Prospectus Supplement No. 2 Dated December 7, 2016
(To Prospectus Dated June 2, 2015, As Amended by Prospectus   Supplement No. 1 Dated October 20, 2016)
 
KRAIG BIOCRAFT LABORATORIES, INC.
 
110,000,000 Shares of Class A Common Stock
  
This Prospectus Supplement No. 2 (the “Prospectus Supplement”) updates and supplements the prospectus of Kraig Biocraft Laboratories, Inc. (the “Company,” “we,” “us,” or “our”) dated June 2, 2015, as updated and amended by Prospectus Supplement No. 1 dated October 20, 2016 (collectively, the “Prospectus”), with the following attached document which we filed with the Securities and Exchange Commission:
 
A.
  Our Quarterly Report on Form 10-Q filed with the Securities Exchange Commission on November 14, 2016.
 
This Prospectus Supplement should be read in conjunction with the Prospectus, which is required to be delivered with this Prospectus Supplement.  This Prospectus Supplement updates, amends and supplements the information included in the Prospectus. If there is any inconsistency between the information in the Prospectus and this Prospectus Supplement, you should rely on the information in this Prospectus Supplement.
 
This Prospectus Supplement is not complete without, and may not be delivered or utilized except in connection with, the Prospectus, including any amendments or supplements to it.
 
The purchase of the securities offered through the Prospectus involves a high degree of risk. Before making any investment in our common stock and/or warrants, you should carefully consider the risk factors section beginning on page 9 of the Prospectus.
 
You should rely only on the information contained in the Prospectus, as supplemented or amended by this Prospectus Supplement and any other prospectus supplement or amendment thereto. We have not authorized anyone to provide you with different information.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of the Prospectus. Any representation to the contrary is a criminal offense.
 
The date of this Prospectus Supplement is December 7, 2016
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2016
 
OR
 
TRANSITION REPORT PURSUANT TO PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from_____ to _____
 
KRAIG BIOCRAFT LABORATORIES, INC.
(Exact Name of Registrant as Specified in Charter)
 
Wyoming
 
 
 
83-0459707
(State or Other Jurisdiction of Incorporation)
 
(Commission File No.)
 
(I.R.S. Employer Identification No.)
 
 
2723 South State St. Suite 150
Ann Arbor, Michigan 48104
 
(734) 619-8066
(Address of Principal Executive Offices)
 
(Registrant’s Telephone Number)
 
(Former name and address, if changed since last report)
 
Copies to:
Hunter Taubman Fischer & Li LLC
1450 Broadway, 26th Floor
New York, NY 10018
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File  required to be submitted and posted to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer    
Accelerated filer    
Non-accelerated filer   
Smaller reporting company  
 
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes    No
 
As of November 10, 2016, there were 772,131,261 shares of the issuer’s common stock, no par value per share, outstanding, and 2 shares of preferred stock, no par value per share, outstanding.
 
1
 
 
TABLE OF CONTENTS
 
  
 
Page
 
  
 
 
 
PART I FINANCIAL INFORMATION
    3  
 
       
Item 1. Unaudited Condensed Financial Statements:
    3  
 
       
Condensed Balance Sheets as of September 30, 2016 (Unaudited) and December 31, 2015 (Audited)
    3  
 
       
Condensed Statements of Operations (Unaudited) for the three and nine month periods ended September 30, 2016 and 2015
    4  
 
       
Condensed Statements of Stockholders’ Deficit (Unaudited) for the nine months ended September 30, 2016
    5  
 
       
Condensed Statements of Cash Flows (Unaudited) for the nine month periods ended September 30, 2016 and 2015
    6  
 
       
Notes to Condensed Financial Statements (Unaudited)
    7  
 
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
  20  
 
       
Item 4. Controls and Procedures
    25
 
       
PART II OTHER INFORMATION
       
 
       
Item 1. Legal proceedings
    26
 
       
Item 1A. Risk Factors 
    26
 
       
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    26
 
       
Item 3. Defaults upon Senior Securities
    26
 
       
Item 5. Other information
    26
 
 
2
 
 
PART I
 
ITEM 1. FINANCIAL STATEMENTS
 
Kraig Biocraft Laboratories, Inc.
Condensed Balance Sheets
(Unaudited)
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
September 30,
2016 (Unaudited)
 
 
 
 
December 31,
2015 (Audited)
 
 
Current Assets
 
 
 
 
 
 
Cash
    335,909  
    238,188  
Prepaid expenses
    1,861  
    645  
     Accounts Receivable
    18,673  
    -  
     Total Current Assets
    356,433  
    238,833  
 
       
       
Property and Equipment, net
    55,953  
    66,104  
 
       
       
Total Assets
    412,396  
    304,937  
 
       
       
 
       
       
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
 
       
       
 
       
       
Current Liabilities
       
       
Accounts payable and accrued expenses
    519,579  
    469,833  
Note Payable - related party
    50,000  
    -  
Royalty agreement payable – Related Party
    65,292  
    65,292  
Accounts payable and accrued expenses – related party
    2,042,642  
    1,666,748  
Total Current Liabilities
    2,677,513  
    2,201,873  
 
       
       
Total Liabilities
    2,677,513
    2,201,873  
 
       
       
Commitments and Contingencies
       
       
 
       
       
Stockholders' Deficit
       
       
  Preferred stock Series A,  no par value;
       
       
2 and 2 shares issued and outstanding, respectively
    5,217,800  
    5,217,800  
  Common stock Class A,  no par value; unlimited shares authorized,
       
       
767,952,594  and 708,068,385 shares issued and outstanding, respectively
    12,749,211  
    10,801,942  
  Common stock Class B,  no par value; unlimited shares authorized,
       
       
no shares issued and outstanding
    -  
    -  
  Common Stock Issuable, 1,122,311 and 1,122,311 shares, respectively
    22,000  
    22,000  
  Additional paid-in capital
    2,219,520  
    2,373,458  
  Accumulated Deficit
    (22,473,648 )
    (20,312,136 )
 
       
       
Total Stockholders' Deficit
    (2,265,117 )
    (1,896,936 )
 
       
       
Total Liabilities and Stockholders' Deficit
    412,396  
    304,937  
 
See accompanying notes which are an integral part of these unaudited condensed financial statements.
 
3
 
 
Kraig Biocraft Laboratories, Inc.
Condensed Statements of Operations (Unaudited)
for the three and nine month periods ended September 30, 2016 and 2015
 
 
 
    For the Three Months Ended        
 
 
 
 
    For the Nine Months Ended  
     
 
 
 
 
September 30,
2016
 
 
 
 
September 30,
2015
 
 
 
 
September 30,
2016
 
 
 
 
September 30,
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
  $ 18,673  
    -  
  $ 18,673  
    -  
 
       
       
       
       
Operating Expenses
       
       
       
       
General and Administrative
    821,651  
    54,990  
    1,046,324  
    854,517  
Professional Fees
    29,060  
    82,431  
    319,309  
    221,851  
Officer's Salary
    127,809  
    94,735  
    340,999  
    280,127  
Research and Development
    129,282  
    90,650  
    379,815  
    313,739  
Total Operating Expenses
    1,107,802  
    322,806  
    2,086,447  
    1,670,235  
 
       
       
       
       
Loss from Operations
    (1,089,129 )
    (322,806 )
    (2,067,774 )
    (1,670,235 )
 
       
       
       
       
Other Income/(Expenses)
       
       
       
       
Gain on forgiveness of debt
   
-
 
    -  
    5,704  
    9,679  
Loss on disposal of fixed asset
    -  
    -
 
    -  
    (953 )
Interest expense
    (35,339 )
    (25,709 )
    (99,442 )
    (71,435 )
Total Other Income/(Expenses)
    (35,339 )
    (25,709 )
    (93,738 )
    (62,709 )
 
       
       
       
       
Net (Loss) before Provision for Income Taxes
    (1,124,468 )
    (348,515 )
    (2,161,512 )
    (1,732,944 )
 
       
       
       
       
Provision for Income Taxes
    -  
    -  
    -  
    -  
 
       
       
       
       
Net Loss
  $ (1,124,468 )
  $ (348,515 )
  $ (2,161,512 )
  $ (1,732,944 )
 
       
       
       
       
Net Loss Per Share - Basic and Diluted
  $ (0.00 )
  $ (0.00 )
  $ (0.00 )
  $ (0.00 )
 
       
       
       
       
Weighted average number of shares outstanding
    762,420,118  
    683,999,140  
    734,960,525  
    680,911,696  
 
See accompanying notes which are an integral part of these unaudited condensed financial statements.
 
4
 
Kraig Biocraft Laboratories, Inc.
Condensed Statements of Stockholders’ Deficit
For the nine months ended September 30, 2016
 


 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
       
 
 
  Common Stock - Class A
 
 
 
 
 
 
    Preferred Stock - Series A        
   
 
 
      Common Stock -      
   
 
 
         
 
 
 
  To be issued    
   
 
 
 
 
 


 
 
 
 
 
 
 
     
 
  Shares
 
 
 
 
Par
 
 
 
 
 Shares
 
 
 
 
Par
 
 
 
 
 Shares
 
 
 
 
Par
 
 
 
 
Shares
 
 
 
 
Par
 
 
 
 
APIC
 
 

  Accumulated Deficit
 
 
 
Total
 
 
 
 
 
Balance, December 31, 2015
    2  
  $ 5,217,800  
    708,068,385  
  $ 10,801,942  
    -  
  $ -  
    1,122,311  
  $ 22,000  
  $ 2,373,458  
  $ (20,312,136 )
  $ (1,896,936 )
 
       
       
       
       
       
       
       
       
       
       
       
Stock issued for cash ($0.01/share)
    -  
    -  
    37,459,609  
    875,000  
    -  
    -  
    -  
    -  
    -  
    -  
    875,000  
 
       
       
       
       
       
       
       
       
       
       
       
Grant 6,000,000 warrants for services to related party
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    153,619  
    -  
    153,619  
 
       
       
       
       
       
       
       
       
       
       
       
Grant 18,000,000 Warrants for services to Related Party
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    702,156  
    -  
    702,156  
 
       
       
       
       
       
       
       
       
       
       
       
Warrants issued for services - related party
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    62,261  
    -  
    62,261  
 
       
       
       
       
       
       
       
       
       
       
       
Exercise of 23,500,000 warrants in exchange for stock
    -  
    -  
    22,412,600  
    1,071,973  
    -  
    -  
    -  
    -  
    (1,071,973 )
    -  
    -  
 
       
       
       
       
       
       
       
       
       
       
       
Settlement of accounts payable with stock issuance ($0.03/share
    -  
    -  
    12,000  
    296  
    -  
    -  
    -  
    -  
    -  
    -  
    296  
 
       
       
       
       
       
       
       
       
       
       
       
Net loss for the three months ended September 30, 2016
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    (2,161,512 )
    (2,161,512 )
 
       
       
       
       
       
       
       
       
       
       
       
Balance, September 30, 2016
    2  
  $ 5,217,800  
    767,952,594  
  $ 12,749,211  
    -  
  $ -  
    1,122,311  
  $ 22,000  
  $ 2,219,520  
  $ (22,473,648 )
  $ (2,265,117 )
 
See accompanying notes which are an integral part of these unaudited condensed financial statements.
 
5
 
 
Kraig Biocraft Laboratories, Inc.
Condensed Statements of Cash Flows (Unaudited)
for the nine month periods ended September 30, 2016 and 2015
 
 
    For the nine months ended September 30,          
 
 
 
2016
 
 
 
 
2015
 
 
Cash Flows From Operating Activities:
 
 
 
 
 
 
Net Loss
  $ (2,161,512 )
  $ (1,732,944 )
  Adjustments to reconcile net loss to net cash used in operations
       
       
      Depreciation expense
    12,639  
    11,175  
      (Gain) Loss on forgiveness of debt
    5,704  
    (9,679 )
      Loss on disposal of fixed asset
    -  
    953  
      Warrants issued to consultants
    702,156  
    590,335  
      Warrants issued to related party
    215,880  
    100,618  
  Changes in operating assets and liabilities:
       
       
      (Increase) Decrease in prepaid expenses
    (1,216 )
    750  
      (Increase) in accounts receivables, net
    (18,673 )
    -  
      Increase in accrued expenses and other payables - related party
    375,893  
    282,743  
      (Increase) in accounts payable
    44,338  
    70,950  
Net Cash Used In Operating Activities
    (824,791 )
    (685,099 )
 
       
       
Cash Flows From Investing Activities:
       
       
Purchase of Fixed Assets and Domain Name
    (2,488 )
    (39,285 )
Net Cash Used In Investing Activities
    (2,488 )
    (39,285 )
 
       
       
Cash Flows From Financing Activities:
       
       
Proceeds from notes payable - related party
    50,000  
    -  
Proceeds from issuance of common stock
    875,000  
    450,000  
Net Cash Provided by Financing Activities
    925,000  
    450,000  
 
       
       
Net Increase (Decrease) in Cash
    97,721  
    (274,384 )
 
       
       
Cash at Beginning of Period
    238,188  
    495,036  
 
       
       
Cash at End of Period
  $ 335,909  
  $ 220,652  
 
       
       
Supplemental disclosure of cash flow information:
       
       
 
       
       
Cash paid for interest
  $ -  
  $ -  
Cash paid for taxes
  $ -  
  $ -  
 
       
       
Supplemental disclosure of non-cash investing and financing activities:
       
       
Shares issued in connection with cashless warrants exercise
  $ 1,071,973  
  $ 238,342  
Settlement of accounts payable with stock issuance
  $ 296  
  $ 321  
 
 
See accompanying notes which are an integral part of these unaudited condensed financial statements.
 
6
 
 
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Financial Statements (Unaudited)
As of September 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 September 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 nine month periods ended  September 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 nine months ended September 30, 2016 and 2015 excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive:
 
 
 
September 30,
2016
 
 
September 30,
2015
 
 
 
 
Stock Warrants (Exercise price - $0.001/share)
    34,500,000 
    34,000,000 
Convertible Preferred Stock
    2 
    2 
Total
   34,500,002 
    345,000,002 
 
 
 
 
(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.
 
7
 
 
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Financial Statements (Unaudited)
As of September 30, 2016 and 2015
 
 
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 September 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.
 
(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.
 
 
8
 
 
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Financial Statements (Unaudited)
As of September 30, 2016 and 2015
 
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.
 
  (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 nine months ended September 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 September 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. 
 
 
 
 
September 30,
2016
 
 
 
 
December 31,
2015
 
 
Level 1
  $ -  
  $ -  
Level 2
    -  
    -  
Level 3
    -  
    -  
Total
  $ -  
  $ -  
 
 
9
 
 
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Financial Statements (Unaudited)
As of September 30, 2016 and 2015
 
(N) Revenue Recognition
 
 
The Company’s revenues are generated primarily from contracts with the U.S. Government. The Company performs work under the cost-plus-fixed-fee contract.
 
Cost-plus-fixed-fee contracts—Revenue is recognized on cost-plus-fixed-fee contracts with the U.S. Government on the basis of partial performance equal to costs incurred plus an estimate of applicable fees earned as the Company becomes contractually entitled to reimbursement of costs and the applicable fees .  Invoicing for costs and applicable fees are reported to the U.S. Government on a monthly basis and invoices are typically paid within 30 days.
 
For the three and nine months ended September 30, 2016, the Company recognized $18,673 in revenue from the Government contract.
 

( O) Concentration of Credit Risk
 
The Company at times has cash in banks in excess of FDIC insurance limits. At September 30, 2016 and December 31, 2015, the Company had approximately $85,909 and $0, respectively in excess of FDIC insurance limits.
 
At September 30, 2016 and December 31, 2015, the Company had a concentration of accounts receivable of:
 
Customer
 
September 30, 2016
 
 
December 31, 2015
 
Customer A
    100 %
    0 %
 
For the three months ended September 30, 2016 and September 30, 2015, the Company had a concentration of sales of:
 
Customer
 
September 30, 2016
 
 
September 30, 2015
 
Customer A
    100 %
    0 %
 
 
For the nine months ended September 30, 2016 and September 30, 2015, the Company had a concentration of sales of:
 
Customer
 
September 30, 2016
 
 
September 30, 2015
 
Customer A
    100 %
    0 %
 
NOTE 2     GOING CONCERN
 
As reflected in the accompanying unaudited financial statements, the Company has a working capital deficiency of $2,321,080 and stockholders’ deficiency of $2,265,117 and used $824,791 of cash in operations for the nine months ended September 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 September 30, 2016 and December 31, 2015, property and equipment, net, is as follows:
 
 
 
 
  As of September 30, 2016
(Unaudited)   
 
 
 
 
As of December 31, 2015
 
 
  Automobile
  $ 41,805  
  $ 41,805  
  Laboratory Equipment
    39,311  
    36,822  
  Office Equipment
    6,466  
    6,466  
  Less: Accumulated Depreciation
    (31,629 )
    (18,989 )
  Total Property and Equipment, net
  $ 55,953  
  $ 66,104  
 
 
10
 
 
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Financial Statements (Unaudited)
As of September 30, 2016 and 2015
 
 
Depreciation expense for the nine months ended September 30, 2016 and 2015 was $12,639 and $11,175 respectively.
 
Depreciation expense for the three months ended September 30, 2016 and 2015 was $4,268 and $4,244 respectively.
 
 
NOTE 4   ACRRUED INTEREST – RELATED PARTY
 
On September 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 $475 as of September 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 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).
 
On July 26, 2016 the Company issued 6,028,939 shares of common stock for $150,000 ($0.025/share).
On August 8, 2016 the Company issued 2,181,501 shares of common stock for $100,000 ($0.046/share).
 
On August 18, 2016 the Company issued 1,838,235 shares of common stock for $100,000 ($0.054/share).
 
On September 9, 2016 the Company issued 2,604,167 shares of common stock for $100,000 ($0.038/share).
 
(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.
 
 
11
 
 
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Financial Statements (Unaudited)
As of September 30, 2016 and 2015
 
(C) Common Stock 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
 
 
 3 years
 
 
 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 nine months ended September 30, 2016 and 2015, the Company recorded $62,261 and $28,300 as an expense for warrants issued to related party. 
Grant Date
 Expected dividends
    0 %
 Expected volatility
    77.49 %
 Expected term
 
 
 4 years
 
 
 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 September 22, 2018. 
Grant Date
 Expected dividends
    0 %
 Expected volatility                                                                                                                                                         
    78.85 %
 Expected term
 
 
 3 years
 
 
 Risk free interest rate
    1.06 %
 Expected forfeitures 
    0 %
 
On July 2, 2015, the Company issued 1,176,922 shares in connection with the cashless exercise of the 1,200,000 warrants.
 
 
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 nine months ended September 30, 2016, the Company recorded $153,619 as an expense for warrants issued to related party. 
 
Grant Date
 Expected dividends
    0 %
 Expected volatility
    82.95 %
 Expected term
 
 
4 years
 
 
 Risk free interest rate
    1.31 %
 Expected forfeitures
    0 %
 
 
12
 
 
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Financial Statements (Unaudited)
As of September 30, 2016 and 2015
 
 
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 May 5, 2016, the Company issued 7,627,907 shares in connection with the cashless exercise of the 8,000,000 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 July 26, 2016 the company issued, the Company issued 4-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. The warrants had a fair value of $390,087, 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 July 26, 2018, and for a period of 4 years expiring on July 26, 2022. During the nine months ended September 30, 2016, the Company recorded $390,087 as an expense for warrants issued. 
 
 
 Expected dividends
    0 %
 Expected volatility
    87.52 %
 Expected term
 
 
4 years
 
 
 Risk free interest rate
    0.87 %
 Expected forfeitures
    0 %
 
 
On July 26, 2016 the company issued, the Company issued 4-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. The warrants had a fair value of $312,069, 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 July 26, 2018, and for a period of 4 years expiring on July 26, 2022. During the nine months ended September 30, 2016, the Company recorded $312,069 as an expense for warrants issued. 
 
 Expected dividends
    0 %
 Expected volatility
    87.52 %
 Expected term
 
 
4 years
 
 
 Risk free interest rate
    0.87 %
 Expected forfeitures
    0 %
 
 
 
 
 
 
Number of
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
    24,000,000  
       
       
 Exercised
    (23,500,000 )
       
       
 Cancelled/Forfeited
    -  
       
       
 Balance, September 30, 2016
    34,500,000  
  $ 0.001  
    4.1  
 
       
       
       
 Intrinsic Value
  $ 1,475,100  
       
       
 
 
13
 
 
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Financial Statements (Unaudited)
As of September 30, 2016 and 2015
 
For the nine months ended September 30, 2016, the following warrants were outstanding:
 
 
 
 Exercise Price Warrants Outstanding
 
 
 
 
 Warrants Exercisable 
 
 
 
 
 Weighted Average Remaining Contractual Life
 
 
 
 
 Aggregate Intrinsic Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  $ 0.001  
    34,500,000  
    4.1  
  $ 1,475,100  
 
For the year ended December 31, 2015, the following warrants were outstanding:      
 
 
 
Exercise Price Warrants Outstanding
 
 
 
 
Warrants Exercisable
 
 
 
 
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.
 
14
 
 
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Financial Statements (Unaudited)
As of September 30, 2016 and 2015
 
 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.
 
 
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 nine months ended September 30, 2016, the Company recorded $153,618 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 September 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 September 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 September 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).
 
15
 
 
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Financial Statements (Unaudited)
As of September 30, 2016 and 2015
 
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 September 30, 2016 and December 31, 2015 the outstanding balance is $65,292. As of September 30, 2016 the Company recorded interest expense and related accrued interest payable of $1,470.
 
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 nine months ended September 30, 2016 and 2015, respectively, the company recorded $379,815 and $313,739 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. In August 2016 this agreement was amended to increase the total funding by approximately $175,000 and the duration of this agreement was extended to December 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 September 30, 2016, the subsidiary was not yet established and no work has been performed in Vietnam for the nine months ended September 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.
 
(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 July 26, 2016 the Company issued a warrant for 10,000,000 to the researcher in accordance with this agreement for the development of a new recombinant silk fiber.  On July 26, 2016 the Company issued a warrant for 8,000,000 to the researcher upon reaching the 24 month of this agreement.
 
16
 
 
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Financial Statements (Unaudited)
As of September 30, 2016 and 2015
 
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:
 
 
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.
 
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.
 
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.
 
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.
 
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 nine months ended September 30, 2016 the Company paid $131,000.
 
(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.
 
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.
 
 Rent expense for the nine months ended September 30, 2016 and 2015 was $6,381 and $10,979, respectively.
 
17
 
 
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Financial Statements (Unaudited)
As of September 30, 2016 and 2015
 
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 September 30, 2016 the outstanding balance is $65,292.  Additionally, the accrued expenses are accruing 7% interest per year.  As of September 30, 2016 the Company recorded interest expense and related accrued interest payable of $1,470.
 
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 nine months ended September 30, 2016, the Company recorded $215,653 for the warrants issued to related party.
 
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 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 September 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 September 30, 2016 there was $523,552 of accrued interest- related party and $14,662 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 September 30, 2016, the Company owes $1,317,560 in accrued salary to principal stockholder, $24,762 to the Company’s COO, and $294 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 nine months ended of September 30, 2016 and 2015, the Company recorded $62,034 and $28,300 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 nine months ended September 30, 2016, the Company recorded $153,619 as an expense for warrants issued to related party.
 
18
 
 
Kraig Biocraft Laboratories, Inc.
Notes to Condensed Financial Statements (Unaudited)
As of September 30, 2016 and 2015

 
NOTE 8    SUBSEQUENT EVENTS
 
 In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through November 14, 2016, the date the financial statements were available to be issued.
 
On October 2, 2016 the Company issued a warrant for 2,300,000 share of common stock to a consultant for services rendered.
 
 On October 21, 2016 the Company issued 4,166,667 shares of common stock for $150,000 ($0.036/per share) cash recieved.
 
On November 7, 2016 the Company issued 12,000 shares of common stock to a consultant for services rendered.
 
On November 7, 2016 the Compnay issued 1,496,703 share of common stock to a consultant for services rendered.
 
 
19
 
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
FORWARD-LOOKING INFORMATION
 
The following information should be read in conjunction with Kraig Biocraft Laboratories, Inc. and its subsidiaries ("we", "us", "our", or the “Company”) condensed unaudited financial statements and the notes thereto contained elsewhere in this report. Information in this Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this Form 10-Q that does not consist of historical facts, are "forward-looking statements."  Statements accompanied or qualified by, or containing words such as "may," "will," "should," "believes," "expects," "intends," "plans," "projects," "estimates," "predicts," "potential," "outlook," "forecast," "anticipates," "presume," and "assume" constitute forward-looking statements, and as such, are not a guarantee of future performance. 
 
Forward-looking statements are subject to risks and uncertainties, certain of which are beyond our control. Actual results could differ materially from those anticipated as a result of the factors described in the “Risk Factors” and detailed in our other Securities and Exchange Commission (“SEC”) filings. Risks and uncertainties can include, among others, international, national and local general economic and market conditions: demographic changes; the ability of the Company to sustain, manage or forecast its growth; the ability of the Company to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to obtain sufficient financing to continue and expand business operations; the ability to develop technology and products; changes in technology and the development of technology and intellectual property by competitors; the ability to protect technology and develop intellectual property; and other factors referenced in this and previous filings. Consequently, investors should not place undue reliance on forward-looking statements as predictive of future results. 
 
Because of these risks and uncertainties, the forward-looking events and circumstances discussed in this report or incorporated by reference might not transpire. Factors that cause actual results or conditions to differ from those anticipated by these and other forward-looking statements include those more fully described elsewhere in this report and in the “Risk Factors” section of our registration statement on Form S-1.
 
The Company disclaims any obligation to update the forward-looking statements in this report.
 
Overview
 
Kraig Biocraft Laboratories, Inc. is a corporation organized under the laws of Wyoming on April 25, 2006. We were organized to develop high strength fibers using recombinant DNA technology, for commercial applications in both the specialty fiber and technical textile industries. Specialty fibers are engineered for specific uses that require exceptional strength, flexibility, heat resistance and/or chemical resistance. The specialty fiber market is exemplified by two synthetic fiber products: aramid fibers and ultra-high molecular weight polyethylene fiber. The technical textile industry involves products for both industrial and consumer products, such as filtration fabrics, medical textiles (e.g., sutures and artificial ligaments), safety and protective clothing and fabrics used in military and aerospace applications (e.g., high-strength composite materials).
 
We are using genetic engineering technologies to develop fibers with greater strength, resiliency and flexibility for use in our target markets, namely the textile, specialty fiber and technical textile industries.
 
The Report of Independent Registered Public Accounting Firm to our financial statements as of December 31, 2015 include an explanatory paragraph stating that our net loss from operations and net capital deficiency  at December 31, 2015 raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
Plan of Operations
 
During the next twelve months, we expect to take the following steps in connection with the further development of our business and the implementation of our plan of operations: 
 
 
We have spent approximately $379,815 between January 2016 and September 2016 on collaborative research and development of high strength polymers at the University of Notre Dame. We expect to spend approximately $105,000 between October 2016 and December 2016 on collaborative research and development of high strength polymers at the University of Notre Dame. With this funding we plan to accelerate both our microbiology and selective breeding programs as well as providing more resources for our material testing protocols.  If our financing allows, management will give strong consideration to accelerating the pace of spending on research and development within the University of Notre Dame’s laboratories. 
 
 
 
 
 
We expect to spend approximately $13,700 on collaborative research and development of high strength polymers and spider silk protein at the University of Wyoming over the next twelve months. This level of research spending at the university is also a requirement of our licensing agreement with the university. If our financing will allow, management will give strong consideration to accelerating the pace of spending on research and development within the University of Wyoming’s laboratories.
 
 
 
 
We will actively consider pursuing collaborative research opportunities with other university laboratories in the area of high strength polymers. If our financing allows, management will give strong consideration to increasing the depth of our research to include polymer production technologies that are closely related to our core research.
 
 
 
 
20
 
 
 
 
We will consider buying an established revenue producing company in a compatible business, in order to broaden our financial base and facilitate the commercialization of our products. We expect to use a combination of stock and cash for any such purchase.
 
 
 
 
We will also actively consider pursuing collaborative research opportunities with both private and university laboratories in areas of research which overlap the company’s existing research and development. One such potential area for collaborative research which the company is considering is protein expression platforms. If our financing allows, management will give strong consideration to increasing the breadth of our research to include protein expression platform technologies.
 
 
 
 
We plan to actively pursue collaborative research and product testing, opportunities with companies in the biotechnology, materials, textile and other industries.
 
 
 
 
We plan to actively pursue collaborative commercialization, marketing and manufacturing opportunities with companies in the textile and material sectors for the fibers we developed and for any new polymers that we create in 2016.
 
 
 
 
We plan to actively pursue the development of commercial scale production of our recombinant materials including Monster Silk ® and Dragon SilkTM


We have not previously demonstrated that we will be able to expand our business through an increased investment in our research and development efforts. We cannot guarantee that the research and development efforts described in this filing will be successful. Our business is subject to risks inherent in growing an enterprise, including limited capital resources, risks inherent in the research and development process and possible rejection of our products in development.
 
If financing is not available on satisfactory terms, we may be unable to continue expanding our operations. Equity financing will result in a dilution to existing shareholders.
 
Three months ended September 30, 2016 compared to the Three months ended September 30, 2015
 
Our revenue, operating expenses, and net loss from operations for the three month period ended September 30, 2016 as compared to the three month period ended September 30, 2015, were as follows – some balances on the prior period’s combined financial statements have been reclassified to conform to the current period presentation:
 
 
 
    Three Months Ended September 30          
 
 
 

 
 
 
  % Change  
 
 
 
2016
 
 
 
 
2015
 
 
 
 
Change
 
 
 
 
Increase (Decrease)
NET REVENUES
  $ 18,673  
  $ -  
    18,673  
    100 %
OPERATING EXPENSES:
       
       
       
       
General and Administrative
    821,651  
    54,990  
    766,661  
    1394.18 %
Professional Fees
    29,060  
    82,431  
    (53,371 )
    (64.754 %)
Officer's Salary
    127,809  
    94,735  
    33,074  
    34.91 %
Research and Development
    129,282  
    90,650  
    38,632  
    42.62 %
Total operating expenses
    1,107,802  
    322,806  
  784,996
    243.18 %
Loss from operations
    (1,089,129 )
    (322,806 )
  (766,323)
      (243.18) %
Interest expense
    (35,339 )
    (25,709 )
    (9,630 )
    37.46 %
Net Loss
  $ (1,124,468 )
    (348,515 )
    (775,953 )
    222.65 %
 
 
Net Revenues :  During the three months ended September 30, 2016, we realized $18,673 of revenues from our business. During the three months ended September 30, 2015, we realized $0 of revenues from our business. The change in revenues between the quarter ended September 30, 2016 and 2015 was $18,673 or 100%.
 
Cost of Revenues :  Costs of revenues for the three months ended September 30, 2016 were $0, as compared to $0 for the three months ended September 30, 2015, a change of $0 or 0%.
 
Gross Profit : During the three months ended September 30, 2016, we realized a gross profit of $18,673, as compared to $0 for the three months ended September 30, 2015, a change of $18,673 or 100%.
 
Research and development expenses:   During the three months ended September 30, 2016 we incurred $129,282 research and development expenses. During the three months ended September 30, 2015 we incurred $90,650 of research and development expenses, a decrease of $38,632 or 42.62% compared with the same period in 2016. The research and development expenses are attributable to the research and development with the Notre Dame University; this increase was due to the timing of research related activity and related charges and the hiring of an additional lab team member.
 
21
 
   
Professional Fees:   During the three months ended September 30, 2016, we incurred $29,060 professional expenses, which decreased by $53,371 or (64.75 %) from $82,431 for the three months ended September 30, 2015. The decrease in professional fees expense was attributable to decreased expenses related to intellectual property protection of the research and development activities during the three months ended September 30. 2016.
 
Officers Salary:   During the three months ended September 30, 2016, officers’ salary expenses increased to $127,809 or 34.91% from $94,735 for the three months ended September 30, 2015. The increase in officer’s salary expenses was attributable to the hiring of a Chief Operations Officer in late January of 2015.
   
General and Administrative Expense : General and administrative expenses increased by $766,661 or 1394.18% to $821,651 for the three months ended September 30, 2016 from $54,990 for the three months ended September 30, 2015. Our general and administrative expenses for the three months ended September 30, 2016 consisted of consulting fees of $10,079 and other general and administrative expenses (which includes expenses such as Auto, Business Development, SEC Filing, Investor Relations, General Office, warrant Compensation) of $807,865, Travel of $1,207 and office salary of $2,500, for a total of $821,651. Our general and administrative expenses for the three months ended September 30, 2015 consisted of consulting fees of $6,000, and other general and administrative expenses (which includes expenses such as: Auto, Business Development, SEC Filing, Investor Relations, and General Office) of $48,661, Travel of $329 for a total of $54,990. The primary reason for the increase in comparing the three months ended September 30, 2016 to the corresponding period for 2015 was mainly due to general business expenses.
 
Interest Expense :  Interest expense increased by $9,630 to $35,339 for the three month period ended September 30, 2016 from $25,709 for the three month period ended September 30, 2015. The increase was primarily due to interest on the loans.
 
Net Loss :  Net loss increased by $775,953, or 222.65%, to a net loss of $1,124,468 for the three month period ended September 30, 2016 from a net loss of $348,515 for the three month period ended September 30, 2015. This increase in net loss was driven primarily by increases in research and development and professional fees.
   
Nine months ended September 30, 2016 compared to the Nine Months Ended September 30, 2015
 
Our revenue, operating expenses, and net loss from operations for the nine month period ended September 30, 2016 as compared to the nine month period ended September 30, 2015, were as follows – some balances on the prior period’s combined financial statements have been reclassified to conform to the current period presentation:
 
 
 
  Nine Months Ended
September 30
   
 
 
 

 
 
  % Change  
 
 
 
2016
 
 
 
 
2015
 
 
 
 
Change
 
 
 
 
Increase
(Decrease)
 
 
NET REVENUES
  $ 18,673  
  $ -  
    18,673  
    100 %
OPERATING EXPENSES:
       
       
       
       
General and Administrative
    1,046,324  
    854,517  
    191,807  
    22.45 %
Professional Fees
    319,309  
    221,852  
    97,457  
    43.93 %
Officer's Salary
    340,999  
    280,127  
    60,872  
    21.73 %
Research and Development
    379,815  
    313,739  
    66,076  
    21.06 %
Total operating expenses
    2,086,447  
    1,670,235  
    416,212  
    24.92 %
Loss from operations
    (2,067,774 )
    (1,670,235 )
    (397,539 )
    (23.87 %)
Gain on forgiveness of debt
    5,704  
    9,679  
    (3,975 )
    (41.07 %)
Loss on disposal of fixed asset
    -  
    (953 )
    (953 )
    100 %
Interest expense
    (99,442 )
    (71,435 )
    (28,007 )
    39.21 %
Net Loss
  $ (2,161,512 )
    (1,732,944 )
    (428,568 )
    24.73 %
 
Net Revenues :  During the nine months ended September 30, 2016, we realized $18,673 of revenues from our business. During the nine months ended September 30, 2015, we realized $0 of revenues from our business. The change in revenues between the quarter ended September 30, 2016 and 2015 was $18,673 or 100%.
 
Cost of Revenues :  Costs of revenues for the nine months ended September 30, 2016 were $0, as compared to $0 for the nine months ended September 30, 2015, a change of $0 or 0%.
 
Gross Profit : During the nine months ended September 30, 2016, we realized a gross profit of $18,673, as compared to $0 for the nine months ended September 30, 2015, a change of $18,673 or 100%.
 
Research and development expenses:   During the nine months ended September 30, 2016 we incurred $379,815 research and development expenses. During the nine months ended September 30, 2015 we incurred $313,739 of research and development expenses, an increase of $66,076 or 21.06% compared with the same period in 2016. The research and development expenses are attributable to the research and development with the Notre Dame University; this increase was due to the timing of research related activity and related charges and the hiring of an additional lab team member.
 
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Professional Fees:   During the nine months ended September 30, 2016, we incurred $319,309 professional expenses, which increased by $97,457 or 43.93% from $221,852 for the nine months ended September 30, 2015. The increase in professional fees expense was attributable to increased expenses related to intellectual property protection of the research and development activities during the nine months ended September 30. 2016.
 
Officers Salary:   During the nine months ended September 30, 2016, officers’ salary expenses increased to $340,999 or 21.73% from $280,127 for the nine months ended September 30, 2015. The increase in officer’s salary expenses was attributable to the hiring of a Chief Operations Officer in late January of 2015.

General and Administrative Expense : General and administrative expenses increased by $191,807 or 22.45% to $1,046,324 for the nine months ended September 30, 2016 from $854,517 for the nine months ended September 30, 2015. Our general and administrative expenses for the nine months ended September 30, 2016 consisted of consulting fees of $16,655 and other general and administrative expenses (which includes expenses such as Auto, Business Development, SEC Filing, Investor Relations, General Office, warrant Compensation) of $1,022,333, Travel of $1,377, office salary of $5,959 for a total of $1,046,324. Our general and administrative expenses for the nine months ended September 30, 2015 consisted of salaries and benefits of $3,570, consulting fees of $18,000, and other general and administrative expenses (which includes expenses such as: Auto, Business Development, SEC Filing, Investor Relations, General Office, warrant Compensation of $816,423, and travel of $16,524 for a total of $854,517. The primary reason for the decrease in comparing the nine months ended September 30, 2016 to the corresponding period for 2015 was mainly due to general business expenses.
 
Interest Expense :  Interest expense increased by $28,007 to $99,442 for the nine month period ended September 30, 2016 from $71,435 for the nine month period ended September 30, 2015. The increase was primarily due to interest on the loans.
 
Net Loss :  Net loss increased by $428,568, or 24.739%, to a net loss of $2,161,512 for the nine month period ended September 30, 2016 from a net loss of $1,732,944 for the nine month period ended September 30, 2015. This increase in net loss was driven primarily by increases in research and development, warrant compensation and professional fees.
 
Liquidity, Capital Resources, and Management Plans
 
Our condensed financial statements have been presented on the basis that we are a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As presented in the financial statements, we incurred a net loss of $2,161,512 during the nine months ended September 30, 2016, and losses are expected to continue in the near term. The accumulated deficit is $22,473,648 at September 30, 2016. Refer to Note 5 for our discussion of stockholder deficit. We have been funding our operations through private loans and the sale of common stock in private placement transactions. Refer to Note 4 and Note 5 in the condensed financial statements for our discussion of notes payable and shares issued, respectively. Our cash resources are insufficient to meet our planned business objectives without additional financing. These and other factors raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of our company to continue as a going concern.
 
Management anticipates that significant additional expenditures will be necessary to develop and expand our business before significant positive operating cash flows can be achieved. Our ability to continue as a going concern is dependent upon our ability to raise additional capital and to ultimately achieve sustainable revenues and profitable operations. At September 30, 2016, we had $335,909 of cash on hand. These funds are insufficient to complete our business plan and as a consequence, we will need to seek additional funds, primarily through the issuance of debt or equity securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case or equity financing.
 
Management has undertaken steps as part of a plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond. These steps include (a) raising additional capital and/or obtaining financing; (b) controlling overhead and expenses; and (c) executing material sales or research contracts. There can be no assurance that the Company can successfully accomplish these steps and it is uncertain that the Company will achieve a profitable level of operations and obtain additional financing. There can be no assurance that any additional financing will be available to the Company on satisfactory terms and conditions, if at all. As of the date of this Report, we have not entered into any formal agreements regarding the above.

In the event the Company is unable to continue as a going concern, the Company may elect or be required to seek protection from its creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered this alternative, nor does management view it as a likely occurrence.
 
Presently, due to the lack of revenues and profitability we are not able to meet our operating and capital expenses. The success of our ability to continue as a going concern is dependent upon raising additional capital and/or financing, of which there can be no guarantee, and maintaining a break even or profitable level of operations. We have incurred operating losses since inception, and this is likely to continue in the near future.
 
 
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The financial requirements of our Company will be dependent upon the financial support through credit facilities and additional sales of our equity securities. There can be no assurance, however, that such financing will be available or, if it is available, that we will be able to structure such financing on terms acceptable to us and that it will be sufficient to fund our cash requirements until we can reach a level of profitable operations and positive cash flows. If we are unable to obtain the financing necessary to support our operations, we may be unable to continue as a going concern. We currently have no firm commitments for any additional capital.
 
The downturn in the United States stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our shares of common stock or the debt securities may cause us to be subject to restrictive covenants. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek additional financing. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.
 
Cash, total current assets, total assets, total current liabilities and total liabilities as of September 30, 2016 as compared to December 31, 2015, were as follows:
 
 
 
 
 
September 30, 2016
 
 
 
  December 31, 2015
   
 
Cash
  $ 335,909  
  $ 238,188  
Accounts receivable
  $ 18,673  
  $ -  
Prepaid Expenses
  $ 1,861  
  $ 645  
Total current assets
  $ 356,443  
  $ 238,833  
Total assets
  $ 412,396  
  $ 304,937  
Total current liabilities
  $ 2,677,513  
  $ 2,201,873  
Total liabilities
  $ 2,677,513  
  $ 2,201,873  
 
 At September 30, 2016, we had a working capital deficit of $2,321,080, compared to a working capital deficit of $1,963,040 at December 31, 2015. Current liabilities increased to $2,677,513 at September 30, 2016 from $2,201,873 at December 31, 2015, primarily as a result of accounts payable and accrued compensation.
 
For the nine months ended September 30, 2016, net cash used in operations of $824,791 was the result of a net loss of $2,161,512 offset by depreciation expense of $12,639, loss on forgiveness of debt of $5,704, warrants issued to related parties of $215,880, increase in prepaid expenses of $1,216, an increase of accrued expenses and other payables-related party of $375,893 and an increase in accounts payable of $44,338. For the nine months ended September 30, 2015, net cash used in operations of $685,099 was the result of a net loss of $1,732,944 offset by depreciation expense of $11,175, gain on forgiveness of debt of $9,679, loss on disposal of fixed assets of $953, warrants issued to related parties of $100,618, warrants issued to consultants of $590,335, deccrease in prepaid expenses of $750, an increase of accrued expenses and other payables-related party of $282,743 and an increase in accounts payable of $70,950. 
 
Our investing activities were $2,488 and $39,285 for the nine months ended September 30, 2016 and September 30, 2015, respectively. Our investing activities for the nine months ended September 30, 2016 and 2015 are attributable to purchases of fixed assets.
 
Our financing activities resulted in a cash inflow of $925,000 for the nine months ended September 30, 2016, which is represented by $875,000 proceeds from issuance of common stock and $50,000 proceeds from shareholder note payable. Our financing activities resulted in cash inflow of $450,000 for the nine months ended September 30, 2015, which is represented by $450,000 proceeds from issuance of common stock.
 
Off-Balance Sheet Arrangements
 
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
 
Critical Accounting Policies and Estimates
 
Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2015, for disclosures regarding the Company's critical accounting policies and estimates, as well as updates further disclosed in our interim financial statements as described in this Form 10-Q.
 
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Item 4. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
As of the end of our fiscal quarter ended September 30, 2016, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon those evaluations, management concluded that our disclosure controls and procedures were not effective as of September 30, 2016, to cause the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods prescribed by SEC, and that such information is accumulated and communicated to management, including our chief executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. 
 
Going forward from this filing, the Company intends to work on re-establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
 
In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
 
Changes in Internal Control over Financial Reporting
 
During the quarter covered by this Report, there were no changes in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. No remediation has been made in this quarter since, as we stated in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, we have not yet commercialized a recombinant fiber and, therefore do not yet have sufficient cash flow to carry out our remediation plans. 

 
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Part II – Other Information
 
Item 1. Legal Proceedings
 
From time to time, the Company may become a party to litigation or other legal proceedings that it considers to be a part of the ordinary course of its business. To the best of our knowledge, the Company is not currently involved in any legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations; however, the Company may become involved in material legal proceedings in the future.
 
Item 1A. Risk Factors
 
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this item. Please refer to Amendment No. 5 to our Registration Statement on Form S-1 filed with the SEC on May 15, 2015 under Risk Factors.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
Information on any and all equity securities we have sold during the period covered by this Report that were not registered under the Securities Act of 1933, as amended is set forth below:
 
On July 26, 2016 the Company issued 6,028,939 share of common stock for $150,000 ($0.025/share).
 
 On August 8, 2016 the Company issued 2,181,501 shares of common stock for $100,000 ($0.046/share)
 
On August 18, 2016 the Company issued 1,838,235 shares of common stock for $100,000 ($0.054/share)
 
On September 6, 2016 the company issued 2,604,167 shares of common stock for $100,000 ($0.038/share)
 
 
All of the transactions listed above were made pursuant to the exemption from the registration provisions of the Securities Act of 1933, as amended, provided by Section 4(a)(2) of the Securities Act for sales not involving a public offering or Rule 506(b) of Regulation D promulgated by the SEC.
 
 
Item 3. Defaults upon Senior Securities
 
None.
 
Item 4. Mine Safety Disclosures
 
Not applicable.
 
Item 5. Other Information
 
(a)  
Not applicable.
(b)  
Not applicable.
 
 
 
 
 
26
 
 
ITEM 6. EXHIBITS
 
EXHIBIT INDEX
 
 
Exhibit No.
 
Description
    3.1  
Articles of Incorporation (1)
    3.2  
Articles of Amendment (2)
    3.3  
Articles of Amendment, filed with the Wyoming Secretary of State on November 15, 2013 (3)
    3.4  
Articles of Amendment, filed with the Wyoming Secretary of State on December 17, 2013 (4)
    3.5  
Bylaws(1)
    4.1  
Form of Warrant issued Mr. Jonathan R. Rice (5)
    10.1  
Employment Agreement between Mr. Jonathan Rice and the Company (6)
    31.1  
Certification of the Chief Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
    31.2  
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
    32.1  
Certification of the Principal Executive Officer and Principal Financial Officer pursuant to U.S.C. Section 1350 As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
    32.2  
Certification of the Principal Financial Officer pursuant to U.S.C. Section 1350 As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
 
101.INS
 
XBRL Instance Document (filed herewith)
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
    1.  
Incorporated by reference to our Registration Statement on Form SB-2 (Reg. No. 333-146316) filed with the SEC on September 26, 2007
    2.  
Incorporated by reference to our Registration Statement on Form S-1 (Reg. No. 333-162316) filed with the SEC on October 2, 2009
    3.  
Incorporated by reference to our Current Report on Form 8-K filed with the SEC on November 22, 2013
    4.  
Incorporated by reference to our Current Report on Form 8-K filed with the SEC on December 19, 2013
 
    5.  
Incorporated by reference to our Annual Report on Form 10-K filed with the SEC on March 30, 2016
    6.  
Incorporated by reference to our Current Report on Form 8-K filed with the SEC on January 21, 2015.
 
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf of the undersigned thereunto duly authorized
 
 
Kraig Biocraft Laboratories, Inc.  
 
(Registrant)
 
 
 
 
Date: November 14, 2016
By:
 /s/  Kim Thompson
 
 
Kim Thompson
 
 
President, Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial and Accounting Officer)
 
 
 
 
 
 
 
 
 
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