UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
[X] |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For
the quarterly period ended March 31, 2020
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 _____
Commission File Number: 333-146316
KRAIG
BIOCRAFT LABORATORIES, INC.
(Exact
Name of Registrant as Specified in Charter)
Wyoming |
|
83-0459707 |
(State
or Other Jurisdiction
of Incorporation) |
|
(I.R.S.
Employer
Identification No.) |
2723
South State St. Suite 150
Ann
Arbor, Michigan 48104
|
(Address
of Principal Executive Offices) |
(734) 619-8066
(Registrant’s telephone number, including area code)
(Former
name and address, if changed since last report)
Copies
to:
Hunter
Taubman Fischer & Li LLC
1450
Broadway, 26th Floor
New
York, NY 10018
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of exchange on which registered |
None |
|
- |
|
- |
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 [X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes [X] No
[ ]
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and emerging growth company in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer [ ] |
|
|
Accelerated
filer [ ] |
Non-accelerated
filer [X] |
|
|
Smaller
reporting company [X] |
|
|
|
Emerging
growth company [ ] |
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
[ ]
Indicate
by check mark whether the registrant is a shell company (as defined
by Rule 12b-2 of the Exchange Act). Yes [ ]
No [X]
As of
April 21, 2020, there were 844,468,378 shares of the issuer’s Class
A common stock, no par value per share, outstanding, 0 shares of
the issuer’s Class B common stock, no par value per share,
outstanding and 2 shares of preferred stock, no par value per
share, outstanding.
TABLE
OF CONTENTS
PART
I
ITEM 1. FINANCIAL
STATEMENTS
Kraig
Biocraft Laboratories, Inc. and Subsidiary
Kraig Biocraft Laboratories, Inc.
and Subsidiary
Condensed
Consolidated Balance Sheets
(Unaudited)
|
|
March 31,
2020 |
|
|
December 31, 2019 |
|
|
|
(Unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash |
|
$ |
37,411 |
|
|
$ |
125,024 |
|
Prepaid expenses |
|
|
12,670 |
|
|
|
31,745 |
|
Total
Current Assets |
|
|
50,081 |
|
|
|
156,769 |
|
|
|
|
|
|
|
|
|
|
Property and Equipment, net |
|
|
109,942 |
|
|
|
117,321 |
|
Operating lease right-of-use asset,
net |
|
|
444,514 |
|
|
|
473,242 |
|
Security deposit |
|
|
3,518 |
|
|
|
3,518 |
|
|
|
|
|
|
|
|
|
|
Total
Assets |
|
$ |
608,055 |
|
|
$ |
750,850 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities |
|
|
|
|
|
|
|
|
Accounts payable
and accrued expenses |
|
$ |
482,435 |
|
|
$ |
560,948 |
|
Note payable -
related party |
|
|
942,000 |
|
|
|
642,000 |
|
Royalty agreement
payable - related party |
|
|
65,292 |
|
|
|
65,292 |
|
Accounts payable
and accrued expenses - related party |
|
|
4,320,170 |
|
|
|
4,145,465 |
|
Operating lease
liability, current |
|
|
113,764 |
|
|
|
110,678 |
|
Loan
payable |
|
|
60,000 |
|
|
|
60,000 |
|
Total
Current Liabilities |
|
|
5,983,661 |
|
|
|
5,584,383 |
|
|
|
|
|
|
|
|
|
|
Long Term
Liabilities |
|
|
|
|
|
|
|
|
Loan payable, net
of current |
|
|
170,244 |
|
|
|
185,244 |
|
Operating lease liability, net of current |
|
|
339,548 |
|
|
|
369,281 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities |
|
|
6,493,453 |
|
|
|
6,138,908 |
|
|
|
|
|
|
|
|
|
|
Commitments and
Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Deficit |
|
|
|
|
|
|
|
|
Preferred stock,
no par value; unlimited shares authorized, none, issued and
outstanding |
|
|
- |
|
|
|
- |
|
Preferred stock
Series A, no par value; 2 and 2 shares issued and outstanding,
respectively |
|
|
5,217,800 |
|
|
|
5,217,800 |
|
Common stock Class
A, no par value; unlimited shares authorized, 844,468,378 and
844,468,378 shares issued and outstanding, respectively |
|
|
16,757,079 |
|
|
|
16,757,079 |
|
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 |
|
|
4,966,968 |
|
|
|
2,412,969 |
|
Accumulated Deficit |
|
|
(32,849,245 |
) |
|
|
(29,797,906 |
) |
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Deficit |
|
|
(5,885,398 |
) |
|
|
(5,388,058 |
) |
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Deficit |
|
$ |
608,055 |
|
|
$ |
750,850 |
|
Kraig Biocraft Laboratories, Inc.
and Subsidiary
Condensed
Consolidated Statements of Operations
(Unaudited)
|
|
For the Three Months Ended |
|
|
|
March 31, 2020 |
|
|
March 31, 2019 |
|
|
|
|
|
|
|
|
Revenue |
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Operating
Expenses |
|
|
|
|
|
|
|
|
General and
Administrative |
|
|
2,792,781 |
|
|
|
117,967 |
|
Professional Fees |
|
|
19,374 |
|
|
|
150,311 |
|
Officer’s Salary |
|
|
144,562 |
|
|
|
118,155 |
|
Rent - Related Party |
|
|
3,135 |
|
|
|
3,273 |
|
Research and
Development |
|
|
4,812 |
|
|
|
22,304 |
|
Total
Operating Expenses |
|
|
2,964,664 |
|
|
|
412,010 |
|
|
|
|
|
|
|
|
|
|
Loss from
Operations |
|
|
(2,964,664 |
) |
|
|
(412,010 |
) |
|
|
|
|
|
|
|
|
|
Other
Income/(Expenses) |
|
|
|
|
|
|
|
|
Interest expense |
|
|
(86,675 |
) |
|
|
(66,920 |
) |
Interest
income |
|
|
- |
|
|
|
1,184 |
|
Total
Other Income/(Expenses) |
|
|
(86,675 |
) |
|
|
(65,736 |
) |
|
|
|
|
|
|
|
|
|
Net
(Loss) before Provision for Income Taxes |
|
|
(3,051,339 |
) |
|
|
(477,746 |
) |
|
|
|
|
|
|
|
|
|
Provision for Income Taxes |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Net
(Loss) |
|
$ |
(3,051,339 |
) |
|
$ |
(477,746 |
) |
|
|
|
|
|
|
|
|
|
Net
Income (Loss) Per Share - Basic and Diluted |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding during the period -
Basic and Diluted |
|
|
844,468,378 |
|
|
|
822,016,321 |
|
Kraig Biocraft Laboratories, Inc. and
Subsidiary
Condensed
Consolidated Statement of Changes in Stockholders
Deficit
For the three months ended March 31, 2020
(Unaudited)
|
|
Preferred
Stock - Series A |
|
|
Common
Stock -
Class A |
|
|
Common
Stock -
Class B |
|
|
Common
Stock - Class A Shares To be issued |
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Shares |
|
|
Par |
|
|
Shares |
|
|
Par |
|
|
Shares |
|
|
Par |
|
|
Shares |
|
|
Par |
|
|
APIC |
|
|
Deficit |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2019 |
|
|
2 |
|
|
$ |
5,217,800 |
|
|
|
844,468,378 |
|
|
$ |
16,757,079 |
|
|
|
- |
|
|
$ |
- |
|
|
|
1,122,311 |
|
|
$ |
22,000 |
|
|
$ |
2,412,969 |
|
|
$ |
(29,797,906 |
) |
|
$ |
(5,388,058 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
issued for services |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,544,215 |
|
|
|
- |
|
|
|
2,544,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed
interest - related party |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
9,784 |
|
|
|
- |
|
|
|
9,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the three months ended March 31, 2020 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,051,339 |
) |
|
|
(3,051,339 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020 |
|
|
2 |
|
|
$ |
5,217,800 |
|
|
|
844,468,378 |
|
|
$ |
16,757,079 |
|
|
|
- |
|
|
$ |
- |
|
|
|
1,122,311 |
|
|
$ |
22,000 |
|
|
$ |
4,966,968 |
|
|
$ |
(32,849,245 |
) |
|
$ |
(5,885,398 |
) |
Kraig
Biocraft Laboratories, Inc. and Subsidiary
Condensed
Consolidated Statement of Changes in Stockholders
Deficit
For the three months ended March 31, 2019
(Unaudited)
|
|
Preferred Stock - Series A |
|
|
Common Stock -
Class A |
|
|
Common Stock -
Class B |
|
|
Class A Shares To be
issued |
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Shares |
|
|
Par |
|
|
Shares |
|
|
Par |
|
|
Shares |
|
|
Par |
|
|
Shares |
|
|
Par |
|
|
APIC |
|
|
Deficit |
|
|
Total |
|
Balance, December 31, 2018 |
|
|
2 |
|
|
$ |
5,217,800 |
|
|
|
816,883,910 |
|
|
$ |
15,145,798 |
|
|
|
- |
|
|
$ |
- |
|
|
|
1,122,311 |
|
|
$ |
22,000 |
|
|
$ |
2,043,235 |
|
|
$ |
(26,888,056 |
) |
|
$ |
(4,459,223 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
issued for cash |
|
|
- |
|
|
|
- |
|
|
|
14,797,278 |
|
|
|
1,000,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued in exchange for accounts payable |
|
|
- |
|
|
|
- |
|
|
|
4,052,652 |
|
|
|
281,659 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
281,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed
interest - related party |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,947 |
|
|
|
- |
|
|
|
4,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the three months ended March 31, 2019 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(477,746 |
) |
|
|
(477,746 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2019 |
|
|
2 |
|
|
$ |
5,217,800 |
|
|
|
835,733,840 |
|
|
$ |
16,427,457 |
|
|
|
- |
|
|
$ |
- |
|
|
|
1,122,311 |
|
|
$ |
22,000 |
|
|
$ |
2,048,182 |
|
|
$ |
(27,365,802 |
) |
|
$ |
(3,650,363 |
) |
Kraig Biocraft Laboratories, Inc. and
Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
For the three months ended March 31, |
|
|
|
2020 |
|
|
2019 |
|
Cash Flows From
Operating Activities: |
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
(3,051,339 |
) |
|
$ |
(477,746 |
) |
Adjustments to
reconcile net loss to net cash used in operations |
|
|
|
|
|
|
|
|
Depreciation
expense |
|
|
7,379 |
|
|
|
6,665 |
|
Imputed interest -
related party |
|
|
9,784 |
|
|
|
4,947 |
|
Fair value of
options issued for services |
|
|
2,544,215 |
|
|
|
- |
|
Changes in
operating assets and liabilities: |
|
|
|
|
|
|
|
|
Decrease in
prepaid expenses |
|
|
19,075 |
|
|
|
1,713 |
|
Operating lease
right-of-use, net |
|
|
28,728 |
|
|
|
10,737 |
|
Increase in
accrued expenses and other payables - related party |
|
|
174,705 |
|
|
|
162,725 |
|
(Decrease)Increase
in accounts payable |
|
|
(78,513 |
) |
|
|
76,003 |
|
Operating lease liabilities |
|
|
(26,647 |
) |
|
|
(10,090 |
) |
Net Cash Used In Operating Activities |
|
|
(372,613 |
) |
|
|
(225,046 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows From
Investing Activities: |
|
|
|
|
|
|
|
|
Purchase of
Fixed Assets and Leasehold Improvements |
|
|
- |
|
|
|
- |
|
Net
Cash Used In Investing Activities |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Cash Flows From
Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from Notes Payable - related
party |
|
|
300,000 |
|
|
|
120,000 |
|
Principal payments on debt |
|
|
(15,000 |
) |
|
|
(1,000 |
) |
Proceeds from
issuance of common stock |
|
|
- |
|
|
|
1,000,000 |
|
Net
Cash Provided by Financing Activities |
|
|
285,000 |
|
|
|
1,119,000 |
|
|
|
|
|
|
|
|
|
|
Net Increase in
Cash |
|
|
(87,613 |
) |
|
|
893,954 |
|
|
|
|
|
|
|
|
|
|
Cash at Beginning of Period |
|
|
125,024 |
|
|
|
13,697 |
|
|
|
|
|
|
|
|
|
|
Cash at End of
Period |
|
$ |
37,411 |
|
|
$ |
907,651 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for
interest |
|
$ |
- |
|
|
$ |
- |
|
Cash paid for
taxes |
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing
activities: |
|
|
|
|
|
|
|
|
Settlement of accounts payable with note payable |
|
$ |
- |
|
|
$ |
265,244 |
|
Settlement of accounts payable with stock issuance |
|
$ |
- |
|
|
$ |
281,659 |
|
Adoption of lease standard ASC 842 |
|
$ |
- |
|
|
$ |
167,867 |
|
Kraig Biocraft Laboratories,
Inc.
Notes
to Condensed Consolidated Financial Statements as of March 31, 2020
and 2019
NOTE
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
ORGANIZATION
(A)
Basis of Presentation
The
accompanying unaudited condensed financial statements have been
prepared in accordance with accounting principles generally
accepted in The United States of America and the rules and
regulations of the Securities and Exchange Commission for interim
financial information. Accordingly, they do not include all the
information necessary for a comprehensive presentation of financial
position and results of operations.
It is
management’s opinion, however that all material adjustments
(consisting of normal recurring adjustments) have been made which
are necessary for a fair financial statements presentation. The
results for the interim period are not necessarily indicative of
the results to be expected for the year.
Kraig
Biocraft Laboratories, Inc. (the “Company”) was incorporated under
the laws of the State of Wyoming on April 25, 2006. The Company was
organized to develop high strength, protein based fiber, using
recombinant DNA technology, for commercial applications in the
textile and specialty fiber industries.
(B)
Foreign Currency
The
assets and liabilities of Prodigy Textiles, Co., Ltd. (the
Company’s Vietnamese subsidiary) whose functional currency is the
Vietnamese Dong, are translated into US dollars at period-end
exchange rates prior to consolidation. Income and expense items are
translated at the average rates of exchange prevailing during the
period. The adjustments resulting from translating the Company’s
financial statements are reflected as a component of other
comprehensive (loss) income. Foreign currency transaction gains and
losses are recognized in net earnings based on differences between
foreign exchange rates on the transaction date and settlement
date.
(C)
Use of Estimates
In
preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues
and expenses during the reported period. Actual results could
differ from those estimates.
(D)
Cash
For
the purposes of the cash flow statements, the Company considers all
highly liquid investments with original maturities of three months
or less at the time of purchase to be cash equivalents. There were
no cash equivalents as of March 31, 2020 or December 31,
2019.
(E)
Loss Per Share
Basic
and diluted net loss per common share is computed based upon the
weighted average common shares outstanding as defined by the
Financial Accounting Standards Board (“FASB” Accounting Standards
Codification (“ASC”) No. 260, “Earnings per Share.” For March 31,
2020 and March 31, 2019, warrants were not included in the
computation of income/ (loss) per share because their inclusion is
anti-dilutive.
The
computation of basic and diluted loss per share for March 31, 2020
and March 31, 2019 excludes the common stock equivalents of the
following potentially dilutive securities because their inclusion
would be anti-dilutive:
|
|
March 31, 2020 |
|
|
March 31, 2019 |
|
Stock Warrants (Exercise price -
$0.001/share) |
|
|
55,995,917 |
|
|
|
58,595,917 |
|
Stock Options (Exercise price - $0.1150/Share) |
|
|
27,340,000 |
|
|
|
- |
|
Convertible Preferred Stock |
|
|
2 |
|
|
|
2 |
|
Total |
|
|
83,335,919 |
|
|
|
58,595,919 |
|
(F)
Research and Development Costs
The
Company expenses all research and development costs as incurred for
which there is no alternative future use. These costs also include
the expensing of employee compensation and employee stock based
compensation.
(G)
Income Taxes
The
Company accounts for income taxes under FASB Codification Topic
740-10-25 (“ASC 740-10-25”). Under ASC No. 740-10-25, deferred tax
assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Under ASC No. 740-10-25, the
effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date.
On
December 22, 2017, the 2017 Tax Cuts and Jobs Act (the “Tax Act”)
was enacted into law and the new legislation contains several key
tax provisions that affected us, including a one-time mandatory
transition tax on accumulated foreign earnings and a reduction of
the corporate income tax rate to 21% effective January 1, 2018,
among others. We are required to recognize the effect of the tax
law changes in the period of enactment, such as determining the
transition tax, remeasuring our U.S. deferred tax assets and
liabilities as well as reassessing the net realizability of our
deferred tax assets and liabilities. In December 2017, the SEC
staff issued Staff Accounting Bulletin No. 118, Income Tax
Accounting Implications of the Tax Cuts and Jobs Act (SAB 118),
which allows us to record provisional amounts during a measurement
period not to extend beyond one year of the enactment date. Since
the Tax Act was passed late in the fourth quarter of 2017, and
ongoing guidance and accounting interpretation are expected over
the next 12 months, we consider the accounting of the transition
tax, deferred tax re-measurements, and other items to be incomplete
due to the forthcoming guidance and our ongoing analysis of final
year-end data and tax positions. We expect to complete our analysis
within the measurement period in accordance with SAB
118.
Effective
January 1, 2009, the Company adopted guidance regarding accounting
for uncertainty in income taxes. This guidance clarifies the
accounting for income taxes by prescribing the minimum recognition
threshold an income tax position is required to meet before being
recognized in the financial statements and applies to all federal
or state income tax positions. Each income tax position is assessed
using a two-step process. A determination is first made as to
whether it is more likely than not that the income tax position
will be sustained, based upon technical merits, upon examination by
the taxing authorities. If the income tax position is expected to
meet the more likely than not criteria, the benefit recorded in the
financial statements equals the largest amount that is greater than
50% likely to be realized upon its ultimate settlement. As of
December 31, 2019 and December 31, 2017 there were no amounts that
had been accrued in respect to uncertain tax positions.
Fair
value accounting requires bifurcation of embedded derivative
instruments such as conversion features in convertible debt or
equity instruments, and measurement of their fair value for
accounting purposes. In determining the appropriate fair value, the
Company uses the Black-Scholes option-pricing model. In assessing
the convertible debt instruments, management determines if the
convertible debt host instrument is conventional convertible debt
and further if there is a beneficial conversion feature requiring
measurement. If the instrument is not considered conventional
convertible debt, the Company will continue its evaluation process
of these instruments as derivative financial
instruments.
Once
determined, derivative liabilities are adjusted to reflect fair
value at each reporting period end, with any increase or decrease
in the fair value being recorded in results of operations as an
adjustment to fair value of derivatives. In addition, the fair
value of freestanding derivative instruments such as warrants, are
also valued using the Black-Scholes option-pricing
model.
(H)
Stock-Based Compensation
The
Company accounts for stock-based compensation for employees and
directors in accordance with ASC 718, Compensation (“ASC 718”). ASC
718 requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the statement
of operations based on their fair values. Under the provisions of
ASC 718, stock-based compensation costs are measured at the grant
date, based on the fair value of the award, and are recognized as
expense over the employee’s requisite service period (generally the
vesting period of the equity grant). The fair value of the
Company’s common stock options are estimated using the Black
Scholes option-pricing model with the following assumptions:
expected volatility, dividend rate, risk free interest rate and the
expected life. The Company expenses stock-based compensation by
using the straight-line method. In accordance with ASC 718 and,
excess tax benefits realized from the exercise of stock-based
awards are classified as cash flows from operating activities. All
excess tax benefits and tax deficiencies (including tax benefits of
dividends on share-based payment awards) are recognized as income
tax expense or benefit in the condensed consolidated statements of
operations.
The
Company accounts for stock-based compensation awards issued to
non-employees for services, as prescribed by ASC 718-10, at either
the fair value of the services rendered or the instruments issued
in exchange for such services, whichever is more readily
determinable, using the measurement date guidelines enumerated
in ASU 2018-07.
(I)
Recent Accounting Pronouncements
In
June 2018, the FASB issued Accounting Standards Update (“ASU”) No.
2018-07, “Compensation — Stock Compensation (Topic 718),” (“ASU
2018-07”). ASU 2018-07 is intended to reduce cost and complexity
and to improve financial reporting for nonemployee share-based
payments. Currently, the accounting requirements for nonemployee
and employee share-based payment transactions are significantly
different. ASU 2018-07 expands the scope of Topic 718, Compensation
— Stock Compensation (which currently only includes share-based
payments to employees) to include share-based payments issued to
nonemployees for goods or services. Consequently, the accounting
for share-based payments to nonemployees and employees will be
substantially aligned. This ASU supersedes Subtopic 505-50, Equity
— Equity-Based Payments to Nonemployees. The amendments in this ASU
are effective for fiscal years beginning after December 15, 2018,
and interim periods within that fiscal year. Early adoption is
permitted, but no earlier than a company’s adoption date of Topic
606, Revenue from Contracts with Customers. The Company early
adopted ASU 2018-07 effective April 1, 2018. The adoption of this
ASU did not have a material impact on the Company’s condensed
consolidated financial statements.
In
February 2016, the FASB issued ASU 2016-02, “Leases” Topic 842,
which amends the guidance in former ASC Topic 840, Leases.
The new standard increases transparency and comparability most
significantly by requiring the recognition by lessees of
right-of-use (“ROU”) assets and lease liabilities on the balance
sheet for all leases longer than 12 months. Under the standard,
disclosures are required to meet the objective of enabling users of
financial statements to assess the amount, timing, and uncertainty
of cash flows arising from leases. For lessees, leases will be
classified as finance or operating, with classification affecting
the pattern and classification of expense recognition in the income
statement. The Company adopted the new lease guidance effective
January 1, 2019 using the modified retrospective transition
approach, applying the new standard to all of its leases existing
at the date of initial application which is the effective date of
adoption. Consequently, financial information will not be updated
and the disclosures required under the new standard will not be
provided for dates and periods before January 1, 2019. We elected
the package of practical expedients which permits us to not
reassess (1) whether any expired or existing contracts are or
contain leases, (2) the lease classification for any expired or
existing leases, and (3) any initial direct costs for any existing
leases as of the effective date. We did not elect the hindsight
practical expedient which permits entities to use hindsight in
determining the lease term and assessing impairment. The adoption
of the lease standard did not change our previously reported
consolidated statements of operations and did not result in a
cumulative catch-up adjustment to opening equity. As a result, the
Company has recorded Right-to-use assets and corresponding Lease
obligations as more fully discussed in Note 4.
All
other newly issued accounting pronouncements but not yet effective
have been deemed either immaterial or not applicable.
(J)
Equipment
The
Company values property and equipment at cost and depreciates these
assets using the straight-line method over their expected useful
life. The Company uses a five year life for automobiles.
In
accordance with FASB ASC No. 360, Property, Plant and
Equipment, the Company carries long-lived assets at the lower
of the carrying amount or fair value. Impairment is evaluated by
estimating future undiscounted cash flows expected to result from
the use of the asset and its eventual disposition. If the sum of
the expected undiscounted future cash flow is less than the
carrying amount of the assets, an impairment loss is recognized.
Fair value, for purposes of calculating impairment, is measured
based on estimated future cash flows, discounted at a market rate
of interest.
There
were no impairment losses recorded for the three months ended March
31, 2020 and 2019.
(K)
Fair Value of Financial Instruments
We
hold certain financial assets, which are required to be measured at
fair value on a recurring basis in accordance with the Statement of
Financial Accounting Standard No. 157, “Fair Value
Measurements” (“ASC Topic 820-10”). ASC Topic 820-10
establishes a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1 measurements)
and the lowest priority to unobservable inputs (Level 3
measurements). ASC Topic 820-10 defines fair value as the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants on
the measurement date. Level 1 instruments include cash, account
receivable, prepaid expenses, inventory and account payable and
accrued liabilities. The carrying values are assumed to approximate
the fair value due to the short term nature of the
instrument.
The
three levels of the fair value hierarchy under ASC Topic 820-10 are
described below:
|
● |
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 March 31, 2020 and December 31,
2019. |
|
|
|
|
● |
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. |
|
|
March 31,
2020 |
|
|
December
31,
2019
|
|
Level 1 |
|
$ |
- |
|
|
$ |
- |
|
Level 2 |
|
$ |
- |
|
|
$ |
- |
|
Level 3 |
|
$ |
- |
|
|
$ |
- |
|
Total |
|
$ |
- |
|
|
$ |
- |
|
(L)
Revenue Recognition
During
the year ended December 31, 2019, the Company’s revenues were
generated primarily from a contract with the U.S. Government. The
Company performs work under this cost-plus-fixed-fee contract.
Under the base phase of that contract the Company produced
recombinant spider silk woven into ballistic shootpack panels.
Those shootpack panels were delivered to the U.S. Government
customer. Under an option period award starting in July 2017, to
that original contract, the Company has worked to develop new
recombinant silks.
Effective
January 1, 2018, the Company adopted ASC No. 606 — Revenue from
Contracts with Customers. Under ASC No. 606, the Company recognizes
revenue from the commercial sales of products, licensing agreements
and contracts by applying the following steps: (1) identify the
contract with a customer; (2) identify the performance obligations
in the contract; (3) determine the transaction price; (4) allocate
the transaction price to each performance obligation in the
contract; and (5) recognize revenue when each performance
obligation is satisfied.
For
the three months ended March 31, 2020 and 2019, the Company
recognized $0 and $0 respectively in revenue from the Government
contract. These revenues were generated for work performed in the
development and production of the Company’s recombinant silks under
the base and option period phases of our ongoing contract with the
US Army.
On
July 24, 2017, the Company signed a contract option extension with
the US Army to research and deliver recombinant spider silk fibers
and threads. This contract option increased the total contract
award by an additional $921,130 to a total of $1,021,092 and added
12 months to the contract duration. This effort was scheduled to
end on September 24, 2018, but the Company requested an extension
of this contract option period through April 2019 to complete the
work. The Company has been in communication with the contracting
office and is working with them as they determine the best path
forward; Management believes there is a possibility of securing a
follow-up contract to complete the delivery of all materials for
the contract. The Company is also continuing to pursue additional
contract opportunities with the Department of Defense, Department
of Energy and other governmental agencies.
(M)
Concentration of Credit Risk
The
Company at times has cash in banks in excess of FDIC insurance
limits. At March 31, 2020 and December 31, 2019, the Company had
approximately $0 and $0, respectively in excess of FDIC insurance
limits.
For
the three months ended March 31, 2020 and 2019, the Company booked
$0 and $0 for doubtful accounts.
NOTE
2 GOING CONCERN
As
reflected in the accompanying financial statements, the Company has
a working capital deficiency of $5,933,580 and stockholders’
deficiency of $5,885,398 and used $372,613 of cash in operations
for three months ended March 31, 2020. 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
March 31, 2020 and December 31, 2019, property and equipment, net,
is as follows:
|
|
As of March 31, 2020 |
|
|
December 31, 2019 |
|
Automobile |
|
$ |
41,805 |
|
|
$ |
41,805 |
|
Laboratory Equipment |
|
|
96,536 |
|
|
|
96,536 |
|
Office Equipment |
|
|
7,260 |
|
|
|
7,260 |
|
Leasehold Improvements |
|
|
85,389 |
|
|
|
85,389 |
|
Less: Accumulated Depreciation |
|
|
(121,048 |
) |
|
|
(113,669 |
) |
Total Property and Equipment, net |
|
$ |
109,942 |
|
|
$ |
117,321 |
|
Depreciation
expense for the three months ended March 31, 2020 and 2019, was
$7,379 and $6,665, respectively.
NOTE
4 - RIGHT TO USE ASSETS AND LEASE LIABILITITY
Since
September of 2015, we rent office space at 2723 South State Street,
Suite 150, Ann Arbor, Michigan 48104, which is our principal place
of business. We pay an annual rent of $2,508 for conference
facilities, mail, fax, and reception services located at our
principal place of business.
On
January 23, 2017 the Company signed an 8 year property lease with
the Company’s President for land in Texas where the Company grows
its mulberry. The Company pays a monthly rent of $960. Rent expense
– related party for the three months ended March 31, 2020 and 2019,
was $3,135 and $5,760, respectively (See Note 9).
On
September 13, 2017, the Company signed a new two year lease
commencing on October 1, 2017 and ending on September 30, 2019. The
Company pays an annual rent of $39,200 for the year one of lease
and $42,000 for the year two of lease for office and manufacturing
space.
On
May 9, 2019 the Company signed a 5 year property lease with the
Socialist Republic of Vietnam which consists of 4,560.57 square
meters of space, which it leases at a current rent of approximately
$45,150 per year one and two and with the 5% increase per year for
years three through five.
In
February 2016, the FASB issued ASU 2016-02, “Leases” Topic 842,
which amends the guidance in former ASC Topic 840, Leases.
The new standard increases transparency and comparability most
significantly by requiring the recognition by lessees of
right-of-use (“ROU”) assets and lease liabilities on the balance
sheet for all leases longer than 12 months. Under the standard,
disclosures are required to meet the objective of enabling users of
financial statements to assess the amount, timing, and uncertainty
of cash flows arising from leases. For lessees, leases will be
classified as finance or operating, with classification affecting
the pattern and classification of expense recognition in the income
statement.
The
Company adopted the new lease guidance effective January 1, 2019
using the modified retrospective transition approach, applying the
new standard to all of its leases existing at the date of initial
application which is the effective date of adoption. Consequently,
financial information will not be updated and the disclosures
required under the new standard will not be provided for dates and
periods before January 1, 2019. We elected the package of practical
expedients which permits us to not reassess (1) whether any expired
or existing contracts are or contain leases, (2) the lease
classification for any expired or existing leases, and (3) any
initial direct costs for any existing leases as of the effective
date. We did not elect the hindsight practical expedient which
permits entities to use hindsight in determining the lease term and
assessing impairment. The adoption of the lease standard did not
change our previously reported consolidated statements of
operations and did not result in a cumulative catch-up adjustment
to opening equity. The adoption of the new guidance resulted in the
recognition of ROU assets of $529,135 and lease liabilities of
$531,462.
The
interest rate implicit in lease contracts is typically not readily
determinable. As such, the Company utilizes its incremental
borrowing rate, which is the rate incurred to borrow on a
collateralized basis over a similar term an amount equal to the
lease payments in a similar economic environment. In calculating
the present value of the lease payments, the Company elected to
utilize its incremental borrowing rate based on the remaining lease
terms as of the January 1, 2019 adoption date. This rate was
determined to be 8% and the Company determined the initial present
value, at inception, of $559,568.
Operating
lease ROU assets and operating lease liabilities are recognized
based on the present value of the future minimum lease payments
over the lease term at the commencement date. The operating lease
ROU asset also includes any lease payments made and excludes lease
incentives and initial direct costs incurred, if any.
The
Company has elected the practical expedient to combine lease and
non-lease components as a single component. The lease expense is
recognized over the expected term on a straight-line basis.
Operating leases are recognized on the balance sheet as
right-of-use assets, current operating lease liabilities and
non-current operating lease liabilities.
The
new standard also provides practical expedients and certain
exemptions for an entity’s ongoing accounting. We have elected the
short-term lease recognition exemption for all leases that qualify.
This means, for those leases where the initial lease term is one
year or less or for which the ROU asset at inception is deemed
immaterial, we will not recognize ROU assets or lease liabilities.
Those leases are expensed on a straight line basis over the term of
the lease
Right
to use assets is summarized below:
|
|
March 31, 2020 |
|
Right to use assets, net –
related party |
|
$ |
60,486 |
|
Right to use assets, net |
|
|
51,621 |
|
Right to use assets, net |
|
|
332,407 |
|
Total |
|
$ |
444,514 |
|
During
the three months ended March 31, 2020, the Company recorded $26,550
as lease expense to current period operations.
During
the three months ended March 31, 2020, the Company recorded $2,178
as lease expense – related party to current period
operations.
Lease
liability is summarized below:
|
|
March 31, 2020 |
|
Right to use liability,
net – related party |
|
|
53,442 |
|
Right to use liability, net |
|
|
61,789 |
|
Right to use liability, net |
|
|
338,081 |
|
Total |
|
|
453,312 |
|
Less: short term portion |
|
$ |
(113,764 |
) |
Long term position |
|
$ |
339,548 |
|
Lease
expense for the three months ended March 31, 2020 was comprised of
the following:
Operating lease
expense |
|
$ |
15,582 |
|
Operating lease expense |
|
$ |
9,142 |
|
Operating lease expense – related
party |
|
$ |
1,923 |
|
NOTE
5 ACCRUED INTEREST – RELATED PARTY
On
June 6, 2016, the Company received a $50,000 loan from our
principal stockholder. Subsequently on December 1, 2017, the
Company received an additional $30,000 loan from the same
stockholder. On January 8, 2018 and March 31, 2018 the Company
received an additional loan of $100,000 and $15,000, respectively.
The Company received additional loan funds from the same
stockholder as follows: $20,000 on April 26, 2018; $15,000 on June
21, 2018; $15,000 on June 29, 2018; $20,000 on July 5, 2018;
$26,000 on October 1, 2018; $11,000 on October 12, 2018; $20,000 on
December 21, 2018; $3,000 on January 4, 2019; $30,000 on January
17, 2019; $30,000 on February 1, 2019; $20,000 on February 15,
2019; $20,000 on March 1, 2019; $17,000 on January 4, 2019,
$100,000 on November 20, 2019, $100,000 on December 18, 2019,
$100,000 on January 24, 2020, $100,000 on February 19, 2020 and
$100,000 on March 9, 2020. Pursuant to the terms of the loan, the
advance bears an interest at 3%, is unsecured, and due on demand.
Total loan payable to principal stockholder for as of December 31,
2019 is $642,000. Total loan payable to this principal stockholder
as of March 31, 2020 is $942,000. During the three months ended
March 31, 2020, the Company recorded $9,784 as an in-kind
contribution of interest related to the loan and recorded accrued
interest payable of $5,958. During the three months ended March 31,
2019, the Company recorded $4,947 as an in-kind contribution of
interest related to the loan and recorded accrued interest payable
of $3,445.
NOTE
6 NOTE PAYABLE
On
March 1, 2019, the Company entered into an unsecured promissory
note with Notre Dame - an unrelated party in the amount of $265,244
in exchange for outstanding account payable due to the debtor.
Pursuant to the terms of the note, the note bears 10% interest per
year from the date of default until the date the loan is paid in
full. The term of the loan is twenty four months. The loan
repayment commenced immediately over a twenty-four month period
according to the following table. During the three months ended
March 31, 2020, the Company paid $15,000 of the loan balance (See
Note 8 (A)):
1.
$1,000 per month for the first six months;
2.
$2,000 per month for the months seven and eight;
3.
$5,000 per month for months nine through twenty three;
and,
4.
Final payment of all remaining balance, in the amount of $180,224
in month 24.
NOTE
7 STOCKHOLDERS’ DEFICIT
(A)
Common Stock Issued for Cash
On
March 9, 2019, the Company entered into a purchase agreement with
one investor (the “Purchase Agreement”). Pursuant to the Purchase
Agreement, the Company issued the investor 14,797,278 Units at a
purchase price of $0.06758 per Unit, for total gross proceeds to
the Company of $1,000,000. The Units consist of 14,797,278 shares
of the Company’s Class A Common Stock (the “Common Stock”) and two
warrants (the “Warrants”): (i) one warrant entitles the investor to
purchase up to 14,797,278 shares of Common Stock at an exercise
price of $0.06 per share (the “6 Cent Warrants”) and (ii) one
warrant entitles the investor to purchase up to 7,398,639 shares of
Common Stock at an exercise price of $0.08 per share (the “8 Cent
Warrant”). The Warrants shall be exercisable at any time from the
issuance date until the following expiration dates:
● ½
of all $0.06 Warrants shall expire on March 8, 2021;
● ½
of all $0.06 Warrants shall expire on March 8, 2022;
● ½
of all $0.08 Warrants shall expire on March 8, 2022;
and,
● ½
of all $0.08 Warrants shall expire on March 8, 2023.
(B)
Common Stock Issued for Services
Shares
issued for services as mentioned below were valued at the closing
price of the stock on the date of grant.
On
March 20, 2019, the Company issued 4,052,652 shares of its class A
common stock with a fair value of $281,659 ($0.0695/share) on the
date of settlement. The Company settled $243,159 of accounts
payable to the University of Notre Dame. The Company recorded an
additional amount of $38,500 based on the fair value of the shares
on the date of settlement. See Note 8 (A).
(C)
Common Stock Warrants and Options
On
February 19, 2020 the Company issued a 20-year option to purchase
20,000,000 shares of common stock at an exercise price of $0.0115
per share to a related party for services rendered. The options had
a fair value of $2,198,411, based upon the Black-Scholes
option-pricing model on the date of grant and are fully vested on
the date granted. Options will be exercisable on February 19, 2025,
and for a period of 15 years expiring on February 19, 2040. During
the three months ended March 31, 2020, the Company recorded
$2,198,411 as an expense for options issued.
Expected dividends |
|
|
0 |
% |
Expected volatility |
|
|
125.19 |
% |
Expected term |
|
|
3
years
|
|
Risk free interest rate |
|
|
1.56 |
% |
Expected forfeitures |
|
|
0 |
% |
On
February 19, 2020 the Company issued a 10-year option to purchase
6,000,000 shares of common stock at an exercise price of $.00115
per share to a related party for services rendered. The options had
a fair value of $626,047, based upon the Black-Scholes
option-pricing model on the date of grant and 2,000,000
options are fully vested on the date granted and 1,000,000 options
vest at the end of each successive year for four years. Options
will be exercisable on February 19, 2021, and for a period of 10
years expiring on February 19, 2030. During the three months ended
March 31, 2020, the Company recorded $208,682 as an expense for
options issued.
Expected dividends |
|
|
0 |
% |
Expected volatility |
|
|
125.19 |
% |
Expected term |
|
|
3
years |
|
Risk free interest rate |
|
|
1.50 |
% |
Expected forfeitures |
|
|
0 |
% |
On
February 19, 2020 the Company issued a 7-year option to purchase
1,340,000 shares of common stock at an exercise price of $0.0115
per share to employees for services rendered. The options had a
fair value of $133,063, based upon the Black-Scholes option-pricing
model on the date of grant and 268,000 options are fully vested on
the date granted and the remaining option vest equally over the
remaining 4 years at the end of each successive year. Options will
be exercisable on February 19, 2021, and for a period of 6 years
expiring on February 19, 2027. During the three months ended March
31, 2020, the Company recorded $26,613 as an expense for options
issued.
Expected dividends |
|
|
0 |
% |
Expected volatility |
|
|
125.19 |
% |
Expected term |
|
|
6
years |
|
Risk free interest rate |
|
|
1.46 |
% |
Expected forfeitures |
|
|
0 |
% |
On
September 26, 2019, the Company issued 766,667 shares in connection
with the cashless exercise of the 1,000,000 warrants. On August 14,
2019, the Company issued 7,967,871 shares in connection with the
cashless exercise of the 8,000,000 warrants.
On
August 8, 2019, the Company issued a 2-year option to purchase
2,000,000 shares of common stock at an exercise price of $0.2299
per share to a related party for services rendered. The options had
a fair value of $267,574, based upon the Black-Scholes
option-pricing model on the date of grant and are fully vested on
the date granted. Options will be exercisable on August 8, 2020,
and for a period of 3 years expiring on August 8, 2024. During the
year ended December 31, 2019, the Company recorded $267,574 as an
expense for options issued.
Expected dividends |
|
|
0 |
% |
Expected volatility |
|
|
105.73 |
% |
Expected term |
|
|
2
years |
|
Risk free interest rate |
|
|
1.62 |
% |
Expected forfeitures |
|
|
0 |
% |
On
August 8, 2019, the Company issued a 2-year option to purchase
2,000,000 shares of common stock at an exercise price of $0.2299
per share to a related party for services rendered. The options had
a fair value of $267,574, based upon the Black-Scholes
option-pricing model on the date of grant and is fully vested on
August 8, 2020. Options will be exercisable on August 8, 2022, and
for a period of 3 years expiring on August 8, 2025. During the
three months ended March 31, 2020, the Company recorded $66,528 as
an expense for options issued.
Expected dividends |
|
|
0 |
% |
Expected volatility |
|
|
105.73 |
% |
Expected term |
|
|
2
years |
|
Risk free interest rate |
|
|
1.62 |
% |
Expected forfeitures |
|
|
0 |
% |
On
August 8, 2019, the Company issued a 3-year option to purchase
2,000,000 shares of common stock at an exercise price of $0.2299
per share to a related party for services rendered. The options had
a fair value of $291,842, based upon the Black-Scholes
option-pricing model on the date of grant and is fully vested on
August 8, 2021. Options will be exercisable on August 8, 2023, and
for a period of 3 years expiring on August 8, 2026. During the
three months ended March 31, 2020, the Company recorded $36,331 as
an expense for options issued.
Expected dividends |
|
|
0 |
% |
Expected volatility |
|
|
105.73 |
% |
Expected term |
|
|
3
years |
|
Risk free interest rate |
|
|
1.54 |
% |
Expected forfeitures |
|
|
0 |
% |
On
August 8, 2019, the Company issued a 2-year option to purchase
1,000,000 shares of common stock at an exercise price of $0.2299
per share to a related party for services rendered. The options had
a fair value of $118,874, based upon the Black-Scholes
option-pricing model on the date of grant and are fully vested on
the date granted. Options will be exercisable on August 8, 2020,
and for a period of 3 years expiring on August 8, 2023. During the
year ended December 31, 2019, the Company recorded $118,874 as an
expense for options issued.
Expected dividends |
|
|
0 |
% |
Expected volatility |
|
|
105.73 |
% |
Expected term |
|
|
2
years |
|
Risk free interest rate |
|
|
1.62 |
% |
Expected forfeitures |
|
|
0 |
% |
On
August 8, 2019, the Company issued a 2-year option to purchase
1,000,000 shares of common stock at an exercise price of $0.2299
per share to a related party for services rendered. The options had
a fair value of $118,874, based upon the Black-Scholes
option-pricing model on the date of grant and are fully vested on
the date granted. Options will be exercisable on August 8, 2021,
and for a period of 3 years expiring on August 8, 2024. During the
year ended December 31, 2019, the Company recorded $118,874 as an
expense for options issued.
Expected dividends |
|
|
0 |
% |
Expected volatility |
|
|
105.73 |
% |
Expected term |
|
|
2
years |
|
Risk free interest rate |
|
|
1.62 |
% |
Expected forfeitures |
|
|
0 |
% |
On
August 8, 2019, the Company issued a 2-year option to purchase
125,000 shares of common stock at an exercise price of $0.2299 per
share to an employee for services rendered. The options had a fair
value of $14,859, based upon the Black-Scholes option-pricing model
on the date of grant and are fully vested on the date granted.
Options will be exercisable on August 8, 2020, and for a period of
3 years expiring on August 8, 2023. During the year ended December
31, 2019, the Company recorded $14,859, as an expense for options
issued.
Expected dividends |
|
|
0 |
% |
Expected volatility |
|
|
105.73 |
% |
Expected term |
|
|
2
years |
|
Risk free interest rate |
|
|
1.62 |
% |
Expected forfeitures |
|
|
0 |
% |
On
August 8, 2019, the Company issued a 2-year option to purchase
125,000 shares of common stock at an exercise price of $0.2299 per
share to a related party for services rendered. The options had a
fair value of $16,723, based upon the Black-Scholes option-pricing
model on the date of grant and are fully vested on August 8, 2020.
Options will be exercisable on August 8, 2022, and for a period of
3 years expiring on August 8, 2025. During the three months ended
March 31, 2020, the Company recorded $4,158, as an expense for
options issued.
Expected dividends |
|
|
0 |
% |
Expected volatility |
|
|
105.73 |
% |
Expected term |
|
|
2
years |
|
Risk free interest rate |
|
|
1.62 |
% |
Expected forfeitures |
|
|
0 |
% |
On
August 8, 2019, the Company issued a 2-year options to purchase
125,000 shares of common stock at an exercise price of $0.2299 per
share to a related party for services rendered. The options had a
fair value of $18,240, based upon the Black-Scholes option-pricing
model on the date of grant and are fully vested on August 8, 2021.
Options will be exercisable on August 8, 2023, and for a period of
3 years expiring on August 8, 2026. During the three months ended
March 31, 2020, the Company recorded $2,271, as an expense for
options issued.
Expected dividends |
|
|
0 |
% |
Expected volatility |
|
|
105.73 |
% |
Expected term |
|
|
3
years |
|
Risk free interest rate |
|
|
1.54 |
% |
Expected forfeitures |
|
|
0 |
% |
On
August 8, 2019, the Company issued a 2-year options to purchase
125,000 shares of common stock at an exercise price of $0.2299 per
share to a related party for services rendered. The options had a
fair value of $19,525, based upon the Black-Scholes option-pricing
model on the date of grant and are fully vested on August 8, 2022.
Options will be exercisable on August 8, 2024, and for a period of
3 years expiring on August 8, 2027. During the three months ended
March 31, 2020, the Company recorded $1,621, as an expense for
options issued.
Expected dividends |
|
|
0 |
% |
Expected volatility |
|
|
105.73 |
% |
Expected term |
|
|
3
years |
|
Risk free interest rate |
|
|
1.54 |
% |
Expected forfeitures |
|
|
0 |
% |
On
March 20, 2018, the Company issued a 4-year warrant to purchase
600,000 shares of common stock at an exercise price of $0.001 per
share to a consultant for services rendered. The warrants had a
fair value of $19,915, based upon the Black-Scholes option-pricing
model on the date of grant and are fully vested on March 20, 2018.
Warrants will be exercisable on March 20, 2019, and for a period of
3 years expiring on March 20, 2022. During the year ended December
31, 2019, the Company recorded $19,915 as an expense for warrants
issued. On April 5, 2019, the Company cancelled 600,000 warrant
issued to a consultant on February 20, 2018 in exchange for $6,000
cash payment. In addition the Company also recorded a $19,915
reduction to warrant expense related to the warrant
cancellation.
Expected dividends |
|
|
0 |
% |
Expected volatility |
|
|
97.56 |
% |
Expected term |
|
|
4
years |
|
Risk free interest rate |
|
|
2.65 |
% |
Expected forfeitures |
|
|
0 |
% |
On
September 26, 2019, the Company issued 766,667 shares in connection
with the cashless exercise of the 1,000,000 warrants.
On
August 14, 2019, the Company issued 7,967,871 shares in connection
with the cashless exercise of the 8,000,000 warrants.
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average Remaining
Contractual Life
(in Years)
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019 |
|
|
55,395,917 |
|
|
|
|
|
|
|
2.77 |
|
Granted |
|
|
- |
|
|
|
- |
|
|
|
|
|
Exercised |
|
|
- |
|
|
|
- |
|
|
|
|
|
Cancelled/Forfeited |
|
|
- |
|
|
|
- |
|
|
|
|
|
Balance, March 31, 2020 |
|
|
55,395,917 |
|
|
|
|
|
|
|
2.52 |
|
Intrinsic Value |
|
$ |
9,799,286 |
|
|
|
|
|
|
|
|
|
For
the three months ended March 31, 2020, the following warrants were
outstanding:
Exercise Price
Warrants
Outstanding
|
|
|
Warrants
Exercisable
|
|
|
Weighted Average
Remaining
Contractual Life
|
|
|
Aggregate
Intrinsic Value
|
|
$ |
0.001 |
|
|
|
21,000,000 |
|
|
|
1.40 |
|
|
$ |
3,675,000 |
|
$ |
0.056 |
|
|
|
3,000,000 |
|
|
|
1.36 |
|
|
$ |
350,000 |
|
$ |
0.04 |
|
|
|
2,300,000 |
|
|
|
1.40 |
|
|
$ |
402,500 |
|
$ |
0.06 |
|
|
|
7,398,639 |
|
|
|
0.94 |
|
|
$ |
1,294,762 |
|
$ |
0.06 |
|
|
|
7,398,639 |
|
|
|
1.94 |
|
|
$ |
1,294,762 |
|
$ |
0.08 |
|
|
|
3,699,320 |
|
|
|
1.94 |
|
|
$ |
647,381 |
|
$ |
0.08 |
|
|
|
3,699,320 |
|
|
|
2.94 |
|
|
$ |
647,381 |
|
$ |
0.2299 |
|
|
|
8,500,000 |
|
|
|
5.14 |
|
|
$ |
1,487,500 |
|
For
the year ended December 31, 2019, the following warrants were
outstanding:
Exercise Price
Warrants
Outstanding
|
|
|
Warrants
Exercisable
|
|
|
Weighted Average
Remaining
Contractual Life
|
|
|
Aggregate
Intrinsic Value
|
|
$ |
0.001 |
|
|
|
21,000,000 |
|
|
|
1.65 |
|
|
$ |
4,069,800 |
|
$ |
0.056 |
|
|
|
3,000,000 |
|
|
|
1.61 |
|
|
$ |
387,600 |
|
$ |
0.04 |
|
|
|
2,300,000 |
|
|
|
1.70 |
|
|
$ |
445,740 |
|
$ |
0.06 |
|
|
|
7,398,639 |
|
|
|
1.19 |
|
|
$ |
1,433,856 |
|
$ |
0.06 |
|
|
|
7,398,639 |
|
|
|
2.19 |
|
|
$ |
1,433,856 |
|
$ |
0.08 |
|
|
|
3,699,320 |
|
|
|
2.19 |
|
|
$ |
716,928 |
|
$ |
0.08 |
|
|
|
3,699,320 |
|
|
|
3.19 |
|
|
$ |
719,928 |
|
$ |
0.2299 |
|
|
|
8,500,000 |
|
|
|
5.39 |
|
|
$ |
1,647,300 |
|
For
the three months ended March 31, 2020, the following options were
outstanding:
|
|
|
|
|
|
|
|
|
Weighted Average |
|
Exercise |
|
|
Options |
|
|
Options |
|
|
Remaining |
|
Price |
|
|
Outstanding |
|
|
Exercisable |
|
|
Contractual Life |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.115 |
|
|
|
- |
|
|
|
22,267,800 |
|
|
|
23.34 |
|
(D)
Amendment to Articles of Incorporation
On
February 16, 2009, the Company amended its articles of
incorporation to amend the number and class of shares the Company
is authorized to issue as follows:
● |
Common
stock Class A, unlimited number of shares authorized, no par
value |
● |
Common
stock Class B, unlimited number of shares authorized, no par
value |
● |
Preferred
stock, unlimited number of shares authorized, no par
value |
Effective
December 17, 2013, the Company amended its articles of
incorporation to designate a Series A no par value preferred stock.
Two shares of Series A Preferred stock have been
authorized.
(E)
Common Stock Issued for Debt
None
NOTE
8 COMMITMENTS AND CONTINGENCIES
On
November 10, 2010, the Company entered into an employment agreement
with its CEO, effective January 1, 2011 through the December 31,
2015. The term of the agreement is a five year period at an annual
salary of $210,000. There is a 6% annual increase. For the year
ending December 31, 2015, the annual salary was $281,027. The
employee is also to receive a 20% bonus based on the annual based
salary. Any stock, stock options bonuses have to be approved by the
board of directors. On January 1, 2016 the agreement was renewed
with the same terms for another 5 years with an annual salary of
$297,889 for the year ended December 31, 2016. On January 1, 2017
the agreement renewed with the same terms for another 5 years, but
with an annual salary of $315,764 for the year ended December 31,
2017. On January 1, 2019 the agreement renewed again with the same
terms for another 5 years, but with an annual salary of $354,791
for the year ended December 31, 2019. On January 1, 2020 the
agreement renewed again with the same terms for another 5 years,
but with an annual salary of $376,078 for the year ended December
31, 2020. As of March 31, 2020 and December 31, 2019, the accrued
salary balance is $2,616,686 and $2,535,203, respectively. (See
Note 9).
On
January 20, 2015, the board of directors appointed Mr. Jonathan R.
Rice as our Chief Operating Officer. Mr. Rice’s employment
agreement has a term of one year and can be terminated by either
the Company or Mr. Rice at any time. Under the employment
agreement, Mr. Rice is entitled to an annual cash compensation of
$120,000, which includes salary, health insurance, 401K retirement
plan contributions, etc. The Company also agreed to reimburse Mr.
Rice for his past educational expenses of approximately $11,000. In
addition, Mr. Rice was issued a three-year warrant to purchase
2,000,000 shares of common stock of the Company at an exercise
price of $0.001 per share (the “January 2015 Warrant”) pursuant to
the employment agreement. Additionally, on May 28, 2015, the
Company issued a three-year warrant to purchase 3,000,000 shares of
common stock of the Company at an exercise price of $0.001 per
share (the “May 20165 Warrant”) to Mr. Rice. The 2,000,000 share
warrant fully vested on October 28, 2016. For the year ended
December 31, 2015, the Company recorded $121,448 for the warrants
issued to Mr. Rice. On January 14, 2016, the Company signed a new
employment agreement with Mr. Rice. The employment agreement has a
term of one year and can be terminated by either the Company or Mr.
Rice at any time. Under the employment agreement, Mr. Rice is
entitled to annual cash compensation of $140,000, which includes
salary, health insurance, 401K retirement plan contributions, etc.
In addition, Mr. Rice was issued a three-year warrant to purchase
6,000,000 shares of common stock of the Company at an exercise
price of $0.001 per share pursuant to the employment agreement. On
January 9, 2018, the Company extended the expiration date of the
January 2015 warrant from January 19, 2018 to January 31, 2020, and
on January 10, 2020 the Company extended the expiration date of the
warrant to January 23, 2015 and on March 15, 2018, the Company
signed an extension of its at-will employment agreement with its
COO, extending the term to January 31, 2019. On March 25, 2019, the
Company signed an extension of its at-will employment agreement
with its COO, extending the term to January 1, 2020. On April 26,
2019, the Company signed an agreement to increase Mr. Rice’s base
salary by $20,000 per year and issue a one-time $20,000 bonus.
Additionally, on August 15, 2019, the Company signed an agreement
to increase Mr. Rice’s base salary by an additional $20,000 per
year. The salary increase and the bonus is accrued and to be paid
in full earlier by the direction of the Board or upon the earlier
of:
●The
Company maintaining $6,000,000 or more in working
capital,
●Upon
the transfer of ownership of more than 50% of the Corporation’s
voting share or an assignment for the benefit of creditors or
bankruptcy, or
●Upon
the fifth year anniversary of the salary increase and the bonus
issuance.
As of
March 31, 2020 and December 31, 2019 the Company owes $73,582 and
$64,352, respectively, to Mr. Rice for payroll payable.
On
October 21, 2019, the Company signed an agreement to increase Mr.
Rice’s base salary by $20,000 per year (effective August 15, 2019).
The salary increase is accrued and to be paid in full earlier by
the direction of the Board or upon the earlier of:
●The
Company maintaining $6,000,000 or more in working
capital,
●Upon
the transfer of ownership of more than 50% of the Corporation’s
voting share or an assignment for the benefit of creditors or
bankruptcy, or
●Upon
the fifth year anniversary of the salary increase and the bonus
issuance.
On
July 3, 2019, the board of directors appointed Mr. Kenneth Le as
the Company’s Director of Government relations and President of
Prodigy Textiles. Mr. Le’s employment agreement has a term of one
year and can be terminated by either the Company or Mr. Rice at any
time. Under the employment agreement, Mr. Le is entitled to annual
cash compensation of $60,000. In addition, Mr. Le was issued two
three-year warrants to purchase 2,000,000 shares of common stock of
the Company at an exercise price of $0.2299 per share. As of March
31, 2020 and December 31, 2019, the accrued salary balance is
$1,154 and $1,154, respectively.
(A)
License Agreement
On
May 8, 2006, the Company entered into a license agreement. Pursuant
to the terms of the agreement, the Company paid a non- refundable
license fee of $10,000. The Company will pay a license maintenance
fee of $10,000 on the one year anniversary of this agreement and
each year thereafter. The Company will pay an annual research fee
of $13,700 with first payment due January 2007, then on each
subsequent anniversary of the effective date commencing May 4,
2007. The annual research fees are accrued by the Company for
future payment. Pursuant to the terms of the agreement the Company
may be required to pay additional fees aggregating up to a maximum
of $10,000 a year for patent maintenance and prosecution relating
to the licensed intellectual property.
On
October 28, 2011, the Company entered into a license agreement with
the University of Notre Dame. Under the agreement, the Company
received exclusive and non-exclusive rights to certain spider silk
technologies including commercial rights with the right to
sublicense such intellectual property. In consideration of the
licenses granted under the agreement, the Company agreed to issue
to the University of Notre Dame 2,200,000 shares of its common
stock and to pay a royalty of 2% of net sales. The license
agreement has a term of 20 years which can be extended on an annual
basis after that. It can be terminated by the University of Notre
Dame if the Company defaults on its obligations under the agreement
and fails to cure such default within 90 days of a written notice
by the university. The Company can terminate the agreement upon a
90 day written notice subject to payment of a termination fee of
$5,000 if the termination takes place within 2 years after its
effectiveness, $10,000 if the termination takes place within 4
years after its effectiveness and $20,000 if the Agreement is
terminated after 4 years. On May 5, 2017, the Company signed an
addendum to that agreement relating to tangible property and
project intellectual property. On March 1, 2019, the Company singed
an addendum to that agreement. The Company entered into a separate
loan agreement and promissory noted dated March 1, 2019 as a
payment for expenses paid by the University prior to January 31,
2019 totaling $265,244 and issued 4,025,652 shares of Class A
common stock with a fair value of $281,659 as payment of certain
debt. In the event of default the license agreement will be
terminated. During the three months ended March 31, 2020, the
Company paid $15,000 of the balance (See Notes 6).
(B)
Royalty and Research Agreements
On
May 1, 2008 the Company entered into a five year consulting
agreement for research and development. Pursuant to the terms of
the agreement, the Company will be required to pay $1,000 per
month, or at the Company’s option, the consulting fee may be paid
in the form of Company common stock based upon the greater of $0.05
per share or the average of the closing price of the Company’s
shares over the five days preceding such stock issuance. On April
6, 2018, the Company issued 36,000 shares with a fair value of
$1,076 ($0.0299/share) to a consultant as consideration for
consulting fees owed from October 1, 2014 through December 31, 2019
of $21,000. The issuance of shares resulted in gain on settlement
of accounts payable of $19,924. On April 1, 2018, the Company ended
the consulting agreement and no additional compensation will be
issued. (See Note 7 (B)).
On
December 26, 2006, the Company entered into an addendum to the
intellectual property transfer agreement with Mr. Thompson, its
CEO. In accordance with FASB ASC No 480, Distinguishing
Liabilities from Equity, the Company determined that the
present value of the payment of $120,000 that was due on December
26, 2007. As of March 31, 2020 and December 31, 2019, the
outstanding balance is $65,292. As of December 31, 2019, the
Company recorded interest expense and related accrued interest
payable of $2,623. In 2020 the Company recorded $490 in interest
expensed and related accrued interest payable. As of March 31,
2020, the Company recorded interest expense and related accrued
interest payable of $7,033.
On
December 30, 2015, the Company entered into a cooperative agreement
for the research and pilot production of hybrid silkworms in
Vietnam. Under this agreement, the Company will establish a
subsidiary in Vietnam where it will develop and produce hybrid
silkworms. On April 24, 2018, the Company announced that it had
received its investment registration certificate for its new
Vietnamese subsidiary Prodigy Textiles Co., Ltd. On May 1, 2018,
the Company announced that it had received its enterprise
registration certificate for its new Vietnamese subsidiary Prodigy
Textiles Co., Ltd.
(C)
Consulting Agreement
On
February 20, 2018, the Company signed an agreement with a
consultant to provide services. Under this agreement the consultant
will receive a warrant for 600,000 shares of common stock and may
be awarded additional warrants for up to 3,000,000 shares of common
stock if performance metrics are achieved. On March 20, 2018, the
Company issued a 4-year warrant to purchase 600,000 shares of
common stock at an exercise price of $0.001 per share to a
consultant for services rendered. The warrants had a fair value of
$19,915, based upon the Black-Scholes option-pricing model on the
date of grant and are fully vested on March 20, 2018. Warrants will
be exercisable on March 20, 2019, and for a period of 3 years
expiring on March 20, 2022. During the year ended December 31,
2018, the Company recorded $19,915 as an expense for warrants
issued (See Note 7 (C)).’ On April 5, 2019, the Company cancelled
600,000 warrant issued to a consultant on February 20, 2018 in
exchange for $6,000 cash payment.
(D)
Operating Lease Agreements
Since
September of 2015, we rent office space at 2723 South State Street,
Suite 150, Ann Arbor, Michigan 48104, which is our principal place
of business. We pay an annual rent of $2,508 for conference
facilities, mail, fax, and reception services located at our
principal place of business.
On
May 9, 2019 the Company signed an 5 year property lease Socialist
Republic of Vietnam which consists of 4,560.57 square meters of
space, which it leases at a current rent of approximately $45,150
per year one and two and with the 5% increase per year for years
three through five.
On
January 23, 2017 the Company signed an 8 year property lease with
the Company’s President for land in Texas where the Company grows
its mulberry. The Company pays a monthly rent of $960. Rent expense
– related party for the three months ended March 31, 2020 and 2019,
was $3,135 and $3,273, respectively (See Note 9).
On
September 13, 2017, the Company signed a new two year lease
commencing on October 1, 2017 and ending on March 31, 2020. The
Company pays an annual rent of $39,200 for the year one of lease
and $42,000 for the year two of lease for office and manufacturing
space. On September 5, 2019, the Company signed a new two-year
lease for this 5,000 square foot property in Lansing, MI that
commenced on October 1, 2019 and ends on September 30, 2021, for
its research and development headquarters. The Company pays an
annual rent of $42,000 for year one of the lease and $44,800 for
year two of the lease.
NOTE
9 RELATED PARTY TRANSACTIONS
On
December 26, 2006, the Company entered into an addendum to the
intellectual property transfer agreement with Mr. Thompson, its
CEO. Pursuant to the addendum, the Company agreed to issue either
200,000 preferred shares with the following preferences; no
dividends and voting rights equal to 100 common shares per share of
preferred stock or the payment of $120,000, the officer agreed to
terminate the royalty payments due under the agreement and give
title to the exclusive license for the non-protective apparel use
of the intellectual property to the Company. On the date of the
agreement, the Company did not have any preferred stock authorized
with the required preferences. In accordance with FASB ASC No. 480,
Distinguishing Liabilities from Equity, the Company
determined that the present value of the payment of $120,000 that
was due on December 26, 2007, one year anniversary of the addendum,
should be recorded as an accrued expense until such time as the
Company has the ability to assert that it has preferred shares
authorized. As of March 31, 2020 the outstanding balance is
$65,292. Additionally, the accrued expenses are accruing 7%
interest per year. As of March 31, 2020, the Company recorded
interest expense and related accrued interest payable of
$7,033.
On
November 10, 2010, the Company entered into an employment
agreement, with its CEO, effective January 1, 2011 through the
December 31, 2015. Subsequently, on January 1, 2018 the agreement
renewed with the same terms for another 5 years with an annual
salary of $334,708 for the year ended December 31, 2019. As of
March 31, 2020 and December 31, 2019, the accrued salary balance is
$2,616,686 and $2,535,203, respectively.
On
January 14, 2016 the Company signed a new employment agreement with
Mr. Rice, the Company’s COO. The employment agreement has a term of
one year and can be terminated by either the Company or Mr. Rice at
any time. Under the employment agreement, Mr. Rice is entitled to
annual cash compensation of $140,000, which includes salary, health
insurance, 401K retirement plan contributions, etc. In addition,
Mr. Rice was issued a three-year warrant to purchase 6,000,000
shares of common stock of the Company at an exercise price of
$0.001 per share pursuant to the employment agreement. On January
9, 2018, the Company extended the expiration date of a warrant for
2,000,000 shares of common stock from January 19, 2018 to January
31, 2020 and on January 10, 2020, the Company extended the
expiration date of the warrant to January 23, 2015 for Mr. Rice.
Additionally, on March 15, 2018, the Company signed an extension of
its at-will employment agreement with its COO. On April 26, 2019,
the Company signed an agreement to increase Mr. Rice’s base salary
by $20,000 per year and issue a one-time $20,000 bonus. Additional,
on August 15, 2019, the Company signed an agreement to increase Mr.
Rice’s base salary by an additional $20,000 per year. The salary
increase and the bonus is accrued and to be paid in full earlier by
the direction of the Board or upon the earlier of:
|
● |
The
Company maintaining $6,000,000 or more in working
capital, |
|
|
|
|
● |
Upon
the transfer of ownership of more than 50% of the Corporation’s
voting share or an assignment for the benefit of creditors or
bankruptcy, or |
|
|
|
|
● |
Upon
the fifth year anniversary of the salary increase and the bonus
issuance. |
As of
March 31, 2020 and December 31, 2019, the Company owes $73,582 and
$64,351, respectively, to Mr. Rice for payroll payable.
On
July 3, 2019, the board of directors appointed Mr. Kenneth Le as
the Company’s Director of Government relations and President of
Prodigy Textiles. Mr. Le’s employment agreement has a term of one
year and can be terminated by either the Company or Mr. Rice at any
time. Under the employment agreement, Mr. Le is entitled to an
annual cash compensation of $60,000. In addition, Mr. Le was issued
two three-year warrants to purchase 2,000,000 shares of common
stock of the Company at an exercise price of $0.2299 per share. As
of March 31, 2020 and December 31, 2019, the accrued salary balance
is $1,154 and $1,154, respectively. .
On
June 6, 2016, the Company received a $50,000 loan from our
principal stockholder. Subsequently on December 1, 2017, the
Company received an additional $30,000 loan from the same
stockholder. On January 8, 2018 and March 31, 2018 the Company
received an additional loan of $100,000 and $15,000, respectively.
The Company received additional loan funds from the same
stockholder as follows: $20,000 on April 26, 2018; $15,000 on June
21, 2018; $15,000 on June 29, 2018; $20,000 on July 5, 2018;
$26,000 on October 1, 2018; $11,000 on October 12, 2018; $20,000 on
December 21, 2018; $3,000 on January 4, 2019; $30,000 on January
17, 2019; $30,000 on February 1, 2019; $20,000 on February 15,
2019; $20,000 on March 1, 2019; $17,000 on January 4, 2019,
$100,000 on November 20, 2019, $100,000 on December 18, 2019,
$100,000 on January 24, 2020, $100,000 on February 19, 2020 and
$100,000 on March 9, 2020. Pursuant to the terms of the loan, the
advance bears an interest at 3%, is unsecured, and due on demand.
Total loan payable to principal stockholder for as of December 31,
2019 is $642,000. Total loan payable to this principal stockholder
as of March 31, 2020 is $942,000. During the three months ended
March 31, 2020, the Company recorded $9,784 as an in-kind
contribution of interest related to the loan and recorded accrued
interest payable of $5,958. During the three months ended March 31,
2019, the Company recorded $4,947 as an in-kind contribution of
interest related to the loan and recorded accrued interest payable
of $3,445.
On
January 23, 2017, the Company signed an 8 year property lease with
the Company’s President for land in Texas. The Company pays $960
per month starting on February 1, 2017 and uses this facility to
grow mulberry for its U.S. silk operations. Rent expense – related
party for three months ended March 31, 2020 and 2019 was $3,135 and
$3,273, respectively.
As of
March 31, 2020 and December 31, 2019, there was $311,638 and
$304,539, respectively, included in accounts payable and accrued
expenses - related party, which is owed to the Company’s Chief
Executive Officer and Chief Operations Officer.
As of
March 31, 2020, there was $1,269,213 of accrued interest- related
party and $50,163 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, 2019, there was $1,196,503 of accrued interest-
related party and $43,715 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
March 31, 2020, the Company owes $2,616,686 in accrued salary to
principal stockholder, $73,582 to the Company’s COO, $1,153 to
Director of Prodigy Textiles and $4,892 to its office
employees.
As of
December 31, 2019, the Company owes $2,535,203 in accrued salary to
principal stockholder, $64,351 to the Company’s COO, $1,153 to
Director of Prodigy Textiles and $4,477 to its office
employees.
The
Company owes $65,292 in royalty payable to related party as of
March 31, 2020 and December 31, 2019.
NOTE
10 SUBSEQUENT EVENTS
The
Company has analyzed its operations subsequent to April 21, 2020
through the date these financial statements were issued, and has
determined that, other than disclosed below, it does not have any
material subsequent events to disclose.
On April 16, 2020, the Company held a press conference announcing
the development of the first Knock In / Knock Out essentially pure
spider silk transgenic.
ITEM 2.
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, 2019 include an explanatory
paragraph stating that our
net loss from operations and net capital deficiency at
December 31, 2019 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
plan to accelerate both our microbiology and selective breeding
programs as well as provide more resources for our material testing
protocols. We spent approximately $123,050 over the last 12 months
on research and development of high strength polymers. In 2019, we
directed our research and development efforts on growing our
internal capabilities; we plan to continue to dedicate our efforts
in 2020 to grow our internal research and development
programs. |
|
|
● |
We
will consider buying an established revenue producing company in a
compatible business, in order to broaden our financial base and
facilitate the commercialization of our products; as of the date
hereof, we have not had any formal discussion or entered into any
definitive agreements regarding any such purchase. |
|
|
● |
We
will also actively consider pursuing collaborative research
opportunities with 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 the remainder of 2020 and going
forward. |
|
|
● |
Once
safe to restart operation, following the COVID-19 pandemic,
weplan resume production
operations at our factory in Vietnam and expect to continue to
expand our monthly production volumes to address demand for
materials.
|
|
|
● |
We
have initiated and plan to accelerate our efforts for large scale
US production. This work will include the research and production
of a new transgenic tailored specifically domestic production. |
Limited
Operating History
We
have not previously demonstrated that we will be able to expand our
business through an increased investment in our research and
development efforts. We cannot guarantee that the research and
development efforts described in this filing will be successful.
Our business is subject to risks inherent in growing an enterprise,
including limited capital resources, risks inherent in the research
and development process and possible rejection of our products in
development.
If
financing is not available on satisfactory terms, we may be unable
to continue our research and development and other operations.
Equity financing will result in dilution to existing
shareholders.
Impact of COVID-19 Outbreak
On
January 30, 2020, the World Health Organization declared the
coronavirus outbreak a “Public Health Emergency of International
Concern” and on March 10, 2020, declared it to be a pandemic.
Actions taken around the world to help mitigate the spread of the
coronavirus include restrictions on travel, and quarantines in
certain areas, and forced closures for certain types of public
places and businesses. The coronavirus and actions taken to
mitigate it have had and are expected to continue to have an
adverse impact on the economies and financial markets of many
countries, including the geographical area in which the Company
operates. While the closures and limitations on movement,
domestically and internationally, are expected to be temporary, if
the outbreak continues on its current trajectory the duration of
the supply chain disruption could reduce the availability, or
result in delays, of materials or supplies to and from the Company,
which in turn could materially interrupt the Company’s business
operations. Given the speed and frequency of the continuously
evolving developments with respect to this pandemic, the Company
cannot reasonably estimate the magnitude of the impact to its
consolidated results of operations. The Company’s manufacturing
facilities support business that have been deemed essential by
their respective state governments and remain operational. We have
taken every precaution possible to ensure the safety of our
employees.
On
March 19, 2020, the Company furloughed non-essential staff
consistent with leading health official recommendations in order to
help prevent the spread of COVID-19. This decision was made in an
abundance of caution and will primarily impact staff at our fully
owned subsidiary, Prodigy Textiles, in Vietnam and will result in
the temporary closing of silk rearing operations at that facility.
The Company is supporting its furloughed staff and will continue to
pay their salaries through at least April 30 and is actively
considering continuing that financial support through May. During
the duration of the furlough, the Company CEO will not receive or
accrue any pay.
Additionally,
it is reasonably possible that estimates made in the financial
statements have been, or will be, materially and adversely impacted
in the near term as a result of these conditions, including losses
on inventory; impairment losses related to goodwill and other
long-lived assets and current obligations.
Three months ended March 31, 2020 compared to the three months
ended March 31, 2019
Our
revenue, operating expenses, and net loss from operations for the
three month period ended March 31, 2020 as compared to the three
month period ended March 31, 2019, 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
March
31,
|
|
|
|
|
|
% Change
Increase |
|
|
|
2020 |
|
|
2019 |
|
|
Change |
|
|
(Decrease) |
|
NET REVENUES |
|
$ |
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
0.00 |
% |
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and Administrative |
|
|
2,792,781 |
|
|
|
117,967 |
|
|
|
2,674,814 |
|
|
|
2,267.43 |
% |
Professional Fees |
|
|
19,374 |
|
|
|
150,311 |
|
|
|
(130,937 |
) |
|
|
-87.11 |
% |
Officer’s Salary |
|
|
144,562 |
|
|
|
118,155 |
|
|
|
26,407 |
|
|
|
22.35 |
% |
Rent - Related Party |
|
|
3,135 |
|
|
|
3,273 |
|
|
|
(138 |
) |
|
|
-4.22 |
% |
Research and
Development |
|
|
4,812 |
|
|
|
22,304 |
|
|
|
(17,492 |
) |
|
|
-78.43 |
% |
Total
operating expenses |
|
|
2,964,664 |
|
|
|
412,010 |
|
|
|
2,552,654 |
|
|
|
619.56 |
% |
Loss from
operations |
|
|
(2,964,664 |
) |
|
|
(412,010 |
) |
|
|
(2,552,654 |
) |
|
|
619.56 |
% |
Interest expense |
|
|
(86,675 |
) |
|
|
(66,920 |
) |
|
|
(19,755 |
) |
|
|
29.52 |
% |
Interest income |
|
|
- |
|
|
|
1,184 |
|
|
|
(1,184 |
) |
|
|
100.00 |
% |
Net
Loss |
|
$ |
(3,051,339 |
) |
|
$ |
(477,746 |
) |
|
|
(2,573,593 |
) |
|
|
538.69 |
% |
Net
Revenues: During the three months ended March 31, 2020, we
realized $0 of revenues from our business. During the three months
ended March 31, 2019, we realized $0 of revenues from our business.
The change in revenues between the quarter ended March 31, 2020 and
2019 was $0 or 0%.
Cost
of Revenues: Costs of revenues for the three months ended March
31, 2020 were $0, as compared to $0 for the three months ended
March 31, 2019, a change of $0 or 0%.
Gross
Profit: During the three months ended March 31, 2020, we
realized a gross profit of $0, as compared to $0 for the three
months ended March 31, 2019, a change of $0 or 0%.
Research
and development expenses: During the three months ended March
31, 2020, we incurred $4,812 of research and development expenses.
During the three months ended March 31, 2019, we incurred $22,304
of research and development expenses, a decrease of $17,492 or
78.43% compared with the same period in 2019. This decrease was due
to a reduction in research spend.
Professional
Fees: During the three months ended March 31, 2020, we incurred
$19,374 of professional expenses, which decresed by $130,937 or
87.11% from $150,311 for the three months ended March 31, 2019.
This decrease was primarily due to a decrease in professional fees
associated with valuation services for the Company’s
stock.
Officers
Salary: During the three months ended March 31, 2020, officers’
salary expenses increased to $144,562 or 22.35% from $118,155 for
the three months ended March 31, 2019.
General and Administrative Expense: General and
administrative expenses increased by $2,674,814 or 2,267.43% to
$2,792,781 for the three months ended March 31, 2020 from $117,967
for the three months ended March 31, 2019. Our general and
administrative expenses for the three months ended March 31, 2020
consisted of other general and administrative expenses (which
includes expenses such as auto, business development, SEC filings,
investor relations, general office, warrants issued for services)
of $2,711,283, Travel of $14 and office salary of $81,484, for a
total of $2,792,781. Our general and administrative expenses for
the three months ended March 31, 2019 consisted of consulting fees
of $0 and other general and administrative expenses (which includes
expenses such as Auto, Business Development, SEC Filing, Investor
Relations, General Office) of $73,665, Travel of $30 and office
salary of $44,272, for a total of $117,967. The primary reason for
this increase March 31, 2020 was primarily due to an increase in
the expense associated with the issuance of warrants for
services.
Rent
– Related Party: During the three months ended March 31, 2020,
rent- related party expense decreased to $3,135 or 4.22 % from
$3,273 for the three months ended March 31, 2019. The rent-related
party expense was attributable to the signing on January 23, 2017
the Company signed an eight year property lease with the Company’s
President.
Interest
Expense: Interest expense increase by $19,755 to $86,675 for
the three month period ended March 31, 2020 from $66,920 for the
three month period ended March 31, 2019. The increase was primarily
due to interest on certain Company loans.
Interest
Income: Interest income decreased by $1,184 to $0 for the three
month period ended March 31, 2020 from $1,184 for the three month
period ended March 31, 2019. The decrease was primarily due to
interest on bank accounts.
Net
Loss: Net loss increased by $2,573,593, or 538.69 %, to a net
loss of $3,051,339 for the three month period ended March 31, 2020
from a net loss of $477,746 for the three month period ended March
31, 2019. This increase in net loss was primarily attributable to
both increases in general and administrative expenses and a
decrease in revenues.
Capital Resources and Liquidity
Our
financial statements have been presented on the basis that 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
$3,051,339 during the three months ended March 31, 2020, and losses
are expected to continue in the near term. The accumulated deficit
is $32,849,245 at March 31, 2020. Refer to Note 2 for our
discussion of stockholder deficit. We have been funding our
operations through private loans and the sale of common stock in
private placement transactions. Refer to Note 6 and Note 7 in the
financial statements for our discussion of notes payable and shares
issued, respectively. Our cash resources are insufficient to meet
our planned business objectives without additional financing. These
and other factors raise substantial doubt about our ability to
continue as a going concern. The accompanying financial statements
do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the
possible inability of our company to continue as a going
concern.
Management
anticipates that significant additional expenditures will be
necessary to develop and expand our business before significant
positive operating cash flows can be achieved. Our ability to
continue as a going concern is dependent upon our ability to raise
additional capital and to ultimately achieve sustainable revenues
and profitable operations. At March 31, 2020, we had $37,411 of
cash on hand. These funds are insufficient to complete our business
plan and as a consequence, we will need to seek additional funds,
primarily through the issuance of debt or equity securities for
cash to operate our business. No assurance can be given that any
future financing will be available or, if available, that it will
be on terms that are satisfactory to us. Even if we are able to
obtain additional financing, it may contain undue restrictions on
our operations, in the case of debt financing or cause substantial
dilution for our stockholders, in the case of equity
financing.
Management
has undertaken steps as part of a plan to improve operations with
the goal of sustaining our operations for the next twelve months
and beyond. These steps include (a) raising additional capital
and/or obtaining financing; (b) controlling overhead and expenses;
and (c) executing material sales or research contracts. There can
be no assurance that the Company can successfully accomplish these
steps and it is uncertain that the Company will achieve a
profitable level of operations and obtain additional financing.
There can be no assurance that any additional financing will be
available to the Company on satisfactory terms and conditions, if
at all. As of the date of this Report, we have not entered into any
formal agreements regarding the above.
In
the event the Company is unable to continue as a going concern, the
Company may elect or be required to seek protection from its
creditors by filing a voluntary petition in bankruptcy or may be
subject to an involuntary petition in bankruptcy. To date,
management has not considered this alternative, nor does management
view it as a likely occurrence.
Cash,
total current assets, total assets, total current liabilities and
total liabilities as of March 31, 2020 as compared to December 31,
2019, were as follows:
|
|
March
31,
2020
|
|
|
December 31,
2019
|
|
Cash |
|
$ |
37,411 |
|
|
$ |
125,024 |
|
Prepaid expenses |
|
$ |
12,670 |
|
|
$ |
31,745 |
|
Total current assets |
|
$ |
50,081 |
|
|
$ |
156,769 |
|
Total assets |
|
$ |
608,055 |
|
|
$ |
750,850 |
|
Total current liabilities |
|
$ |
5,983,661 |
|
|
$ |
5,584,383 |
|
Total liabilities |
|
$ |
6,493,453 |
|
|
$ |
6,138,908 |
|
At
March 31, 2020, we had a working capital deficit of $5,933,580
compared to a working capital deficit of $5,427,614 at December 31,
2019. Current liabilities increased to $5,983,661 at March 31, 2020
from $5,584,383 at December 31, 2019, primarily as a result of
primarily as a result of accounts payable, note payable and accrued
compensation.
For
the three months ended March 31, 2020, net cash used in operations
of $372,613 was the result of a net loss of $3,051,339 offset by
offset by depreciation expense of $7,379, options issuance to
related parties of $2,544,215, imputed interest on related party
loans of $9,784, decrease in prepaid expenses of $19,075 and a
decrease in operating lease right of use of $28,728, an increase of
accrued expenses and other payables-related party of $174,705,
decrease in accounts payable of $78,513 and a decrease in operating
lease liabilities of $26,647. For the three months ended March 31,
2019, net cash used in operations of $225,046 was the result of a
net loss of $477,746 offset by offset by depreciation expense of
$6,665, imputed interest on related party loans of $4,947, decrease
in prepaid expenses of $1,713 and increase in operating lease right
of use of $162,725, an increase of accrued expenses and other
payables-related party of $10,737, an increase in accounts payable
of $76,003 and a decrease in operating lease liabilities of
$10,090.
Net
cash used in our investing activities were $0 and $0 for the three
months ended March 31, 2020 and March 31, 2019, respectively. Our
investing activities for the three months ended March 31, 2019 are
attributable to purchases of fixed assets.
Our
financing activities resulted in a cash inflow of $285,000 for the
three months ended March 31, 2020, which is represented by $15,000
loan repayment and $300,000 proceeds from a shareholder note
payable. Our financing activities resulted in a cash inflow of
$1,119,000 for the three months ended March 31, 2019, which is
represented by $1,000,000 proceeds from issuance of common stock,
$1,000 loan repayment and $120,000 proceeds from shareholder note
payable.
Critical
Accounting Policies
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, 2019, 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.
Recent
Accounting Pronouncements
In June 2018, the FASB issued Accounting Standards Update (“ASU”)
No. 2018-07, “Compensation — Stock Compensation (Topic 718),” (“ASU
2018-07”). ASU 2018-07 is intended to reduce cost and complexity
and to improve financial reporting for nonemployee share-based
payments. Currently, the accounting requirements for nonemployee
and employee share-based payment transactions are significantly
different. ASU 2018-07 expands the scope of Topic 718, Compensation
— Stock Compensation (which currently only includes share-based
payments to employees) to include share-based payments issued to
nonemployees for goods or services. Consequently, the accounting
for share-based payments to nonemployees and employees will be
substantially aligned. This ASU supersedes Subtopic 505-50, Equity
— Equity-Based Payments to Nonemployees. The amendments in this ASU
are effective for fiscal years beginning after December 15, 2018,
and interim periods within that fiscal year. Early adoption is
permitted, but no earlier than a company’s adoption date of Topic
606, Revenue from Contracts with Customers. The Company early
adopted ASU 2018-07 effective April 1, 2018. The adoption of this
ASU did not have a material impact on the Company’s condensed
consolidated financial statements.
In
February 2016, the FASB issued ASU 2016-02, “Leases” Topic 842,
which amends the guidance in former ASC Topic 840, Leases.
The new standard increases transparency and comparability most
significantly by requiring the recognition by lessees of
right-of-use (“ROU”) assets and lease liabilities on the balance
sheet for all leases longer than 12 months. Under the standard,
disclosures are required to meet the objective of enabling users of
financial statements to assess the amount, timing, and uncertainty
of cash flows arising from leases. For lessees, leases will be
classified as finance or operating, with classification affecting
the pattern and classification of expense recognition in the income
statement. The Company adopted the new lease guidance effective
January 1, 2019 using the modified retrospective transition
approach, applying the new standard to all of its leases existing
at the date of initial application which is the effective date of
adoption. Consequently, financial information will not be updated
and the disclosures required under the new standard will not be
provided for dates and periods before January 1, 2019. We elected
the package of practical expedients which permits us to not
reassess (1) whether any expired or existing contracts are or
contain leases, (2) the lease classification for any expired or
existing leases, and (3) any initial direct costs for any existing
leases as of the effective date. We did not elect the hindsight
practical expedient which permits entities to use hindsight in
determining the lease term and assessing impairment. The adoption
of the lease standard did not change our previously reported
consolidated statements of operations and did not result in a
cumulative catch-up adjustment to opening equity. As a result, the
Company has recorded Right-to-use assets and corresponding Lease
obligations as more fully discussed in Note 4.
All
other newly issued accounting pronouncements but not yet effective
have been deemed either immaterial or not applicable.
Off-Balance
Sheet Arrangements
We do
not have any off-balance sheet arrangements, financings, or other
relationships with unconsolidated entities or other persons, also
known as “special purpose entities” (SPEs).
Item 3. Quantitative and Qualitative
Disclosures about Market Risk
Not
applicable.
Item
4. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
As of
the end of our fiscal quarter ended March 31, 2020, 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 March 31, 2020, 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. Although we
continue to educate our management personnel to increase to
increase its ability to comply with the disclosure requirements and
financial reporting controls and management oversight of accounting
and reporting functions in the future, as we stated in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2019, we
do not expect to remediate the weaknesses in our internal controls
over financial reporting until the time when we start to
commercialize a recombinant fiber and, therefore may have
sufficient cash flow to carry out our remediation plans.
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.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
None
Item
3. Defaults upon Senior Securities
None.
Item
4. Mine Safety Disclosures
Not
applicable.
Item
5. Other Information
(a) |
Not
applicable. |
(b) |
None. |
ITEM
6. EXHIBITS
EXHIBIT
INDEX
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 22, 2017. |
6. |
Incorporated
by reference to our Current Report on Form 8-K filed with the SEC
on January 21, 2015. |
7. |
Incorporate
by reference to our Current Report on Form 8-K filed with the SEC
on March 11, 2019. |
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:
April 21, 2020 |
By: |
/s/
Kim Thompson |
|
|
Kim
Thompson |
|
|
President,
Chief Executive Officer and Chief Financial Officer (Principal
Executive Officer and Principal Financial and Accounting
Officer) |