Notes to Financial Statements
As of December 31, 2017 and 2016
NOTE
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AND ORGANIZATION
(A) Organization
Kraig
Biocraft Laboratories, Inc. (the "Company") was incorporated under
the laws of the State of Wyoming on April 25, 2006. The Company was
organized to develop high strength, protein based fiber, using
recombinant DNA technology, for commercial applications in the
textile and specialty fiber industries.
(B) Use of Estimates
In
preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues
and expenses during the reported period. Actual results
could differ from those estimates.
(C) Cash
For
purposes of the cash flow statements, the Company considers all
highly liquid investments with original maturities of three months
or less at the time of purchase to be cash
equivalents. There were no cash equivalents as of
December 31, 2017 or December 31, 2016.
(D) Loss Per Share
Basic
and diluted net loss per common share is computed based upon the
weighted average common shares outstanding as defined by FASB
Accounting Standards Codification No. 260, “Earnings per
Share.” For December 31, 2017 and December 31, 2016, warrants
were not included in the computation of income/ (loss) per share
because their inclusion is anti-dilutive.
The
computation of basic and diluted loss per share for December 31,
2017 and December 31, 2016 excludes the common stock equivalents of
the following potentially dilutive securities because their
inclusion would be anti-dilutive:
|
|
|
Stock Warrants
(Exercise price - $0.001/share)
|
32,800,000
|
47,800,000
|
Convertible
Preferred Stock
|
2
|
2
|
Total
|
32,800,002
|
47,800,002
|
(E) Research and Development Costs
The
Company expenses all research and development costs as incurred for
which there is no alternative future use. These costs also include
the expensing of employee compensation and employee stock based
compensation.
(F) Income Taxes
The
Company accounts for income taxes under FASB Codification Topic
740-10-25 (“ASC 740-10-25”). Under ASC
740-10-25, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or
settled. Under ASC 740-10-25, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
The net
deferred tax liability in the accompanying balance sheets includes
the following amounts of deferred tax assets and
liabilities:
|
|
|
|
|
|
Expected income tax
recovery (expense) at the statutory rate of 34%
|
$
793,170
|
$
(1,045,001
)
|
Tax effect of
expenses that are not deductible for income tax purposes (net of
other amounts deductible for tax purposes)
|
294,265
|
534,325
|
Change in valuation
allowance
|
498,906
|
510,677
|
|
|
|
Provision for
income taxes
|
$
-
|
$
-
|
|
|
|
Kraig Biocraft Laboratories, Inc.
Notes to Financial Statements
As of December 31, 2017 and 2016
The
components of deferred income taxes are as follows
:
|
|
|
|
|
|
|
|
Deferred tax
liability:
|
$
-
|
$
-
|
Deferred tax
asset
|
|
|
Net
Operating Loss Carryforward
|
4,334,248
|
3,835,342
|
Valuation
allowance
|
(4,334,248
)
|
(3,835,342
)
|
Net
deferred tax asset
|
-
|
-
|
Net
deferred tax liability
|
$
-
|
$
-
|
|
|
|
The
valuation allowance was established to reduce the deferred tax
asset to the amount that will more likely than not be
realized. This is necessary due to the Company’s
continued operating losses and the uncertainty of the
Company’s ability to utilize all of the net operating loss
carryforwards before they will expire through the year
2037.
The net change in the valuation allowance for the year ended
December 31, 2017 and 2016 was an increase of $498,906 and $510,677
respectively
.
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, 2017 and December 31, 2016 there were no amounts that
had been accrued in respect to uncertain tax
positions.
Fair
value accounting requires bifurcation of embedded derivative
instruments such as conversion features in convertible debt or
equity instruments, and measurement of their fair value for
accounting purposes. In determining the appropriate fair value, the
Company uses the Black-Scholes option-pricing model. In assessing
the convertible debt instruments, management determines if the
convertible debt host instrument is conventional convertible debt
and further if there is a beneficial conversion feature requiring
measurement. If the instrument is not considered conventional
convertible debt, the Company will continue its evaluation process
of these instruments as derivative financial
instruments.
Once
determined, derivative liabilities are adjusted to reflect fair
value at each reporting period end, with any increase or decrease
in the fair value being recorded in results of operations as an
adjustment to fair value of derivatives. In addition, the fair
value of freestanding derivative instruments such as warrants, are
also valued using the Black-Scholes option-pricing
model.
(H) Stock-Based Compensation
In
December 2004, the FASB issued FASB Accounting Standards
Codification No. 718,
Compensation – Stock
Compensation
. Under FASB Accounting Standards
Codification No. 718, companies are required to measure the
compensation costs of share-based compensation arrangements based
on the grant-date fair value and recognize the costs in the
financial statements over the period during which employees are
required to provide services. Share-based compensation arrangements
include stock options, restricted share plans, performance-based
awards, share appreciation rights and employee share purchase
plans. As such, compensation cost is measured on the
date of grant at their fair value. Such compensation
amounts, if any, are amortized over the respective vesting periods
of the option grant. The Company applies this statement
prospectively.
Kraig Biocraft Laboratories, Inc.
Notes to Financial Statements
As of December 31, 2017 and 2016
Equity
instruments (“instruments”) issued to other than
employees are recorded on the basis of the fair value of the
instruments, as required by FASB Accounting Standards Codification
No. 718. FASB Accounting Standards Codification No.
505,
Equity Based Payments to
Non-Employees
defines the measurement date and
recognition period for such instruments. In general, the
measurement date is when either a (a) performance commitment, as
defined, is reached or (b) the earlier of (i) the non-employee
performance is complete or (ii) the instruments are vested. The
measured value related to the instruments is recognized over a
period based on the facts and circumstances of each particular
grant as defined in the FASB Accounting Standards
Codification.
The
Company operates in one segment and therefore segment information
is not presented.
(J) Recent
Accounting Pronouncements
In
January 2017, the FASB issued Accounting Standards Update
(“ASU”) 2017-04, Intangibles – Goodwill and Other
(Topic 350). The amendments in this update simplify the test for
goodwill impairment by eliminating Step 2 from the impairment test,
which required the entity to perform procedures to determine the
fair value at the impairment testing date of its assets and
liabilities following the procedure that would be required in
determining fair value of assets acquired and liabilities assumed
in a business combination. The amendments in this update are
effective for public companies for annual or any interim goodwill
impairment tests in fiscal years beginning after December 15, 2019.
We are evaluating the impact of adopting this guidance on our
Consolidated Financial Statements.
In
January 2017, the FASB issued ASU 2017-01, Business Combinations
(Topic 805); Clarifying the Definition of a Business. The
amendments in this update clarify the definition of a business to
help companies evaluate whether transactions should be accounted
for as acquisitions or disposals of assets or businesses. The
amendments in this update are effective for public companies for
annual periods beginning after December 15, 2017, including interim
periods within those periods. We are evaluating the impact of
adopting this guidance on our Consolidated Financial
Statements.
In July
2017, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) No. 2017-11,
Earnings Per Share (Topic 260), Distinguishing Liabilities from
Equity (Topic 480), Derivatives and Hedging (Topic 815). The
amendments in Part I of this Update change the classification
analysis of certain equity-linked financial instruments (or
embedded features) with down round features. When determining
whether certain financial instruments should be classified as
liabilities or equity instruments, a down round feature no longer
precludes equity classification when assessing whether the
instrument is indexed to an entity’s own stock. The
amendments also clarify existing disclosure requirements for
equity-classified instruments.
As a
result, a freestanding equity-linked financial instrument (or
embedded conversion option) no longer would be accounted for as a
derivative liability at fair value as a result of the existence of
a down round feature. For freestanding equity classified financial
instruments, the amendments require entities that present earnings
per share (EPS) in accordance with Topic 260 to recognize the
effect of the down round feature when it is triggered. That effect
is treated as a dividend and as a reduction of income available to
common shareholders in basic EPS. Convertible instruments with
embedded conversion options that have down round features are now
subject to the specialized guidance for contingent beneficial
conversion features (in Subtopic 470-20, Debt—Debt with
Conversion and Other Options), including related EPS guidance (in
Topic 260). The amendments in Part II of this Update recharacterize
the indefinite deferral of certain provisions of Topic 480 that now
are presented as pending content in the Codification, to a scope
exception.
Those
amendments do not have an accounting effect. For public business
entities, the amendments in Part I of this Update are effective for
fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2018. Early adoption is permitted for
all entities, including adoption in an interim period. If an entity
early adopts the amendments in an interim period, any adjustments
should be reflected as of the beginning of the fiscal year that
includes that interim period.
The
Company is currently reviewing the impact of adoption of ASU
2017-11on its financial statements.
In January 2016, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update (ASU)
2016-01, which amends the guidance in U.S. GAAP on the
classification and measurement of financial instruments. Changes to
the current guidance primarily affect the accounting for equity
investments, financial liabilities under the fair value option, and
the presentation and disclosure requirements for financial
instruments. In addition, the ASU clarifies guidance related to the
valuation allowance assessment when recognizing deferred tax assets
resulting from unrealized losses on available-for-sale debt
securities. The new standard is effective for fiscal years and
interim periods beginning after December 15, 2017, and upon
adoption, an entity should apply the amendments by means of a
cumulative-effect adjustment to the balance sheet at the beginning
of the first reporting period in which the guidance is effective.
Early adoption is not permitted except for the provision to record
fair value changes for financial liabilities under the fair value
option resulting from instrument-specific credit risk in other
comprehensive income. The Company is currently evaluating the
impact of adopting this guidance.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic
842) to increase transparency and comparability among organizations
by recognizing lease assets and lease liabilities on the balance
sheet and disclosing key information about leasing arrangements.
Topic 842 affects any entity that enters into a lease, with some
specified scope exemptions. The guidance in this Update supersedes
Topic 840, Leases. The core principle of Topic 842 is that a lessee
should recognize the assets and liabilities that arise from leases.
A lessee should recognize in the statement of financial position a
liability to make lease payments (the lease liability) and a
right-of-use asset representing its right to use the underlying
asset for the lease term. For public companies, the amendments in
this Update are effective for fiscal years beginning after December
15, 2018, including interim periods within those fiscal years. We
are currently evaluating the impact of adopting ASU No. 2016-02 on
our financial statements.
Kraig Biocraft Laboratories, Inc.
Notes to Financial Statements
As of December 31, 2017 and 2016
In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts
with Customers (Topic 606): Principal versus Agent Considerations
(Reporting Revenue Gross versus Net) that clarifies how to apply
revenue recognition guidance related to whether an entity is a
principal or an agent. ASU 2016-08 clarifies that the analysis must
focus on whether the entity has control of the goods or services
before they are transferred to the customer and provides additional
guidance about how to apply the control principle when services are
provided and when goods or services are combined with other goods
or services. The effective date for ASU 2016-08 is the same as the
effective date of ASU 2014-09 as amended by ASU 2015-14, for annual
reporting periods beginning after December 15, 2017, including
interim periods within those years. The Company has not yet
determined the impact of ASU 2016-08 on its financial
statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation
– Stock Compensation, or ASU No. 2016-09. The areas for
simplification in this Update involve several aspects of the
accounting for share-based payment transactions, including the
income tax consequences, classification of awards as either equity
or liabilities, and classification on the statement of cash flows.
For public entities, the amendments in this Update are effective
for annual periods beginning after December 15, 2016, and interim
periods within those annual periods. Early adoption is permitted in
any interim or annual period. If an entity early adopts the
amendments in an interim period, any adjustments should be
reflected as of the beginning of the fiscal year that includes that
interim period. An entity that elects early adoption must adopt all
of the amendments in the same period. Amendments related to the
timing of when excess tax benefits are recognized, minimum
statutory withholding requirements, forfeitures, and intrinsic
value should be applied using a modified retrospective transition
method by means of a cumulative-effect adjustment to equity as of
the beginning of the period in which the guidance is adopted.
Amendments related to the presentation of employee taxes paid on
the statement of cash flows when an employer withholds shares to
meet the minimum statutory withholding requirement should be
applied retrospectively. Amendments requiring recognition of excess
tax benefits and tax deficiencies in the income statement and the
practical expedient for estimating expected term should be applied
prospectively. An entity may elect to apply the amendments related
to the presentation of excess tax benefits on the statement of cash
flows using either a prospective transition method or a
retrospective transition method. We are currently evaluating the
impact of adopting ASU No. 2016-09 on our financial
statements.
In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts
with Customers (Topic 606): Identifying Performance Obligations and
Licensing, which provides further guidance on identifying
performance obligations and improves the operability and
understandability of licensing implementation guidance. The
effective date for ASU 2016-10 is the same as the effective date of
ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods
beginning after December 15, 2017, including interim periods within
those years.
In May 2016,
the FASB issued ASU 2016-12 “Revenue from Contracts with
Customers (Topic 606) - Narrow-Scope Improvements and Practical
Expedients,” which amends the guidance on transition,
collectability, non-cash consideration, and the presentation of
sales and other similar taxes. ASU 2016-12 clarifies that, for a
contract to be considered completed at transition, all (or
substantially all) of the revenue must have been recognized under
legacy GAAP. In addition, ASU 2016-12 clarifies how an entity
should evaluate the collectability threshold and when an entity can
recognize nonrefundable consideration received as revenue if an
arrangement does not meet the standard’s contract criteria.
The standard allows for both retrospective and modified
retrospective methods of adoption.
The Company has not yet determined the impact of
ASU 2016-10 on its financial statements.
In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit
Losses on Financial Statements," which requires companies to
measure credit losses utilizing a methodology that reflects
expected credit losses and requires consideration of a broader
range of reasonable and supportable information to inform credit
loss estimates. ASU 2016-13 is effective for annual reporting
periods, and interim periods therein, beginning after December 15,
2019 (fiscal year 2021 for the Company). The Company has not yet
determined the potential effects of the adoption of ASU 2016-13 on
its Financial Statements.
In August 2016, the FASB issued ASU 2016-15, "Classification of
Certain Cash Receipts and Cash Payments," which aims to eliminate
diversity in practice in how certain cash receipts and cash
payments are presented and classified in the statement of cash
flows under Topic 230, Statement of Cash Flows, and other Topics.
ASU 2016-15 is effective for annual reporting periods, and interim
periods therein, beginning after December 15, 2017 (fiscal year
2019 for the Company). The Company has not yet determined the
potential effects of the adoption of ASU 2016-15 on its Financial
Statements.
In November 2016, the FASB issued ASU No. 2016-18, ("ASU
2016-18")
Statement
of Cash Flows (Topic 230): Restricted
Cash.
This
ASU is intended to provide guidance on the presentation of
restricted cash or restricted cash equivalents and reduce the
diversity in practice. This ASU requires amounts generally
described as restricted cash and restricted cash equivalents to be
included with cash and cash equivalents when reconciling
beginning-of-period and end-of-period total amounts on the
statement of cash flows. We elected as permitted by the standard,
to early adopt ASU 2016-18 retrospectively as of January 1, 2017
and have applied to all periods presented herein. The adoption of
ASU 2016-18 did not have a material impact to our unaudited
condensed consolidated financial statements. The effect of the
adoption of ASU 2016-18 on our condensed consolidated statements of
cash flows was to include restricted cash balances in the beginning
and end of period balances of cash and cash equivalent and
restricted cash. The change in restricted cash was previously
disclosed in operating activities and financing activities in the
condensed consolidated statements of cash
flows.
All other newly issued accounting pronouncements but not yet
effective have been deemed either immaterial or not
applicable
The
2016 financial statements have been reclassified to conform to the
2017 presentation.
Kraig
Biocraft Laboratories, Inc.
Notes
to Financial Statements
As
of December 31, 2017 and 2016
(L) Equipment
The
Company values property and equipment at cost and depreciates these
assets using the straight-line method over their expected useful
life. The Company uses a five year life for
automobiles.
In
accordance with FASB Accounting Standards Codification No.
360,
Property, Plant and
Equipment
, the Company carries long-lived assets at the
lower of the carrying amount or fair value. Impairment is evaluated
by estimating future undiscounted cash flows expected to result
from the use of the asset and its eventual disposition. If the sum
of the expected undiscounted future cash flow is less than the
carrying amount of the assets, an impairment loss is recognized.
Fair value, for purposes of calculating impairment, is measured
based on estimated future cash flows, discounted at a market rate
of interest.
There
were no impairment losses recorded for the years ended December 31,
2017 and 2016.
(M) Fair Value of Financial Instruments
We hold
certain financial assets, which are required to be measured at fair
value on a recurring basis in accordance with the Statement of
Financial Accounting Standard No. 157,
“Fair Value Measurements”
(“ASC Topic 820-10”). ASC Topic 820-10
establishes a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1 measurements)
and the lowest priority to unobservable inputs (Level 3
measurements). ASC Topic 820-10 defines fair value as
the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants on the measurement date. Level 1 instruments include
cash, account receivable, prepaid expenses, inventory and account
payable and accrued liabilities. The carrying values are assumed to
approximate the fair value due to the short term nature of the
instrument.
The
three levels of the fair value hierarchy under ASC Topic 820-10 are
described below:
°
|
Level 1
- Valuations based on quoted prices in active markets for identical
assets or liabilities that an entity has the ability to
access. We believe our carrying value of level 1
instruments approximate their fair value at December 31, 2017 and
December 31, 2016.
|
°
|
Level 2
- Valuations based on quoted prices for similar assets or
liabilities, quoted prices for identical assets or liabilities in
markets that are not active, or other inputs that are observable or
can be corroborated by observable data for substantially the full
term of the assets or liabilities.
|
°
|
Level 3
- Valuations based on inputs that are supported by little or no
market activity and that are significant to the fair value of the
assets or liabilities. We consider depleting assets, asset
retirement obligations and net profit interest liability to be
Level 3. We determine the fair value of Level 3
assets and liabilities utilizing various inputs, including NYMEX
price quotations and contract terms.
|
|
|
|
Level
1
|
$
-
|
$
-
|
Level
2
|
$
-
|
$
-
|
Level
3
|
$
-
|
$
-
|
Total
|
$
-
|
$
-
|
(N)
Revenue Recognition
The Company’s revenues are generated primarily from contracts
with the U.S. Government. The Company performs work under the
cost-plus-fixed-fee contract. Under the base phase of this
contract the Company has produced recombinant spider silk for
weaving into ballistic shootpacks. These shootpack are
currently being woven and have not been delivered to the U.S.
Government customer. The Company is also currently working on
the awarded option extension to develop new recombinant
silks.
Cost-plus-fixed-fee contracts—Revenue is recognized on
cost-plus-fixed-fee contracts with the U.S. Government on the basis
of partial performance equal to costs incurred plus an estimate of
applicable fees earned as the Company becomes contractually
entitled to reimbursement of costs and the applicable
fees
. Invoicing for
costs and applicable fees are reported to the U.S. Government on a
monthly basis and invoices are typically paid within 30
days.
For the years ended December 31, 2017 and 2016, the Company
recognized $97,318 and $31,858 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.
Kraig
Biocraft Laboratories, Inc.
Notes
to Financial Statements
As
of December 31, 2017 and 2016
(
O)
Concentration of Credit Risk
The Company at times has cash in banks in excess of FDIC insurance
limits. At December 31, 2017 and December 31, 2016, the Company had
approximately $0 and $48,859, respectively in excess of FDIC
insurance limits.
At December 31, 2017 and December 31, 2016, the Company had a
concentration of accounts receivable of:
Customer
|
|
|
Customer
A
|
100%
|
100
%
|
Customer
A
|
$
25,872
|
$
31,858
|
For the year ended December 31, 2017 and 2016, the Company had a
concentration of sales of:
Customer
|
|
|
Customer
A
|
100
%
|
100
%
|
Customer
A
|
$
97,318
|
$
31,858
|
For the years ended December 31, 2017 and 2016, 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 $3,441,818 and stockholders’
deficiency of $3,375,806 and used $729,542 of cash in operations
for year ended December 31, 2017. This raises
substantial doubt about its ability to continue as a going
concern. The ability of the Company to continue as a
going concern is dependent on the Company’s ability to raise
additional capital and implement its business plan. The
financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going
concern.
Management
believes that actions presently being taken to obtain additional
funding and implement its strategic plans provide the opportunity
for the Company to continue as a going concern.
NOTE 3 EQUIPMENT
At
December 31, 2017 and December 31, 2016, property and equipment,
net, is as follows:
|
|
|
Automobile
|
$
41,805
|
$
41,805
|
Laboratory Equipment
|
61,746
|
39,310
|
Office Equipment
|
7,260
|
6,466
|
Leasehold
Improvements
|
7,938
|
-
|
Less: Accumulated
Depreciation
|
(56,255
)
|
(35,963
)
|
Total Property and Equipment,
net
|
$
62,494
|
$
51,618
|
Depreciation
expense for the years ended December 31, 2017 and 2016 was $20,291
and $16,974 respectively.
NOTE 4 ACRRUED INTEREST – RELATED
PARTY
On June 6, 2016, the Company received $50,000 from a principal
stockholder. Subsequently on December 1, 2017, the Company
received an additional $30,000 from a principal stockholder.
Total loan payable to principal stockholder for the year
ended December 31, 2017 is $80,000. Pursuant to the terms of the
loans, the advances bear an interest at 3%, is unsecured and due on
demand. During the year ended December 31, 2016 the Company
recorded $1,425 as an in-kind contribution of interest related to
the loan and recorded accrued interest payable of $856 as of
December 31, 2016. During the year ended December 31, 2017 the
Company recorded $2,623 as an in-kind contribution of interest
related to the loan and recorded accrued interest payable of $1,621
as of December 31, 2017.
Kraig
Biocraft Laboratories, Inc.
Notes
to Financial Statements
As
of December 31, 2017 and 2016
NOTE 5 STOCKHOLDERS’
DEFICIT
(A) Common Stock Issued
for Cash
On
February 16, 2016 the Company issued 5,630,631 share of common
stock for $100,000 ($0.018/share).
On
March 28, 2016 the Company issued 5,411,255 share of common stock
for $100,000 ($0.018/share).
On
April 25, 2016 the Company issued 5,952,381 share of common stock
for $100,000 ($0.017/share).
On June
28, 2016 the Company issued 7,812,500 share of common stock for
$125,000 ($0.016/share).
On July
26, 2016 the Company issued 6,028,939 shares of common stock for
$150,000 ($0.025/share).
On
August 8, 2016 the Company issued 2,181,501 shares of common stock
for $100,000 ($0.046/share).
On
August 18, 2016 the Company issued 1,838,235 shares of common stock
for $100,000 ($0.054/share).
On
September 9, 2016 the Company issued 2,604,167 shares of common
stock for $100,000 ($0.038/share).
On
October 21, 2016 the Company issued 4,166,667 shares of common
stock for $150,000 ($0.036/per share).
On
January 25, 2017, the Company issued 2,678,571 share of common
stock for $150,000 ($0.056/share).
On
April 6, 2017, the Company issued 2,083,333 share of common stock
for $100,000 ($0.05/share).
On
June 12, 2017, the Company issued 2,268,603 shares of common stock
for $100,000 ($0.044/share)
On June
15, 2017, the Company issued 2,136,752 shares of common stock for
$100,000 ($0.047/share)
(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
April 4, 2016, the Company issued 12,000 shares with a fair value
of $296 ($0.0247/share) to a consultant as consideration for
consulting fees owed from October 1, 2015 through March 31, 2016 of
$6,000. The issuance of shares resulted in gain on settlement of
accounts payable of $5,704.
On
November 7, 2016, the Company issued 12,000 shares with a fair
value of $512 ($0.0427/share) to a consultant as consideration for
consulting fees owed from April 1, 2016 through October 31, 2016 of
$6,000. The issuance of shares resulted in gain on settlement of
accounts payable of $5,488.
On
December 4, 2016, the Company granted 750,000 shares valued at
$32,850 ($0.0438/share) to a consultant for services rendered. The
shares were issued subsequent to period end on January 25,
2017.
On
December 30, 2016, the Company recorded 3,906,322 issuable shares
with a fair value of $224,904 ($0.0575/share) to two consultants
for services rendered. Those shares were issued on January 23,
2017.
On
January 25, 2017, the Company issued 750,000 shares of common stock
previously recorded as common stock issuable for the year end
December 31, 2016 (See Note 6 (C)).
(C) Common Stock Warrants
On
January 1, 2016, the Company issued 3-year warrant to purchase
6,000,000 shares of common stock at $0.001 per share to a related
party for services to be rendered. The warrants had a fair value of
$142,526, based upon the Black-Scholes option-pricing model on the
date of grant and vested on February 20, 2017, and will be
exercisable commencing on February 20, 2018, and for a period
expiring on February 20, 2021. During the year ended December 31,
2017, the Company recorded $17,473 as an expense for warrants
issued to related party.
Grant Date
Expected
dividends
|
0
%
|
Expected
volatility
|
78.58
%
|
Expected
term
|
|
Risk free
interest rate
|
1.32
%
|
Expected
forfeitures
|
0
%
|
Kraig
Biocraft Laboratories, Inc.
Notes
to Financial Statements
As
of December 31, 2017 and 2016
On
April 7, 2016, the Company issued 958,506 shares in connection with
the cashless exercise of the 1,000,000 warrants.
On
April 7, 2016, the Company issued 958,506 shares in connection with
the cashless exercise of the 1,000,000 warrants
On May
5, 2016, the Company issued 7,627,907 shares in connection with the
cashless exercise of the 8,000,000 warrants.
On June
23, 2016, the Company issued 12,867,681 shares in connection with
the cashless exercise of the 13,500,000 warrants.
On
November 7, 2016, the Company issued 1,496,703 shares in connection
with the cashless exercise of the 1,500,000 warrants.
On
December 30, 2016, the Company recorded stock issuable of 1,953,161
shares in connection with the cashless exercise of the 1,500,000
warrants. The shares were subsequently issued on January 23,
2017.
On
December 30, 2016, the Company recorded stock issuable of 1,953,161
shares in connection with the cashless exercise of the 1,500,000
warrants. The shares were subsequently issued on January 23,
2017.
On July
26, 2016, the Company issued 4-year warrant to purchase 10,000,000
shares of common stock at $0.001 per share to a consultant for
services rendered. The warrants had a fair value of $365,157, based
upon the Black-Scholes option-pricing model on the date of grant
and are fully vested on the date granted. Warrants will become
exercisable on July 26, 2018, and for a period of 4 years expiring
on July 26, 2022. During the years ended December 31, 2016, the
Company recorded $365,157 as an expense for such warrants
issued.
Expected
dividends
|
0
%
|
Expected
volatility
|
93.6
%
|
Expected
term
|
|
Risk free
interest rate
|
1.01
%
|
Expected
forfeitures
|
0
%
|
On July
26, 2016, the Company issued 4-year warrant to purchase 8,000,000
shares of common stock at a price of $0.001 per share to a
consultant for services rendered. The warrants had a fair value of
$292,126, based upon the Black-Scholes option-pricing model on the
date of grant and are fully vested on the date granted. Warrants
will become exercisable on July 26, 2018, and for a period of 4
years expiring on July 26, 2022. During the years ended December
31, 2016, the Company recorded $292,126 as an expense for such
warrants issued.
Expected
dividends
|
0
%
|
Expected
volatility
|
93.60
%
|
Expected
term
|
4
years
|
Risk free
interest rate
|
1.01
%
|
Expected
forfeitures
|
0
%
|
On
October 2, 2016, the Company issued 2-year warrant to purchase
2,300,000 shares of common stock at an exercise price of $0.04 per
share to a consultant for services rendered. The warrants had a
fair value of $68,686, based upon the Black-Scholes option-pricing
model on the date of grant and are fully vested on the date
granted. Warrants will become exercisable on August 25, 2019, and
for a period of 2 years expiring on August 25, 2021. During the
years ended December 31, 2016, the Company recorded $68,686 as an
expense for such warrants issued (See Note 6(C)).
Expected
dividends
|
0
%
|
Expected
volatility
|
107.51
%
|
Expected
term
|
|
Risk free
interest rate
|
0.82
%
|
Expected
forfeitures
|
0
%
|
On
December 8, 2016 the company issued, the Company issued 4-year
warrant to purchase 15,000,000 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 $630,259, based upon the
Black-Scholes option-pricing model on the date of grant and are
fully vested on the date granted. Warrants will be exercisable on
June 12, 2017, and for a period of 2 years expiring on December 8,
2019. During the years ended December 31, 2016, the Company
recorded $630,259 as an expense for warrants.
On July
14, 2017 the Company granted 14,745,203 shares in connection with
the cashless exercise of the 15,000,000 warrants. (See Note 6
(C)).
Expected
dividends
|
0
%
|
Expected
volatility
|
106.57
%
|
Expected
term
|
|
Risk free
interest rate
|
1.15
%
|
Expected
forfeitures
|
0
%
|
Kraig
Biocraft Laboratories, Inc.
Notes
to Financial Statements
As
of December 31, 2017 and 2016
On
February 6, 2017 the company issued, the Company issued 4-year
warrant to purchase 750,000 shares of common stock at an exercise
price of $0.03 per share to a consultant for services rendered. The
warrants had a fair value of $44,421, based upon the Black-Scholes
option-pricing model on the date of grant and are fully vested on
March 6, 2018 as long as the employee remains as full time.
Warrants will be exercisable on October 6, 2019, and for a period
of 3 years expiring on October 6, 2022. During the year ended
December 31, 2017, the Company recorded $5,161 as an expense for
warrants issued. On May 2, 2017, the Company cancelled a 750,000
share warrant with a consultant as the consultant was terminated
and the option expense was recaptured by the Company.
Expected
dividends
|
0
%
|
Expected
volatility
|
106.40
%
|
Expected
term
|
|
Risk free
interest rate
|
1.43
%
|
Expected
forfeitures
|
0
%
|
On June
26, 2017 the company issued, the Company issued 2-year warrant to
purchase 15,000,000 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 $848,011, based upon the Black-Scholes
option-pricing model on the date of grant and are fully vested on
the date granted. Warrants will be exercisable on December
26, 2017, and for a period of 2 years expiring on June 26, 2019.
During the year ended December 31, 2017, the Company recorded
848,011 as an expense for warrants issued.
On
December 27, 2017, the Company issued of 14,651,162 shares in
connection with the cashless exercise of the 15,000,000 warrants.
The shares were issued on December 29, 2017. (See Note 6
(C)).
Expected
dividends
|
0
%
|
Expected
volatility
|
102.65
%
|
Expected
term
|
|
Risk free
interest rate
|
1.38
%
|
Expected
forfeitures
|
0
%
|
|
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Life (in Years)
|
Balance,
December 31, 2016
|
47,800,000
|
$
0.001
|
3.8
|
Granted
|
15,750,000
|
$
0.03
|
|
Exercised
|
30,000,000
|
$
0.001
|
|
Cancelled/Forfeited
|
(750,000
)
|
$
0.03
|
|
Balance, December
31, 2017
|
32,800,000
|
|
3.0
|
Intrinsic
Value
|
$
1,426,800
|
|
|
For the year ended December 31, 2017 the following warrants were
outstanding:
Exercise
Price Warrants Outstanding
|
|
Weighted
Average Remaining Contractual Life
|
Aggregate
Intrinsic Value
|
|
|
|
|
$
0.001
|
30,500,000
|
2.5
|
$
2,639,000
|
$
0.04
|
2,300,000
|
3.1
|
$
133,400
|
Kraig
Biocraft Laboratories, Inc.
Notes
to Financial Statements
As
of December 31, 2017 and 2016
For
the year ended December 31, 2016, the following warrants were
outstanding:
Exercise Price Warrants
Outstanding
|
|
Weighted
Average Remaining Contractual Life
|
Aggregate
Intrinsic Value
|
|
|
|
|
$
0.001
|
45,500,000
|
4.1
|
$
2,434,250
|
$
0.04
|
2,300,000
|
5
|
$
123,050
|
(D) Amendment
to Articles of Incorporation
On
February 16, 2009, the Company amended its articles of
incorporation to amend the number and class of shares the Company
is authorized to issue as follows:
●
|
Common
stock Class A, unlimited number of shares authorized, no par
value
|
●
|
Common
stock Class B, unlimited number of shares authorized, no par
value
|
●
|
Preferred
stock, unlimited number of shares authorized, no par
value
|
Effective
December 17, 2013, the Company amended its articles of
incorporation to designate a Series A no par value preferred
stock. Two shares of Series A Preferred stock have been
authorized.
NOTE 6 COMMITMENTS AND
CONTINGENCIES
On
November 10, 2010, the Company entered into an addendum to the
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 renewed with the same terms for another 5 years with an
annual salary of $297,889 for the year ended December 31, 2016.
Subsequently, on January 1, 2017 the agreement renewed with the
same terms for another 5 years with an annual salary of $315,764
for the year ended December 31, 2017.
As of December 31,
2017 and 2016, the accrued salary balance is $1,707,804 and
$1,392,042, respectively. (See Note 7)
.
On
October 2, 2014, the Company entered into a letter agreement for an
equity line of financing up to $7,500,000 (the
“Letter Agreement”) with Calm Seas Capital, LLC
(“Calm Seas”).
Under
the Letter Agreement, over a 24 month period from the Effective
Date we may put to Calm Seas up to an aggregate of $7,500,000 in
shares of our Class A common stock for a purchase price equal to
80% of the lowest price of our Class A common stock during the five
consecutive trading days immediately following the date we deliver
notice to Calm Seas of our election to put shares pursuant to the
Letter Agreement. We may put shares
bi-monthly. The dollar value that will be
permitted for each put pursuant to the Letter Agreement
will be the lesser of: (A) the product of (i) 200% of the average
daily volume in the US market of our Class A common stock for the
ten trading days prior to the date we deliver our put notice to
Calm Seas multiplied by (ii) the average of the daily closing
prices for the ten (10) trading days immediately preceding the date
we deliver our put notice to Calm Seas, or (B)
$100,000. We will automatically withdraw our put notice
to Calm Seas if the lowest closing bid price used to determine the
purchase price of the put shares is not at least equal to
seventy-five percent (75%) of the average closing “bid”
price for our Class A common stock for the ten (10) trading days
prior to the date we deliver our put notice to Calm Seas.
Notwithstanding the $100,000 ceiling for each bi-monthly put,
as described above, we may at any time request Calm Seas to
purchase shares in excess of such ceiling, either as a part of
bi-monthly puts or as an additional put(s) during such
month. If Calm Seas, in its sole discretion, accepts
such request to purchase additional shares, then we may include the
put for additional shares in our monthly put request or submit an
additional put for such additional shares in accordance with the
procedure set forth above.
The
Letter Agreement will terminate when any of the following events
occur:
●
|
Calm
Seas has purchased an aggregate of $7,500,000 of our Class A common
stock; or
|
●
|
The
second anniversary from the Effective Date.
|
Kraig
Biocraft Laboratories, Inc.
Notes
to Financial Statements
As
of December 31, 2017 and 2016
On
January 23, 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 will be issued a three-year warrant to purchase
2,000,000 shares of common stock of the Company at an exercise
price of $0.001 per share pursuant to the employment agreement.
Additionally, on May 28, 2015, the Company issued a three-year
warrant to purchase 3,000,000 shares of common stock of the Company
at an exercise price of $0.001 per share to Mr. Rice. The warrant
fully vests on October 28, 2016. For the year ended December 31,
2015, the Company recorded $121,448 for the warrants issued to Mr.
Rice. On January 14, 2016 the Company signed a new employment
agreement with Mr. Rice, our COO. The employment agreement has a
term of one year and can be terminated by either the Company or Mr.
Rice at any time. Under the employment agreement, Mr. Rice is
entitled to an annual cash compensation of $140,000, which includes
salary, health insurance, 401K retirement plan contributions, etc.
In addition, Mr. Rice will be issued a three-year warrant to
purchase 6,000,000 shares of common stock of the Company at an
exercise price of $0.001 per share pursuant to the employment
agreement. For the year ended December 31, 2016, the Company
recorded $193,652 for the warrants issued to Mr. Rice in 2016. For
the year ended December 31, 2017 the Company recorded $17,473 for
the warrants issued to Mr. Rice in 2016.
(A)License
Agreement
On May
8, 2006, the Company entered into a license
agreement. Pursuant to the terms of the agreement, the
Company paid a non-refundable license fee of $10,000. The Company
will pay a license maintenance fee of $10,000 on the one year
anniversary of this agreement and each year
thereafter. The Company will pay an annual research fee
of $13,700 with first payment due January 2007, then on each
subsequent anniversary of the effective date commencing May 4,
2007. The annual research fees are accrued by the Company for
future payment. Pursuant to the terms of the agreement the Company
may be required to pay additional fees aggregating up to a maximum
of $10,000 a year for patent maintenance and prosecution relating
to the licensed intellectual property.
On
October 28, 2011, the Company entered into a license agreement with
the University of Notre Dame. Under the agreement, the Company
received exclusive and non-exclusive rights to certain spider silk
technologies including commercial rights with the right to
sublicense such intellectual property. In consideration of the
licenses granted under the agreement, the Company agreed to issue
to the University of Notre Dame 2,200,000 shares of its common
stock and to pay a royalty of 2% of net sales. On March
4, 2015, the Company entered into a new Intellectual Property /
Collaborative Research Agreement with Notre Dame extending the
duration of the agreement through March 2016. In February of 2016
this agreement was extended to July 31, 2016. Under the
agreement the Company will provide approximately $534,000 in
financial support. The license agreement has a term of 20 years
which can be extended on an annual basis after that. It can be
terminated by the University of Notre Dame if the Company defaults
on its obligations under the agreement and fails to cure such
default within 90 days of a written notice by the university. The
Company can terminate the agreement upon a 90 day written notice
subject to payment of a termination fee of $5,000 if the
termination takes place within 2 years after its effectiveness,
$10,000 if the termination takes place within 4 years after its
effectiveness and $20,000 if the Agreement is terminated after 4
years. On May 5, 2017 the Company signed an addendum to that
agreement relating to tangible property and project intellectual
property.
(
B)Royalty
and Research Agreements
On May
1, 2008 the Company entered into a five year consulting agreement
for research and development. Pursuant to the terms of the
agreement, the Company will be required to pay $1,000 per month, or
at the Company’s option, the consulting fee may be paid in
the form of Company common stock based upon the greater of $0.05
per share or the average of the closing price of the
Company’s shares over the five days preceding such stock
issuance. As of September 30, 2011, the Company had
accrued $17,000 of accounts payable for the services provided of
which was paid in common stock on July 1, 2009. As of
September 30, 2011 the Company issued 280,000 shares of common
stock in exchange for $14,000 of accounts payable for the services
performed. On March 19, 2014, the Company entered into a
five year consulting agreement for general advisor and consulting
services. As consideration for the services performed,
the Company agrees to pay the consultant a fee of $1,000 per
month. At the Company’s option, said consulting
fee may be paid to the consultant in the form of Company stock
based upon the greater of $0.50/share or the average of the closing
price of the Company’s common stock over the five days
preceding such stock issuance. On March 28, 2014, the
Company issued 44,000 shares of common stock as consideration for
consulting fees owed from September 1, 2012 through March 31, 2014.
On October 9, 2014 the Company issued 12,000 shares with a fair
value of $484 ($0.0403/share) to a consultant as consideration for
consulting fees owed from April 1, 2014 through September 30, 2014
of $12,000. The issuance of shares resulted in gain on
settlement of accounts payable of $11,516. The consultant also
received a bonus of 4,000 shares with a fair value of $161
($0.0403/share).During the years ended December 31, 2015 the
Company issued 24,000 shares with a fair value of $730
($0.03367/share) to a consultant as consideration for consulting
fees owed from October 1, 2014 through September 30, 2015 of
$12,000. The issuance resulted in gain on settlement of accounts
payable of 23,245. During the years ended December 31, 2016, the
Company issued 24,000 shares with a fair value of $808
($0.03367/share) to a consultant as consideration for consulting
fees owed from October 1, 2015 through October 31, 2016 of $12,000.
The issuance resulted in gain on settlement of accounts payable of
11,191. During the years ended December 31, 2017, the Company
did not issue any shares to the consultant. (See Note 5
(B)).
Kraig
Biocraft Laboratories, Inc.
Notes
to Financial Statements
As
of December 31, 2017 and 2016
On December 26,
2006, the Company entered into an addendum to the intellectual
property transfer agreement with Mr Thompson, its
CEO. In consideration of the Company issuing either
200,000 preferred shares with the following preferences; no
dividends and voting rights equal to 100 common shares per share of
preferred stock or the payment of $120,000, the officer agreed to
terminate the royalty payments due under the agreement and give
title to the exclusive license for the non-protective apparel use
of the intellectual property to the Company. On the date
of the agreement, the Company did not have any preferred stock
authorized with the required preferences. In accordance
with FASB Accounting Standards Codification No
480,
Distinguishing
Liabilities from Equity
, the Company determined that the
present value of the payment of $120,000 that was due on December
26, 2007, the one year anniversary of the addendum, should be
recorded as an accrued expense until such time as the Company has
the ability to assert that it has preferred shares
authorized. As of March 31, 2010, the Company has
recorded $120,000 in accrued expenses- related party. On
December 21, 2007 the officer extended the due date to July 30,
2008. On May 30, 2008 the officer extended the due date
to December 31, 2008. On October 10, 2008, the officer
extended the due date to the earlier of (a) March 30, 2010 or (b)
upon demand by the officer. The due date was extended to
March 31, 2011. On September 8, 2009, a payment of
$15,000 was paid to the officer. An additional payment of $10,000
was made on October 19, 2009 and December 1, 2009,
respectfully. Additionally, the accrued expenses are
accruing 7% interest per year. On January 15, 2010 an additional
payment of $10,000 was made. During the quarter ending
September 30, 2010 an additional payment of $8,000 was made. During
the quarter ending September 30, 2012 an additional payment of
$1,000 was made. During the year ended December 31,
2013, an additional payment of $1,280 was made. During
the year ended December 31, 2014, an additional loan of $572 was
made. As of December 31, 2017 and December 31,
2016, the outstanding balance is $65,292. As of December 31, 2017,
the Company recorded interest expense and related accrued interest
payable of $2,623.
On June
6, 2012, the Company entered into a consulting agreement for
intellectual property and collaborative research and development
with an American university. The agreement covers
ongoing research and development work performed by the university
at the Company’s behest and with the Company’s
assistance. On March 4, 2015, the Company entered into a new
Intellectual Property / Collaborative Research Agreement with Notre
Dame extending the duration of the agreement through March
2016. Pursuant to the terms of the agreement, the Company will
be required to pay approximately $534,000 for research and
development over the two-year period. For the year ended December
31, 2016 and 2015, respectively, the company recorded $397,136 and
$432,008 in research and development fees. On September 20, 2015
this agreement was amended to increase the total funding by
approximately $179,000. In February 2016, this agreement was
extended to July 31, 2016. In August 2016 this agreement was
amended to increase the total funding by approximately $175,000 and
the duration of this agreement was extended to December 31,
2016. In May 2017 this agreement was amended to increase the
total funding by approximately $189,000 and the duration of this
agreement was extended to September 30, 2017.
The Company did not
extend the agreement after September 30, 2017.
The Company
anticipates negotiating a new Collaborative Research Agreement with
the University of Notre Dame for 2018 at reduced levels of
funding.
On
December 30, 2015, the Company entered into a cooperative agreement
for the research and pilot production of hybrid silkworms in
Vietnam. Under this agreement, the Company will establish a
subsidiary in Vietnam where it will develop and produce hybrid
silkworms. As of December 31, 2017, the subsidiary was not yet
established and no work has been performed in Vietnam as of
December 31, 2017. The Company has not received final
governmental approval to implement the agreement.
(C) Consulting Agreement
On July
9, 2013, the Company entered into an agreement with a consultant to
provide investor relations services in exchange for a warrant for
10,000,000 common shares at $.001 with a cashless provision and a
five year term.
On
September 30, 2013, the Company entered into a Collaborative Yarn
and Textile Development Agreement with a technical textile
manufacturing company. Pursuant to the terms of that
agreement, the Company has agreed to supply the technical textile
manufacturing company with sample quantities of the Company’s
recombinant spider silk for the purpose of developing and testing
new textiles which are made from, or which incorporate recombinant
spider silk. The agreement provides that the two
companies will jointly share, on an equal basis, any intellectual
property, including any utility patents, which are developed as a
result of this collaboration. Such intellectual property
potentially includes utility patents on textile
designs. The Company has agreed that it will pay half of
the cost associated with the filing and prosecution of utility
patents relating to intellectual property which is developed
through its collaboration with the technical textile manufacturing
company.
On
October 15, 2013, the Company entered into an intellectual property
agreement with a scientific researcher relating to the development
of new recombinant silk fibers. Under the terms of that
agreement, the scientific researcher will transfer to the Company
his rights to intellectual property, inventions and trade secrets
which the researcher develops relating to recombinant
silk. The researcher will receive 8,000,000 warrants of
the Company’s stock, exercisable 24 months from the date of
the agreement. The researcher will also receive
additional warrants when and if the researcher develops advanced
recombinant silk fibers for the Company’s
use. Under the terms of the agreement the researcher
will receive 10,000,000 warrants in the event that he develops a
new recombinant silk fiber with certain performance
characteristics, and another 10,000,000 warrants if he develops a
second recombinant silk fiber with certain
characteristics. If the consultant performs the contract
in good faith the consultant will be entitled to an additional
8,000 warrants. The warrants described in this note all
contain a cashless exercise provision and are exercisable on the 24
month anniversary of the date on which they were issuable under the
agreement. On July 26, 2016 the Company issued a warrant for
10,000,000 to the researcher in accordance with this agreement for
the development of a new recombinant silk fiber. On July 26,
2016 the Company issued a warrant for 8,000,000 to the researcher
upon reaching the 24 month of this agreement.
Kraig
Biocraft Laboratories, Inc.
Notes
to Financial Statements
As
of December 31, 2017 and 2016
On
February 17, 2014, the Company entered into two consulting
agreements with two consultants for independent technical expertise
to further the Company’s business plans and scientific
research and development. As consideration for the
services performed, the Company agrees to issue the following to
each of the consultants:
|
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Within
30 days of the date of this agreement, a warrant for six hundred
thousand shares of the Company’s common stock to be
exercisable on the 14 month anniversary of this agreement for a
period of 12 months with a cashless exercise
provision.
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●
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Within
30 days of the date of this agreement, a warrant for one million
shares of the Company’s common stock to be exercisable on the
20 month anniversary of this agreement for a period of 12 months
with a cashless exercise provision.
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●
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Within
30 days of the date of this agreement, a warrant for two million
shares of the Company’s common stock to be exercisable on the
32 month anniversary of this agreement for a period of 12 months
with a cashless exercise provision.
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●
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Based
on the consultants reaching two sets of benchmarks, two separate
warrants for one million five hundred thousand shares of the
Company’s common stock to be exercisable on the 28 month
anniversary of this agreement for a period of 12 months with a
cashless exercise provision.
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●
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On the
three year anniversary, assuming the consultant acted in good faith
and the Company’s board of directors approval, a warrant for
one million five hundred thousand shares of the Company’s
common stock to be exercisable on the 28 month anniversary of this
agreement for a period of 12 months with a cashless exercise
provision.
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On
June22, 2015, the Company entered into an agreement with a
consultant to provide investor relations services until December
16, 2015. As consideration for the services performed,
the Company agrees to issue a 3-year warrant to purchase 15,000,000
shares of common stock at $0.001 per share with a cashless exercise
provision. On June, 2015, the company issued such warrant with a
fair value of $590,335 (See Note 5(C)).
On
November 11, 2015, the Company entered into an agreement with a
consultant to provide advisory services. As consideration for the
services performed, the Company agreed to pay the consultant
$10,000.
On
January 23, 2016, the Company entered into an agreement with a
consultant to provide investor relations services for four months.
As consideration for the services performed, the Company agrees to
pay $25,000 dollar monthly payments. During the course of that
contract, additional services were rendered for a consideration
amounting a total of $31,000. During the years ended December
31, 2016, the Company paid $131,000.
On
August 25, 2016, the Company entered into an agreement with a
consultant to provide consulting services in helping the Company
expand its operations. The agreement commenced on August 25, 2016
and will continue for 18 months. In return, the Company agrees to
issue a 2-year warrant to purchase 2,300,000 shares of common stock
at a price of $0.04 per share. On October 2, 2016, the company
issued such warrant with a fair value of $590,335 (See Note 5(C)).
On January 24, 2017, the Company agreed to continue the agreement
and agreed to advance $10,000 for costs and expenses
incurred.
On
December 1, 2016, the Company entered into an agreement with a
consultant to provide investor relations services for one
year. As consideration for the services performed, the
Company agrees to issue a 2-year warrant to purchase 15,000,000
shares of common stock at a price of $0.001 per share with a
cashless exercise provision. On December 8, 2016, the company
issued such warrant with a fair value of $630,564 (See Note
5(C)).
On
December 4, 2016, the Company entered into an agreement with a
consultant to provide investor relations services. The agreement
commenced on December 4, 2016 and will continue for twelve months.
As consideration for the services performed, the Company will issue
750,000 shares with a fair value of $32,850 ($0.0321/share) to this
consultant. For the year ended December 31, 2016, the Company
recorded 750,000 as common stock issuable. Shares were subsequently
issued on January 25, 2017 (See Note 5).
On June
26, 2017, the Company entered into an agreement with a consultant
to provide investor relations services for six
months. As consideration for the services performed, the
Company agrees to issue a 2-year warrant to purchase 15,000,000
shares of common stock at a price of $0.001 per share with a
cashless exercise provision. On June 26, 2016, the company issued
such warrant with a fair value of $848,011. On December 27, 2017,
the Company issued of 14,651,162 shares in connection with the
cashless exercise of the 15,000,000 warrants. The shares were
issued on December 29, 2017. (See Note 5 (C)).
(D)
Operating Lease Agreement
Starting
in February of 2015, we rent additional office space in East
Lansing, Michigan. In July 2015, the Company signed a
new lease for its East Lansing, Michigan office space. On February
1, 2016 the Company signed a six (6) month lease extension for its
East Lansing office. In July 2016 the Company signed a twelve (12)
month lease extension for its East Lansing office. The Company pays
an annual rent of $5,187 for office space, conference facilities,
mail, fax, and reception services. In July 2017 the Company signed
a twelve (12) month lease extension for its East Lansing office.
The Company pays an annual rent of $4,804.68 for office space,
conference facilities, mail, fax, and reception services. In
October 2017 the Company ended this lease.
Starting
in September of 2015, we rent office space at 2723 South State
Street, Suite 150, Ann Arbor, Michigan 48104, which is our
principal place of business. We pay an annual rent of $2,328 for
conference facilities, mail, fax, and reception services located at
our principal place of business.
On June
29, 2016 the Company signed a twelve (12) month lease for new
office space in Vietnam. The Company pays an annual rent of $2,329
for office space and reception services. The company ended this
lease on June 29, 2017.
Kraig
Biocraft Laboratories, Inc.
Notes
to Financial Statements
As
of December 31, 2017 and 2016
On July
19, 2016 the Company signed a month to month lease for a production
facility in Indiana. The Company pays a monthly rent of $670 for
office space light industrial manufacturing space. In November 2017
the Company ended this lease.
Rent
expense for the year ended December 31, 2017 and 2016 was $19,800
and $9,845, respectively.
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 year ended December 31, 2017
and 2016 was $7,680 and $0, respectively (See Note 7).
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. For the year ended December 31, 2017 the Company paid
$9,800 for office and manufacturing space.
NOTE 7 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 Accounting Standards Codification No. 480,
Distinguishing Liabilities from Equity
,
the Company determined that the present value of the payment of
$120,000 that was due on December 26, 2007, one year anniversary of
the addendum, should be recorded as an accrued expense until such
time as the Company has the ability to assert that it has preferred
shares authorized. As of March 31, 2010, the Company has
recorded $120,000 in royalty agreement payable- related
party. On December 21, 2007 the officer extended the due
date to July 30, 2008. On May 30, 2008, the officer
extended the due date to March 31, 2009. On October 10,
2008, the officer extended the due date to the earlier of (a) March
30, 2010 or (b) upon demand by the officer. On March 30, 2010,
the officer extended the due date to the earlier of (a) March 30,
2010 or (b) upon demand by the officer. On September 8,
2009, a payment of $15,000 was paid to the officer. On October 19,
2009 and December 1, 2009, $10,000 was paid to the officer
respectfully. An additional payment of $10,000 was made
on January 15, 2010. During the quarter ending September
30, 2010 an additional payment of $8,000 was made. During the year
ended December 31, 2012 an additional payment of $1,000 was made.
During the year ended December 31, 2013 an additional payment of
$1,280 was made. During the year ended December 31,
2014, an additional loan of $572 was made. As
of December 31, 2017 the outstanding balance is
$65,292. Additionally, the accrued expenses are accruing
7% interest per year. As of December 31, 2017, the
Company recorded interest expense and related accrued interest
payable of $2,623.
On November 10, 2010, the Company entered into an addendum to the
employment agreement, with its CEO, effective January 1, 2011
through the March 31, 2016. The term of the agreement is a
five year period at an annual salary of $210,000. There
is a 6% annual increase. The employee is also to receive a 20%
bonus based on the annual based salary. Any stock, stock
options bonuses have to be approved by the board of directors. On
January 1, 2016, the agreement renewed with the same terms for
another 5 years with an annual salary of $297,889 for the year
ended December 31, 2016. Subsequently, on January 1, 2017 the
agreement renewed with the same terms for another 5 years with an
annual salary of $315,764 for the year ended December 31,
2017.
As of December 31,
2017 and 2016, the accrued salary balance is $1,707,804 and
$1,392,042, respectively.
On
January 23, 2015, the board of directors appointed Mr. Jonathan R.
Rice as its Chief Operating Officer. The employment agreement has a
term of one year and can be terminated by either the Company or Mr.
Rice at any time. Under the employment agreement, Mr. Rice is
entitled to an annual cash compensation of $120,000, which includes
salary, health insurance, 401K retirement plan contributions, etc.
The Company also agreed to reimburse Mr. Rice for his past
educational expenses of approximately $11,000. In addition, Mr.
Rice was issued a three-year warrant to purchase 2,000,000 shares
of common stock of the Company at an exercise price of $0.001 per
share pursuant to the employment agreement. Additionally, on May
28, 2015, the Company issued a three-year warrant to purchase
3,000,000 shares of common stock of the Company at an exercise
price of $0.001 per share. The warrant fully vests on October 28,
2016. On January 14, 2016 the Company signed a new employment
agreement with Mr. Rice, the COO. The employment agreement has a
term of one year and can be terminated by either the Company or Mr.
Rice at any time. Under the employment agreement, Mr. Rice is
entitled to an annual cash compensation of $140,000, which includes
salary, health insurance, 401K retirement plan contributions, etc.
In addition, Mr. Rice will be issued a three-year warrant to
purchase 6,000,000 shares of common stock of the Company at an
exercise price of $0.001 per share pursuant to the employment
agreement. For the year ended December 31, 2016, the Company
recorded $193,654 for the warrants issued to Mr Rice. For the year
ended December 31, 2017 the Company recorded $17,473 for the
warrants issued to Mr. Rice in 2016.
On May
28, 2015, the Company issued 3-year warrant for 3,000,000 shares to
a related party, with an exercise price of $0.001 per share. The
warrants were granted for services to be rendered. The warrants had
a fair value of $117,503, based upon the Black-Scholes
option-pricing model on the date of grant and vesting on October
28, 2016, and will be exercisable on May 28, 2018, and for a period
expiring on May 28, 2022. During the years ended of December 31,
2016 and 2015, the Company recorded $68,600 and $49,129 as an
expense for warrants issued to related party.
On
January 1, 2016, the Company issued 3-year warrant for 6,000,000
shares to a related party, with an exercise price of $0.001 per
share. The warrants were granted for services to be rendered. The
warrants had a fair value of $142,526, based upon the Black-Scholes
option-pricing model on the date of grant and vesting on February
20, 2017, and will be exercisable on February 20, 2018, and for a
period expiring on February 20, 2021. During the year ended
December 31, 2017, the Company recorded $17,473 as an expense for
warrants issued to related party.
Kraig
Biocraft Laboratories, Inc.
Notes
to Financial Statements
As
of December 31, 2017 and 2016
On June
6, 2016, the Company received $50,000 from a principal
stockholder. Subsequently on December 1, 2017, the Company
received an additional $30,000 from a principal stockholder.
Total loan payable to principal stockholder for the year
ended December 31, 2017 is $80,000. Pursuant to the terms of the
loans, the advances bear an interest at 3%, is unsecured and due on
demand. During the year ended December 31, 2016 the Company
recorded $1,425 as an in-kind contribution of interest related to
the loan and recorded accrued interest payable of $856 as of
December 31, 2016.
During the year
ended December 31, 2017 the Company recorded $2,623 as an in-kind
contribution of interest related to the loan and recorded accrued
interest payable of $1,621 as of December 31, 2017.
On
August 4, 2016 the Company issued a bonus of $20,000 payable to Mr.
Rice if he remains employed with the Company through March 31,
2018.
As of
December 31, 2016 there was $561,245 of accrued interest- related
party and $15,532 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.
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.
As
of December 31, 2017 and December 31, 2016, there was $184,439 and
$187,756, 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 December 31, 2017 there was $732,147 of accrued interest-
related party and $19,111 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.
On
January 23, 2017 the Company signed an 8 year property lease with
the Company’s President for land in Texas. The Company pays a
monthly rent of $960. Rent expense – related party for the
year ended December 31, 2017 and 2016 was $10,560 and $0,
respectively.
As
of December 31, 2017, the Company owes $1,707,804 in accrued salary
to principal stockholder, $23,354 to the Company’s COO, and
$3,554 to its office employees.
As of
December 31, 2016, the Company owes $1,392,041 in accrued salary to
principal stockholder, $20,000 to the Company’s COO, and $421
to its intern.
The
Company owes $65,292 in royalty payable to related party as of
December 31, 2017 and December 31, 2016.
NOTE 8 SUBSEQUENT EVENTS
In
preparing these financial statements, the Company has evaluated
events and transactions for potential recognition or disclosure
through March 23, 2018, the date the financial statements were
available to be issued.
On
January 8, 2018, the Company received $100,000 from a principal
stockholder. Pursuant to the terms of the loan, the advances bear
an interest at 3%, is unsecured and due on demand.
On
January 9, 2018, the Company extended the expiration date of a
warrant for 2,000,000 shares of common stock from January 19, 2018
to January 31, 2020 for an employee.
On
February 9, 2018, the Company issued a warrant for 3,000,000 share
of common stock to a consultant for services rendered.
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 5, 2018, the Company issued a board resolution authorizing
investment in a Vietnamese subsidiary and
appointing a
representative for the subsidiary.
On
March 15, 2018, the Company signed an extension of its at-will
employment agreement with its COO.
On
March 15, 2018,
the Company
received $15,000 from a principal stockholder. Pursuant to the
terms of the loan, the advances bear an interest at 3%, is
unsecured and due on demand.