agrees to pay
$100,000 broken up into $25,000 dollar monthly payments. During the
course of that contract additional services were rendered totaling
$31,000. During the six months ended June 30, 2016 the
Company paid $131,000.
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Financial Statements (Unaudited)
As of June 30, 2016 and 2015
(D) Operating Lease Agreement
On
April 1, 2012 the Company executed a one-year non-cancelable
operating lease for its Laboratory space. The lease was
subsequently extended through March 31, 2014. On February 25, 2015,
the Company renewed its lease of a Laboratory. The lease is on a
month to month basis at an annual rate of $13,200. On
June 30, 2015 the Company cancelled its lease of this
laboratory.
We
rented office space at 120 N. Washington Square, Suite 805,
Lansing, Michigan 48950, which was our principal place of business.
Our lease was on a month to month basis. We paid an annual rent of
$600 for conference facilities, mail, fax, and reception services
located at our principal place of business. On September
1, 2015 the Company ended the lease of this office.
Starting
in February of 2015, we rent additional office space in East
Lansing, Michigan. In July 2015, the Company signed a
new lease for its East Lansing, Michigan office
space. The Company pays an annual rent of $4,742 for
office space, conference facilities, mail, fax, and reception
services.
Starting
in 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 $2,028 for
conference facilities, mail, fax, and reception services located at
our principal place of business.
On
February 1, 2016 the Company signed a six (6) month lease extension
for its East Lansing office. The Company pays an annual rent of
$4,893 for office space, conference facilities, mail, fax, and
reception services.
On June
29, 2016 the Company signed a twelve (12) month lease for new
office space in Vietnam. The Company pays an annual rent of $2,329
for office space and reception services.
Rent
expense for the six months ended June 30, 2016 and 2015 was $3,843
and $9,441, respectively.
NOTE 7 RELATED PARTY
TRANSACTIONS
On
December 26, 2006, the Company entered into an addendum to the
intellectual property transfer agreement with an
officer. In consideration of the Company issuing 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 In accordance with FASB Accounting Standards Codification No.
480,
Distinguishing
Liabilities from Equity
, the Company determined that the
present value of the payment of $120,000 that was due on December
26, 2007, the 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 March 31, 2010, the Company has
recorded $120,000 in royalty agreement payable- related
party. On December 21, 2007 the officer extended the due
date to July 30, 2008. On May 30, 2008 the officer
extended the due date to March 31, 2009. On October 10,
2008, the officer extended the due date to the earlier of (a) March
30, 2010 or (b) upon demand by the officer. On March 30, 2010,
the officer extended the due date to the earlier of (a) March 30,
2010 or (b) upon demand by the officer. On September 8,
2009, a payment of $15,000 was paid to the officer. On October 19,
2009 and December 1, 2009, $10,000 was paid to the officer
respectfully. An additional payment of $10,000 was made
on January 15, 2010. During the quarter ending September
30, 2010 an additional payment of $8,000 was made. During the year
ended December 31, 2012 an additional payment of $1,000 was made.
During the year ended December 31, 2013 an additional payment of
$1,280 was made. During the year ended December 31,
2014, an additional loan of $572 was made. As
of June 30, 2016 the outstanding balance is
$65,292. Additionally, the accrued expenses are accruing
7% interest per year. As of June 30, 2016 the Company
recorded interest expense and related accrued interest payable of
$979.
On
November 10, 2010, the Company entered into an addendum to the
employment agreement, with its CEO, effective January 1, 2011
through the March 31, 2016. The term of the agreement is a
five year period at an annual salary of $210,000. There
is a 6% annual increase. 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 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 23, 2015, the board of directors appointed Mr. Jonathan R.
Rice as its Chief Operating Officer. 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 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 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 warrant fully vests on October 28,
2016. On January 14, 2016 the Company signed and employment
agreement with its 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 an
annual cash compensation of $140,000, which includes salary, health
insurance, 401K retirement plan contributions, etc. In addition,
Mr. Rice will be 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 six
months ended June 30, 2016, the Company recorded $143,282 for the
warrants issued to related party.
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Financial Statements (Unaudited)
As of June 30, 2016 and 2015
On June
6, 2016 the Company received $50,000 from a principal
stockholder. Pursuant to the terms of the loan, the
advance bears interest at 3%, is unsecured and due on
demand.
As of
June 30, 2016 and December 31, 2015, there was $241,748 and
$148,019, respectively, included in accounts payable and accrued
expenses - related party, which is owed to the Company’s
Chief Executive Officer.
As of
June 30, 2016 there was $489,079 of accrued interest- related party
and $13,796 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, 2015, there was $426,054 of accrued interest- related
party and $12,718 in shareholder loan interest – related
party included in accounts payable and accrued expenses –
related party, which his owed to the Company’s Chief
Executive officer.
As of
June 30, 2016, the Company owes $1,243,642 in accrued salary to
principal stockholder, $5,490 to the Company’s COO, and $609
to its intern.
As of
December 31, 2015, the Company owes $1,094,153 in accrued salary to
principal stockholder and $1,748 to the Company’s
COO.
On May
28, 2015, the Company issued 3-year warrant for 3,000,000 shares to
a related party, with an exercise price of $0.001 per share. The
warrants were
granted for
services to be rendered. The warrants had a fair value of $117,503,
based upon the Black-Scholes option-pricing model on the date of
grant and
vesting on October
28, 2016, and will be exercisable on May 28, 2018, and for a period
expiring on May 28, 2022. During the six months ended of June 30,
2015 and 2016, the Company
recorded $41,432
and $90,335 as an expense for warrants issued to related
party.
On
January 1, 2016, the Company issued 3-year warrant for 6,000,000
shares to a related party, with an exercise price of $0.001 per
share. The warrants were
granted for
services to be rendered. The warrants had a fair value of $234,086,
based upon the Black-Scholes option-pricing model on the date of
grant and
vesting on February
20, 2017, and will be exercisable on February 20, 2018, and for a
period expiring on February 20, 2021. During the six months ended
June 30, 2016, the
Company recorded
$101,850 as an expense for warrants issued to related
party.
NOTE 8 SUBSEQUENT EVENTS
In
preparing these financial statements, the Company has evaluated
events and transactions for potential recognition or disclosure
through August 10, 2016, the date the financial statements were
available to be issued.
On July
19, 2016 the Company signed a month to month lease for a production
facility in Indiana. The Company pays a monthly rent of $670 for
office space light industrial manufacturing space.
On July
26, 2016 the company issued, the Company issued 3-year warrant for
10,000,000 shares to a consultant, with an exercise price of $0.001
per share. The warrants were granted for services
rendered.
On July
26, 2016 the company issued, the Company issued 3-year warrant for
8,000,000 shares to a consultant, with an exercise price of $0.001
per share. The warrants were granted for services
rendered.
On July
26, 2016 the Company issued 6,028,939 shares of common stock for
$150,000 ($0.025/share).
On
August 4, 2016 the Company issued a bonus of $20,000 payable to the
COO if he remains employed with the Company through March 31,
2018.
On August 8, 2016 the Company issued 2,181,501 shares of common
stock for $100,000 ($0.046/share).