Attached files
| file | filename |
|---|---|
| EX-23.1 - CONSENT OF WEBB & COMPANY, P.A. - Kraig Biocraft Laboratories, Inc | fs1a2ex23i_kraigbio.htm |
| EX-10.6 - ADDENDUM TO THE FOUNDERS STOCK PURCHASE AND INTELLECTUAL PROPERTY TRANSFER - Kraig Biocraft Laboratories, Inc | fs1a2ex10vi_kraigbio.htm |
As
filed with the Securities and Exchange Commission on January 25, 2009
Registration
Statement No. 333-162316
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
==================================
AMENDMENT
NO.
2
TO
FORM S-1REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
==================================
KRAIG BIOCRAFT LABORATORIES,
INC.
(Exact
Name of Small Business Issuer in its Charter)
|
Wyoming
|
2820
|
83-0459707
|
|
(State
of Incorporation)
|
(Primary
Standard Classification Code)
|
(IRS
Employer ID No.)
|
120
N. Washington Square, Suite 805,
Lansing,
Michigan 48933
(517)
336-0807
(Address and Telephone
Number of Registrant’s Principal
Executive
Offices and Principal Place of Business)
Kim
Thompson, CEO
Kraig
Biocraft Laboratories, Inc.
120
N. Washington Square, Suite 805,
Lansing,
Michigan 48933
(517)
336-0807
(Name,
Address and Telephone Number of Agent for Service)
Copies of
communications to:
Fox
Law Offices, P.A.
c/o
131 Court Street, # 11
Exeter,
NH 03833
(603)
778-9910
Approximate
date of commencement of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act of 1933, please check the following box and list
the Securities Act registration Statement number of the earlier effective
registration statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer
o
|
Accelerated
filer
o
|
|
|
Non-accelerated
filer o
(do not check if a smaller reporting company)
|
Smaller
reporting company
x
|
CALCULATION
OF REGISTRATION FEE
|
Title
of Each Class Of Securities to be Registered
|
Amount
to be
Registered
(1)
|
Proposed
Maximum
Aggregate
Offering
Price
per
share (2)
|
Proposed
Maximum
Aggregate
Offering
Price (3)
|
Amount
of
Registration
fee
|
||||||||||||
|
Class
A Common Stock, no par value
|
63,600,000
|
$
|
0.0165
|
$
|
1,049,400
|
$
|
81.48(4)
|
|||||||||
(1) In the event of a stock split, stock dividend, or similar transaction involving the common stock, the number of shares registered shall automatically be increased to cover the additional shares of common stock issuable pursuant to Rule 416 under the Securities Act. The amount of shares to be registered represents the Company’s good faith estimate of the number of shares that the registrant may issued pursuant to a Letter Agreement with the selling security holder.
(2) The
proposed maximum offering price per share and the proposed maximum aggregate
offering price have been estimated solely for the purpose of calculating the
amount of the registration fee in accordance with Rules 457(c) and 457(h) under
the Securities Act of 1933 on the basis of the average of the high and low
prices of the Common Stock on the OTC Bulletin Board on September 28, 2009, a
date within five (5) trading days prior to the date of the filing of this
Registration Statement.
(3) This
amount represents the maximum aggregate market value of common stock which may
be put to the selling shareholder by the registrant pursuant to the terms and
conditions of a Letter Agreement between the selling shareholder and the
registrant.
(4) Fee
previously paid.
The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
securities act of 1933 or until the registration statement shall become
effective on such date as the commission, acting pursuant to said section 8(a),
may determine.
|
The
information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and no offer to buy these securities is
being solicited in any state where the offer or sale is not
permitted.
PRELIMINARY
SUBJECT TO COMPLETION, DATED JANUARY 25,
2009
PROSPECTUS
KRAIG
BIOCRAFT LABORATORIES, INC.
63,600,000
shares of Class A Common Stock
This
prospectus
relates to the resale of up to 63,600,000 shares of the common stock of
Kraig Biocraft Laboratories, Inc., a Wyoming corporation, which shares
will be offered and sold by the selling shareholder, Calm Seas Capital,
LLC, a Nevada limited liability company (“Calm Seas”), pursuant to a “put
right” under a letter agreement for an Equity Line of Credit, that we
entered into with Calm Seas on July 17, 2009 as amended on September 14,
2009 (the “Letter Agreement”). The Letter Agreement permits us to “put” up
to an aggregate of one million dollars ($1,000,000) in shares of our Class
A common stock to Calm Seas during a two year period ending
on the second anniversary of the effective date of the
registration statement in which this prospectus is
contained. We will not receive any proceeds from the sale of
these shares of our Class A common stock. However, we will receive
proceeds from the sale of securities pursuant to our exercise of the put
right offered by Clams Seas under the Letter Agreement. We will
bear all costs associated with this registration.
Calm
Seas is an “underwriter” within the meaning of the Securities Act of 1933,
as amended (the “Securities Act”) in connection with the resale of our
Class A common stock sold to it by our exercise of the put right under the
Letter Agreement. Each month we may put up to $75,000 of our
Class A common stock to Calm Seas, which will purchase such shares at a
price per share equal to 80% of the lowest closing bid price of our Class
A common stock during the five consecutive trading days immediately
following the date the notice of our election to put shares pursuant to
the Letter Agreement is delivered to Clam Seas (the date of delivery of
such notice is referred to as the “put date”). Notwithstanding
the $75,000 ceiling for each monthly put, if both we and Calm Seas agree,
we may submit one or more additional puts during any given month to the
extent we need additional capital for our operations and/or our product
development. We can only submit such additional put(s) if Calm
Seas Capital agrees to it. Furthermore, the additional put is
subject to the $1,000,000 limitation of this offering. The
additional put allows us to obtain additional capital in the event that
our product development proceeds quicker than we expect.
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 put date.
Our
shares of Class A common stock are traded on the Over-the-Counter Bulletin
Board (the “OTCBB”) under the symbol “KBLB” On January 20, 2010 , the closing sale price of our
common stock was $0.0 13 per
share.
This
investment involves a high degree of risk. You should purchase shares only
if you can afford a complete loss. See "Risk Factors" beginning on page
5.
Our
principal executive offices are located at 120 N. Washington Square, Suite
805, Lansing, Michigan 48933. Our telephone number is (517)
336-0807.
Neither
the Securities and Exchange Commission nor any state securities commission
has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The
Date of This Prospectus Is: _______ __, 2010
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You
should rely only on the information contained in this prospectus. We
have not, and the selling security holder has not, authorized anyone to provide
you with different information. If anyone provides you with different
information, you should not rely on it. We are not, and the selling
security holder is not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should
assume that the information contained in this prospectus is accurate only as of
the date on the front cover of this prospectus. Our business,
financial condition, results of operations and prospects may have changed since
that date. In this prospectus, “Kraig”, “Kraig Biocraft” “KBLB”, “the Company”,
“we”, “us” and “our” refer to Kraig Biocraft Laboratories, Inc., a Wyoming
corporation, unless the context otherwise requires.
This
summary highlights selected information contained elsewhere in this
prospectus. This summary does not contain all the information that
you should consider before investing in the common stock. You should
carefully read the entire prospectus, including “Risk Factors”, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and
the Consolidated Financial Statements, before making an investment decision .
About
Our Company
We are
Kraig Biocraft Laboratories, Inc., a corporation organized under the laws of
Wyoming on April 25, 2006. We were organized to develop high
strength, protein-based 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, heat resistance and/or chemical
resistance. The specialty fiber market is dominated by two synthetic
fiber products: aramid fibers and ultra high molecular weight
polyethylene fiber. Examples of these synthetic fibers include
Kevlar® and Spectra®. 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 have
collaboration agreements with University of Notre Dame and the University of
Wyoming that give us the exclusive use of certain intellectual property for
developing transgenic silkworms to produce spider silk fibers in commercially
viable quantities. We are using these genetic engineering
technologies to develop fibers with greater strength, resiliency and flexibility
for use in our target markets, namely the specialty fiber and technical textile
industries. Our agreement with the University of Notre Dame has
lapsed. However, we are finalizing the negotiation of a new agreement
with Notre Dame which is on substantially the same terms as the agreement that
has expired. This new agreement is currently going through the
approval procedures at the University of Notre Dame. Based on the
Emails from our contacts at Notre Dame and our past dealings with Notre Dame, we
expect the new agreement with Notre Dame will be signed prior to January 31,
2010. If we were unable to renew our agreement with Notre Dame, we
would work with a different university laboratory, such as the University of
Wyoming. Michigan State University or the University of Michigan are
also possible candidates. There would be some additional cost and
loss of time if we had to restart our research with another university
laboratory. We estimate that it would be an approximate six (6) month
time loss and an additional research cost of $60,000 to $130,000 if we had to
move the Notre Dame research operation to another university and use new
laboratory personnel. Even if we do not renew our research agreement
with the University of Notre Dame, we would be able to continue to license Notre
Dame’s piggybac gene splicing technology under a separate, new licensing
agreement at an estimated annual cost of $15,000. If we were unable to
secure a license for Notre Dame’s gene splicing technology, we would have to
switch to an alternative gene splicing technology, which would probably result
in a loss of an additional 90 days. The cost of licensing such
alternative gene splicing technology would be at a comparable cost as licensing
Notre Dame’s piggybac gene splicing technology.
We are
currently in the first stage of our development, which is to develop a
transgenic silkworm that can produce a recombinant spider silk fiber by
inserting genetic sequences into ordinary silkworms using patented genetic
engineering technology under our license and collaboration agreements with the
University of Norte Dame and the University of Wyoming. The proceeds
from the offering, as described below, will be used to fund this first stage,
which we expect to complete by October 1, 2011.
As of the
date of this prospectus, we have not generated any revenues from our development
activities. To date, we have generated an accumulated deficit of
$1.59 million. As of September 30, 2009 we had $34,119 in cash (which
are the remaining proceeds from a bridge financing that we closed prior to the
initial filing of the registration statement in which this prospectus is
contained). Our cash balance is not sufficient to advance our
research and development obligations under our agreements with The Universities
of Norte Dame and Wyoming. Both universities have indicated to us
that they desire to continue their respective collaborative efforts with us,
with the expectation that we will be able to raise capital under the Equity Line
of Credit to fund our research and development efforts. We have also
received a going concern opinion from our independent registered accounting firm
in its audit report for our fiscal year ended December 31, 2008.
Approximately
95% of the proceeds from the equity line of credit will be used for expenses
that are non-discretionary, such as employee salaries, the costs of our research
and development obligations under the pending agreement with the University of
Notre Dame, the costs related to our operation as a public company (primarily,
legal and accounting fees) as well legal fees for securing our intellectual
property, rent and telecommunications (phone, fax and
Internet). Consequently, we believe that it is highly likely that we
will use all $1,000,000 of the proceeds we expect to raise from the equity line
of credit. We also expect to be able to raise the full $1,000,000
from the equity line of credit. We believe the results of our
research and development efforts will help increase our stock price and,
therefore, reduce the number of shares we will need to put to Calm Seas in order
to raise the full $1,000,000 in gross proceeds we are seeking to raise under the
equity line of credit. In the event that we do not have positive
results from our research and development during the 24 month term of the equity
line of credit, we believe it will be unlikely that we will raise the full
$1,000,000 in gross proceeds under the equity line of credit. In the
event that we raise substantially less than the maximum proceeds we expect to
raise under the equity line of credit by the expiration of its 24 month term, we
will seek to
extend or renew the equity line of credit with Calm Seas Capital
to raise the short-fall additional revenue on substantially the same terms as
under the September 14, 2009 letter agreement. If Calm Seas Capital
is unwilling or unable to enter into such an arrangement, we will be forced to
raise additional capital from other investors. Alternatively, if our
research yields some promising or positive results, we may seek a corporate
partner in a joint venture or licensing arrangement in which we would seek to
negotiation an upfront licensing fee and/or capital investment from such
corporate partner. We have not yet identified any corporate
partners for any such joint venture or licensing arrangement.
Recent
Developments
On
November 20, 2009, Kim Thompson, our President and Chief Executive Officer,
concluded that our previously issued financial statements for the period ended
June 30, 2009 should no longer be relied upon because we did not account for a
derivative liability associated with the CEO’s employment agreement.
Specifically, the employment agreement gives the CEO the option to convert his
past due salary into shares of our common stock at a variable rate based on the
fair value of the stock. The effect on the financial statements was
an increase in liabilities and net loss of $3,572,747. Our
independent auditor, Webb & Company, P.A. was informed of the matters
disclosed above. We filed a Current Report on Form 8-K to report this
determination made by our President and Chief Executive Officer.
On
November 24, 2009, we filed an Amendment No. 1 to our Quarterly Report on
Form 10-Q for the quarter ended June 30, 2009 to restate the financials and to
update the disclosures regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934. In this amendment to our Quarterly
Report, we amended our financial statements and our Management’s Discussion and
Analysis of Financial Condition. Specifically we amended the
financial statements and supplementary data in the June 30, 2009 Form 10-Q to
properly account for the embedded derivative liability associated with our CEO’s
employment agreement.
On
November 23, 2009, we filed our Quarterly Report for the quarter ended September
30, 2009. For the three and nine month periods ended September 30,
2009, we did not have any revenues. Further we do not anticipate any
sales during the next twelve months ending September 30, 2010 as will remain the
development stage.
Our
operating expenses for the three and nine moth periods ended September 30, 2009
was $84,731 and $302,907, respectively. Such amounts represented an
increase of $12,733 and $26,065, respectively, from the same periods in
2008. The increase in operating expenses was primarily the result of
higher general and administrative expenses and higher professional
fees.
We had
other income/expenses of $532,558 and ($3,058,381) for the three and nine months
ended September 30, 2009, respectively, all of which was due to (i) interest
expense of $10,898 and $29, 090 and (ii) the recognition of derivative
income/expense of $543,546 and ($3,029,291) for the convertible accrued salary
owed to the CEO, for the three and nine months ended September 30, 2009,
respectively.
As of
September 30, 2009 we had $34,119 in cash compared to $9,537 as of December
31, 2008.
We
believe we can not satisfy our cash requirements for the next twelve months with
our current cash. Completion of our plan of operation is subject to
attaining adequate financing.
Where
You Can Find Us
Our
principal executive office location and mailing address is 120 N. Washington
Square, Suite 805, Lansing, Michigan 48933. Our corporate telephone
number is (517) 336-0807
The
Offering
This
prospectus relates to the resale of up to 63,600,000 shares of our Class A
common stock that may be issued to Calm Seas pursuant to a “put right” under a
letter agreement for an Equity Line of Credit, that we entered into with Calm
Seas on July 17, 2009 as amended on September 14, 2009 (together, as amended,
the “Letter Agreement”).
For the
purpose of determining the number of shares of common stock to be offered by
this prospectus, we have assumed that we will issue not more than 63,600,000
shares pursuant to the exercise of our put right under the Letter Agreement,
although the number of shares that we will actually issue pursuant to that put
right may be significantly less than 63,600,000,
depending on the trading price of our Class A common stock.
The
Letter Agreement with Calm Seas provides that over a 24 month period we may put
to Calm Seas up to an aggregate of $1,000,000 in shares of our Class A common
stock for a purchase price equal to 80% of the lowest closing “bid” 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 only put shares at the
beginning of each calendar month, unless Calm Seas accepts an additional put (as
described below). The dollar value that we will be permitted to put
each month 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) $75,000. 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.
On the
seventh business day after we deliver our put notice to it, Calm Seas will
purchase the number of shares share set forth in the put notice at the dollar
value set forth in the put notice by delivering such amount to us by wire
transfer.
Notwithstanding
the $75,000 ceiling for each 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 a monthly put 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.
Calm Seas
has indicated that it will resell those shares in the open market, resell our
shares to other investors through negotiated transactions, or hold our shares in
its portfolio. This prospectus covers the resale of our stock by Calm Seas
either in the open market or to other investors through negotiated transactions.
Calm Seas’ obligations under the Letter Agreement are not transferrable and this
registration statement does not cover sales of our common stock by transferees
of Calm Seas.
Except as
described above, there are no other conditions that must be met in order for
Calm Seas to be obligated to purchase the shares set forth in the put
notice.
The
Letter Agreement will terminate when any of the following events
occur:
|
·
|
Calm
Seas has purchased an aggregate of $1,000,000 of our Class A common stock;
or
|
|
·
|
The
second anniversary of the effective date of the registration statement
covering our equity line of credit with Calm
Seas.
|
As we
draw down on the Equity Line of Credit, shares of our Class A common stock will
be sold into the market by Calm Seas. The sale of these additional shares
could cause our stock price to decline. In turn, if the stock price
declines and we issue more puts, more shares will come into the market, which
could cause a further drop in the stock price. You should be aware that
there is an inverse relationship between the market price of our Class A common
stock and the number of shares to be issued under the Equity Line of Credit.
If our stock price declines, we will be required to issue a greater number
of shares under the Equity Line of Credit. We have no obligation to
utilize the full amount available under the Equity Line of Credit.
Terms
of the Offering
|
Class
A common stock offered:
|
Up
to 63,600,000 shares of Class A common stock, no par value, to be offered
for resale by Calm Seas.
|
|
Class
A common stock to be outstanding
before
this offering:
|
513,377,924
shares
|
|
Common
stock to be outstanding
after
this offering:
|
576,977,924
shares
|
|
Use
of proceeds:
|
We
will not receive any proceeds from the sale of the shares of Class A
common stock. However, we will receive proceeds from the Equity Line of
Credit. See “Use of Proceeds”.
|
|
Risk
factors:
|
An
investment in our Class A common stock involves a high degree of risk. See
“Risk Factors” beginning on page 5 of this
prospectus.
|
|
OTC
Bulletin Board symbol:
|
“KBLB”
|
The
following table provides summary financial statement data of Kraig Biocraft
Laboratories, Inc. The interim financial data for the nine-month
period ended September 30, 2009 and for the period April 25, 2006 (date of
inception) to September 30, 2009 are unaudited. The financial statement data for
the year ended December 31, 2008 has been derived from our audited financial
statements. The data set forth below should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” our financial statements and the related notes included in this
prospectus, and the unaudited financial statements and related notes included in
this prospectus.
|
For
the Nine Months
Ended
September
30, 2009
|
For
the Year
Ended
December
31, 2008
|
From
Inception
through
September
30, 2009
|
||||||||||
|
(Unaudited)
|
(Audited)
|
(Unaudited)
|
||||||||||
|
Net
Sales
|
$
|
--
|
$
|
--
|
$
|
--
|
||||||
|
Total
Operating Expenses
|
$
|
302,907
|
$
|
355,647
|
$
|
1,661,085
|
||||||
|
Loss
from Operations
|
$
|
(302,907
|
) |
(355,647
|
)
|
$
|
(1,661,085)
|
|||||
|
Net
loss
|
$
|
(3,361,288
|
) |
$
|
(306,104
|
)
|
$
|
(4,724,699
|
)
|
|||
|
Loss
Per Share – Basic and Diluted
|
$
|
(0.00)
|
$
|
(0.01)
|
||||||||
|
As
of
September
30, 2009
|
As
of
December31,
2008
|
|||||||
|
BALANCE
SHEET DATA:
|
(Unaudited)
|
(Audited)
|
||||||
|
Cash
|
$
|
34,119
|
$
|
9,537
|
||||
|
Total
assets
|
$
|
63,663
|
$
|
12,660
|
||||
|
Total
liabilities – related party
|
$
|
673,252
|
$
|
485,211
|
||||
|
Total
Current Liabilities
|
$
|
3,779,193
|
$
|
550,961
|
||||
|
Total
Liability
|
$
|
3,783,252
|
$
|
550,561
|
||||
|
Stockholders’
equity (deficit)
|
$
|
(3,719,589
|
)
|
$
|
(538,301
|
)
|
||
An
investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below and the other information in this
prospectus before investing in our common stock. If any of the following risks
occur, our business, operating results and financial condition could be
seriously harmed. Please note that throughout this prospectus, the words “we”,
“our” or “us” refer to the Company and its subsidiary not to the selling
stockholders.
Risk
Related to Our Company
The
report of the independent registered public accounting firm on our 2008
financial statements contains a going concern modification.
The
report of the independent registered public accounting firm covering our
consolidated financial statements for the years ended December 31, 2008 and
December 31, 2007 stated that certain factors, including that we are a
development stage company and we have a working capital and shareholder equity
deficit, raise substantial doubt as to our ability to continue as a going
concern.
We
may be unable to maintain an effective system of internal controls and
accurately report our financial results or prevent fraud, which may cause our
current and potential stockholders to lose confidence in our financial reporting
and adversely impact our business and our ability to raise additional funds in
the future.
Effective
internal controls are necessary for us to provide reliable financial statements
and effectively prevent fraud. We have no internal accounting
staff. As we noted in our annual report on Form 10-K for the year
ended December 31, 2008, we reported that our internal control over financial
reporting was not effective for the purposes for which it is intended because we
had a material weaknesses: We did not have a system in place to
ensure all of our consulting agreements are timely reconciled to the financial
statements. Though we have taken some steps to we have taken steps to
address our material weaknesses in our internal control over financial
reporting, including education of management of disclosure requirements and
financial reporting controls, we still have not eliminated the material
weakness in our internal controls over financial reporting. If we
cannot provide reliable financial statements or prevent fraud, our operating
results and our reputation could be harmed as a result, causing stockholders
and/or prospective investors to lose confidence in management and making it more
difficult for us to raise additional capital in the future.
In our
“Management's Annual Report on Internal Control Over Financial Reporting” that
appeared in our annual report on Form 10-K for the year ended December 31, 2008,
we reported that our internal control over financial reporting was not effective
for the purposes for which it is intended based on the following material
weaknesses:
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We
do not have a system in place to ensure all of our consulting agreements
are timely reconciled to the financial
statements.
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We
continue to have this material weakness, as evidenced by the fact that we did
not properly account for derivative liability associated with our CEO’s accrued
salary during 2009. As reported in our most recent Quarterly Report
we had taken the following remediation steps to help address our material
weaknesses in our internal control over financial reporting:
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We
will continue to educate our management personnel to comply with the
disclosure requirements of Securities Exchange Act of 1934 and Regulation
S-K; and
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2.
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We
will increase management oversight of accounting and reporting functions
in the future.
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We
anticipate that our material weakness in our internal control over financial
reporting will be remediated once we have sufficient capital to hire full time
accounting personnel, which we expect may occur by the end of 2010.
We
currently do not have any patent rights in the products we are seeking to
develop and we currently license the genetic sequences and genetic engineering
technology we need to develop our products. If any third party
challenges our claim to intellectual property rights in the fiber products we
are seeking to develop or the intellectual property rights that we license, our
business may be materially harmed
We have
no patents or design patents on any of the fiber products we are seeking to
develop. It is possible that the fiber products we are seeking to
develop could be imitated or directly manufactured and sold by a
competitor. In addition, some or all of our research, development
ideas and proposed products may be covered by patent rights held by some other
entity. In that event, we could incur devastating liability and be
forced to cease operations.
We have
entered into an intellectual property licensing agreement with Notre Dame and
the University of Wyoming. Pursuant to these licensing agreements, we
have obtained certain exclusive rights to use intellectual property and genetic
sequences owned by these universities. However, we have no guarantee
of the viability of these intellectual property rights or the rights that we
have licensed do not infringe on the legal rights of third
parties. The intellectual property rights that we have licensed could
be challenged or voided or that the licensed intellectual property is worthless
and without utility. We may also need to license
additional
intellectual property from persons or entities in order to successfully complete
our research and development, and we cannot be certain that we would be able to
enter into a license agreement with such persons or entities. In
which event our operations will be adversely affected and our prospects
negatively affected. Our agreement with the University of
Notre Dame has lapsed but we are in the process of renewing that agreement which
we expect will be renewed by December 31, 2009 on substantially the same terms
as the prior agreement.
Existing
stockholders could experience substantial dilution upon the issuance of Class A
common stock pursuant to an equity line we have with Calm Seas
Capital.
Under our
the equity line of credit set forth in the Letter Agreement with Calm Seas
Capital, we may put up to $75,000 of our Class A common stock to Calm Seas per
month. Notwithstanding the $75,000 ceiling for each monthly put, if
both we and Calm Seas agree, we may submit one or more additional puts during
any given month to the extent we need additional capital for our operations
and/or our product development. When we exercise our put Calm Seas
will purchase such shares at a price per share equal to 80% of the lowest
closing bid price of our Class A common stock during the five consecutive
trading days immediately following the put date (as defined on page 2 of this
prospectus). Our equity line with Calm Seas Capital contemplates our
future possible issuance of up to an aggregate 63,600,000 shares of our Class A
common stock as a result of this registration statement, subject to certain
restrictions. Currently, we believe it is likely we will need to draw
the full amount available under this equity line prior to the expiration of the
equity line. If the terms and conditions of the equity line are satisfied, and
we choose to exercise our put rights to the fullest extent permitted and sell
all of the 63,600,000 shares of our common stock to Calm Seas Capital, the
ownership by our existing non-affiliate stockholders will be diluted by
approximately 33% based on 192,752,424 shares of Class A common stock held by
non-affiliates on November 16, 2009. Additionally, if we are unable
to raise $1,000,000 in proceeds from the sale of the entire 63,600,000 shares to
Calm Seas Capital under the equity line of credit, we will seek to extend or
renew the equity line of credit with Calm Seas Capital to raise the short-fall
additional revenue on substantially the same terms as under the September 14,
2009 letter agreement. If Calm Seas Capital is unwilling or unable to
enter into such an arrangement, we will be forced to raise additional capital
from other investors. In either such cases, we expect that we
would have to issue a significant number of additional shares that would further
dilute existing shareholders.
We
may not successfully manage any growth that we may experience.
Our
future success will depend upon not only product development but also on the
expansion of our operations and the effective management of any such growth,
which will place a significant strain on our management and on our
administrative, operational, and financial resources. To manage any such growth,
we must expand our facilities, augment our operational, financial and management
systems, and hire and train additional qualified personnel. If we are unable to
manage our growth effectively, our business would be harmed as our growth could
be adversely affected by such mismanagement.
Our
initial development of recombinant silk fiber from the transgenic silkworm and
other product development programs depend upon third-party researchers who are
outside our control.
We depend
upon independent researchers and collaborators, such as universities and their
staff, to conduct our development of a transgenic silkworm and recombinant silk
polymers, such as spider silk. Such researchers and collaborators
perform services under agreements with us. Such agreements are often
standard-form agreements typically not subject to extensive
negotiation. These researchers or collaborators are not our
employees, and in general we cannot control the amount or timing of resources
that they devote to our product development programs. These researchers
and collaborators may not assign as great a priority to our programs or pursue
them as diligently as we would if we were undertaking such programs ourselves.
If outside collaborators fail to devote sufficient time and resources to our
transgenic silkworm development and our product development programs, or if
their performance is substandard, our introduction of protein based fiber
products will be delayed or may not result at all. These researchers
and collaborators may also have relationships with other commercial entities,
some of whom may compete with us.
If
conflicts arise with our collaborators, they may act in their self-interests,
which may be adverse to our interests.
Conflicts
may arise in our collaborations we have entered into or may enter into due to
one or more of the following:
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disputes
with respect to payments that we believe are due under a collaboration
agreement;
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disagreements
with respect to ownership of intellectual property
rights;
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unwillingness
on the part of a collaborator to keep us informed regarding the progress
of its development and commercialization activities, or to permit public
disclosure of these activities;
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delay
of a collaborator’s development or commercialization efforts with respect
to our product development; or
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termination
or non-renewal of the
collaboration.
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In
addition, in our collaborations, we may be required to agree not to conduct
independently, or with any third party, any research that is competitive with
the research conducted under our collaborations. Our collaborations may have the
effect of limiting the areas of research that we may pursue, either alone or
with others. Our collaborators, however, may be able to develop, either alone or
with others, products in related fields that are competitive with the products
or potential products that are the subject of these collaborations.
If
we lose the services of key management personnel, we may not be able to execute
our business strategy effectively.
Our
future success depends in a large part upon the continued service of our founder
and sole officer and director, Kim Thompson. Mr. Thompson is critical
to our overall management as well as the development of our technology, our
culture and our strategic direction. We do not maintain a key-person life
insurance policy on Mr. Thompson. The loss of Mr. Thompson would
materially harm our business.
As
our business grows, we will need to hire highly skilled personnel and, if we are
unable to retain or motivate hire additional qualified personnel, we may not be
able to grow effectively.
Our
performance will be largely dependent on the talents and efforts of highly
skilled individuals. Our future success depends on our continuing ability
to identify, hire, develop, motivate, and retain highly skilled personnel for
all areas of our company. Despite the current economic conditions,
competition in our industry for qualified employees remains intense as the
skills we require in our employees are highly specialized. We compete
with companies in the biotechnology and pharmaceutical industries that seek to
retain scientists with genetic engineering experience and
expertise. Competition for qualified individuals remains intense
despite the current economic conditions, which have somewhat softened demand for
qualified personnel. However, we expect that over the longer term we will
continue to face stiff competition and may not be able to successfully recruit
or retain such personnel. Attracting and retaining qualified personnel will be
critical to our success.
If
we are unable to establish sales and marketing capabilities or enter into
agreements with third parties to sell and market any products we may develop, we
may not be able to generate product revenue.
We do not
currently have an organization for the sales, marketing and distribution of any
fiber products that we expect to develop. In order to market any
products that may be develop, we must build our sales, marketing, managerial and
other non-technical capabilities or make arrangements with third parties to
perform these services. In addition, we have no experience in developing,
training or managing a sales force and will incur substantial additional
expenses in doing so. The cost of establishing and maintaining a
sales force may exceed its cost effectiveness. Furthermore, we will
compete with many companies that currently have extensive and well-funded
marketing and sales operations. Our marketing and sales efforts may
be unable to compete successfully against these companies. If we are
unable to establish adequate sales, marketing and distribution capabilities,
whether independently or with third parties, we may not be able to generate
product revenue and may not become profitable.
We
are a development stage company, and we may be unable to generate significant
revenues and may never become profitable.
We are a
development stage company that has not generated any revenues to date. We
expect to incur significant research and development costs for the foreseeable
future. We may not be able to successfully achieve a transgenic
silkworm and/or successfully market fiber products we produce in the future that
will generate significant revenues. In addition, any revenues that we may
generate may be insufficient for us to become profitable.
In
particular, potential investors should be aware that we have not proven that we
can:
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raise
sufficient additional capital in the public and/or private markets to
continue the development of the transgenic silkworm, demonstrate the
ability to produce commercial volumes of recombinant silk fibers or
product effective polymer fibers using such recombinant silk
fibers;
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develop
and manufacture specialty fibers achieve market
acceptance;
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develop
and maintain relationships with key vendors that will be necessary to
optimize the market value of the fibers we
develop;
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maintain
relationships with strategic partners that will be necessary to
manufacture the fibers we develop or develop relationships with potential
strategic partners which may license or distribute fiber products that we
develop;
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respond
effectively to competitive pressures;
or
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recruit
and build a management team to accomplish our business
plan.
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If we are
unable to accomplish these goals, our business is unlikely to
succeed.
As
a result of our limited operating history, we may not be able to correctly
estimate our future operating expenses, which could lead to cash
shortfalls.
We have a
limited operating history from which to evaluate our business. We have not
generated any revenues to date, and we have not produced a transgenic silkworm
nor have we demonstrated the viability of our technology. Our failure
to develop a transgenic silkworm would have a material adverse effect on our
ability to continue operating. Accordingly, our prospects must be
considered in light of the risks, expenses, and difficulties frequently
encountered by companies in an early stage of development. We may not be
successful in addressing such risks, and the failure to do so could have a
material adverse effect on our business, operating results and financial
condition.
Because
of this limited operating history and because of the emerging nature of our
fiber product we are seeking to develop, our historical financial data is of
limited value in estimating future operating expenses. Our budgeted
expense levels are based in part on our expectations concerning future
revenues. However, our ability to generate any revenues depends largely on
our ability to (i) develop a transgenic silkworm and (ii) create polymer fibers
from the silk created by such transgenic silkworms. Moreover, even if we
successfully develop a transgenic silkworm and polymer fibers from recombinant
silk fibers, the size of any future revenues depends on the market acceptance of
such fibers we develop, which is difficult to forecast
accurately.
Our
operating results may fluctuate as a result of a number of factors, many of
which are outside of our control. For these reasons, comparing our
operating results on a period-to-period basis may not be meaningful, and you
should not rely on our past results as any indication of our future
performance. Our quarterly and annual expenses are likely to increase
substantially over the next several years depending upon the level of fiber
development activities. Our operating results in future quarters may
fall below expectations. Any of these events could adversely impact our
business prospects and make it more difficult to raise additional equity capital
at an acceptable price per share.
We
have limited intellectual property protection in overseas markets, which could
affect our ability to grow our markets and increase our revenue.
The
intellectual property that we licensed from Notre Dame and the University of
Wyoming is covered by a series of US patents and US patent applications with
limited or no international patent protection. Overseas competitors
could be using the same technology that we have licensed, which would affect our
ability to expand our markets beyond the United States. We are aware
that laboratories and potential competitors overseas are using the “piggyback”
gene splicing technology for the genetic modification of
silkworm. Such limited overseas intellectual property could affect
our ability to introduce fiber products in overseas markets or effectively
compete in such markets.
The
patents underlying our license agreements could expire prior to our
commercializing our specialty fibers, which would result in the loss of our
competitive edge and could negatively impact our revenues and results of
operations.
The
patent rights that we license could expire before we are ready to market or
commercialize any fiber product, or while we are still in research and
development of proposed products. In which event the patents would be
worthless and would not protect us from potential competitors who would then
have low barriers to entry and who would be in a position to compete more
effectively with us.
Our
license agreements restrict us from developing products for certain
markets.
Some, but
not all, of the gene sequences that we have licensed from Notre Dame and the
University of Wyoming are covered by restrictions in the licensing agreement
which preclude their use by us for sporting goods and medical
applications.
We
have not registered any trademark rights for products we are seeking to develop
and we therefore have to rely on common law trademark protection until we
register our trademark.
Our
research, proposed products, product names, labels, signage and advertising
material, are not protected by any registered trademark rights or may be subject
to an expired trademark registration. We could be forced by
litigation, or threat of litigation, to abandon our product names, labels,
signage, advertising material, and even our research. In such event
we could incur substantial material expense, and could lose the value of
marketing and promotional work and our research performed up to that
date. These losses would be in addition to the loss resulting from
the payment of an award of damages to the party instituting or threatening
litigation. Such additional expenses could have an adverse effect on
the results of our operations, which could negatively affect our stock
price.
Our
management has no previous experience in developing, marketing or selling
recombinant fiber which may have a negative effect on our ability to
develop or sell our products.
We are
recently formed corporation. Our current management has no previous
experience in developing, marketing or selling recombinant fiber and the other
products that we intend to develop and market. Additionally, our
current management has no experience in the business of scientific research and
development, which is critical to our success. The inexperience of
our management may negatively affect our ability to succeed in developing,
marketing and/or distributing our proposed products.
We are unprepared for technological
changes in our industry, which could result in our products being obsolete or
replaced by better technology.
The
industry in which we participate is subject to rapid
business and technological changes. The business, technology,
marketing, legal and regulatory changes that could occur may have a material
adverse impact on us. New inventions and product innovations may make
our proposed products obsolete. Other researches may develop and
patent technologies which make our line of research obsolete. We may
not have the financial or technical ability to keep up with its
competitors.
Our business is based on unproven
scientific research and makes our business highly risky.
We are
engaging in research and development of new recombinant silk
fibers. Due to the speculative nature of this scientific research,
our chances of success are speculative and we cannot be certain that we will
succeed in developing new fibers or that our use of novel transgenic methods
will be successful. An investment in us, therefore, is highly
speculative and risky.
The fibers we develop could expose us
to product liability claims and government regulation, which could have a
negative impact on our results of operations.
The
fibers we are seeking to develop may subject us to product liability claims if
widely used, including but not limited to design defect, environmental hazards,
quality control, and durability of product. This potential liability
is increased by virtue of the fact that our products in development may be used
as protective and safety materials. There is tremendous potential
liability to any person who is injured by, or while using, one of our
products. As a manufacturer, we may be strictly liable for any damage
caused by our products. This liability might not be covered by
insurance, or may exceed any coverage that we may obtain.
Additionally,
our products, if successfully developed, will be produced by means of genetic
engineering. These transgenic methods may carry inherent
environmental risks and the production of the products may therefore also be
heavily regulated by the government. We may face changes in
governmental regulation polices and practices which could have a significant
adverse effect on us and our ability to develop, produce and market any
products.
Our operations would be negatively
affected by any dispute with our partner Universities or by labor unrest (such
as disputes, strikes or lockouts) between such Universities and its academic
staff.
We have
signed intellectual property, sponsored research and collaborative research
agreements with one or more universities. The continued cooperation
of university(s), as well as the cooperation of other institutions and or
universities is essential for our success of the Company. In the event of a
material dispute with the university(s), such a dispute could create a cessation
of operations for a period of time that could be detrimental to our operations
and survival. Additionally, in the event of a material dispute
between such universities and its employees could create a cessation of
operations for period of time that could be detrimental to our product
development.
Unforeseen circumstances may require
us to use the proceeds from the Equity Line of Credit in a manner not set forth
in the Use of Proceeds section of this prospectus.
We have
disclosed an itemized Use of Proceeds, and thus, we have disclosed how our
management intends to administer the proceeds from the equity line of
credit. Management does intend to use the proceeds from this
offering, in part, to pay off some of unpaid salary we owe to our Chief
Executive Officer (which we have accounted for as an accrued expense and which
amount bears interest at the rate of seven percent per annum and is due on
demand by our Chief Executive Officer) and accounts payable, including
contractual obligations associated with this offering. However,
results of our research and development may not go as we hope and we may have to
conduct further research and development that we currently do not expect that we
will have to do. In such event,, the funds used for these purposes
will require us to raise additional capital.
Our competitors are larger
competitors with greater financial resources than we have and we may face
increased competition due to the low barriers of entry to our
industry.
We
compete directly with numerous other companies with similar product lines and/or
distribution that have extensive capital, resources, market share, and brand
recognition. There are few barriers to entry on the industry in which
we compete. This creates the strong possibility of new competitors
emerging, and of others succeeding in developing the same or similar fibers that
we are trying to develop. The effects of this increased competition
may be materially adverse to us and our stockholders.
We may face various governmental
regulation, which could increase our costs and lower our future
profitability.
Governmental
regulation regarding import/export, taxes, transgenic, scientific research and
university based research, biological research; transgenic product manufacture
and distribution, environmental regulation and packaging requirements may be
adverse to our operations, research and development, revenues, and potential
profit. We are especially at risk from governmental restriction and
regulations related to the development of materials by use of transgenic
organisms. Federal and state regulations impose strict regulation on
the use, storage, and transportation of such transgenic
organisms. Such rules impose severe penalties on us for any breach of
regulations, for any spill, release, or contamination caused while the
substances are under our direct or indirect ownership or control. We
are not aware of any such breach of governmental regulation, or of any spill,
release, or contamination. If such a release, or other regulatory
breach does occur in the future, the resulting clean up costs, and/or fines and
penalties, would cause a material negative effect on the Company and its
financial future. In that event, investors could expect to lose their
entire investment.
Risks
Related to Our Stock
We
may need to raise additional capital by sales of our Class A common stock, which
may adversely affect the market price of our Class A common stock and your
rights in us may be reduced.
We expect
to continue to incur product development and selling, general and administrative
costs, and in order to satisfy our funding requirements, we will need to sell
additional equity securities, in transactions similar in size and scope to our
Equity Line of Credit covered by this prospectus. Such additional
sales of equity securities may be subject to registration rights. The
sale or the proposed sale of substantial amounts of our Class A common stock in
the public markets may adversely affect the market price of our Class A common
stock and our stock price may decline substantially. Our stockholders may
experience substantial dilution and a reduction in the price that they are able
to obtain upon sale of their shares. Also, new equity securities issued may have
greater rights, preferences or privileges than our existing Class A common
stock.
There
is no assurance of an established public trading market.
A regular
trading market for our Class A common stock may not be sustained in the future.
FINRA has enacted changes that limit quotation on the OTCBB to securities of
issuers that are current in their reports filed with the SEC. The OTCBB is an
inter-dealer, over-the-counter market that provides significantly less liquidity
than a listing on the Nasdaq Stock Markets or other national securities
exchange. Quotes for stocks included on the OTCBB are not listed in the
financial sections of newspapers as are those for the Nasdaq Stock Market.
Therefore, prices for securities traded solely on the OTCBB may be difficult to
obtain and holders of Class A common stock may be unable to resell their
securities at or near their original offering price or at any price. Market
prices for our Class A common stock will be influenced by a number of factors,
including:
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the
issuance of new equity securities pursuant to a future
offering;
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competitive
developments;
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variations
in quarterly operating results;
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change
in financial estimates by securities
analysts;
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the
depth and liquidity of the market for our Class A common
stock;
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investor
perceptions of our company and the technologies industries generally;
and
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general
economic and other national
conditions.
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Our
Class A common stock is considered “a penny stock” and, as a result, it may be
difficult to trade a significant number of shares of our Class A common
stock.
The
Securities and Exchange Commission (“SEC”) has adopted regulations that
generally define “penny stock” to be an equity security that has a market price
of less than $5.00 per share, subject to specific exemptions. Since our Class A
common stock has been eligible for quotation on the OTCBB, the market price of
our Class A common stock has been less than $5.00 per share. As a result
of our prior private placements, we will have increased the number of shares
outstanding by almost ten-fold. Consequently, it is likely that the market
price for our Class A common stock will remain less than $5.00 per share for the
foreseeable future and therefore may be a “penny stock” according to SEC rules.
This designation requires any broker or dealer selling these securities to
disclose certain information concerning the transaction, obtain a written
agreement from the purchaser and determine that the purchaser is reasonably
suitable to purchase the securities. These rules may restrict the ability
of brokers or dealers to sell our Class A common stock and may affect the
ability of investors hereunder to sell their shares. In addition, because our
Class A common stock is traded on the OTC Bulletin Board, investors may find it
difficult to obtain accurate quotations of the stock and may experience a lack
of buyers to purchase such stock or a lack of market makers to support the stock
price.
We
do not intend to pay dividends.
We have
never declared or paid any dividends on our securities. We currently intend to
retain our earnings for funding growth and, therefore, do not expect to pay any
dividends in the foreseeable future.
Risk
Factors Related to the Equity Line of Credit and This Offering
We
are registering an aggregate of 63,600,000 shares of Class A Common Stock to be
issued under the Equity Line of Credit. The sale of such shares could
depress the market price of our Class A common stock.
We are
registering an aggregate of 63,600,000 shares of our Class A common stock under
the registration statement of which this prospectus forms a part for issuance
pursuant to the Equity Line of Credit. The sale of these shares into the public
market by Calm Seas could depress the market price of our common stock. As of
January 20, 2010, there were 513,377,924 shares of
our common stock issued and outstanding.
We
may not have access to the full amount under the Equity Line.
As of
January
20, 2010 the closing market price of our common stock was $0.013.
There is no assurance that the market price of our Class A common stock will
increase substantially in the near future. The entire commitment under the
Equity Line of Credit is $1,000,000. We would need to maintain the
market price of our Class A common stock at approximately $0.0197 in order to
have access to the full amount under the Equity Line of
Credit. Since September 1, 2009, our Class A common stock has
been trading at or below $0.018 per share. However, during such
period we have not made any announcements regarding any developments in our
business and we did not raise any capital to fund our research and development
efforts. We expect that, initially, the resale by Calm Seas Capital
of the shares of our Class A common stock that we will sell to them under our
Equity Line of Credit. However, if we are able to report positive
developments in our research and development efforts, we expect that such
announcements will cause our stock price to increase sufficiently to a price per
share above the price we need to allow us to obtain $1,000,000 gross proceeds
under the Equity Line of Credit. The Equity Line of Credit is
designed to raise $1,000,000 over a 24 month period. As described on
page 26 of this prospectus, our goal is to have commercialization of a
recombinant fiber by January 30, 2012 (approximately 24 months from the date of
this prospectus). In the interim, we have other research and
development goals – such as the laboratory production of recombinant fiber and
high performance fiber. If we achieve such goals, we expect that the
announcement of such achievements will have a significant positive impact on the
price of our Class A common stock. Although we will be spending
approximately $485,000 on our research and development efforts, technology
research and development is very risky. We cannot be certain that we
will achieve our research and development goals. Any set backs in our
research and development activities may cause our stock price to drop, in which
event we would probably not be able to raise $1,000,000 under our Equity Line of
Credit. In the event that we raise substantially less than the
maximum proceeds we expect to raise under the equity line of credit by the
expiration of its 24 month term, we will seek to extend or renew the equity line
of credit with Calm Seas Capital to raise the short-fall additional revenue on
substantially the same terms as under the September 14, 2009 letter
agreement. If Calm Seas Capital is unwilling or unable to enter into
such an arrangement, we will be forced to raise additional capital from other
investors. Alternatively, if our research yields some promising
or positive results, we may seek a corporate partner in a joint venture or
licensing arrangement in which we would seek to negotiation an upfront licensing
fee and/or capital investment from such corporate partner. We
have not yet identified any corporate partners for any such joint venture or
licensing arrangement.
Calm
Seas will pay less than the then-prevailing market price for our Class A common
stock.
The Class
A common stock to be issued to Calm Seas pursuant to the Letter Agreement will
be purchased at a twenty percent discount to the lowest closing bid price of our
Class A common stock during the five consecutive trading days immediately
following the date we deliver to Calm Seas a notice of our election to put
shares to it pursuant to the Letter Agreement. Calm Seas has a financial
incentive to sell our Class A common stock immediately upon receiving the shares
to realize the profit equal to the difference between the discounted price and
the market price. If Calm Seas sells the shares, the price of our Class A common
stock could decrease. If our stock price decreases, Calm Seas may have a further
incentive to sell the shares of our Class A common stock that it holds. These
sales may have a further impact on our stock price.
There
may not be sufficient trading volume in our Class A common stock to permit us to
generate adequate funds from the exercise of our put.
The
Letter Agreement provides that the dollar value that we will be permitted to put
to Calm Seas will be the lesser of: (A) 200% of the average daily volume in the
OTC Bulletin Board of the Class A common stock for the ten trading days prior to
the date we deliver to Calm Seas a notice of our put, multiplied by the average
of the ten daily closing prices immediately preceding the date we deliver a put
notice to Calm Seas, or (B) $75,000. 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 put
date. If the average daily trading volume in our Class A common stock
is too low, it is possible that we would exercise a put for less than $75, which
may not provide adequate funding for our planned operations.
Our
Class A common stock is thinly traded, so you may be unable to sell at or near
ask prices or at all if you need to sell your shares to raise money or otherwise
desire to liquidate your shares.
Our
common stock has historically been sporadically or “thinly-traded” on the OTCBB,
meaning that the number of persons interested in purchasing our common stock at
or near ask prices at any given time may be relatively small or nonexistent.
This situation is attributable to a number of factors, including the fact that
we are a small company which is relatively unknown to stock analysts, stock
brokers, institutional investors and others in the investment community that
generate or influence sales volume, and that even if we came to the attention of
such persons, they tend to be risk-averse and would be reluctant to follow an
unproven company such as ours or purchase or recommend the purchase of our
shares until such time as we became more seasoned and viable.
As a
consequence, there may be periods of several days or more when trading activity
in our shares is minimal or non-existent, as compared to a mature issuer which
has a large and steady volume of trading activity that will generally support
continuous sales without an adverse effect on share price. It is possible
that a broader or more active public trading market for our common stock will
not develop or be sustained, or that current trading levels will
continue.
The selling shareholder may engage in
hedging transactions, other than short sales, which may result in broker-dealers
or other financial institutions engaging in short sales for their own account
and not for the benefit of the selling security holder,which may cause a steep decline of
our share price.
In
connection with the distribution of the Class A common stock or otherwise, the
selling shareholder may enter into hedging transactions, other than short sales,
with broker-dealers or other financial institutions. In connection
with such hedging transactions, broker-dealers or other financial institutions
may, for their own account and not for the benefit of Calm Seas
Capital, engage in short sales of shares in the course of hedging the
positions they assume with the selling shareholder. If there are
significant short sales of our stock by such broker-dealers or other financial
institutions, the price decline that would result from this activity will cause
our share price to decline which in turn may cause long holders of our stock to
sell their shares thereby contributing to sales of stock in the
market. If there is an imbalance on the sell side of the market our
stock the price will decline. It is not possible to predict if the circumstances
where by a short sales could materialize or to what our share price could drop.
In some companies that have been subjected to short sales their stock price has
dropped to near zero. We cannot provide any assurances that this situation will
not happen to us.
Shares
eligible for future sale by our current shareholders may adversely affect our
stock price.
To date,
we have had a very limited trading volume in our Class A common stock. As
long as this condition continues, the sale of a significant number of shares of
Class A common stock at any particular time could be difficult to achieve at the
market prices prevailing immediately before such shares are offered. In
addition, sales of substantial amounts of Class A common stock, including shares
issued upon the exercise of outstanding options and warrants, under Securities
and Exchange Commission Rule 144 or otherwise could adversely affect the
prevailing market price of our common stock and could impair our ability to
raise capital at that time through the sale of our securities.
If
we fail to remain current on our reporting requirements, we could be removed
from the OTC Bulletin Board, which would limit the ability of Broker-Dealers to
sell our securities and the ability of shareholders to sell their securities in
the secondary market.
Companies
trading on the OTC Bulletin Board, such as Kraig Biocraft Laboratories, must be
reporting issuers under Section 12 of the Exchange Act, and must be current in
their reports under Section 13 of the Exchange Act, in order to maintain price
quotation privileges on the OTC Bulletin Board. If we fail to remain
current on our reporting requirements, we could be removed from the OTC Bulletin
Board. As a result, the market liquidity for our securities could be
adversely affected by limiting the ability of broker-dealers to sell our
securities and the ability of shareholders to sell their securities in the
secondary market.
We will
not receive any proceeds from the sale of common stock offered by Calm
Seas. However, we will receive proceeds from the sale of our common stock
to Calm Seas pursuant to the put right under the Letter Agreement. The proceeds
from our exercise of the put option pursuant to the Letter Agreement will be
used as follows:
|
Month
|
Salaries(1)
|
Research
& Development Expenses(2)
|
Professional
Services(3)
|
Office
Expense(4)
|
Reserve(5)
|
|
1
|
$13,217
|
$93,533
|
$19,667
|
$1,200
|
$2,500
|
|
2
|
13,217
|
93,533
|
2,000
|
$1,200
|
$2,500
|
|
3
|
13,217
|
58,833
|
2,000
|
$1,200
|
$2,500
|
|
4
|
13,217
|
2,433
|
2,000
|
$1,200
|
$2,500
|
|
5
|
13,217
|
2,433
|
11,668
|
$1,200
|
$2,500
|
|
6
|
13,217
|
2,433
|
2,667
|
$1,200
|
$2,500
|
|
7
|
13,217
|
2,433
|
2,667
|
$1,200
|
$2,500
|
|
8
|
13,217
|
2,433
|
8,667
|
$1,200
|
$2,500
|
|
9
|
13,217
|
2,433
|
2,667
|
$1,200
|
$2,500
|
|
10
|
13,217
|
2,433
|
2,667
|
$1,200
|
$2,500
|
|
11
|
13,217
|
2,433
|
2,667
|
$1,200
|
$2,500
|
|
12
|
13,217
|
2,433
|
7,663
|
$1,200
|
$2,500
|
|
13
|
13,217
|
48,133
|
2,000
|
$1,200
|
$2,500
|
|
14
|
13,217
|
48,133
|
2,000
|
$1,200
|
$2,000
|
|
15
|
13,217
|
48,133
|
2,000
|
$1,200
|
$2,000
|
|
16
|
13,217
|
48,133
|
2,000
|
$1,200
|
$2,000
|
|
17
|
13,217
|
3,133
|
7,000
|
$1,200
|
$2,000
|
|
18
|
13,217
|
3,133
|
2,667
|
$1,200
|
$2,500
|
|
19
|
13,217
|
3,133
|
2,667
|
$1,200
|
$2,500
|
|
20
|
13,217
|
3,133
|
7,000
|
$1,200
|
$1,500
|
|
21
|
13,217
|
3,133
|
10,600
|
$1,200
|
$1,250
|
|
22
|
13,217
|
3,133
|
2,000
|
$1,200
|
$1,250
|
|
23
|
13,217
|
3,133
|
2,000
|
$1,200
|
$1,250
|
|
24
|
13,217
|
3,133
|
7,666
|
$1,200
|
$1,250
|
|
TOTAL
|
$317,208
|
$485,392.00
|
$116,600.00
|
$28,800.00
|
$52,000.00
|
(1) Consists
of employee salaries, cost of benefits and payroll taxes. Also
includes repayments of unpaid salary we owe to our Chief Executive Officer,
which we have accounted for as an accrued expense and which amount bears
interest at the rate of seven percent per annum and is due on demand by our
Chief Executive Officer.
(2)
Includes research and development expenses we are required to incur under our
research collaboration agreement with the University of Notre
Dame. Also includes (i) payments for a portion of the amount owed by
the Company to its CEO for the transfer of intellectual property to the Company,
which has been recorded in the financial statements as royalty payments due to a
related party and (ii) auto and travel expenses (including the purchase of an
automobile) that will be primarily related to investor relations
matters.
(3)
Includes legal, accounting, press release and EDGAR filing services and transfer
agent expenses. Legal expenses will include not only SEC matters
(such as periodic reporting and expenses related to this registration) but also
intellectual property matters (such as patent filings).
(4)
Office expenses include rent, telecommunications, postage/shipping, office
equipment and office supplies.
(5) Approximately
$2,500 will be set aside each month (up to 6% of gross proceeds) to cover
expenses due to contingent events, such as equipment loss or replacement or
increase in research and development expenses from unforeseen
events.
Approximately
95% of the proceeds from the equity line of credit will be used for expenses
that are non-discretionary, such as employee salaries, the costs of our research
and development obligations under our soon-to-be renewed agreement with the
University of Notre Dame, the costs related to our operation as a public company
(primarily, legal and accounting fees) as well legal fees for securing our
intellectual property, rent and telecommunications (phone, fax and
Internet). Consequently, we believe that it is highly likely that we
will use all $1,000,000 of the proceeds we expect to raise from the equity line
of credit. We also expect to be able to raise the full $1,000,000
from the equity line of credit. We believe that positive results of
our research and development efforts under our arrangement with the University
of Notre Dame will help increase our stock price and, therefore, reduce the
number of shares we will need to put to Calm Seas in order to raise the full
$1,000,000 in gross proceeds we are seeking to raise under the equity line of
credit.
In the
event we are unable to raise the full $1,000,000 from the equity line of credit,
we would use the proceeds in the following priority: (i) research and
development expenses we are required to incur under our research collaboration
agreement with the University of Notre Dame, (ii) employee salaries, cost of
benefits and payroll taxes, (iii) rent and telecommunications, (iv) legal
expenses (both SEC and intellectual property) and accounting expenses, press
release and EDGAR filing services and transfer agent expenses, (v)
postage/shipping, office equipment and office supplies, (vi) auto and travel
expenses (including the purchase of an automobile) that will be primarily
related to investor relations matters, (vii) payments for a portion of the
amount owed by the Company to its CEO for the transfer of intellectual property
to the Company, which has been recorded in the financial statements as royalty
payments due to a related party and (viii) reserves to cover expenses due to
contingent events.
In the
event that we raise substantially less than the maximum proceeds we expect to
raise under the equity line of credit by the expiration of its 24 month term, we
will seek to extend or renew the equity line of credit with Calm Seas Capital to
raise the short-fall additional revenue on substantially the same terms as under
the September 14, 2009 letter agreement. If Calm Seas Capital is
unwilling or unable to enter into such an arrangement, we will be forced to
raise additional capital from other investors. Alternatively, if our
research yields some promising or positive results, we may seek a corporate
partner in a joint venture or licensing arrangement in which we would seek to
negotiation an upfront licensing fee and/or capital investment from such
corporate partner. We have not yet identified any corporate
partners for any such joint venture or licensing arrangement.
The
following table sets forth the name of the selling shareholder, the number of
shares of common stock owned, the number of shares of common stock registered by
this prospectus and the number and percent of outstanding shares that the
selling shareholder will own after the sale of the registered shares, assuming
all of the shares are sold. The information provided in the table and
discussions below has been obtained from the selling shareholder. As used
in this prospectus, “selling shareholder” includes donees, pledges, transferees
or other successors in interest selling shares of our common stock received from
the named selling shareholder as a gift, pledge, distribution or other non
sale-related transfer.
Beneficial
ownership is determined in accordance with Rule 13d-3(d) promulgated by the
Securities and Exchange Commission under the Exchange Act. Unless
otherwise noted, each person or group identified possesses sole voting and
investment power with respect to the shares, subject to community property laws
where applicable. As of January 20, 2010, there were
513,377,924 shares of our common stock issued and
outstanding.
On
September 14, 2009, we entered into the Amended Letter Agreement with Calm Seas
to raise up to $1,000,000 through an equity line of credit. Except as
described above, to our knowledge Calm Seas has not had a material relationship
with us during the last three years, other than as an owner of our common stock
or other securities.
|
Beneficial
Ownership of Class A Common Shares
Prior
to this Offering
|
Number
of Shares
to
be Sold
|
Beneficial
Ownership of Class A Common Shares after this Offering
|
||||
|
Selling
Shareholder
|
Number
of Shares
|
Percent
of Class
|
Under this Prospectus (1) |
Number
of Shares (2)
|
Percent
of Class (3)
|
|
|
Calm
Seas Capital, Ltd. (4)
377
S. Nevada St.
Carson
City, NV 89703
|
63,600,000
|
14.7%-
|
63,600,000
|
0
|
--
|
|
|
Total
|
63,600,000
|
14.7%
|
63,600,000
|
0
|
--
|
|
|
(1)
|
The
number of shares set forth in the table represents an estimate of the
number of common shares to be offered by the selling shareholder. We
have assumed the sale of all of the common shares offered under this
prospectus will be sold. However, as the selling shareholder can offer
all, some or none of its common stock, no definitive estimate can be given
as to the number of shares that the selling shareholder will offer or sell
under this prospectus.
|
|
(2)
|
These
numbers assume the selling shareholder sells all of its shares after the
completion of the offering.
|
|
(3)
|
Based
on 576,977,934
shares of Class A common stock outstanding after the completion of
the offering.
|
|
(4)
|
Calm
Seas Capital, LLC is a Nevada limited liability company. Michael
Andrew McCarthy is the managing member of Calm Seas with voting and
investment power over the shares.
|
Equity
Line of Credit
The
selling security holder is reselling shares of our Class A common stock sold to
it by our exercise of the put right under the Letter Agreement. Each
month we may put up to $75,000 of our Class A common stock to Calm Seas, which
will purchase such shares at a price per share equal to 80% of the lowest
closing bid price of our Class A common stock during the five consecutive
trading days immediately following the date the notice of our election to put
shares pursuant to the Letter Agreement is delivered to Clam Seas (the date of
delivery of such notice is referred to as the “put
date”). Notwithstanding the $75,000 ceiling for each monthly put, if
both we and Calm Seas agree, we may submit one or more additional puts during
any given month to the extent we need additional capital for our operations
and/or our product development. We can only submit such additional
put(s) if Calm Seas Capital agrees to it. Furthermore, the additional
put is subject to the $1,000,000 limitation of this offering. The
additional put allows us to obtain additional capital in the event that our
product development proceeds quicker than we expect.
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 put
date.
The
selling shareholder will not receive any compensation, fees or commissions under
the Equity Line Agreement.
We expect
to be able to raise the full $1,000,000 from the equity line of
credit. We believe that positive results of our research and
development efforts under our arrangement with the University of Notre Dame will
help increase our stock price and, therefore, reduce the number of shares we
will need to put to Calm Seas in order to raise the full $1,000,000 in gross
proceeds we are seeking to raise under the equity line of credit.
Our
equity line with Calm Seas Capital contemplates our future possible issuance of
up to an aggregate 63,600,000 shares of our Class A common stock as a result of
this registration statement, subject to certain
restrictions. Currently, we believe it is likely we will need to draw
the full amount available under this equity line prior to the expiration of the
equity line. If the terms and conditions of the equity line are satisfied, and
we choose to exercise our put rights to the fullest extent permitted and sell
all of the 63,600,000 shares of our common stock to Calm Seas Capital, the
ownership by our existing non-affiliate stockholders will be diluted by
approximately 33% based on 192,752,424 shares of Class A common stock held by
non-affiliates on November 16, 2009. If we issue all of the shares
under the equity line, we would have 576,977,924 shares issued and outstanding,
of which 256,352,424 shares will be held by non-affiliates, resulting in a 33%
increase in the public float. We expect that the initial
issuance of the shares under the equity line and subsequent resale by Calm Seas
Capital will probably cause our share price to decrease. However, we
also expect that with a substantial amount of the proceeds form the equity line
being spent on research and development activities we may be able to offset such
downward pressure on our stock price with announcements of our ongoing research
and development. If our research and development efforts are
positive, we expect would expect the announcement of such result would cause our
share price to increase. Conversely, if we announce any negative
results of our research and development efforts, we would expect the
announcement of such result would cause a significant decrease in our stock
price.
In the
event that we raise substantially less than the maximum proceeds we expect to
raise under the equity line of credit by the expiration of its 24 month term, we
will seek to extend or renew the equity line of credit with Calm Seas Capital to
raise the short-fall additional revenue on substantially the same terms as under
the September 14, 2009 letter agreement. If Calm Seas Capital is
unwilling or unable to enter into such an arrangement, we will be forced to
raise additional capital from other investors. Alternatively, if our
research yields some promising or positive results, we may seek a corporate
partner in a joint venture or licensing arrangement in which we would seek to
negotiation an upfront licensing fee and/or capital investment from such
corporate partner. We have not yet identified any corporate
partners for any such joint venture or licensing arrangement.
Bridge
Investment
Pursuant
to the Letter Agreement, Calm Seas Capital made a Bridge Investment in us in the
aggregate amount of $120,000, of which $100,000 was paid promptly after the
Letter Agreement was signed in July 2009 and the remaining $20,000 was paid in
late September 2009. In this Bridge Investment, Calm Seas Capital
purchased (i) twelve convertible debentures, each in the principal amount of
$10,000 (the “Bridge Debentures”) and (ii) twelve warrants each exercisable for
the purchase of 500,000 shares (the “Bridge Warrants”).
The
Bridge Debentures, which mature on December 31, 2010, bear interest at the rate
of 5% simple interest per annum, payable at maturity or convertible with the
principal, and the principal and interest shall be convertible at the option of
the holder at a fixed price of $.018 per share. The Company cannot
use any of the proceeds of the Equity Line Agreement to repay the Bridge
Debentures or any interest thereon. During any event of default, the
Bridge Debentures will bear interest at the rate of 18% per annum or such lesser
interest to the extent required under applicable usury law.
There
will be an event of default under the Bridge Debentures if the
Company
|
(i)
|
fails
to pay the principal and interest when due and payable and such failure is
not cured within 10 days of the due
date,
|
|
(ii)
|
breaches
any material term of the Bridge Debenture or Bridge and fails to cure such
breach within 10 days of the Company’s receipt of notice of such breach
from the holder,
|
|
(iii)
|
makes
an assignment for the benefit of its creditors or has a receiver or
trustee appointed,
|
|
(iv)
|
has
a money judgment entered against it for more than $10,000 and such
judgment is not vacated, bonded or stayed for 90
days,
|
|
(v)
|
enters
bankruptcy.
|
After
September 30, 2010, the Company may cause the Bridge Debentures to be converted
into shares of its Class A common stock at the lower of (i) the conversion price
then in effect and (ii) the average closing bid for the Company’s Class A common
stock for the 20 trading days prior to the date the Company gives notice that it
is converting the Bridge Debentures (but not less than $0.005 per
share).
The
conversion price of the Bridge Debentures will be proportionately adjusted in
the event of merger, sale of assets, reclassification of the Company’s capital
stock, stock split, reverse stock split or stock
dividend. Additionally, the conversion price of the Bridge Debentures
will be proportionately reduced if the Company sells shares of its Class A
common stock for a price per share less than the conversion price of the Bridge
Debentures, excluding the issuance of shares pursuant to (a) Bridge Debentures
or Bridge Warrants, (b) the Equity Line of Credit or other existing obligation
of the Company to issue shares, (c) equity compensation plans or (d) the
acquisition or another business.
The
Bridge Warrants expire on December 31, 2011. The Bridge Warrants are
exercisable at an exercise price of $.02 per share, subject to customary
adjustments for stock splits, stock dividends, distribution of non-cash assets
by the Company to its shareholders, capital reorganization, reclassification of
the capital stock of the Company, consolidation or merger of the Company with
another corporation in which the Company is not the survivor, or sale, transfer
or other disposition of all or substantially all of the Company’s assets to
another corporation. Additionally, Calm Seas Capital may exercise the
Bridge Warrants using a cashless exercise provision.
The
purpose of this prospectus is to permit the selling shareholder to offer and
sell up to an aggregate of 63,600,000 shares at such times and at such places as
it chooses. The decision to sell any shares is within the sole discretion
of the holder thereof.
The
distribution of the Class A common stock by the selling shareholder may be
effected from time to time in one or more transactions. Any of the Class A
common stock may be offered for sale, from time to time, by the selling
shareholder, or by permitted transferees or successors of the selling
shareholder, or otherwise, at prices and on terms then obtainable, at fixed
prices, at prices then prevailing at the time of sale, at prices related to such
prevailing prices, or in negotiated transactions at negotiated prices or
otherwise. The Class A common stock may be sold by one or more of the
following:
|
·
|
On
the OTCBB or any other national common stock exchange or automated
quotation system on which our Class A common stock is traded, which may
involve transactions solely between a broker-dealer and its customers
which are not traded across an open market and block
trades.
|
|
·
|
Through
one or more dealers or agents (which may include one or more
underwriters), including, but not limited
to:
|
|
·
|
Block
trades in which the broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this
prospectus.
|
|
·
|
Purchases
by a broker or dealer as principal and resale by such broker or dealer for
its account pursuant to this
prospectus.
|
|
·
|
Ordinary
brokerage transactions.
|
|
·
|
Directly
to one or more purchasers.
|
|
·
|
A
combination of these methods.
|
Calm Seas
and any broker-dealers who act in connection with the sale of its shares are
“underwriters” within the meaning of the Securities Act, and any discounts,
concessions or commissions received by them and profit on any resale of the
shares as principal may be deemed to be underwriting discounts, concessions and
commissions under the Securities Act.
In
connection with the distribution of the Class A common stock or otherwise, the
selling shareholder may enter into hedging transactions with broker-dealers or
other financial institutions. In connection with such transactions,
broker-dealers or other financial institutions may, for their own account and
not for the benefit of the selling shareholder, engage in short sales of shares
in the course of hedging the positions they assume with the selling
shareholder. Under the September 14 Amended Letter Agreement, the selling
shareholder cannot sell shares short. The selling shareholder may enter into
options or other transactions with broker-dealers or other financial
institutions which require the delivery to such broker-dealers or other
financial institutions of the Class A common stock, which shares such
broker-dealers or financial institutions may resell pursuant to this prospectus,
as supplemented or amended to reflect that transaction. The selling shareholder
may also pledge the common stock registered hereunder to a broker-dealer or
other financial institution and, upon a default, such broker-dealer or other
financial institution may affect sales of the pledged shares pursuant to this
prospectus, as supplemented or amended to reflect such transaction. In addition,
any Class A common stock covered by this prospectus that qualifies for sale
pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather
than pursuant to this prospectus.
The
selling shareholder or its underwriters, dealers or agents may sell the Class A
common stock to or through underwriters, dealers or agents, and such
underwriters, dealers or agents may receive compensation in the form of
discounts or concessions allowed or reallowed. Underwriters, dealers, brokers or
other agents engaged by the selling shareholder may arrange for other such
persons to participate. Any fixed public offering price and any discounts and
concessions may be changed from time to time. Underwriters, dealers and agents
who participate in the distribution of the common stock may be deemed to be
underwriters within the meaning of the Securities Act, and any discounts or
commissions received by them or any profit on the resale of shares by them may
be deemed to be underwriting discounts and commissions thereunder. The proposed
amounts of the Class A common stock, if any, to be purchased by underwriters and
the compensation, if any, of underwriters, dealers or agents will be set forth
in a prospectus supplement.
Unless
granted an exemption by the Commission from Regulation M under the Exchange Act,
or unless otherwise permitted under Regulation M, the selling shareholder
will not engage in any stabilization activity in connection with our Class
A common stock, will furnish each broker or dealer engaged by the selling
shareholder and each other participating broker or dealer the number of copies
of this prospectus required by such broker or dealer, and will not bid for or
purchase any Class A common stock of our or attempt to induce any person to
purchase any of the Class A common stock other than as permitted under the
Exchange Act.
We will
not receive any proceeds from the sale of these shares of Class A common stock
offered by the selling shareholder. We shall use our best efforts to prepare and
file with the Commission such amendments and supplements to the registration
statement and this prospectus as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act with
respect to the disposition of the common stock covered by the registration
statement for the period required to effect the distribution of such common
stock.
We are
paying certain expenses (other than commissions and discounts of underwriters,
dealers or agents) incidental to the offering and sale of the common stock to
the public, which are estimated to be approximately $17,081. If we are required
to update this prospectus during such period, we may incur additional expenses
in excess of the amount estimated above.
In order
to comply with certain state securities laws, if applicable, the common stock
will be sold in such jurisdictions only through registered or licensed brokers
or dealers. In certain states the shares of common stock may not be sold unless
they have been registered or qualify for sale in such state or an exemption from
registration or qualification is available and is complied with.
General
Our
original articles of incorporation authorized 60,000,000 shares of Class A
common stock, 25,000,000 shares of Class B common stock with no par value per
share and 10,000,000 shares of preferred stock with no par value per
share. On February 16, 2009, we amended our articles of incorporation
to provide for unlimited authorized shares, no par value, of Class A common
stock and Class B common stock. There are no provisions in our charter or
by-laws that would delay, defer or prevent a change in our control.
Common
Stock
As of
December 10, 2009, 513,377,924 shares of common stock Class A are issued and
outstanding and held by 28 shareholders of record, and we had no shares of Class
B common issued and outstanding. Holders of our common stock are
entitled to one vote for each share on all matters submitted to a stockholder
vote.
Holders of Class A common stock and
Class B common stock do not have cumulative voting rights.
Therefore,
holders of a majority of the shares of both classes of common stock voting for
the election of directors can elect all of the directors. Holders of both
classes of our common stock representing a majority of the voting power of our
capital stock issued and outstanding and entitled to vote, represented in person
or by proxy, are necessary to constitute a quorum at any meeting of our
stockholders. A vote by the holders of a majority of our outstanding shares is
required to effectuate certain fundamental corporate changes such as
liquidation, merger or an amendment to our Articles of
Incorporation.
Although
there are no provisions in our charter or by-laws that may delay, defer or
prevent a change in control, we are authorized, without shareholder approval, to
issue shares of preferred stock that may contain rights or restrictions that
could have this effect.
Holders
of both classes of common stock are entitled to share in all dividends that the
board of directors, in its discretion, declares from legally available funds. In
the event of liquidation, dissolution or winding up, each outstanding share
entitles its holder to participate pro rata in all assets that remain after
payment of liabilities and after providing for each class of stock, if any,
having preference over the common stock. Holders of both classes of our common
stock have no pre-emptive rights, no conversion rights and there are no
redemption provisions applicable to our common stock.
Preferred
Stock
Our
articles of incorporation also provide that we are authorized to issue up to
10,000,000 shares of preferred stock with no par value per share. As of the
date of this prospectus, there are no shares of preferred stock issued and
outstanding. Our Board of Directors has the authority, without further action by
the shareholders, to issue from time to time the preferred stock in one or more
series for such consideration and with such relative rights, privileges,
preferences and restrictions that the Board may determine. The preferences,
powers, rights and restrictions of different series of preferred stock may
differ with respect to dividend rates, amounts payable on liquidation, voting
rights, conversion rights, redemption provisions, sinking fund provisions and
purchase funds and other matters. The issuance of preferred stock could
adversely affect the voting power or other rights of the holders of common
stock.
As
further described in our financial statements, the company anticipates that it
will issue 200,000 preferred shares to Kim Thompson pursuant an agreement
between the company and Mr. Thompson. Such preferred shares will have
no right to dividends or other distributions, but will have super voting rights
such that each preferred share will have the voting power equivalent to one
hundred common class “A” shares. We have not filed a certificate of
designation to set the rights and preferences for these preferred shares to be
issued to Mr. Thompson. The selling shareholder has not consented to
such issuance of preferred stock to Mr. Thompson. We shall not be
seeking to obtain the consent of the selling shareholder for such issuance as we
are not required to do so under Wyoming corporate law.
Dividends
Since
inception we have not paid any dividends on our Class A common stock. We
currently do not anticipate paying any cash dividends in the foreseeable future
on our common stock, when issued pursuant to this offering. Although we intend
to retain our earnings, if any, to finance the exploration and growth of our
business, our Board of Directors will have the discretion to declare and pay
dividends in the future. Payment of dividends in the future will depend upon our
earnings, capital requirements, and other factors, which our Board of Directors
may deem relevant.
INTERESTS
OF NAMED EXPERTS AND COUNSEL
No expert
or counsel named in this prospectus as having prepared or certified any part of
this prospectus or having given an opinion upon the validity of the securities
being registered or upon other legal matters in connection with the registration
or offering of the common stock was employed on a contingency basis, or had, or
is to receive, in connection with the offering, a substantial interest, direct
or indirect, in the registrant or any of its parents or subsidiaries. Nor was
any such person connected with the registrant or any of its parents or
subsidiaries as a promoter, managing or principal underwriter, voting trustee,
director, officer, or employee.
The
consolidated financial statements for the years ended December 31,
2008 and 2007 included in this prospectus and the registration statement have
been audited by Webb & Company, P.A. to the extent and for the periods set
forth in their report appearing elsewhere herein and in the registration
statement, and are included in reliance upon such report given upon the
authority of said firm as experts in auditing and accounting.
Overview
We are
Kraig Biocraft Laboratories, Inc., a corporation organized under the laws of
Wyoming on April 25, 2006. We were organized to develop high
strength, protein-based 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, heat resistance and/or chemical
resistance. The specialty fiber market is dominated by two synthetic
fiber products: aramid fibers and ultra high molecular weight
polyethylene fiber. Examples of these synthetic fibers include
Kevlar® and Spectra®. 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 have
collaboration agreements with University of Notre Dame and the University of
Wyoming that give us the exclusive use of certain intellectual property for
fibers in commercially viable quantities. We will then use these
technologies to develop fibers with greater strength, resiliency and flexibility
for use in our target markets, namely the specialty fiber and technical textile
industries.
We are
currently in the first stage of our development, which is to develop a
transgenic silkworm that can produce a natural spider silk fiber by inserting
patented genetic sequences into ordinary silkworms using patented genetic
engineering technology under our license and collaboration agreements with the
University of Norte Dame and the University of Wyoming. The proceeds
from the offering, as described below, will be used to fund this first stage,
which we expect to complete by October 1, 2011.
The
Market
We are
focusing our work on the creation of high performance and technical
fiber. The performance fiber market is currently dominated by two
classes of product: aramid fibers, exemplified by Kevlar® (E.I. du Pont de
Nemours and Company), and ultra high molecular weight polyethylene fiber,
exemplified by Dyneema® (DSM NV) and Spectra® (Honeywell International
Inc.). These products service the need for materials with high
strength, resilience, and flexibility. Because these synthetic
performance fibers are stronger and tougher than steel, they are used in a wide
variety of military, industrial, and consumer applications.
Among the
users of these materials are the military and police departments, which employ
them for ballistic protection. The materials are also used for
industrial applications requiring superior strength and toughness, i.e. critical
cables and abrasion/impact resistant components. These fibers are
also employed in safety equipment, high strength composite materials for the
aero-space industry and for ballistic protection by the defense
industry.
The
global market for technical textiles is currently estimated at $92.88
billion. The demand for technical textiles is growing rapidly and is
expected to reach $127 billion in 2010.
These are
industrial materials which have become essential products for both industrial
and consumer applications. The market for technical textiles can be
defined as consisting of:
|
·
|
Medical
textiles;
|
|
·
|
Geotextiles;
|
|
·
|
Textiles
used in Defense and Military;
|
|
·
|
Safe
and Protective Clothing;
|
|
·
|
Filtration
Textiles;
|
|
·
|
Textiles
used in Transportation;
|
|
·
|
Textiles
used in Buildings;
|
|
·
|
Composites
with Textile Structure;
|
|
·
|
Functional
and Sportive Textiles.
|
We
believe that the superior mechanical characteristics of the next generation of
protein-based polymers (in other words, genetically engineered silk fibers),
will open up new applications for the technology and result in a significant
increase in demand. The materials which we are working to produce are many times
tougher and stronger than steel. These fibers are often referred to
as “super fibers.”
The
Product
Certain
fibers produced in nature possess unique mechanical properties in terms of
strength, resilience and flexibility. These protein based fibers,
exemplified by spider silk, have been the subject of much interest to the U.S.
military. The military’s interest in spider silks stems from the
incredible toughness of the material, as illustrated in the table
below.
Comparison
of the Properties of Spider Silk, Kevlar® and Steel
|
Material
Toughness1
|
Tensile Strength2
|
Weight3
|
||||
|
Dragline
spider silk
|
120,000-160,000
|
1,100-2,900
|
1.18-1.36
|
|||
|
Steel
|
2,000-6,000
|
300-2,000
|
7.84
|
1
Measured by the energy required to break a continuous filament, expressed in
joules per kilogram (J/kg). A .357 caliber bullet has approximately
925 joules of kinetic energy at impact.
2
Tensile strength refers to the greatest longitudinal stress the fiber can bear,
measured by force over area in units of newtons per square meter. The
measurement here is in millions of pascals.
3 In
grams per cubic centimeter of
material.
This
comparison table was the result of research performed by Randolph Lewis, Ph.D.
at the University of Wyoming. Such work was summarized in an article
entitled “Spider Silk: Ancient Ideas for New Biomaterials” which was
published in Chemicals
Review, volume 106, issue 9, pages 3672 – 3774. The
measurements in joules in the table above are a conversion from Dr. Lewis’
measurements in newtons/meter squared.
We
believe that the genetically engineered protein-based fibers we seek to produce
have properties that are in some ways so superior to the materials currently
available in the marketplace. For example, as noted above, the
ability of spider fiber to absorb in excess of 100,000 joules of kinetic energy,
which makes it the potentially ideal material for structural blast
protection.
Production
of this material in commercial quantities holds the promise of a life saving
ballistic resistant material, which is lighter, thinner, more flexible, and
tougher than steel. Other applications for spider silk based fibers include use
as structural material and for any application in which light weight and high
strength are required. We believe that polymer fibers made with
recombinant protein-based fiber will make significant inroads into the specialty
fiber and technical textile markets.
While the
superior properties of spider silks are well known, there is presently no known
way to produce these fibers in commercial quantity. The spiders are
cannibalistic, and can not be raised in concentrated
colonies. However, we envision that recombinant fiber, with its
superior mechanical characteristics, will supplant the current generation of
high performance fiber.
Our
Technology
While
scientists have been able to replicate the proteins that are the building blocks
of spider silk, the technological barrier that has stymied production until now
has been the inability to form these proteins into a fiber with the desired
mechanical characteristics.
We have
licensed the exclusive right to use the patented genetic sequences and genetic
engineering technology developed at Notre Dame and the University of Wyoming,
and in working collaboratively with those laboratories, we are developing fibers
with the mechanical characteristics of spider silk. We are applying
our proprietary genetic engineering technology to domesticated silkworms, which
are already one of the most efficient commercial producers of silk.
Our
technology builds upon the unique advantages of the domesticated silkworm for
this application. The silkworm is ideally suited to produce
recombinant protein fiber because it is already an efficient commercial and
industrial producer of protein based polymers. Forty percent (40%) of
the caterpillars’ weight is devoted to the silk glands. The silk glands produce
large volumes of protein, called fibroin, which are then spun into a composite
protein thread (silk).
We are
working to use our genetic engineering technology to create recombinant silk
polymers.
A part of
our intellectual property portfolio is the exclusive right to use the patented
spider silk gene sequences in silkworm. Under the Exclusive License
Agreement with The University of Wyoming, we have obtained certain exclusive
rights to use numerous genetic sequences which are the subject of five US
patents and two pending patent applications held by The University of
Wyoming.
The
introduction of the gene sequence, in the manner employed by us, results in a
germline transformation and is therefore self perpetuating. This
technology is in essence a protein expression platform which has other potential
applications including diagnostics and pharmaceutical production.
The
Company
Kraig
Biocraft Laboratories, Inc. (Kraig) is a Wyoming
corporation. Kraig is a reporting company under the Securities
Exchange Act of 1934 which occurred as a result of its original SB 2 filing in
late 2007. The Company is up to date with all necessary filings with
the SEC.
Our
shares are traded OTCBB under the ticker symbol: KBLB. There are
513,377,924 shares of common stock issued and outstanding. Kim
Thompson, our founder and CEO, owns approximately 62.5% of the issued and
outstanding shares.
The
inventor of our technology, Kim Thompson, is the founder of Kraig Biocraft
Laboratories, Inc. Our protein expression system is, in concept,
scalable, cost effective, and capable of producing a wide range of proteins
including pharmaceuticals and materials.
In order
to reduce the technology to practice, we have entered into intellectual property
and collaborative research agreements with two leading universities which are at
the forefront in this field: the University of Wyoming and the
University of Notre Dame. One of our major shareholders, the
University of Wyoming Foundation, is a public university which has contributed
significant intellectual property to the enterprise.
Certain
patented genetic tools, methods, and proprietary gene sequences invented and
discovered by researchers at these universities are pivotal in our
work. We have negotiated and obtained certain exclusive proprietary
rights to use Notre Dame’s and the University of Wyoming’s intellectual property
for the product development and commercialization of our fiber
products.
We
entered into an intellectual property and collaborative research agreement with
the University of Notre Dame in 2007. That agreement was subsequently
extended and expanded to include research and development of certain platform
technologies with potential applications for diagnostics and pharmaceutical
production. While the extenchion has expired, the Company anticipates
that the agreement will be further extended. Pursuant to these agreements the
genetic work is being conducted primarily within Notre Dame’s
laboratories.
We have
also entered into an intellectual property and sponsored research agreement with
the University of Wyoming.
Collaboration
and Research Agreements/Intellectual Property
We have
obtained certain exclusive rights to use a number of university created, and
patented, spider silk proteins, gene sequences and methodologies held by the
University of Wyoming and the University of Notre Dame. We have also
acquired certain exclusive rights to patent pending protein based fibers and
genetic technologies.
In 2008,
the University of Notre Dame filed two provisional patent applications pursuant
to our intellectual property and collaborative research agreement. In
addition, we have filed a separate U.S. provisional patent application regarding
certain methodologies, genetic sequences, organic polymers and composite silk
fibers. We anticipate that our intellectual property portfolio will
continue to grow in 2010.
We do not
own any patents or trademarks.
Intellectual
Property/Collaborative Research Agreement with Notre Dame
University
Our
collaborative research agreement with the University of Notre Dame requires the
Company to provide cost reimbursement for scientific research performed within
Notre Dame relating to recombinant silk development. The reimbursable
costs to the Company are caped at $35,000 per calendar quarter, unless the
Company provides prior authorization for exceeding that cap. Subject
to the renewal of our research agreement with Norte Dame,
our agreement with Notre Dame provides us with a right to an
exclusive license to intellectual property developed pursuant to the
collaborative research on terms to be negotiated on a case by case
basis. The University of Notre Dame retains a right to a commercially
reasonable royalty on all such technology. Our agreement
with the University of Notre Dame has lapsed but we are in the process of
renewing that agreement which we expect will be renewed by the end of fiscal
2009 on substantially the same terms as the prior agreement. Our
intellectual property/collaborative research agreement with The University of
Notre Dame pursuant to which we sponsored research by the University of Notre
Dame regarding genetic engineering techniques patented by Notre Dame, which are
called Piggybac transposon, for applications on silk worms. Any
patents or other intellectual property developed as a result of this sponsored
research will be the property of Notre Dame, however, we have a six-month
period, commencing on the date that we notify Notre Dame, to negotiate a license
agreement for the use of such intellectual property for the use of creating
transgenic worms for the production of silk and fibers. Such license
agreement would have terms consistent with a sample license agreement that is
attached to the Notre Dame collaborative research agreement. Such
license agreement would require us to make royalty payments to Notre Dame that
would range from 1% to 6% of net sales of products using Notre Dame’s
intellectual property. In addition, such license agreement
would have a term of approximately 20 years.
Exclusive License Agreement with University of Wyoming
In May
2006, we entered into a license agreement with the University of Wyoming,
pursuant to which we have licensed the exclusive, worldwide right to develop and
commercialize the production by silkworms of synthetic and natural spider silk
proteins and the genetic sequencing for such spider silk
proteins. These spider silk proteins and genetic sequencing are
covered by patents held by the University of Wyoming. Our license
allows us only to use silkworms to produce the licensed proteins and genetic
sequencing. We have the right to sublicense the intellectual property
that we license from the University of Wyoming. Our license agreement
with the University of Wyoming requires that we pay licensing and research fees
to the university in exchange for an exclusive license to in our field of use
for certain university-developed intellectual property including patented spider
silk gene sequences. Pursuant to the agreement, we issued 1,050,000
shares of our Class A common stock to the University Foundation. We
also issued to the University Foundation 700,000 shares of our Class A common
stock which is subject to our right to call such shares at any time prior to May
8, 2011 at a purchase price of $150,000. Our license agreement with
the University of Wyoming will continue in each country until the later of (i)
expiration of the last-to-expire patent we license from the University of
Wyoming under this license agreement in such country or (ii) ten years from the
date of first commercial sale of a licensed product in such
country. There are no royalties payable to the University of Wyoming
under the terms our agreement with them.
We have
not made any of the required payments pursuant to our license agreement with the
University of Wyoming. We will continue to accrue required payments
under the license agreement with the University of Wyoming, and we will pay such
amounts as our finances allow. Our license agreement provides that
the University of Wyoming must give us at least 90 days notice to cure the
failure to make the required payments before the University can terminate the
license agreement. If our license agreement with the University of
Wyoming were terminated, however, it would result in a loss of six months of
research time and it would cost us an additional $120,000 to create an
alternative gene sequence.
Research
and Development
Our
current research and development is being conducted sequentially in two
stages.
First stage: Reduction to
practice
1) We will
reduce to practice our technology for spider silk protein expression in the
silk glands of the silkworm. The focus at this stage is spider silk
analogs and the production of new silk fibers composed of recombinant
proteins. We are hopeful that we can achieve this goal by December
31, 2010. We believe that our transgenic system is essentially “plug
and play”, in that once the system is established the gene sequence for any
compatible protein can be inserted for expression by the
system.
Second stage:
Commercialization
2) High Performance
Fibers: Once we have achieved the production of recombinant
fiber, we will turn the technology to the production of high performance
polymers. We intend to will follow the accepted market structure in
the industry: vertical integration for certain applications, and bulk sale of
spun fiber directly to intermediate and end product
manufacturers. There is also the possibility of licensing our product
and technology.
Our goal
is to reach the following achievements within the indicated time
frame:
|
Achievement
|
Time
horizon
|
|
|
Laboratory
production of recombinant fiber.
|
December
31, 2010
|
|
|
Laboratory
production of recombinant high performance fiber.
|
April
30, 2011
|
|
|
Commercialization
of recombinant fiber.
|
January
30, 2012
|
During
the fiscal years ended December 31, 2008 and 2007, we have spent approximately
1,820 hours and 3,420 hours, respectively, on research and development
activities, which consisted of primarily of laboratory research on genetic
engineering by our outside consultants pursuant to our collaborative research
agreement with the University of Notre Dame.
Employees
We
currently have no employees other than Kim Thompson, our sole officer and
director. We plan to hire more persons on as-needed
basis.
We rent
office space at 120 N. Washington Square, Suite 805, Lansing, Michigan 48950,
which is our principal place of business. Our current lease is on a
month to month basis. We pay an annual rent of $600 for
office space, conference facilities, mail, fax and reception services located at
our principal place of business.
There are
no legal proceedings pending or threatened against us or our officers and
directors.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market
Information
Our
common stock has traded on the OTC Bulletin Board system under the symbol “KBLB”
since February 20, 2008.
The
following table sets forth the high and low trade information for our Class A
common stock for each quarter since we began trading on February 20, 2008. The
prices reflect inter-dealer quotations, do not include retail mark-ups,
markdowns or commissions and do not necessarily reflect actual
transactions. The prices below reflect a, the Company's Board of
Directors declared a nine-for-one stock dividend which was declared by our board
of directors on March 23, 2009. The stock split was distributed to
shareholders of record as of April 27, 2009.
|
Quarter
ended
|
Low
Price
|
High
Price
|
||||||
|
March
31, 2008
|
$
|
0.00
|
$
|
0.50
|
||||
|
June
30, 2008
|
$
|
0.022
|
$
|
0.047
|
||||
|
September
30, 2008
|
$
|
0.011
|
$
|
0.039
|
||||
|
December
31, 2008
|
$
|
0.011
|
$
|
0.04
|
||||
|
March
31, 2009
|
$
|
0.011
|
$
|
0.044
|
||||
|
June
30, 2009
|
$
|
0.017
|
$
|
0.06
|
||||
|
September
30, 2009
|
$
|
0.025
|
$
|
0.011
|
||||
Holders
As of
January 20, 2010 in accordance with our transfer
agent records, we had 28 record holders of our Class A common
stock.
Dividends
To date,
we have not declared or paid any dividends on our common stock. We currently do
not anticipate paying any cash dividends in the foreseeable future on our common
stock, when issued pursuant to this offering. Although we intend to retain our
earnings, if any, to finance the exploration and growth of our business, our
Board of Directors will have the discretion to declare and pay dividends in the
future.
Payment
of dividends in the future will depend upon our earnings, capital requirements,
and other factors, which our Board of Directors may deem relevant.
Stock Option Grants;
Warrants and Convertible Securities
To date,
we have not granted any stock options. In 2006, our CEO, Kim Thompson,
received substantial warrants on our stock pursuant to the employment agreement
between Mr. Thompson and us. However, Mr. Thompson surrendered all
such warrants and options to the corporation prior to the close of the 2006
calendar year. As of this date, we have no outstanding stock
options.
Pursuant
to the Letter Agreement, Calm Seas Capital made a Bridge Investment in us in the
aggregate amount of $120,000, of which $100,000 was paid promptly after the
Letter Agreement was signed in July 2009 and the remaining $20,000 was paid in
late September 2009. In this Bridge Investment, Calm Seas Capital
purchased (i) twelve convertible debentures, each in the principal amount of
$10,000 (the “Bridge Debentures”) and (ii) twelve warrants each exercisable for
the purchase of 500,000 shares (the “Bridge Warrants”).
The
principal and interest of the Bridge Debentures, which mature on December 31,
2010, are principal and interest shall be convertible at the option of the
holder at a fixed price of $.018 per share. After September 30, 2010,
we may cause the Bridge Debentures to be converted into shares of our Class A
common stock at the lower of (i) the conversion price then in effect and (ii)
the average closing bid for the Company’s Class A common stock for the 20
trading days prior to the date the Company gives notice that it is converting
the Bridge Debentures (but not less than $0.005 per share).
The
conversion price of the Bridge Debentures will be proportionately adjusted in
the event of merger, sale of assets, reclassification of the Company’s capital
stock, stock split, reverse stock split or stock
dividend. Additionally, the conversion price of the Bridge Debentures
will be proportionately reduced if the Company sells shares of its Class A
common stock for a price per share less than the conversion price of the Bridge
Debentures, excluding the issuance of shares pursuant to (a) Bridge Debentures
or Bridge Warrants, (b) the Equity Line of Credit or other existing obligation
of the Company to issue shares, (c) equity compensation plans or (d) the
acquisition or another business.
The
Bridge Warrants expire on December 31, 2011. The Bridge Warrants are
exercisable at an exercise price of $.02 per share, subject to customary
adjustments for stock splits, stock dividends, distribution of non-cash assets
by the Company to its shareholders, capital reorganization, reclassification of
the capital stock of the Company, consolidation or merger of the Company with
another corporation in which the Company is not the survivor, or sale, transfer
or other disposition of all or substantially all of the Company’s assets to
another corporation. Additionally, Calm Seas Capital may exercise the
Bridge Warrants using a cashless exercise provision.
Transfer
Agent and Registrar
Our
transfer agent is Registrar and Transfer Company, 10 Commerce Drive, Cranford,
N.J. 07016 and its phone number is (908) 497-2300.
We have
filed with the SEC a registration statement on Form S-1 under the Securities Act
with respect to the Class A common stock offered hereby. This prospectus, which
constitutes part of the registration statement, does not contain all of the
information set forth in the registration statement and the exhibits and
schedule thereto, certain parts of which are omitted in accordance with the
rules and regulations of the SEC. For further information regarding our
Class A common stock and our company, please review the registration statement,
including exhibits, schedules and reports filed as a part
thereof. Statements in this prospectus as to the contents of any
contract or other document filed as an exhibit to the registration statement,
set forth the material terms of such contract or other document but are not
necessarily complete, and in each instance reference is made to the copy of
such document filed as an exhibit to the registration statement, each such
statement being qualified in all respects by such reference.
We are
also subject to the informational requirements of the Exchange Act which
requires us to file reports, proxy statements and other information with the
SEC. Such reports, proxy statements and other information along with the
registration statement, including the exhibits and schedules thereto, may be
inspected at public reference facilities of the SEC at 100 F Street N.E.,
Washington D.C. 20549. Copies of such material can be obtained from
the Public Reference Section of the SEC at prescribed rates. You may call the
SEC at 1-800-SEC-0330 for further information on the operation of the public
reference room. Because we file documents electronically with the SEC, you may
also obtain this information by visiting the SEC’s Internet website at
http://www.sec.gov.
FINANCIAL STATEMENTS
Kraig
Biocraft Laboratories, Inc.
(A
DEVELOPMENT STAGE COMPANY)
|
PAGE
|
CONTENTS
|
|
F-1
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
|
|
F-2
|
BALANCE
SHEETS AS OF DECEMBER 31, 2008 and 2007.
|
|
F-3
|
STATEMENTS
OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 AND FOR THE
PERIOD APRIL 25, 2006 (INCEPTION) TO DECEMBER 31, 2008.
|
|
F-4
- F-5
|
STATEMENT
OF CHANGES IN STOCKHOLDERS’ DEFICIT FOR THE PERIOD FROM APRIL 25,
2006 (INCEPTION) TO DECEMBER 31, 2008.
|
|
F-6
|
STATEMENTS
OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 AND FOR THE
PERIOD APRIL 25, 2006 (INCEPTION) TO DECEMBER 31, 2008.
|
|
F-7
- F-18
|
NOTES
TO FINANCIAL STATEMENTS.
|
|
F-19
|
CONDENSED
BALANCE SHEETS AS OF SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31,
2008.
|
|
F-20
|
CONDENSED
STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
2009 AND 2008 AND FOR THE PERIOD APRIL 25, 2006 (INCEPTION) TO SEPTEMBER
30, 2009 (UNAUDITED).
|
|
F-21
- F-22
|
CONDENSED
STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT FOR THE PERIOD FROM APRIL
25, 2006 (INCEPTION) TO SEPTEMBER 30, 2009 (UNAUDITED).
|
|
F-23
|
CONDENSED
STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND
2008 AND FOR THE PERIOD APRIL 25, 2006 (INCEPTION) TO SEPTEMBER 30, 2009
(UNAUDITED).
|
|
F-24
- F-37
|
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
|
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors of:
Kraig
Biocraft Laboratories, Inc.
We have
audited the accompanying balance sheets of Kraig Biocraft Laboratories, Inc.,
(a development stage company), as of December 31, 2008 and 2007 and
the related statements of operations, changes in stockholders’ deficit and cash
flows for the years ended December 31, 2008 and 2007 and the period April 25,
2006 (Inception) to December 31, 2008. The financial statements are
the responsibility of the Company’s management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly in all
material respects, the financial position of Kraig Biocraft Laboratories, Inc.
as of December 31, 2008 and 2007 and the results of its operations and its cash
flows for the years ended December 31, 2008 and 2007 and the period April 25,
2006 (Inception) to December 31, 2008 in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the
financial statements. The Company is in the development stage with a working
capital and stockholders’ deficit of $538,301 and used $517,358 of cash in
operations from inception. These factors raise substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans
concerning these matters are also described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
WEBB
& COMPANY, P.A.
Certified
Public Accountants
Boynton
Beach, Florida
April 13,
2009
|
Kraig
Biocraft Laboratories, Inc.
|
||||||||
|
(A
Development Stage Company)
|
||||||||
|
Balance
Sheets
|
||||||||
|
ASSETS
|
||||||||
|
December
31, 2008
|
December
31, 2007
|
|||||||
|
Current
Assets
|
||||||||
|
Cash
|
$
|
9,537
|
$
|
105,818
|
||||
|
Prepaid
Expenses
|
3,123
|
12,500
|
||||||
|
Total
Assets
|
$
|
12,660
|
$
|
118,318
|
||||
|
LIABILITIES AND STOCKHOLDERS'
DEFICIT
|
||||||||
|
Current
Liabilities
|
||||||||
|
Accounts payable
|
$
|
65,750
|
$
|
22,121
|
||||
|
Payroll
Tax Payable – related party
|
16,933
|
18,414
|
||||||
|
Royality
agreement payable - related party
|
120,000
|
120,000
|
||||||
|
Accrued
Expenses - related party
|
348,278
|
139,980
|
||||||
|
Total
Current Liabilities
|
550,961
|
300,515
|
||||||
|
Commitments
and Contingencies
|
-
|
-
|
||||||
|
Stockholders'
Deficit
|
||||||||
|
Preferred
stock, no par value; unlimited shares authorized,
|
||||||||
|
none
issued and outstanding
|
-
|
-
|
||||||
|
Common
stock Class A, no par value; unlimited shares
authorized,
|
||||||||
|
49,934,850
and 49,934,850 shares issued and outstanding during
|
779,050
|
779,050
|
||||||
|
2008
and 2007, respectively
|
||||||||
|
Common
stock Class B, no par value; unlimited shares
authorized,
|
||||||||
|
no
shares issued and outstanding
|
-
|
-
|
||||||
|
Common
Stock Issuable, 40,000 shares
|
4,000
|
-
|
||||||
|
Additional
paid-in capital
|
42,060
|
42,060
|
||||||
|
Deficit
accumulated during the development stage
|
(1,363,411
|
)
|
(1,003,307
|
)
|
||||
|
Total
Stockholders' Deficit
|
(538,301
|
)
|
(182,197
|
)
|
||||
|
Total
Liabilities and Stockholders' Deficit
|
$
|
12,660
|
$
|
118,318
|
||||
See
accompanying notes to financial statements.
|
Kraig
Biocraft Laboratories, Inc.
|
||||||||||||
|
(A
Development Stage Company)
|
||||||||||||
|
Statements
of Operations
|
||||||||||||
|
For
the Years Ended
|
For
the Period from April 25, 2006
|
|||||||||||
|
December
31,
|
December
31,
|
(Inception)
to
|
||||||||||
|
2008
|
2007
|
December
31, 2008
|
||||||||||
|
Revenue
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
|
Operating
Expenses
|
||||||||||||
|
General
and Administrative
|
74,062
|
40,798
|
122,703
|
|||||||||
|
Professional
Fees
|
31,066
|
49,759
|
80,825
|
|||||||||
|
Officer's
Salary
|
207,866
|
196,100
|
653,734
|
|||||||||
|
Contract
Settlement
|
-
|
-
|
107,143
|
|||||||||
|
Payroll
Taxes
|
9,576
|
9,188
|
18,764
|
|||||||||
|
Research
and Development
|
33,077
|
177,019
|
375,009
|
|||||||||
|
Total
Operating Expenses
|
355,647
|
472,864
|
1,358,178
|
|||||||||
|
Loss
from Operations
|
(355,647
|
)
|
(472,864
|
)
|
(1,358,178
|
)
|
||||||
|
Other
Income/(Expenses)
|
||||||||||||
|
Other
income
|
2,781
|
-
|
2,781
|
|||||||||
|
Interest
expense
|
(7,238
|
)
|
(122
|
)
|
(8,014
|
)
|
||||||
|
Total
Other Income/(Expenses)
|
(4,457
|
)
|
(122
|
)
|
(5,233
|
)
|
||||||
|
Net
Loss before Provision for Income Taxes
|
(360,104
|
)
|
(472,986
|
)
|
(1,363,411
|
)
|
||||||
|
Provision
for Income Taxes
|
-
|
-
|
-
|
|||||||||
|
Net
Loss
|
$
|
(360,104
|
)
|
$
|
(472,986
|
)
|
$
|
(1,363,411
|
)
|
|||
|
Net
Loss Per Share - Basic and Diluted
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
||||||
|
Weighted
average number of shares outstanding
|
||||||||||||
|
during
the year/period - Basic and Diluted
|
499,733,160
|
411,625,320
|
||||||||||
See
accompanying notes to financial statements.
|
Kraig
Biocraft Laboratories, Inc.
|
||||||||||||||||||||||||||||||||||||||||||||
|
(A
Development Stage Company)
|
||||||||||||||||||||||||||||||||||||||||||||
|
Statement
of Changes in Stockholders Deficit
|
||||||||||||||||||||||||||||||||||||||||||||
|
For the period from April 25, 2006 (inception) to
December 31, 2008
|
||||||||||||||||||||||||||||||||||||||||||||
|
Preferred
Stock
|
Common
Stock -
Class
A
|
Common
Stock -
Class
B
|
Common
Stock – Class A Shares To Be Issued
|
Deficit
Accumulated during
|
||||||||||||||||||||||||||||||||||||||||
|
Shares
|
Par
|
Shares
|
Par
|
Shares
|
Par
|
Shares
|
Par
|
APIC
|
Development
Stage
|
Total
|
||||||||||||||||||||||||||||||||||
|
Balance,
April 25, 2006
|
-
|
$
|
-
|
-
|
$
|
-
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||||||||||||||||||
|
Stock
issued to founder
|
-
|
-
|
33,229,200
|
180
|
-
|
-
|
-
|
-
|
-
|
-
|
180
|
|||||||||||||||||||||||||||||||||
|
Stock
issued for services ($.08/share)
|
-
|
-
|
1,750,000
|
140,000
|
-
|
-
|
-
|
-
|
-
|
-
|
140,000
|
|||||||||||||||||||||||||||||||||
|
Stock
issued for services ($.08/share)
|
-
|
-
|
70,000
|
5,600
|
-
|
-
|
-
|
-
|
-
|
-
|
5,600
|
|||||||||||||||||||||||||||||||||
|
Stock
contributed by shareholder
|
-
|
-
|
(1,166,650
|
)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||||||||
|
Stock
issued for cash ($2.00/share)
|
-
|
-
|
400
|
200
|
-
|
-
|
-
|
-
|
-
|
-
|
200
|
|||||||||||||||||||||||||||||||||
|
Stock
issued for cash ($2.00/share)
|
-
|
-
|
400
|
200
|
-
|
-
|
-
|
-
|
-
|
-
|
200
|
|||||||||||||||||||||||||||||||||
|
Fair
value of warrants issued
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
126,435
|
-
|
126,435
|
|||||||||||||||||||||||||||||||||
|
Net
Loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(530,321
|
)
|
(530,321
|
)
|
|||||||||||||||||||||||||||||||
|
Balance,
December 31, 2006
|
-
|
-
|
33,883,350
|
146,180
|
-
|
-
|
-
|
-
|
126,435
|
(530,321
|
)
|
(257,706
|
)
|
|||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.09/share)
|
-
|
-
|
175,000
|
15,000
|
-
|
-
|
-
|
-
|
-
|
-
|
15,000
|
|||||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.09/share)
|
-
|
-
|
1,200,000
|
103,000
|
-
|
-
|
-
|
-
|
-
|
-
|
103,000
|
|||||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.003/share)
|
-
|
-
|
900,000
|
3,000
|
-
|
-
|
-
|
-
|
-
|
-
|
3,000
|
|||||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.08/share)
|
-
|
-
|
187,500
|
15,000
|
-
|
-
|
-
|
-
|
-
|
-
|
15,000
|
|||||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.08/share)
|
-
|
-
|
187,500
|
15,000
|
-
|
-
|
-
|
-
|
-
|
-
|
15,000
|
|||||||||||||||||||||||||||||||||
|
-
|
||||||||||||||||||||||||||||||||||||||||||||
|
Stock
issued for services ($.08/share)
|
-
|
-
|
200,000
|
16,000
|
-
|
-
|
-
|
-
|
-
|
-
|
16,000
|
|||||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.08/share)
|
-
|
-
|
1,312,500
|
105,000
|
-
|
-
|
-
|
-
|
-
|
-
|
105,000
|
|||||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.03/share)
|
-
|
-
|
8,049,500
|
241,485
|
-
|
-
|
-
|
-
|
-
|
-
|
241,485
|
|||||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.03/share)
|
-
|
-
|
20,000
|
600
|
-
|
-
|
-
|
-
|
-
|
-
|
600
|
|||||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.03/share)
|
-
|
-
|
830,000
|
24,900
|
-
|
-
|
-
|
-
|
-
|
-
|
24,900
|
|||||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.03/share)
|
-
|
-
|
2,500
|
75
|
-
|
-
|
-
|
-
|
-
|
-
|
75
|
|||||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.03/share)
|
-
|
-
|
12,000
|
360
|
-
|
-
|
-
|
-
|
-
|
-
|
360
|
|||||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.03/share)
|
-
|
-
|
102,500
|
3,075
|
-
|
-
|
-
|
-
|
3,075
|
|||||||||||||||||||||||||||||||||||
|
Stock
issued in connection to cash offering
|
-
|
-
|
2,812,500
|
84,375
|
-
|
-
|
-
|
-
|
(84,375
|
)
|
-
|
-
|
||||||||||||||||||||||||||||||||
|
Stock
issued for services ($.10/share)
|
-
|
-
|
60,000
|
6,000
|
-
|
-
|
-
|
-
|
-
|
-
|
6,000
|
|||||||||||||||||||||||||||||||||
|
Net
loss, for the year ended December 31, 2007
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(472,986
|
)
|
(472,986
|
)
|
|||||||||||||||||||||||||||||||
|
Balance,
December 31, 2007
|
-
|
-
|
49,934,850
|
779,050
|
-
|
-
|
-
|
-
|
42,060
|
(1,003,307
|
)
|
(182,197
|
)
|
|||||||||||||||||||||||||||||||
|
Stock
issuable for services ($.10/share)
|
-
|
-
|
-
|
-
|
-
|
-
|
40,000
|
4,000
|
-
|
-
|
4,000
|
|||||||||||||||||||||||||||||||||
|
Net
loss, for the year ended December 31, 2008
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(360,104
|
)
|
(360,104
|
)
|
|||||||||||||||||||||||||||||||
|
Balance,
December 31, 2008
|
-
|
$
|
-
|
49,934,850
|
$
|
779,050
|
-
|
$
|
-
|
40,000
|
$
|
4,000
|
$
|
42,060
|
$
|
(1,363,411
|
)
|
$
|
(538,301
|
)
|
See
accompanying notes to financial statements.
|
Kraig
Biocraft Laboratories, Inc.
|
||||||||||||
|
(A
Development Stage Company)
|
||||||||||||
|
Statements of Cash Flows
|
||||||||||||
|
For
the Years Ended December 31,
|
For
the Period from April 25, 2006
|
|||||||||||
|
(Inception)
to
|
||||||||||||
|
2008
|
2007
|
December
31, 2008
|
||||||||||
|
Cash
Flows From Operating Activities:
|
||||||||||||
|
Net
Loss
|
$
|
(360,104
|
)
|
$
|
(472,986
|
)
|
$
|
(1,363,411
|
)
|
|||
|
Adjustments
to reconcile net loss to net cash used in operations
|
||||||||||||
|
Stock
issuable for services
|
4,000
|
22,000
|
171,780
|
|||||||||
|
Warrants
issued to employees
|
-
|
-
|
126,435
|
|||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
(Increase)Decrease
in prepaid expenses
|
9,377
|
(12,500
|
)
|
(3,123
|
)
|
|||||||
|
Increase
in accrued expenses and other payables
|
86,817
|
26,574
|
365,211
|
|||||||||
|
Increase
in royality agreement payable - related party
|
120,000
|
12,857
|
120,000
|
|||||||||
|
Increase
in accounts payable
|
43,629
|
12,988
|
65,750
|
|||||||||
|
Net
Cash Used In Operating Activities
|
(96,281
|
)
|
(411,067
|
)
|
(517,358
|
)
|
||||||
|
Cash
Flows From Investing Activities:
|
-
|
-
|
-
|
|||||||||
|
Cash
Flows From Financing Activities:
|
||||||||||||
|
Proceeds
from Notes Payable - Stockholder
|
-
|
-
|
10,000
|
|||||||||
|
Repayments
of Notes Payable - Stockholder
|
-
|
(10,000
|
)
|
(10,000
|
)
|
|||||||
|
Proceeds
from issuance of common stock
|
-
|
526,495
|
526,895
|
|||||||||
|
Net
Cash Provided by Financing Activities
|
-
|
516,495
|
526,895
|
|||||||||
|
Net
Increase (Decrease) in Cash
|
(96,281
|
)
|
105,428
|
9,537
|
||||||||
|
Cash
at Beginning of Period/Year
|
105,818
|
390
|
-
|
|||||||||
|
Cash
at End of Period/Year
|
$
|
9,537
|
$
|
105,818
|
$
|
9,537
|
||||||
|
Supplemental disclosure of cash flow
information:
|
||||||||||||
|
Cash
paid for interest
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
|
Cash
paid for taxes
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
|
SUPPLEMENTAL
DISCLOSURE OF NON CASH ITEMS
|
|
During
the period ended December 31, 2006, the principal stockholder contributed
1,166,650 shares
of common stock to the Company as an in kind contribution of
stock. The shares were retired
by the Company.
|
|
In
accordance with the May 2007 stock purchase agreement which contains an
anti-dilution clause which requires the Company to issue additional common
shares under the stock purchase agreement for any subsequent issuance at a
price below $.08 per share for a period of 12 months. The Company has
issued 2,812,500 additional shares through September 2007 as a result of
the subsequent stock issuances in the amount of $84,375
($0.03/share).
|
See
accompanying notes to financial statements.
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2008 AND 2007
NOTE
1 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES AND ORGANIZATION
(A)
Organization
Kraig
Biocraft Laboratories, Inc. (a development stage company) (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.
Activities
during the development stage include developing the business plan, negotiating
intellectual property agreements and raising capital.
(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 and Cash
Equivalents
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.
(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 Financial Accounting Standards No. 128,
“Earnings per Share.” As of December 31, 2007, the Company does not
have any dilutive securities outstanding. As of December 31, 2008,
$362,494 of debt is convertible to 18,124,680 shares as per agreement with
CEO. The effect of these shares is anti-dilutive and not included in
dilutive earnings per share.
(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.
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2008 AND 2007
(F) Income
Taxes
The
Company accounts for income taxes under the Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes” (“Statement
109”). Under Statement 109, 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 Statement 109, 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.
|
2008
|
2007
|
|||||||
|
Expected
income tax recovery (expense) at the statutory rate of
34%
|
$ | (122,435 | ) | $ | (160,815 | ) | ||
|
Tax
effect of expenses that are not deductible for income tax purposes (net of
other amounts deductible for tax purposes)
|
10 | 955 | ||||||
|
Change
in valuation allowance
|
122,425 | 159,860 | ||||||
|
Provision
for income taxes
|
$ | - | $ | - | ||||
|
The
components of deferred income taxes are as follows:
|
||||||||
| 2008 | 2007 | |||||||
|
Deferred
income tax asset:
|
||||||||
|
Net
operating loss carry forwards
|
$ | 419,606 | $ | 297,181 | ||||
|
Valuation
allowance
|
(419,606 | ) | (297,181 | ) | ||||
|
Deferred
income taxes
|
$ | - | $ | - | ||||
As of December 31, 2008, and 2007 the Company has a net operating loss carry forward of approximately $1,234,136 and $874,061, respectively, available to offset future taxable income through 2028. This results in deferred tax assets of $419,606 and $297,181 as of December 31, 2008 and 2007, respectively . The valuation allowance at December 31, 2008 was $419,606. The change in the valuation allowance for the year ended December 31, 2008 and 2007 was an increase of $122,425 and $159,860, respectively.
(G) Stock-Based
Compensation
The
Company has adopted the provisions of SFAS No. 123R and related interpretations
as provided by SAB 107. 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.
Common
stock, stock options and common stock warrants issued to other than
employees or
directors are recorded on the basis of their fair value, as required by SFAS No.
123(R), which is measured as of the date required by EITF Issue 96-18,
“Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services.” In accordance
with EITF 96-18, the stock options or common stock warrants are valued using the
Black-Scholes option pricing model on the basis of the market price of the
underlying common stock on the “valuation date,” which for options and warrants
related to contracts that have substantial disincentives to non-performance is
the date of the contract, and for all other contracts is the vesting date.
Expense related to the options and warrants is recognized on a straight-line
basis over the shorter of the period over which services are to be received or
the vesting period. Where expense must be recognized prior to a valuation date,
the expense is computed under the Black-Scholes option pricing model on the
basis of the market price of the underlying common stock at the end of the
period, and any subsequent changes in the market price of the underlying common
stock up through the valuation date is reflected in the expense recorded in the
subsequent period in which that change occurs.
(H) Business
Segments
The
Company operates in one segment and therefore segment information is not
presented.
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2008 AND 2007
(I) Recent Accounting
Pronouncements
In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
160, “Noncontrolling Interests
in Consolidated Financial Statements – an amendment of ARB No.
51”. This statement improves the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting
standards that require; the ownership interests in subsidiaries held by parties
other than the parent and the amount of consolidated net income attributable to
the parent and to the noncontrolling interest be clearly identified and
presented on the face of the consolidated statement of income, changes in a
parent’s ownership interest while the parent retains its controlling financial
interest in its subsidiary be accounted for consistently, when a subsidiary is
deconsolidated, any retained noncontrolling equity investment in the former
subsidiary be initially measured at fair value, entities provide sufficient
disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners. SFAS No. 160
affects those entities that have an outstanding noncontrolling interest in one
or more subsidiaries or that deconsolidate a subsidiary. SFAS No. 160
is effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Early adoption is prohibited. The
adoption of this statement is not expected to have a material effect on the
Company's financial statements.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133”
(SFAS 161). This statement is intended to improve transparency in financial
reporting by requiring enhanced disclosures of an entity’s derivative
instruments and hedging activities and their effects on the entity’s financial
position, financial performance, and cash flows. SFAS 161 applies to all
derivative instruments within the scope of SFAS 133, “Accounting for Derivative
Instruments and Hedging Activities” (SFAS 133) as well as related hedged items,
bifurcated derivatives, and nonderivative instruments that are designated and
qualify as hedging instruments. Entities with instruments subject to SFAS 161
must provide more robust qualitative disclosures and expanded quantitative
disclosures. SFAS 161 is effective prospectively for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008,
with early application permitted. We are currently evaluating the disclosure
implications of this statement.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of accounting
principles and provides entities with a framework for selecting the principles
used in preparation of financial statements that are presented in conformity
with GAAP. The current GAAP hierarchy has been criticized because it is directed
to the auditor rather than the entity, it is complex, and it ranks FASB
Statements of Financial Accounting Concepts, which are subject to the same level
of due process as FASB Statements of Financial Accounting Standards, below
industry practices that are widely recognized as generally accepted but that are
not subject to due process. The Board believes the GAAP hierarchy should be
directed to entities because it is the entity (not its auditors) that is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP. The adoption of FASB 162 is not expected
to have a material impact on the Company’s financial position.
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2008 AND 2007
In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts-an interpretation of FASB Statement No. 60.” Diversity
exists in practice in accounting for financial guarantee insurance contracts by
insurance enterprises under FASB Statement No. 60, Accounting and Reporting by
Insurance Enterprises. This results in inconsistencies in the recognition and
measurement of claim liabilities. This Statement requires that an insurance
enterprise recognize a claim liability prior to an event of default (insured
event) when there is evidence that credit deterioration has occurred in an
insured financial obligation. This Statement requires expanded disclosures about
financial guarantee insurance contracts. The accounting and disclosure
requirements of the Statement will improve the quality of information provided
to users of financial statements. The adoption of FASB 163 is not expected to
have a material impact on the Company’s financial position.
(J)
Reclassification
The 2007
financial statements have been reclassified to conform to the 2008
presentation.
NOTE
2 GOING
CONCERN
As
reflected in the accompanying unaudited financial statements, the Company is in
the development stage, has a working capital deficiency and stockholders
deficiency of $538,301 and used $517,358 of cash in operations from
inception. 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 STOCKHOLDERS’
DEFCIT
(A) Common Stock Issued for
Cash
On
January 8, 2007 the Company issued 175,000 shares of common stock for $15,000
($0.09/share). This agreement was subsequently terminated effective
May 23, 2007.
On
January 22, 2007 the Company issued 1,200,000 shares of common stock for
$103,000 ($0.09/share). In addition, 900,000 shares were issued
for $3,000 ($0.0033/share).
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2008 AND 2007
On April
4, 2007, the Company issued 187,500 shares of common stock for cash of $15,000
($0.08 per share).
On April
20, 2007, the Company issued 187,500 shares of common stock for cash of $15,000
($0.08 per share).
On April
28, 2006, the Company issued 800 shares of common stock for cash of $400 ($0.50
per share).
On May
18, 2007, the Company issued 1,312,500 shares of common stock for cash of
$105,000 ($0.08 per share).
On August
28, 2007 the Company entered into a stock purchase agreement to issue 8,049,500
shares common stock in the amount of $241,485 ($0.03/share).
On August
29, 2007 the Company entered into a stock purchase agreement to issue 20,000
shares common stock in the amount of $600 ($0.03/share).
On August
29, 2007 the Company entered into a stock purchase agreement to issue 830,000
shares common stock in the amount of $24,900 ($0.03/share).
On
September 1, 2007 the Company entered into a stock purchase agreement to issue
2,500 shares common stock in the amount of $75 ($0.03/share).
On
September 5, 2007 the Company entered into a stock purchase agreement to issue
12,000 shares common stock in the amount of $360 ($0.03/share
On
September 12, 2007 the Company entered into a stock purchase agreement to issue
102,500 shares common stock in the amount of $3,075($0.03/share).
In
accordance with the May 2007 stock purchase agreement which contains an
anti-dilution clause which requires the Company to issue additional common
shares under the stock purchase agreement for any subsequent issuance at a price
below $.08 per share for a period of 12 months. The Company has issued 2,812,500
additional shares through May 2008 as a result of the subsequent stock issuances
$0.03/share.
(B) Common Stock Issued for
Intellectual Property
On April
26, 2006, the Company issued 33,229,200 shares of common stock to its founder
having a fair value of $180 ($0.000005/share) in exchange for intellectual
property. The fair value of the patent was determined based upon the
historical cost of the intellectual property contributed by the
founder.
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2008 AND 2007
(C) Common Stock Issued for
Services
On
January 15, 2008 the Company issued 40,000 shares of common stock for consulting
services rendered with a fair value of $4,000 ($0.10/share).
On May 8,
2006, the Company entered into a license agreement for research and development.
Pursuant to the terms of the agreement, the Company issued 1,750,000 of common
stock upon execution of the agreement. The Company also received a five-year
call option from the license holder to repurchase 700,000 common shares at an
exercise price of $150,000 or $.21 per share. The option gives the Company the
right, but not the obligation to repurchase the shares of common
stock. The call option expires May 4, 2011. As of December 31, 2008
the value of the stock was greater then $.10 per share. However, the
Company does not have the obligation to repurchase the
shares. Accordingly, the net effect on the balance sheet is
$0(See Note 4).
On July
1, 2006 the Company entered into a five year consulting agreement for research
and development. Pursuant to the terms of the agreement, the Company paid 70,000
shares of common stock upon execution. These shares had a fair value
of $5,600 ($0.08/share) based upon the recent cash offering
price. Additionally, 200,000 shares of common stock were issued on
May 18, 2007 with a fair value of $16,000 ($0.08/share). As of
December 31, 2008 the Company issued 100,000 shares of common stock for
consulting services rendered with a fair value of $10,000
($0.10/share).
(D) Cancellation and
Retirement of Common Stock
On
December 29, 2006, the Company’s founder returned 1,166,650 shares of common
stock to the Company. These shares were cancelled and
retired. Accordingly, the net effect on equity is $0.
(E) Common Stock
Warrants
During
2006, the Company issued 4,200,000 warrants to an officer under his employment
agreement. The Company recognized an expense of $126,435 for
the period from inception to December 31, 2006. The Company recorded
the fair value of the warrants based on the fair value of each
warrant grant estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants in
2006, dividend yield of zero, expected volatility of 183%; risk-free interest
rates of 4.98%, expected life of one year. The warrants vested
immediately. The options expire between 5 and 9 years from the
date of issuance and have an exercise price of between $.21 and $.40 per share.
During November 2006, the Company and the officer entered into an amendment to
the employment agreement whereby all the warrants were retired.
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2008 AND 2007
(F) Amendment to
Articles of Incorporation
On
February 16, 2009, the Company amended its articles of incorporation to amend
the number of shares the Company is authorized to issue as follows (See Note
6(A)):
|
·
|
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
|
(G) Stock Split Effected in
the Form of a Stock Dividend
On March
23, 2009, the Company's Board of Directors declared a nine-for-one stock
dividend to be distributed to shareholders of record on April 27,
2009. The financial statements were not retroactively restated to
reflect the stock dividend.
NOTE
4 COMMITMENTS AND
CONTINGENCIES
(A) Employment
Agreement
On April
26, 2006, the Company entered into a five-year employment agreement with the
Company’s Chairman and Chief Executive Officer. The agreement renews annually so
that at all times, the term of the agreement is five years. Pursuant
to this agreement, the Company will pay an annual base salary of $185,000 for
the period May 1, 2006 through December 31, 2006. Base pay will be
increased each January 1st, for
the subsequent twelve month periods by six percent. The officer will
also be entitled to life, disability, health and dental
insurance. In addition, the officer received 700,000 five year
warrants at an exercise price of $.21 per share, 1,500,000 eight year warrants
at an exercise price of $ .33 per share and 2,000,000 nine year warrants at an
exercise price of $ .40 per share (See Note 3(E)). The warrants fully
vested on the date of grant. The agreement also calls for the
issuance of warrants and increase in the officer’s base compensation upon the
Company reaching certain milestones:
|
1.
|
Upon
the Company’s successful laboratory development of a new silk fiber
composed of one or more proteins that are exogenous to a host, the Company
will issue 500,000 eight year warrants at an exercise price of $.20 per
share and raise executive’s base salary by
14%.
|
|
2.
|
Upon
the Company’s successful laboratory development of a new silk fiber
composed of two or more proteins that are exogenous to a host, the Company
will issue 600,000 eight year warrants at an exercise price of $.18 per
share and raise executive’s base salary by
15%.
|
|
3.
|
Upon
the Company’s successful laboratory development of a new silk fiber
composed of at least in part of one or more synthetic proteins, the
Company will issue 900,000 eight year warrants at an exercise price of
$.18 per share and raise executive’s base salary by
18%.
|
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2008 AND 2007
|
4.
|
Upon
the Company’s successful laboratory development of a new silk fiber
composed of at least in part of one or more proteins that are genetic
modifications or induced mutations of a host silk protein, the Company
will raise the executive’s base salary by
8%.
|
|
5.
|
Upon
the Company becoming either a registered company or upon its stock trading
and the company achieving a market capitalization in excess of $35 million
for over 120 calendar day period, the executive’s base salary will
increase to $225,000.
|
|
6.
|
Upon
the Company becoming either a registered company or upon its stock trading
and the company achieving a market capitalization in excess of $65 million
for over 91 calendar day period, the executive’s base salary will increase
to $260,000.
|
|
7.
|
Upon
the Company becoming either a registered company or upon its stock trading
and the company achieving a market capitalization in excess of $100
million for over 91 calendar day period, the executive’s base salary will
increase to $290,000.
|
|
8.
|
Upon
the Company becoming either a registered company or upon its stock trading
and the company achieving a market capitalization in excess of $200
million for over 120 calendar day period, the executive’s base salary will
increase to $365,000.
|
|
9.
|
Upon
the Company becoming either a registered company or upon its stock trading
and the company achieving a market capitalization in excess of $350
million for over 150 calendar day period, the executive’s base salary will
increase to $420,000.
|
On
November 6, 2006, the Company entered into an addendum to the employment
agreement whereby the officer agreed to retire all stock warrants issued or to
be issued under his employment agreement in return for an increase in his
severance allowance to $600,000 or seventy five percent of total salary due
under the remaining term of the employment agreement, which ever is greater and
a death benefit of $300,000 or thirty five percent of the total salary due under
the remaining term of the employment agreement.
In
addition, upon expiration or termination of the employment agreement, the
Company agrees to keep the officer employed as a consultant for a period of six
years at a rate of $4,000 per month with annual increases of 3%. The agreement
also calls for certain increases based on milestones reached by the company,
including:
1. If
the company achieves gross sales exceeding $10 million or net income exceeding
$1 million for any two years within the ten year period after the date of this
agreement or a market capitalization in excess of $45 million for over 180
calendar days within six years from the date of this agreement, the term of the
consulting agreement will be extended to 10 years.
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2008 AND 2007
2. If
the company achieves gross sales exceeding $19 million or net income exceeding
$3 million for any two years within the twelve year period after the date of
this agreement or a market capitalization in excess of $65 million for over 180
calendar days within six years from the date of this agreement, the term of the
consulting agreement will be extended to 20 years or the life of the officer and
his spouse at a rate of $6,500 per month with a 3% annual increase.
3. If
the company achieves gross sales exceeding $38 million or net income exceeding
$6 million for any two years within the twelve year period after the date of
this agreement or a market capitalization in excess of $120 million for over 180
calendar days within six years from the date of this agreement, the term of the
consulting agreement will be extended to 20 years or the life of the officer and
his spouse at a rate of $10,000 per month with a 3% annual
increase.
4. If
the company achieves gross sales exceeding $59 million or net income exceeding
$9 million for any year within the twelve year period after the date of this
agreement or a market capitalization in excess of $210 million for over 180
calendar days within six years from the date of this agreement, the term of the
consulting agreement will be extended to 20 years or the life of the officer and
his spouse at a rate of $15,000 per month with a 3% annual
increase.
5. If
the company achieves gross sales exceeding $78 million or net income exceeding
$12 million for any year within the twelve year period after the date of this
agreement or a market capitalization in excess of $320 million for over 180
calendar days within six years from the date of this agreement, the term of the
consulting agreement will be extended to 20 years or the life of the officer and
his spouse at a rate of $20,000 per month with a 3% annual
increase.
On
October 10, 2008, the Company entered into an addendum to the employment
agreement whereby all unpaid back salary will accrue interest at 7% per
year. At December 31, 2008, the Company recorded interest expense and
related accrued interest payable of $5,351. In addition, the Company
granted the CEO the right to convert any accrued salary into Class “A” Common
Stock at either 1) The lowest price at which the Company’s Class “A” Common
Stock has traded over the preceding twelve month period, 2) At the lowest bid
price for the preceding thirty days, 3) The lowest price paid in cash for the
Class “A” Common Stock during the twelve months preceding the
conversion. The conversion price is the lesser of options 1-3 or
$0.02. As of December 31, 2008, there was no derivative liability
associated with the conversion option. As of December 31, 2008, no
accrued salary has been converted to Class “A” Common Stock. The
Company accounts for the conversion option under EITF 00-27 and classifies it in
accordance with SFAS 150. As of December 31, 2008 the Company owes
$340,263 in accrued salary (See Note 5).
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2008 AND 2007
(B)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. 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. As of December 31, 2008, the Company has not
made the required payments and has accrued $28,752 under the
agreement. The Company will continue to accrue the required payments
under this license agreement and the Company will pay such amounts as its
finances allow. This license agreement provides that licensor must
give the Company at least 90 days notice to cure the failure to make the
required payments before the licensor can terminate the license
agreement. If this license agreement were terminated, it would result
in a loss of six months of research time and it would cost the Company an
additional $120,000 to create an alternative gene sequence. (See Note
3(C))
(C)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 $0.50
per share or the average of the closing price of the Company’s shares over the
five days preceding such stock issuance. As of December 31, 2008 the
Company accrued $8,000 of accounts payable for the services
provided.
On
December 26, 2006, the Company entered into an addendum to the intellectual
property transfer agreement with an officer. In consideration of the
Company issuing either 200,000 preferred shares with the following preferences;
no dividends and voting rights equal to 100 common shares per share of preferred
stock or the payment of $120,000, the officer agreed to terminate the royalty
payments due under the agreement and give title to the exclusive license for the
non protective apparel use of the intellectual property to the
Company. On the date of the agreement, the Company did not have any
preferred stock authorized with the required preferences. In
accordance with SFAS 150, 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 December 31, 2008, 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. Additionally, the accrued expenses
are accruing 7% interest per year. At December 31, 2008, the Company
recorded interest expense and related accrued interest payable of
$1,887.
On
February 1, 2007 the Company entered into a consulting agreement for research
and development for a period of one year. As of December 31, 2008, all
payments under the consulting agreement totaling $150,000 were fully paid and
expensed. In April 2008, this agreement was extended through March
31, 2009 on a cost reimbursement basis. Reimbursements are to be made
quarterly and are not to exceed $35,000.
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2008 AND 2007
On
February 26, 2007 the Company entered into a five year consulting agreement for
research and development. Pursuant to the terms of the agreement, the Company
paid 200,000 shares of common stock upon execution. These shares had
a fair value of $16,000 ($0.08/share) based upon the recent cash offering price.
Additionally, 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 $0.10 per share or the average of the closing
price of the Company’s shares over the five days preceding such stock
issuance. As of December 31, 2008 the Company issued 100,000 shares
of common stock for consulting services rendered with a fair value of $10,000
($0.10/share). The agreement also requires the Company to issue up to
450,000 additional shares to the consultant upon the consultant reaching certain
milestone events. As of December 31, 2008, the consultant has not
reached the milestone events and no additional shares are earned.
NOTE
5 RELATED PARTY
TRANSACTIONS
On
October 6, 2006 the Company received $10,000 from a principal
stockholder. Pursuant to the terms of the loan, the
advance bears interest at 12%, is unsecured and matures on May 1, 2007. At
December 31, 2008, the Company recorded accrued interest payable of
$776. As of December 31, 2008, the loan principle was
repaid.
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2008 AND 2007
On
December 26, 2006, the Company entered into an addendum to the intellectual
property transfer agreement with an officer. In consideration of the
Company issuing either 200,000 preferred shares with the following preferences;
no dividends and voting rights equal to 100 common shares per share of preferred
stock or the payment of $120,000, the officer agreed to terminate the royalty
payments due under the agreement and give title to the exclusive license for the
non protective apparel use of the intellectual property to the
Company. On the date of the agreement, the Company did not have any
preferred stock authorized with the required preferences. In
accordance with SFAS 150, 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 December 31, 2008, 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 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. Additionally, the accrued
expenses are accruing 7% interest per year. At December 31, 2008, the
Company recorded interest expense and related accrued interest payable of $1,887
(See Note 4 (C).
As of
December 31, 2008 the Company owes $340,263 in accrued salary to principal
stockholder. On October 10, 2008, the Company entered into an
addendum to the employment agreement whereby all unpaid back salary will accrue
interest at 7% per year. At December 31, 2008, the Company recorded
interest expense and related accrued interest payable of $5,351. In
addition, the Company granted the CEO the right to convert any accrued salary
into Class “A” Common Stock at either 1) The lowest price at which the Company’s
Class “A” Common Stock has traded over the preceding twelve month period, 2) At
the lowest bid price for the preceding thirty days, 3) The lowest price paid in
cash for the Class “A” Common Stock during the twelve months preceding the
conversion. The conversion price is the lesser of options 1-3 or
$0.02. As of December 31, 2008, no accrued salary has been converted
to Class “A” Common Stock (See Note 4(A)).
On
January 1, 2007, the company entered into a one year lease agreement with an
officer for office space. The agreement calls for monthly rent of
$100 plus the reimbursement to officer for internet services at $50 per month.
The terms of this agreement became month-to-month on January 1, 2008. Payments
under the agreement totaled $1,800 for the year ended December 31,
2008.
NOTE
6 SUBSEQUENT
EVENT
(A) 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
(See Note 3 (F)):
|
·
|
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
|
(B) Stock
Dividend
On March
23, 2009, the Company's Board of Directors declared a nine-for-one stock
dividend to be distributed to shareholders of record on April 27,
2009. The financial statements were retroactively restated to reflect
the stock dividend. (See Note 3 (G)).
Kraig
Biocraft Laboratories, Inc.
(A
Development Stage Company)
Condensed
Balance Sheets
|
ASSETS
|
||||||||
|
September
30, 2009
|
December
31, 2008
|
|||||||
|
(Unaudited)
|
||||||||
|
Current
Assets
|
||||||||
|
Cash
|
$
|
34,119
|
$
|
9,537
|
||||
|
Other
receivables
|
23,900
|
-
|
||||||
|
Prepaid
Expenses
|
5,644
|
3,123
|
||||||
|
Total
Assets
|
$
|
63,663
|
$
|
12,660
|
||||
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||||||
|
Current
Liabilities
|
||||||||
|
Accounts
payable
|
$
|
76,650
|
$
|
65,750
|
||||
|
Royalty
agreement payable - related party
|
105,000
|
120,000
|
||||||
|
Accrued
Expenses - related party
|
568,252
|
365,211
|
||||||
|
Derivative
Liability
|
3,029,291
|
-
|
||||||
|
Total
Current Liabilities
|
3,779,193
|
550,961
|
||||||
|
Long
Term Liabilities
|
||||||||
|
Convertible
note payable - net of debt discount
|
4,059
|
-
|
||||||
|
Total
Liabilities
|
3,783,252
|
550,961
|
||||||
|
Commitments
and Contingencies
|
||||||||
|
Stockholders'
Deficit
|
||||||||
|
Preferred
stock, no par value; unlimited shares authorized,
|
||||||||
|
none
issued and outstanding
|
-
|
-
|
||||||
|
Common
stock Class A, no par value; unlimited shares
authorized,
|
||||||||
|
502,495,099
and 499,348,500 shares issued and outstanding,
respectively
|
9,066,900
|
779,050
|
||||||
|
Common
stock Class B, no par value; unlimited shares
authorized,
|
||||||||
|
no
shares issued and outstanding
|
-
|
-
|
||||||
|
Common
Stock Issuable, 1,122,311 and 400,000 shares, respectively
|
22,000
|
4,000
|
||||||
|
Additional
paid-in capital
|
162,060
|
42,060
|
||||||
|
Deficit
accumulated during the development stage
|
(12,970,549
|
)
|
(1,363,411
|
)
|
||||
|
Total
Stockholders' Deficit
|
(3,719,589
|
)
|
(538,301
|
)
|
||||
|
Total
Liabilities and Stockholders' Deficit
|
$
|
63,663
|
$
|
12,660
|
||||
See
accompanying notes to condensed unaudited financial statements
|
(A
Development Stage Company)
|
||||||||||||||||||||
|
Condensed
Statements of Operations
|
||||||||||||||||||||
|
(Unaudited)
|
||||||||||||||||||||
|
For
the Three Months Ended
|
For
the Nine Months Ended
|
For
the Period from April 25, 2006
|
||||||||||||||||||
|
September
30,
|
September
30,
|
September
30,
|
September
30,
|
(Inception)
to
|
||||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
September
30, 2009
|
||||||||||||||||
|
Revenue
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||
|
Operating
Expenses
|
||||||||||||||||||||
|
General
and Administrative
|
16,846
|
8,383
|
42,294
|
57,831
|
164,997
|
|||||||||||||||
|
Professional
Fees
|
6,785
|
4,765
|
22,824
|
27,211
|
103,649
|
|||||||||||||||
|
Officer's
Salary
|
55,154
|
52,905
|
173,935
|
164,669
|
846,433
|
|||||||||||||||
|
Contract
Settlement
|
-
|
-
|
-
|
-
|
107,143
|
|||||||||||||||
|
Research
and Development
|
5,946
|
5,945
|
63,854
|
27,131
|
438,863
|
|||||||||||||||
|
Total
Operating Expenses
|
84,731
|
71,998
|
302,907
|
276,842
|
1,661,085
|
|||||||||||||||
|
Loss
from Operations
|
(84,731
|
)
|
(71,998
|
)
|
(302,907
|
)
|
(276,842
|
)
|
(1,661,085
|
)
|
||||||||||
|
Other
Income/(Expenses)
|
||||||||||||||||||||
|
Other
income
|
-
|
-
|
-
|
2,781
|
2,781
|
|||||||||||||||
|
Derivative
Income/(Expense)
|
543,456
|
-
|
(3,029,291
|
)
|
(3,029,291
|
)
|
||||||||||||||
|
Interest
expense
|
(10,898
|
)
|
-
|
(29,090
|
)
|
-
|
(37,104
|
)
|
||||||||||||
|
Total
Other Income/(Expenses)
|
532,558
|
-
|
(3,058,381
|
)
|
2,781
|
(3,063,614
|
)
|
|||||||||||||
|
Net
(Income) Loss before Provision for Income Taxes
|
447,827
|
(71,998
|
)
|
(3,361,288
|
)
|
(274,061
|
)
|
(4,724,699
|
)
|
|||||||||||
|
Provision
for Income Taxes
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
|
Net
Income (Loss)
|
$
|
447,827
|
$
|
(71,998
|
)
|
$
|
(3,361,288
|
)
|
$
|
(274,061
|
)
|
$
|
(4,724,699
|
)
|
||||||
|
Net
Income (Loss) Per Share - Basic and Diluted
|
$
|
0.00
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
$
|
(0.00
|
)
|
|||||||||
|
Weighted
average number of shares outstanding
|
||||||||||||||||||||
|
during
the period - Basic and Diluted
|
502,998,686
|
499,748,500
|
500,837,646
|
499,727,990
|
||||||||||||||||
See
accompanying notes to condensed unaudited financial statements
|
(A
Development Stage Company)
|
|||||||||||||||||||||||||||||||||||||||||||
|
Condensed
Statement of Changes in Stockholders Deficit
|
|||||||||||||||||||||||||||||||||||||||||||
|
For
the period from April 25, 2006 (inception) to September 30,
2009
|
|||||||||||||||||||||||||||||||||||||||||||
|
(Unaudited)
|
|||||||||||||||||||||||||||||||||||||||||||
|
Deficit
|
|||||||||||||||||||||||||||||||||||||||||||
|
Common
|
Common
Stock -
|
Accumulated
|
|||||||||||||||||||||||||||||||||||||||||
|
Stock
-
|
Common
Stock -
|
Class
A Shares
|
during
|
||||||||||||||||||||||||||||||||||||||||
|
Preferred
Stock
|
Class
A
|
Class
B
|
To
be issued
|
Development
|
|||||||||||||||||||||||||||||||||||||||
|
Shares
|
Par
|
Shares
|
Par
|
Shares
|
Par
|
Shares
|
Par
|
APIC
|
Stage
|
Total
|
|||||||||||||||||||||||||||||||||
|
Balance,
April
25, 2006
|
-
|
$
|
-
|
-
|
$
|
-
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||||||||||||||||||||
|
Stock
issued to founder
|
-
|
-
|
332,292,000
|
180
|
-
|
-
|
-
|
-
|
-
|
-
|
180
|
||||||||||||||||||||||||||||||||
|
Stock
issued for services ($.01/share)
|
-
|
-
|
17,500,000
|
140,000
|
-
|
-
|
-
|
-
|
-
|
-
|
140,000
|
||||||||||||||||||||||||||||||||
|
Stock
issued for services ($.01/share)
|
-
|
-
|
700,000
|
5,600
|
-
|
-
|
-
|
-
|
-
|
-
|
5,600
|
||||||||||||||||||||||||||||||||
|
Stock
contributed by shareholder
|
-
|
-
|
(11,666,500
|
)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.05/share)
|
-
|
-
|
4,000
|
200
|
-
|
-
|
-
|
-
|
-
|
-
|
200
|
||||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.05/share)
|
-
|
-
|
4,000
|
200
|
-
|
-
|
-
|
-
|
-
|
-
|
200
|
||||||||||||||||||||||||||||||||
|
Fair
value of warrants issued
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
126,435
|
-
|
126,435
|
||||||||||||||||||||||||||||||||
|
Net
Loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(530,321
|
)
|
(530,321
|
)
|
||||||||||||||||||||||||||||||
|
Balance,
December
31, 2006
|
-
|
-
|
338,833,500
|
146,180
|
-
|
-
|
-
|
-
|
126,435
|
(530,321
|
)
|
(257,706
|
)
|
||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.01/share)
|
-
|
-
|
1,750,000
|
15,000
|
-
|
-
|
-
|
-
|
-
|
-
|
15,000
|
||||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.01/share)
|
-
|
-
|
12,000,000
|
103,000
|
-
|
-
|
-
|
-
|
-
|
-
|
103,000
|
||||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.0003/share)
|
-
|
-
|
9,000,000
|
3,000
|
-
|
-
|
-
|
-
|
-
|
-
|
3,000
|
||||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.01/share)
|
-
|
-
|
1,875,000
|
15,000
|
-
|
-
|
-
|
-
|
-
|
-
|
15,000
|
||||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.01/share)
|
-
|
-
|
1,875,000
|
15,000
|
-
|
-
|
-
|
-
|
-
|
-
|
15,000
|
||||||||||||||||||||||||||||||||
|
-
|
|||||||||||||||||||||||||||||||||||||||||||
|
Stock
issued for services ($.01/share)
|
-
|
-
|
2,000,000
|
16,000
|
-
|
-
|
-
|
-
|
-
|
-
|
16,000
|
||||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.01/share)
|
-
|
-
|
13,125,000
|
105,000
|
-
|
-
|
-
|
-
|
-
|
-
|
105,000
|
||||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.003/share)
|
-
|
-
|
80,495,000
|
241,485
|
-
|
-
|
-
|
-
|
-
|
-
|
241,485
|
||||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.003/share)
|
-
|
-
|
200,000
|
600
|
-
|
-
|
-
|
-
|
-
|
-
|
600
|
||||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.003/share)
|
-
|
-
|
8,300,000
|
24,900
|
-
|
-
|
-
|
-
|
-
|
-
|
24,900
|
||||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.003/share)
|
-
|
-
|
25,000
|
75
|
-
|
-
|
-
|
-
|
-
|
-
|
75
|
||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.003/share)
|
-
|
-
|
120,000
|
360
|
-
|
-
|
-
|
-
|
-
|
-
|
360
|
||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.003/share)
|
-
|
-
|
1,025,000
|
3,075
|
-
|
-
|
-
|
-
|
3,075
|
||||||||||||||||||||||||||||||||
|
Stock
issued in connection to cash offering
|
-
|
-
|
28,125,000
|
84,375
|
-
|
-
|
-
|
-
|
(84,375
|
)
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Stock
issued for services ($.01/share)
|
-
|
-
|
600,000
|
6,000
|
-
|
-
|
-
|
-
|
-
|
-
|
6,000
|
||||||||||||||||||||||||||||||
|
Net
loss, for the year ended December 31, 2007
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(472,986
|
)
|
(472,986
|
)
|
||||||||||||||||||||||||||||
|
Balance,
December 31, 2007
|
-
|
-
|
499,348,500
|
779,050
|
-
|
-
|
-
|
-
|
42,060
|
(1,003,307
|
)
|
(182,197
|
)
|
||||||||||||||||||||||||||||
|
Stock
issuable for services ($.01/share)
|
-
|
-
|
-
|
-
|
-
|
-
|
400,000
|
4,000
|
-
|
-
|
4,000
|
||||||||||||||||||||||||||||||
|
Net
loss, for the year ended December 31, 2008
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(360,104
|
)
|
(360,104
|
)
|
||||||||||||||||||||||||||||
|
Balance,
December
31, 2008
|
-
|
-
|
499,348,500
|
779,050
|
-
|
-
|
400,000
|
4,000
|
42,060
|
(1,363,411
|
)
|
(538,301
|
)
|
||||||||||||||||||||||||||||
|
Stock
issued for cash ($.01/share)
|
-
|
-
|
2,500,000
|
25,000
|
-
|
-
|
-
|
-
|
-
|
-
|
25,000
|
||||||||||||||||||||||||||||||
|
Stock
issued for cash ($.008/share)
|
-
|
-
|
366,599
|
3,000
|
-
|
-
|
-
|
-
|
-
|
-
|
3,000
|
||||||||||||||||||||||||||||||
|
Stock
issued for services
|
-
|
-
|
280,000
|
14,000
|
-
|
-
|
722,311
|
18,000
|
-
|
-
|
32,000
|
||||||||||||||||||||||||||||||
|
Stock
issued in connection with stock dividend
|
-
|
-
|
-
|
8,245,850
|
-
|
-
|
-
|
-
|
-
|
(8,245,850
|
)
|
-
|
|||||||||||||||||||||||||||||
|
Beneficial
conversion feature - conventional debt
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
120,000
|
-
|
120,000
|
||||||||||||||||||||||||||||||
|
Net
loss for the period ended September 30, 2009
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(3,361,288
|
)
|
(3,361,288
|
)
|
||||||||||||||||||||||||||||
|
Balance,
September
30, 2009
|
-
|
$
|
-
|
502,495,099
|
9,066,900
|
-
|
$
|
-
|
1,122,311
|
$
|
22,000
|
$
|
162,060
|
$
|
(12,970,549
|
)
|
$
|
(3,719,589
|
)
|
||||||||||||||||||||||
See
accompanying notes to condensed unaudited financial statements
|
Kraig
Biocraft Laboratories, Inc.
|
||||||||||||
|
(A
Development Stage Company)
|
||||||||||||
|
Condensed
Statements of Cash Flows
|
||||||||||||
|
(Unaudited)
|
||||||||||||
|
For
the Nine Months Ended September 30,
|
For
the Period from April 25, 2006
|
|||||||||||
|
(Inception)
to
|
||||||||||||
|
2009
|
2008
|
September
30, 2009
|
||||||||||
|
Cash
Flows From Operating Activities:
|
||||||||||||
|
Net
Loss
|
$
|
(3,361,288
|
)
|
$
|
(274,061
|
)
|
$
|
(4,724,699
|
)
|
|||
|
Adjustments
to reconcile net loss to net cash used in operations
|
||||||||||||
|
Stock
issuable for services
|
18,000
|
4,000
|
22,000
|
|||||||||
|
Change
in Fair Value of Derivative Liability
|
3,029,291
|
-
|
3,029,291
|
|||||||||
|
Stock
issued for services
|
14,000
|
-
|
181,780
|
|||||||||
|
Amortization
of debt discount
|
4,059
|
-
|
4,059
|
|||||||||
|
Warrants
issued to employees
|
-
|
-
|
126,435
|
|||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
(Increase)Decrease
in prepaid expenses
|
(2,521
|
)
|
6,706
|
(5,644
|
)
|
|||||||
|
(Increase)Decrease
in other receivables
|
(23,900
|
)
|
-
|
(23,900
|
)
|
|||||||
|
Increase
in accrued expenses and other payables - related party
|
203,041
|
26,805
|
568,252
|
|||||||||
|
(Decrease)
Increase in royalty agreement payable - related party
|
(15,000
|
)
|
120,000
|
105,000
|
||||||||
|
Increase
in accounts payable
|
10,900
|
32,238
|
76,650
|
|||||||||
|
Net
Cash Used In Operating Activities
|
(123,418
|
)
|
(84,312
|
)
|
(640,776
|
)
|
||||||
|
Cash
Flows From Financing Activities:
|
||||||||||||
|
Proceeds
from Notes Payable - Stockholder
|
-
|
-
|
10,000
|
|||||||||
|
Repayments
of Notes Payable - Stockholder
|
-
|
-
|
(10,000
|
)
|
||||||||
|
Proceeds
from issuance of convertible note
|
120,000
|
-
|
120,000
|
|||||||||
|
Proceeds
from issuance of common stock
|
28,000
|
-
|
554,895
|
|||||||||
|
Net
Cash Provided by Financing Activities
|
148,000
|
-
|
674,895
|
|||||||||
|
Net
Increase (Decrease) in Cash
|
24,582
|
(84,312
|
)
|
34,119
|
||||||||
|
Cash
at Beginning of Period
|
9,537
|
105,818
|
-
|
|||||||||
|
Cash
at End of Period
|
$
|
34,119
|
$
|
21,506
|
$
|
34,119
|
||||||
|
Supplemental
disclosure of cash flow information:
|
||||||||||||
|
Cash
paid for interest
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
|
Cash
paid for taxes
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
|
Supplemental
disclosure of non-cash investing and financing activities:
|
||||||||||||
|
Shares
issued in connection with stock dividend
|
$
|
8,245,850
|
$
|
-
|
$
|
8,245,850
|
||||||
|
Beneficial
conversion feature on convertible notes and related debt
discount
|
$
|
120,000
|
$
|
-
|
$
|
120,000
|
||||||
SUPPLEMENTAL
DISCLOSURE OF NON CASH ITEMS
During
the period ended December 31, 2006, the principal stockholder contributed
11,666,500 shares of common stock to the Company as an in kind contribution
of stock. The shares were retired by the Company.
In
accordance with the May 2007 stock purchase agreement which contains an
anti-dilution clause which requires the Company to issue additional common
shares under the stock purchase agreement for any subsequent issuance at a price
below $.08 per share for a period of 12 months. The Company has issued
28,125,000 additional shares through September 2007 as a result of the
subsequent stock issuances in the amount of $84,375
($0.003/share).
See
accompanying notes to condensed unaudited financial statements
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2009
(UNAUDITED)
|
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.
Activities
during the development stage include developing the business plan and raising
capital.
(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.
(D)
Income/(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.” As of September 30, 2009 and 2008, 6,000,000 and 0
warrants were not included in the computation of income/(loss) per share and
211,720,079 and 0 shares issuable upon conversion of notes payable were not
included in the computation of income/(loss) per share because their inclusion
is anti-dilutive.
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2009
(UNAUDITED)
(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 the FASB Accounting Standards
Codification No. 740, Income
Taxes. Under FASB Accounting Standards Codification No. 740,
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
FASB Accounting Standards Codification No. 740, 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.
(G)
Stock-Based Compensation
In
December 2004, the FASB issued FASB Accounting Standards Codification No. 718,
Compensation – Stock
Compensation. Under FASB Accounting Standards Codification No.
718, companies are required to measure the compensation costs of share-based
compensation arrangements based on the grant-date fair value and recognize the
costs in the financial statements over the period during which employees are
required to provide services. Share-based compensation arrangements include
stock options, restricted share plans, performance-based awards, share
appreciation rights and employee share purchase plans. As such,
compensation cost is measured on the date of grant at their fair
value. Such compensation amounts, if any, are amortized over the
respective vesting periods of the option grant. The Company applies
this statement prospectively.
Equity
instruments (“instruments”) issued to other than employees are recorded on the
basis of the fair value of the instruments, as required by FASB Accounting
Standards Codification No. 718. FASB Accounting Standards Codification No.
505, Equity Based Payments to
Non-Employees defines the measurement date and recognition period for
such instruments. In general, the measurement date is when either a (a)
performance commitment, as defined, is reached or (b) the earlier of (i) the
non-employee performance is complete or (ii) the instruments are vested. The
measured value related to the instruments is recognized over a period based on
the facts and circumstances of each particular grant as defined in the FASB
Accounting Standards Codification.
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2009
(UNAUDITED)
(H)
Business Segments
The
Company operates in one segment and therefore segment information is not
presented.
(I)
Recent Accounting Pronouncements
In May
2009, the FASB issued FASB Accounting Standards Codification No. 855, Subsequent Events. FASB
Accounting Standards Codification No. 855 establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to be issued. FASB
Accounting Standards Codification No. 855 sets forth (1) The period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, (2) The circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements and (3) The disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. FASB
Accounting Standards Codification No. 855 is effective for interim or annual
financial periods ending after September 15, 2009. The adoption of this FASB
Accounting Standards Codification No. did not have a material effect on the
Company’s financial statements.
In June
2009, the FASB issued FASB Accounting Standards Codification No. 860, Transfers and Servicing. FASB
Accounting Standards Codification No. 860 improves the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor’s continuing involvement, if any,
in transferred financial assets. FASB Accounting Standards Codification No. 860
is effective as of the beginning of each reporting entity’s first annual
reporting period that begins after November 15, 2009, for interim periods within
that first annual reporting period and for interim and annual reporting periods
thereafter. The Company is evaluating the impact the adoption that FASB
Accounting Standards Codification No. 860 will have on its financial
statements.
In June
2009, the FASB issued FASB Accounting Standards Codification No. 810, Consolidation. FASB
Accounting Standards Codification No. 810 improves financial reporting by
enterprises involved with variable interest entities. FASB Accounting Standards
Codification No. 810 is effective as of the beginning of each reporting entity’s
first annual reporting period that begins after November 15, 2009, for interim
periods within that first annual reporting period, and for interim and annual
reporting periods thereafter. The Company is evaluating the impact the adoption
of FASB Accounting Standards Codification No. 810 will have on its financial
statements.
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2009
(UNAUDITED)
In June
2009, the FASB issued FASB Accounting Standards Codification No. 105, GAAP The FASB Accounting
Standards Codification (“Codification”) will be the single source of
authoritative nongovernmental U.S. generally accepted accounting principles.
Rules and interpretive releases of the SEC under authority of federal securities
laws are also sources of authoritative GAAP for SEC registrants. FASB Accounting
Standards Codification No. 105 is effective for interim and annual periods
ending after September 15, 2009. All existing accounting standards are
superseded as described in FASB Accounting Standards Codification No. 105. All
other accounting literature not included in the Codification is
nonauthoritative. The adoption of the Codification did not have a significant
impact on the Company’s financial statements.
(J)
Reclassification
The 2008
financial statements have been reclassified to conform to the 2009
presentation.
|
NOTE
2
|
GOING
CONCERN
|
As
reflected in the accompanying unaudited financial statements, the Company is in
the development stage, has a working capital deficiency of $3,715,530 and
stockholders deficiency of $3,719,589 and used $640,776 of cash in operations
from inception. 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
|
OTHER
RECEIVABLE
|
As of
September 30, 2009 the Company is owed $23,900 for the overpayment of research
and development fees. The refund was received on November 3, 2009
(See Note 6(B) and 8).
|
NOTE
4
|
CONVERTIBLE
DEBT
|
On July
17, 2009, the Company entered into an agreement with an investor group where the
Company will issue up to $120,000 in convertible units. The
debentures will be in the face amount of $10,000 each, mature on December 31,
2010, bear interest at the rate of 5% simple interest per annum, payable at
maturity or convertible with the principal, and the principal and interest shall
be convertible at the option of the holder at a fixed price of $0.018 per
share. Each debenture shall have a warrant attached exercisable for
the purchase of 500,000 shares of common stock. The warrants shall
expire on December 31,
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2009
(UNAUDITED)
2011,
have a cashless exercise provision, and be exercisable at a fixed price of
$0.02. The agreement also requires the investment group to purchase
up to $1,000,000 of common stock monthly at the lesser of $75,000 or 200% of the
average daily volume multiplied by the average of the daily closing prices for
the ten days immediately preceding the exercise date. Each investment
by the investment group is priced at the lowest closing “bid” price of the
common stock during the five days immediately before the
investment. The term of the funding shall be the earlier of (a) the
drawing down of the entire $1,000,000 or (b) 24 months after the Effective Date,
July 17, 2011. In addition, the Company is required to file and
maintain an effective registration statement covering the convertible units,
cannot issue more than 5% of its common stock outstanding without the investor
group’s consent and must maintain a contractual relationship with a public
relations firm. In addition, the notes contained a standard
anti-dilution clause. There is no effect on the derivative liability as a result
of the anti-dilution clause. The Company has issued $120,000 of
convertible debt to date.
In
connection with convertible debt issued, the Company has determined that an
allocation of fair value associated with these warrants is applicable for these
conventional convertible debt instruments. The Company first
determined the fair value of the warrants based upon the following management
assumptions:
|
Expected
dividends
|
0%
|
|
Expected
volatility
|
448.66%
|
|
Expected
term
|
2.3
years
|
|
Risk
free interest rate
|
1.49%
|
After
computing the fair value of the warrants, the Company determined the relative
fair value of the convertible debt and the related effective conversion price.
The Company’s effective conversion price for these issuances of convertible debt
equals to the market price.
The
Company recorded a beneficial conversion feature in connection with the issuance
of certain of these notes in the amount of $120,000. The un
amortized discount for the three and nine months ended September 30, 2009 is
$115,941.
Following
table summarizes convertible note payable outstanding as of September 30,
2009:
|
Conventional
Debt
|
||||
|
Conventional
debt
|
$
|
120,000
|
||
|
Less:
debt discount
|
$
|
115,941
|
||
|
Conventional
debt, net of debt discount
|
$
|
4,059
|
||
At
September 30, 2009, the Company recorded interest expense and related accrued
interest payable of $263.
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2009
(UNAUDITED)
|
NOTE
5
|
STOCKHOLDERS’
DEFICIT
|
(A)
Common Stock Issued for Cash
On April
28, 2006, the Company issued 8,000 shares of common stock for cash of $400
($0.05 per share).
On
January 8, 2007 the Company issued 1,750,000 shares of common stock for $15,000
($0.01/share). This agreement was subsequently terminated effective
May 23, 2007.
On
January 22, 2007 the Company issued 12,000,000 shares of common stock for
$103,000 ($0.01/share). In addition, 9,000,000 shares were
issued for $3,000 ($0.0003/share).
On April
4, 2007, the Company issued 1,875,000 shares of common stock for cash of $15,000
($0.01 per share).
On April
20, 2007, the Company issued 1,875,000 shares of common stock for cash of
$15,000 ($0.01 per share).
On May
18, 2007, the Company issued 13,125,000 shares of common stock for cash of
$105,000 ($0.01 per share).
On August
28, 2007 the Company entered into a stock purchase agreement to issue 80,495,000
shares common stock in the amount of $241,485 ($0.003/share).
On August
29, 2007 the Company entered into a stock purchase agreement to issue 200,000
shares common stock in the amount of $600 ($0.003/share).
On August
29, 2007 the Company entered into a stock purchase agreement to issue 8,300,000
shares common stock in the amount of $24,900 ($0.003/share).
On
September 1, 2007 the Company entered into a stock purchase agreement to issue
25,000 shares common stock in the amount of $75 ($0.003/share).
On
September 5, 2007 the Company entered into a stock purchase agreement to issue
120,000 shares common stock in the amount of $360 ($0.003/share).
On
September 12, 2007 the Company entered into a stock purchase agreement to issue
1,025,000 shares common stock in the amount of $3,075
($0.003/share).
In
accordance with the May 2007 stock purchase agreement which contains an
anti-dilution clause which requires the Company to issue additional common
shares under the stock purchase agreement for any subsequent issuance at a price
below $.08 per share for a period of 12 months, the Company has issued
28,125,000 additional shares through September 2007 as a result of the
subsequent stock issuances at $0.003/share.
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2009
(UNAUDITED)
On April
24, 2009 the Company issued 2,000,000 shares of common stock for $20,000
($0.01/share).
On May
22, 2009, the Company issued 500,000 shares of common stock for $5,000
($0.01/share).
On
September 30, 2009, the Company issued 366,599 shares of common stock for $3,000
($0.008/share).
(B)
Common Stock Issued for Intellectual Property
On April
26, 2006, the Company issued 332,292,000 shares of common stock to its founder
having a fair value of $180 ($0.000001/share) in exchange for intellectual
property. The fair value of the patent was determined based upon the
historical cost of the intellectual property contributed by the
founder.
(C)
Common Stock Issued for Services
On May 8,
2006, the Company entered into a license agreement for research and development.
Pursuant to the terms of the agreement, the Company issued 17,500,000 shares of
common stock upon execution of the agreement. The Company also received a
five-year call option from the license holder to repurchase 7,000,000 common
shares at an exercise price of $150,000 or $.02 per share. The option gives the
Company the right, but not the obligation to repurchase the shares of common
stock. The call option expires May 4, 2011. As of September 30, 2009
the value of the stock was $.02 per share. However, the Company does
not have the obligation to repurchase the shares.
On July
1, 2006 the Company entered into a five year consulting agreement for research
and development. Pursuant to the terms of the agreement, the Company paid
700,000 shares of common stock upon execution. These shares had a
fair value of $5,600 ($0.01/share) based upon the recent cash offering
price. Additionally, 2,000,000 shares of common stock were issued on
May 18, 2007 with a fair value of $16,000 ($0.01/share). As of
December 31, 2008, the Company issued 600,000 shares of common stock for
consulting services rendered with a fair value of $6,000
($0.01/share). On January 15, 2008 the Company authorized the
issuance of 400,000 shares of common stock for consulting services rendered with
a fair value of $4,000 ($0.01/share).
On July
1, 2009, the issuance of 280,000 shares was approved by the board of directors
as repayment for services previously provided to the Company by a consultant
having a fair value of $14,000 ($0.05/share) in accordance with a consulting
agreement (See Note 6(C)).
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2009
(UNAUDITED)
On July
1, 2009, the issuance of 482,825 shares was approved by the board of directors
as partial payment for services previously provided to the Company by a
consultant in accordance with a consulting agreement. The total amount of
issuable shares for the consultant is 1,122,311 shares, which includes 400,000
issuable shares previously approved by the board of directors and 239,486 shares
will be issued in November 2009 (See Note 6(C) and 8).
(D)
Cancellation and Retirement of Common Stock
On
December 29, 2006, the Company’s founder returned 11,666,500 shares of common
stock to the Company. These shares were cancelled and
retired. Accordingly, the net effect on equity is $0.
(E)
Common Stock Warrants
During
2006, the Company issued 4,200,000 warrants to an officer under his employment
agreement. The Company recognized an expense of $126,435 for
the period from inception to December 31, 2006. The Company recorded
the fair value of the warrants based on the fair value of each
warrant grant estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants in
2006, dividend yield of zero, expected volatility of 183%; risk-free interest
rates of 4.98%, expected life of one year. The warrants vested
immediately. The options expire between 5 and 9 years from the
date of issuance and have an exercise price of between $.21 and $.40 per share.
During November 2006, the Company and the officer entered into an amendment to
the employment agreement whereby all the warrants were retired.
The
following table summarizes information about warrants for the Company as of
September 30, 2009.
|
2009 Warrants
Outstanding
|
Options
Exercisable
|
|||||||||||||||||||||
|
Range
of
Exercise
Price
|
Number
Outstanding
at
September
30, 2009
|
Weighted
Average Remaining Contractual Life
|
Weighted
Average Exercise Price
|
Number
Exercisable
at
September
30, 2009
|
Weighted
Average Exercise Price
|
|||||||||||||||||
|
$
|
0.02
|
6,000,000
|
2.25
|
$
|
0.02
|
6,000,000
|
$
|
0.02
|
||||||||||||||
(F) 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:
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2009
(UNAUDITED)
|
·
|
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
|
(G)
Stock Dividend
On March
23, 2009, the Company's Board of Directors declared a nine-for-one stock
dividend. The stock dividend was distributed to shareholders of
record as of April 27, 2009. A total of 449,773,650 shares of common
stock were issued. All basic and diluted loss per share and average
shares outstanding information has been adjusted to reflect the aforementioned
stock dividend.
|
NOTE
6
|
COMMITMENTS
AND CONTINGENCIES
|
(A)
Employment Agreement
On April
26, 2006, the Company entered into a five-year employment agreement with the
Company’s Chairman and Chief Executive Officer. The agreement renews annually so
that at all times, the term of the agreement is five years. Pursuant
to this agreement, the Company will pay an annual base salary of $185,000 for
the period May 1, 2006 through December 31, 2006. Base pay will be
increased each January 1st, for the subsequent twelve
month periods by nine percent. The officer will also be entitled to
life, disability, health and dental insurance. In addition, the
officer received 700,000 five year warrants at an exercise price of $.21 per
share, 1,500,000 eight year warrants at an exercise price of $ .33 per share and
2,000,000 nine year warrants at an exercise price of $ .40 per share (See Note
4(E)). The warrants fully vested on the date of grant. The
agreement also calls for the issuance of warrants and increase in the officer’s
base compensation upon the Company reaching certain milestones:
|
1.
|
Upon
the Company’s successful laboratory development of a new silk fiber
composed of one or more proteins that are exogenous to a host, the Company
will issue 500,000 eight year warrants at an exercise price of $.20 per
share and raise executive’s base salary by
14%.
|
|
2.
|
Upon
the Company’s successful laboratory development of a new silk fiber
composed of two or more proteins that are exogenous to a host, the Company
will issue 600,000 eight year warrants at an exercise price of $.18 per
share and raise executive’s base salary by
15%.
|
|
3.
|
Upon
the Company’s successful laboratory development of a new silk fiber
composed of at least in part of one or more synthetic proteins, the
Company will issue 900,000 eight year warrants at an exercise price of
$.18 per share and raise executive’s base salary by
18%.
|
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2009
(UNAUDITED)
|
4.
|
Upon
the Company’s successful laboratory development of a new silk fiber
composed of at least in part of one or more proteins that are genetic
modifications or induced mutations of a host silk protein, the Company
will raise the executive’s base salary by
8%.
|
|
5.
|
Upon
the Company becoming either a registered company or upon its stock trading
and the company achieving a market capitalization in excess of $35 million
for over 120 calendar day period, the executive’s base salary will
increase to $225,000.
|
|
6.
|
Upon
the Company becoming either a registered company or upon its stock trading
and the company achieving a market capitalization in excess of $65 million
for over 91 calendar day period, the executive’s base salary will increase
to $260,000.
|
|
7.
|
Upon
the Company becoming either a registered company or upon its stock trading
and the company achieving a market capitalization in excess of $100
million for over 91 calendar day period, the executive’s base salary will
increase to $290,000.
|
|
8.
|
Upon
the Company becoming either a registered company or upon its stock trading
and the company achieving a market capitalization in excess of $200
million for over 120 calendar day period, the executive’s base salary will
increase to $365,000.
|
|
9.
|
Upon
the Company becoming either a registered company or upon its stock trading
and the company achieving a market capitalization in excess of $350
million for over 150 calendar day period, the executive’s base salary will
increase to $420,000.
|
On
November 6, 2006, the Company entered into an addendum to the employment
agreement whereby the officer agreed to retire all stock warrants issued or to
be issued under his employment agreement in return for an increase in his
severance allowance to $600,000 or seventy five percent of total salary due
under the remaining term of the employment agreement, which ever is greater and
a death benefit of $300,000 or thirty five percent of the total salary due under
the remaining term of the employment agreement.
In
addition, upon expiration or termination of the employment agreement, the
Company agrees to keep the officer employed as a consultant for a period of nine
years at a rate of $4,000 per month with annual increases of 3%. The agreement
also calls for certain increases based on milestones reached by the company,
including:
1. If
the company achieves gross sales exceeding $10 million or net income exceeding
$1 million for any two years within the ten year period after the date of this
agreement or a market capitalization in excess of $45 million for over 180
calendar days within nine years from the date of this agreement, the term of the
consulting agreement will be extended to 10 years.
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2009
(UNAUDITED)
2. If
the company achieves gross sales exceeding $19 million or net income exceeding
$3 million for any two years within the twelve year period after the date of
this agreement or a market capitalization in excess of $65 million for over 180
calendar days within nine years from the date of this agreement, the term of the
consulting agreement will be extended to 20 years or the life of the officer and
his spouse at a rate of $6,500 per month with a 3% annual increase.
3. If
the company achieves gross sales exceeding $38 million or net income exceeding
$6 million for any two years within the twelve year period after the date of
this agreement or a market capitalization in excess of $120 million for over 180
calendar days within nine years from the date of this agreement, the term of the
consulting agreement will be extended to 20 years or the life of the officer and
his spouse at a rate of $10,000 per month with a 3% annual
increase.
4. If
the company achieves gross sales exceeding $59 million or net income exceeding
$9 million for any year within the twelve year period after the date of this
agreement or a market capitalization in excess of $210 million for over 180
calendar days within nine years from the date of this agreement, the term of the
consulting agreement will be extended to 20 years or the life of the officer and
his spouse at a rate of $15,000 per month with a 3% annual
increase.
5. If
the company achieves gross sales exceeding $78 million or net income exceeding
$12 million for any year within the twelve year period after the date of this
agreement or a market capitalization in excess of $320 million for over 180
calendar days within nine years from the date of this agreement, the term of the
consulting agreement will be extended to 20 years or the life of the officer and
his spouse at a rate of $20,000 per month with a 3% annual
increase.
On
October 10, 2008, the Company entered into an addendum to the employment
agreement whereby all unpaid back salary will accrue interest at 7% per
year. At September 30, 2009, the Company recorded interest expense
and related accrued interest payable of $28,897. In addition, the
Company granted the CEO the right to convert any accrued salary into Class “A”
Common Stock at either 1) The lowest price at which the Company’s Class “A”
Common Stock has traded over the preceding twelve month period, 2) At the lowest
bid price for the preceding thirty days, 3) The lowest price paid in cash for
the Class “A” Common Stock during the twelve months preceding the
conversion. The conversion price for all salary accrued through March
1, 2009 is the lesser of options 1-3 or $0.002. The conversion price
for all salary accrued from March 1, 2009 through September 30, 2009 is the
lesser of options 1-3. The Company determined
the fair value of the derivative liability by taking the lowest conversion
option as of September 30, 2009 and calculating the difference between the
conversion price and the fair value of the Company’s stock. Prior to June 30,
2009 the fair value of the Company’s stock was equal to the lowest conversion
price and no derivative liability was recorded. During the three months ended
September 30, 2009, the derivative liability decreased by $543,456 as a result
of a decrease in the fair value of the Company’s common stock. As of
September 30, 2009, no accrued salary has been converted to Class “A” Common
Stock. As of September 30, 2009 the Company owes $498,709 in accrued
salary (See Note 7) and has accrued a derivative liability of $3,029,291 for the
potential benefit of the convertible accrued salary as per FASB Accounting
Standards Codification No. 480, Distinguishing Liabilities from
Equity.
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2009
(UNAUDITED)
(B)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. 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. As of September 30, 2009, the Company has made a payment
of $70,000 for the required payments of $45,602 under the agreement and has
received a refund of $23,900 for the overpayment on November 3, 2009, which was
recorded as other receivable as of September 30, 2009 (See Note 3 and
8).
(C)Royalty
and Research Agreements
On May 1,
2008 the Company entered into a five year consulting agreement for research and
development. Pursuant to the terms of the agreement, the Company will be
required to pay $1,000 per month, or at the Company’s option, the consulting fee
may be paid in the form of Company common stock based upon the greater of $0.05
per share or the average of the closing price of the Company’s shares over the
five days preceding such stock issuance. As of June 30, 2009 the
Company accrued $14,000 of accounts payable for the services provided of which
was paid in common stock on July 1, 2009 (See Note 5(C)). As of
September 30, 2009, $3,000 was accrued for services provided during the
quarter.
On
December 26, 2006, the Company entered into an addendum to the intellectual
property transfer agreement with an officer. In consideration of the
Company issuing either 200,000 preferred shares with the following preferences;
no dividends and voting rights equal to 100 common shares per share of preferred
stock or the payment of $120,000, the officer agreed to terminate the royalty
payments due under the agreement and give title to the exclusive license for the
non protective apparel use of the intellectual property to the
Company. On the date of the agreement, the Company did not have any
preferred stock authorized with the required preferences. In
accordance with FASB Accounting Standards Codification No 480, Distinguishing Liabilities from
Equity, the Company determined that the present value of the payment of
$120,000 that was due on December 26, 2007, the one year anniversary of the
addendum, should be recorded as an accrued expense until such time as the
Company has the ability to assert that it has preferred shares
authorized. As of September 30, 2009, 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. On September 8, 2009, a payment of
$15,000 was paid to the officer. As of September 30, 2009, the outstanding
balance is $105,000. Additionally, the accrued expenses are accruing 7%
interest per year. At September 30, 2009, the Company recorded
interest expense and related accrued interest payable of
$8,107. An additional a payment of $10,000 was made on October
19, 2009 (See Note 7 and 8).
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2009
(UNAUDITED)
On
February 1, 2007 the Company entered into a consulting agreement for research
and development for period of one year at a cost of $150,000. In April
2008, this agreement was extended through March 31, 2009 on a cost reimbursement
basis. Reimbursements are to be made quarterly and are not to exceed
$35,000. As of today, the Company is negotiating a new consulting
agreement.
On July
1, 2006 the Company entered into a five year consulting agreement for research
and development. Pursuant to the terms of the agreement, the Company paid
700,000 shares of common stock upon execution. These shares had a
fair value of $5,600 ($0.01/share) based upon the recent cash offering
price. Additionally, 2,000,000 shares of common stock were issued on
May 18, 2007 with a fair value of $16,000 ($0.01/share). As of
December 31, 2008, the Company issued 600,000 shares of common stock for
consulting services rendered with a fair value of $6,000
($0.01/share). On January 15, 2008 the Company authorized the
issuance of 400,000 shares of common stock for consulting services rendered with
a fair value of $4,000 ($0.01/share). On July 1, 2009, the
issuance of 482,825 shares was approved by the board of directors as partial
payment for services previously provided to the Company by a consultant in
accordance with a consulting agreement. The total amount of issuable
shares for the consultant is 1,122,311 shares, which includes 400,000 issuable
shares previously approved by the board of directors and 239,486
shares which will be issued in November 2009 (See Note 5(C) and 8).
(D)
Consulting Agreement
On August
3, 2009, the Company entered into an agreement with a consultant to provide
investor relations services. The Company is to issue 10,000,000
shares with a fair value of $100,000 ($0.01/share) to a consultant for investor
relations to be provided over a term of 180 days. As of September 30,
2009, the Company and the consultant have agreed to delay the start date of the
agreement to a future period. As of September 30, 2009 no shares has been issued
and no services have been provided.
|
NOTE
7
|
RELATED
PARTY TRANSACTIONS
|
On
October 6, 2006 the Company received $10,000 from a principal
stockholder. Pursuant to the terms of the loan, the
advance bears interest at 12%, is unsecured and matures on May 1, 2007. At
September 30, 2009, the Company recorded interest expense and related accrued
interest payable of $776. As of September 30, 2009, the loan
principle was repaid.
On
December 26, 2006, the Company entered into an addendum to the intellectual
property transfer agreement with an officer. In consideration of the
Company issuing either 200,000 preferred shares with the following preferences;
no dividends and voting rights equal to 100 common shares per share of preferred
stock or the payment of $120,000, the officer
KRAIG
BIOCRAFT LABORATORIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2009
(UNAUDITED)
agreed to
terminate the royalty payments due under the agreement and give title to the
exclusive license for the non protective apparel use of the intellectual
property to the Company. On the date of the agreement, the Company
did not have any preferred stock authorized with the required
preferences. In accordance with In accordance with FASB Accounting
Standards Codification No. 480, Distinguishing Liabilities from
Equity, the Company determined that the present value of the payment of
$120,000 that was due on December 26, 2007, the one year anniversary of the
addendum, should be recorded as an accrued expense until such time as the
Company has the ability to assert that it has preferred shares
authorized. As of September 30, 2009, 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 September 8, 2009, a payment of
$15,000 was paid to the officer. As of September 30, 2009, the outstanding
balance is $105,000. Additionally, the accrued expenses are accruing 7%
interest per year. At September 30, 2009, the Company recorded
interest expense and related accrued interest payable of $8,107 (See Note 6
(C)). An additional a payment of $10,000 was made on October 19, 2009
(See Note 8).
As of
September 30, 2009 the Company owes $498,709 in accrued salary to principal
stockholder. On October 10, 2008, the Company entered into an
addendum to the employment agreement whereby all unpaid back salary will accrue
interest at 7% per year. At September 30, 2009, the Company recorded
interest expense and related accrued interest payable of $28,897. In
addition, the Company granted the CEO the right to convert any accrued salary
into Class “A” Common Stock at either 1) The lowest price at which the Company’s
Class “A” Common Stock has traded over the preceding twelve month period, 2) At
the lowest bid price for the preceding thirty days, 3) The lowest price paid in
cash for the Class “A” Common Stock during the twelve months preceding the
conversion. The conversion price is the lesser of options 1-3 or
$0.002. As of September 30, 2009, no accrued salary has been
converted to Class “A” Common Stock (See Note 6(A)).
|
NOTE
8
|
SUBSEQUENT
EVENTS
|
In
preparing these financial statements, the Company has evaluated the events and
transactions for potential recognition or disclosure through November 18, 2009,
the date the financial statements were issued.
On
October 19, 2009, the amount of $10,000 was repaid by the Company to the officer
for the related party accrued expenses (See Note 6 (C) and 7).
On
November 19, 2009, the issuance of 239,486 shares was approved by the board of
directors as partial payment for services previously provided to the Company by
a consultant in accordance with a consulting agreement (See Note 5
(C) and 6 (C)).
On
November 3, 2009, under the license agreement dated May 8, 2006, the company
received a refund of $23,900 for the overpayment of research fees (See Note 3
and 6(B)).
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Caution Regarding
Forward-Looking Information
Certain
statements contained herein, including, without limitation, statements
containing the words “believes”, “anticipates”, “expects” and words of similar
import, constitute forward-looking statements. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking
statements.
Such
factors include, among others, the following: 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 protect
technology; and other factors referenced in this and previous
filings.
Given
these uncertainties, readers of this prospectus and investors are cautioned not
to place undue reliance on such forward-looking statements.
YEAR
ENDED DECEMBER 31, 2008
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
expect to spend up to $35,000 per quarter through March 2009 on
collaborative research and development of high strength polymers at the
University of Notre Dame. We believe that this research is essential to
our product development. If our financing will allow, management will give
strong consideration to accelerating the pace of spending on research and
development within the University of Notre Dame’s laboratories. No fees
have been accrued under these terms to date.
|
|
»
|
We
expect to spend approximately $13,700 on collaborative research and
development of high strength polymers and spider silk protein at the
University of Wyoming over the next twelve months. We believe that this
research is important to our product development. This level of research
spending at the university is also a requirement of our licensing
agreement with the university. If our financing will allow, management
will give strong consideration to accelerating the pace of spending on
research and development within the University of Wyoming’s
laboratories.
|
|
»
|
We
will actively consider pursuing collaborative research opportunities with
other university laboratories in the area of high strength polymers. If
our financing will allow, management will give strong consideration to
increasing the depth of our research to include polymer production
technologies that are closely related to our core
research
|
|
»
|
We
will consider buying an established revenue producing company which is
operating in the biotechnology arena, in order to broaden our financial
base and increase our research and development capability. We expect to
use a combination of stock and cash for any such
purchase.
|
|
»
|
We
will also actively consider pursuing collaborative research opportunities
with 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 will allow, management will give
strong consideration to increasing the breadth of our research to include
protein expression platform
technologies.
|
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
Registration Statement will be successful. Our business is subject to risks
inherent in growing an enterprise, including limited capital resources, risks
inherent in the research and development process and possible rejection of our
products in development.
If
financing is not available on satisfactory terms, we may be unable to continue
expanding our operations. Equity financing will result in a dilution to existing
shareholders.
Results
of Operations for the Year ended December 31, 2008.
Revenue
for the year ended December 31, 2008 was $0. This compares to $0 in
revenue for the preceding year ended December 31, 2007. No sales are
anticipated during the next twelve months as the company will remain in the
development stage.
Operating
expenses for the year ended December 31, 2008 were $355,647. This compares to
$472,864 in expenses during the year ended December 31,
2007. Research and development expenses for the year ended December
31, 2008 were $33,077. This compares to $177,019 spent on research
and development during the year ended December 31, 2007. In addition,
we had the following expenses during the year ended December 31, 2008: general
and administrative-$74,062, professional fees-$31,066, officer’s salary-$207,866
and payroll taxes-$9,576. This compares to the same expenses during
the year ended December 31, 2007: general and administrative-$40,798,
professional fees-$49,759, officer’s salary-$196,100 and payroll
taxes-$9,188.
Capital
Resources and Liquidity
As of
December 31, 2008 we had $9,537 in cash compared to $105,818 as of December 31,
2007.
We
believe we can not satisfy our cash requirements for the next twelve months with
our current cash. Completion of our plan of operation is subject to
attaining adequate financing. We cannot assure investors that
adequate financing will be available. In the absence of such financing, we may
be unable to proceed with our plan of operations.
We
anticipate that our operational, and general & administrative expenses for
the next 12 months will total approximately $400,000. We do not anticipate the
purchase or sale of any significant equipment. We also do not expect any
significant additions to the number of employees. The foregoing represents our
best estimate of our cash needs based on current planning and business
conditions. The exact allocation, purposes and timing of any monies raised in
subsequent private financings may vary significantly depending upon the exact
amount of funds raised and our progress with the execution of our business
plan.
In the
event we are not successful in obtaining financing, we may not be able to
proceed with our business plan for the research and development of our
products. We anticipate that we will incur operating losses in the
foreseeable future. Therefore, our auditors have raised substantial doubt about
our ability to continue as a going concern.
Critical
Accounting Policies
Our
financial statements and related public financial information are based on the
application of accounting principles generally accepted in the United States
(“GAAP”). GAAP requires the use of estimates; assumptions, judgments and
subjective interpretations of accounting principles that have an impact on the
assets, liabilities, revenue and expense amounts reported. These estimates can
also affect supplemental information contained in our external disclosures
including information regarding contingencies, risk and financial condition. We
believe our use if estimates and underlying accounting assumptions adhere to
GAAP and are consistently and conservatively applied. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. Actual results may differ materially from
these estimates under different assumptions or conditions. We continue to
monitor significant estimates made during the preparation of our financial
statements.
Our
significant accounting policies are summarized in Note 1 of our financial
statements. While all these significant accounting policies impact its financial
condition and results of operations, we view certain of these policies as
critical. Policies determined to be critical are those policies that have the
most significant impact on our financial statements and require management to
use a greater degree of judgment and estimates. Actual results may differ
from those estimates. Our management believes that given current facts and
circumstances, it is unlikely that applying any other reasonable judgments or
estimate methodologies would cause effect on our results of operations,
financial position or liquidity for the periods presented in this
report.
Recent
Accounting Pronouncements
In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
160, “Noncontrolling Interests
in Consolidated Financial Statements – an amendment of ARB No.
51”. This statement improves the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting
standards that require; the ownership interests in subsidiaries held by parties
other than the parent and the amount of consolidated net income attributable to
the parent and to the noncontrolling interest be clearly identified and
presented on the face of the consolidated statement of income, changes in a
parent’s ownership interest while the parent retains its controlling financial
interest in its subsidiary be accounted for consistently, when a subsidiary is
deconsolidated, any retained noncontrolling equity investment in the former
subsidiary be initially measured at fair value, entities provide sufficient
disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners. SFAS No. 160
affects those entities that have an outstanding noncontrolling interest in one
or more subsidiaries or that deconsolidate a subsidiary. SFAS No. 160
is effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Early adoption is prohibited. The
adoption of this statement is not expected to have a material effect on the
Company's financial statements.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133”
(SFAS 161). This statement is intended to improve transparency in financial
reporting by requiring enhanced disclosures of an entity’s derivative
instruments and hedging activities and their effects on the entity’s financial
position, financial performance, and cash flows. SFAS 161 applies to all
derivative instruments within the scope of SFAS 133, “Accounting for Derivative
Instruments and Hedging Activities” (SFAS 133) as well as related hedged items,
bifurcated derivatives, and nonderivative instruments that are designated and
qualify as hedging instruments. Entities with instruments subject to SFAS 161
must provide more robust qualitative disclosures and expanded quantitative
disclosures. SFAS 161 is effective prospectively for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008,
with early application permitted. We are currently evaluating the disclosure
implications of this statement.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of accounting
principles and provides entities with a framework for selecting the principles
used in preparation of financial statements that are presented in conformity
with GAAP. The current GAAP hierarchy has been criticized because it is directed
to the auditor rather than the entity, it is complex, and it ranks FASB
Statements of Financial Accounting Concepts, which are subject to the same level
of due process as FASB Statements of Financial Accounting Standards, below
industry practices that are widely recognized as generally accepted but that are
not subject to due process. The Board believes the GAAP hierarchy should be
directed to entities because it is the entity (not its auditors) that is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP. The adoption of FASB 162 is not expected
to have a material impact on the Company’s financial position.
In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts-an interpretation of FASB Statement No. 60.” Diversity
exists in practice in accounting for financial guarantee insurance contracts by
insurance enterprises under FASB Statement No. 60, Accounting and Reporting by
Insurance Enterprises. This results in inconsistencies in the recognition and
measurement of claim liabilities. This Statement requires that an insurance
enterprise recognize a claim liability prior to an event of default (insured
event) when there is evidence that credit deterioration has occurred in an
insured financial obligation. This Statement requires expanded disclosures about
financial guarantee insurance contracts. The accounting and disclosure
requirements of the Statement will improve the quality of information provided
to users of financial statements. The adoption of FASB 163 is not expected to
have a material impact on the Company’s financial position.
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).
QUARTER
ENDED SEPTEMBER 30, 2009
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
expect to spend up to $35,000 per quarter through March 2010 on
collaborative research and development of high strength polymers at the
University of Notre Dame. We believe that this research is essential to
our product development. If our financing will allow, management will give
strong consideration to accelerating the pace of spending on research and
development within the University of Notre Dame’s
laboratories.
|
|
»
|
We
expect to spend approximately $13,700 on collaborative research and
development of high strength polymers and spider silk protein at the
University of Wyoming over the next twelve months. We believe that this
research is important to our product development. This level of research
spending at the university is also a requirement of our licensing
agreement with the university. If our financing will allow, management
will give strong consideration to accelerating the pace of spending on
research and development within the University of Wyoming’s
laboratories.
|
|
»
|
We
will actively consider pursuing collaborative research opportunities with
other university laboratories in the area of high strength polymers. If
our financing will allow, management will give strong consideration to
increasing the depth of our research to include polymer production
technologies that are closely related to our core
research
|
|
»
|
We
will consider buying an established revenue producing company which is
operating in the biotechnology arena, in order to broaden our financial
base and increase our research and development capability. We expect to
use a combination of stock and cash for any such
purchase.
|
|
»
|
We
will also actively consider pursuing collaborative research opportunities
with 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 will allow, management will give
strong consideration to increasing the breadth of our research to include
protein expression platform
technologies.
|
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
Registration Statement will be successful. Our business is subject to risks
inherent in growing an enterprise, including limited capital resources, risks
inherent in the research and development process and possible rejection of
our products in development.
If
financing is not available on satisfactory terms, we may be unable to continue
expanding our operations. Equity financing will result in a dilution to existing
shareholders.
Results
of Operations for the Three Months ended September 30, 2009.
Revenue
for the three months ended September 30, 2009 was $0. This compares
to $0 in revenue for the three months ended September 30, 2008. No
sales are anticipated during the next twelve months as we will remain in
the development stage.
Operating
expenses for the three months ended September 30, 2009 were $84,731. This
compares to $71,998 in expenses during the three months ended September 30,
2008. Research and development expenses for the three months ended September 30,
2009 were $5,946. This compares to $5,945 spent on research and development
during the three months ended September 30, 2008. In addition, we had the
following expenses during the three months ended September 30, 2009: general and
administrative $16,846, professional fees $6,785 and officer’s salary
$55,154. This compares to the same expenses during the three months
ended September 30, 2008: general and administrative $8,383, professional fees
$4,765 and officer’s salary $52,905.
Other
Income/(expense) increased from $0 for the three months ending September 30,
2008 to $532,558. 102% of this increase is solely due to the
recognition of derivative income for the three months ending September 30, 2009
for the convertible accrued salary owed to the CEO.
Results
of Operations for the Nine Months ended September 30, 2009.
Revenue
for the nine months ended September 30, 2009 was $0. This compares to
$0 in revenue for the nine months ended September 30, 2008. No sales
are anticipated during the next twelve months as we will remain in the
development stage.
Operating
expenses for the nine months ended September 30, 2009 were $302,907. This
compares to $276,842 in expenses during the nine months ended September 30,
2008. Research and development expenses for the nine months ended September 30,
2009 were $63,854. This compares to $27,131 spent on research and development
during the nine months ended September 30, 2008. In addition, we had the
following expenses during the nine months ended September 30, 2009: general and
administrative $42,294, professional fees $22,824 and officer’s salary $173,935.
This compares to the same expenses during the nine months ended September 30,
2008: general and administrative $57,831, professional fees $27,211 and
officer’s salary $164,669.
Other
Income/(Expenses) increased from $2,781 of other income for the nine months
ending September 30, 2008 to other expenses of $3,058,381. This
increase in other expense is due to the recognition of derivative income for the
nine months ending September 30, 2009 for the convertible accrued salary owed to
the CEO.
Capital
Resources and Liquidity
As of
September 30, 2009 we had $34,119 in cash compared to $9,537 as of December
31, 2008.
We
believe we can not satisfy our cash requirements for the next twelve months with
our current cash. Completion of our plan of operation is subject to
attaining adequate financing. We cannot assure investors that
adequate financing will be available. In the absence of such financing, we may
be unable to proceed with our plan of operations.
We
anticipate that our operational, and general & administrative expenses for
the next 12 months will total approximately $400,000. We do not anticipate the
purchase or sale of any significant equipment. We also do not expect any
significant additions to the number of employees. The foregoing represents our
best estimate of our cash needs based on current planning and business
conditions. The exact allocation, purposes and timing of any monies raised in
subsequent private financings may vary significantly depending upon the exact
amount of funds raised and our progress with the execution of our business
plan.
In the
event we are not successful in obtaining financing, we may not be able to
proceed with our business plan for the research and development of our
products. We anticipate that we will incur operating losses in the
foreseeable future. Therefore, our auditors have raised substantial doubt about
our ability to continue as a going concern.
On March
23, 2009, the Company's Board of Directors declared a nine-for-one stock
dividend. The stock dividend was distributed to shareholders of
record on April 27, 2009. A total of 449,773,650 shares of
common stock were issued. All basic and diluted loss per share and
average shares outstanding information has been adjusted to reflect the
aforementioned stock dividend.
Critical
Accounting Policies
Our
financial statements and related public financial information are based on the
application of accounting principles generally accepted in the United States
(“GAAP”). GAAP requires the use of estimates; assumptions, judgments and
subjective interpretations of accounting principles that have an impact on the
assets, liabilities, revenue and expense amounts reported. These estimates can
also affect supplemental information contained in our external disclosures
including information regarding contingencies, risk and financial condition. We
believe our use if estimates and underlying accounting assumptions adhere to
GAAP and are consistently and conservatively applied. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. Actual results may differ materially from
these estimates under different assumptions or conditions. We continue to
monitor significant estimates made during the preparation of our financial
statements.
Our
significant accounting policies are summarized in Note 1 of our financial
statements. While all these significant accounting policies impact its financial
condition and results of operations, we view certain of these policies as
critical. Policies determined to be critical are those policies that have the
most significant impact on our financial statements and require management to
use a greater degree of judgment and estimates. Actual results may differ
from those estimates. Our management believes that given current facts and
circumstances, it is unlikely that applying any other reasonable judgments or
estimate methodologies would cause effect on our results of operations,
financial position or liquidity for the periods presented in this
report.
Recent
Accounting Pronouncements
In May
2009, the FASB issued FASB Accounting Standards Codification No. 855, Subsequent Events. FASB
Accounting Standards Codification No. 855 establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to be issued. FASB
Accounting Standards Codification No. 855 sets forth (1) The period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, (2) The circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements and (3) The disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. FASB
Accounting Standards Codification No. 855 is effective for interim or annual
financial periods ending after September 15, 2009. The adoption of this FASB
Accounting Standards Codification No. did not have a material effect on the
Company’s financial statements.
In June
2009, the FASB issued FASB Accounting Standards Codification No. 860, Transfers and Servicing. FASB
Accounting Standards Codification No. 860 improves the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor’s continuing involvement, if any,
in transferred financial assets. FASB Accounting Standards Codification No. 860
is effective as of the beginning of each reporting entity’s first annual
reporting period that begins after November 15, 2009, for interim periods within
that first annual reporting period and for interim and annual reporting periods
thereafter. The Company is evaluating the impact the adoption that FASB
Accounting Standards Codification No. 860 will have on its financial
statements.
In June
2009, the FASB issued FASB Accounting Standards Codification No. 810, Consolidation. FASB
Accounting Standards Codification No. 810 improves financial reporting by
enterprises involved with variable interest entities. FASB Accounting Standards
Codification No. 810 is effective as of the beginning of each reporting entity’s
first annual reporting period that begins after November 15, 2009, for interim
periods within that first annual reporting period, and for interim and annual
reporting periods thereafter. The Company is evaluating the impact the adoption
of FASB Accounting Standards Codification No. 810 will have on its financial
statements.
In June
2009, the FASB issued FASB Accounting Standards Codification No. 105, GAAP The FASB Accounting
Standards Codification (“Codification”) will be the single source of
authoritative nongovernmental U.S. generally accepted accounting principles.
Rules and interpretive releases of the SEC under authority of federal securities
laws are also sources of authoritative GAAP for SEC registrants. FASB Accounting
Standards Codification No. 105 is effective for interim and annual periods
ending after September 15, 2009. All existing accounting standards are
superseded as described in FASB Accounting Standards Codification No. 105. All
other accounting literature not included in the Codification is
nonauthoritative. The adoption of the Codification did not have a significant
impact on the Company’s financial statements.
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).
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Our
accountant is Webb & Company, P.A. Independent Registered Public
Accounting Firm. We do not presently intend to change accountants. At no time
have there been any disagreements with such accountants regarding any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
Our sole
executive officer and director as of September 28, 2009 is as
follows:
|
NAME
|
AGE
|
POSITION
|
DATE
APPOINTED
|
|
Kim
Thompson
|
48
|
President,
Chief Executive Officer, Director
|
April
25, 2006
|
The
following summarizes the occupation and business experience during the past five
years for our sole officer and director.
KIM
THOMPSON.
Mr.
Thompson was a founder of the California law firm of Ching & Thompson which
was founded in 1997 where he specialized in commercial litigation. He
has been a partner in the Illinois law firm of McJessy, Ching & Thompson
since 2004 where he also specializes in commercial
litigation. Mr. Thompson received his bachelor’s degree in
applied economics from James Madison College, Michigan State University, and his
Juris Doctorate from the University of Michigan.
Term of
Office
Our
directors are appointed for a one-year term to hold office until the next annual
general meeting of our shareholders or until removed from office in accordance
with our bylaws. Our officers are appointed by our board of directors and hold
office until removed by the board. Mr. Thompson is employed as the
CEO of the company pursuant to a five year employment contract.
Our
officer and director has not filed any bankruptcy petition, been convicted of or
been the subject of any criminal proceedings or the subject of any order,
judgment or decree involving the violation of any state or federal securities
laws within the past five (5) years.
Family
relationships
None.
Term
of Office
Our sole
director was appointed for a one-year term to hold office until the next annual
general meeting of our shareholders or until removed from office in accordance
with our bylaws. Our sole officer was appointed by our board of directors and
holds office until removed by the board
Current
Issues and Future Management Expectations
No board
audit committee, compensation committee, corporate governance committee or
nomination committee has been formed as of the date of this prospectus. Because
we only have one director, the functions and duties of all such committees will
be performed by our sole director until such time as we expand our
board.
The
following summary compensation table sets forth all compensation awarded to,
earned by, or paid to the named executive officer during the years ended
December 31, 2008, and 2007 in all capacities for the accounts of our executive,
including the Chief Executive Officer (CEO) and Chief Financial Officer
(CFO):
SUMMARY
COMPENSATION TABLE
|
Name
and principal position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan Compensation
($)
|
Nonqualified
Deferred Compensation Earnings ($)
|
All
Other Compensation
($)
|
Total
($)
|
||||||||||||
|
Kim
Thompson,
|
2008
|
$
|
207,866
|
$
|
$
|
7,230(1)
|
$
|
215,096
|
|||||||||||||
|
President,
|
2007
|
$
|
196,100
|
0
|
0
|
$
|
0
|
0
|
$
|
0
|
8,204(2)
|
$
|
204,304
|
||||||||
| Chief Executive Officer and Director | |||||||||||||||||||||
|
1)
|
For
the calendar year 2008, Kim Thompson is to receive $7,229 in medical and
dental insurance pursuant to an employment agreement entered into with
us.
|
|
|
2)
|
For
the calendar year 2007, Kim Thompson is to receive $7,229 in medical and
dental insurance as well as $950 for automobile expenses pursuant to an
employment agreement entered into with
us.
|
Employment
Agreements
On April
26, 2006, the Company entered into a five-year employment agreement with the
Company’s Chairman and Chief Executive Officer. The agreement renews annually so
that at all times, the term of the agreement is five years. Pursuant to this
agreement, the Company will pay an annual base salary of $185,000 for the period
May 1, 2006 through December 31, 2006. Base pay will be increased each January
1, for the subsequent twelve month periods by six percent. The officer will also
be entitled to life, disability, health and dental insurance. In addition, the
officer received 700,000 five year warrants at an exercise price of $.21 per
share, 1,500,000 eight year warrants at an exercise price of $ .33 per share and
2,000,000 nine year warrants at an exercise price of $ .40 per share (See Note
3(E)). The warrants fully vested on the date of grant. The agreement also calls
for the issuance of warrants and increase in the officer’s base compensation
upon the Company reaching certain milestones:
|
1.
|
Upon
the Company’s successful laboratory development of a new silk fiber
composed of one or more proteins that are exogenous to a host, the Company
will issue 500,000 eight year warrants at an exercise price of $.20 per
share and raise executive’s base salary by
14%.
|
|
2.
|
Upon
the Company’s successful laboratory development of a new silk fiber
composed of two or more proteins that are exogenous to a host, the Company
will issue 600,000 eight year warrants at an exercise price of $.18 per
share and raise executive’s base salary by
15%.
|
|
3.
|
Upon
the Company’s successful laboratory development of a new silk fiber
composed of at least in part of one or more synthetic proteins, the
Company will issue 900,000 eight year warrants at an exercise price of
$.18 per share and raise executive’s base salary by
18%.
|
|
4.
|
Upon
the Company’s successful laboratory development of a new silk fiber
composed of at least in part of one or more proteins that are genetic
modifications or induced mutations of a host silk protein, the Company
will raise the executive’s base salary by
8%.
|
|
5.
|
Upon
the Company becoming either a registered company or upon its stock trading
and the company achieving a market capitalization in excess of $35 million
for over 120 calendar day period, the executive’s base salary will
increase to $225,000.
|
|
6.
|
Upon
the Company becoming either a registered company or upon its stock trading
and the company achieving a market capitalization in excess of $65 million
for over 91 calendar day period, the executive’s base salary will increase
to $260,000.
|
|
7.
|
Upon
the Company becoming either a registered company or upon its stock trading
and the company achieving a market capitalization in excess of $100
million for over 91 calendar day period, the executive’s base salary will
increase to $290,000.
|
|
8.
|
Upon
the Company becoming either a registered company or upon its stock trading
and the company achieving a market capitalization in excess of $200
million for over 120 calendar day period, the executive’s base salary will
increase to $365,000.
|
|
9.
|
Upon
the Company becoming either a registered company or upon its stock trading
and the company achieving a market capitalization in excess of $350
million for over 150 calendar day period, the executive’s base salary will
increase to $420,000.
|
On
November 6, 2006, the Company entered into an addendum to the employment
agreement whereby the officer agreed to retire all stock warrants issued or to
be issued under his employment agreement in return for an increase in his
severance allowance to $600,000 or seventy five percent of total salary due
under the remaining term of the employment agreement, which ever is greater and
a death benefit of $300,000 or thirty five percent of the total salary due under
the remaining term of the employment agreement.
In
addition, upon expiration or termination of the employment agreement, the
Company agrees to keep the officer employed as a consultant for a period of six
years at a rate of $4,000 per month with annual increases of 3%. The agreement
also calls for certain increases based on milestones reached by the company,
including:
1. If
the company achieves gross sales exceeding $10 million or net income exceeding
$1 million for any two years within the ten year period after the date of this
agreement or a market capitalization in excess of $45 million for over 180
calendar days within six years from the date of this agreement, the term of the
consulting agreement will be extended to 10 years.
2. If
the company achieves gross sales exceeding $19 million or net income exceeding
$3 million for any two years within the twelve year period after the date of
this agreement or a market capitalization in excess of $65 million for over 180
calendar days within six years from the date of this agreement, the term of the
consulting agreement will be extended to 20 years or the life of the officer and
his spouse at a rate of $6,500 per month with a 3% annual increase.
3. If
the company achieves gross sales exceeding $38 million or net income exceeding
$6 million for any two years within the twelve year period after the date of
this agreement or a market capitalization in excess of $120 million for over 180
calendar days within six years from the date of this agreement, the term of the
consulting agreement will be extended to 20 years or the life of the officer and
his spouse at a rate of $10,000 per month with a 3% annual
increase.
4. If
the company achieves gross sales exceeding $59 million or net income exceeding
$9 million for any year within the twelve year period after the date of this
agreement or a market capitalization in excess of $210 million for over 180
calendar days within six years from the date of this agreement, the term of the
consulting agreement will be extended to 20 years or the life of the officer and
his spouse at a rate of $15,000 per month with a 3% annual
increase.
5. If
the company achieves gross sales exceeding $78 million or net income exceeding
$12 million for any year within the twelve year period after the date of this
agreement or a market capitalization in excess of $320 million for over 180
calendar days within six years from the date of this agreement, the term of the
consulting agreement will be extended to 20 years or the life of the officer and
his spouse at a rate of $20,000 per month with a 3% annual
increase.
Outstanding
Equity Awards
None.
Long-Term Incentive Plan
(“LTIP”) Awards Table.
There
were no awards made to a named executive officer in the last completed fiscal
year under any LTIP
Compensation of
Directors
Directors
are permitted to receive fixed fees and other compensation for their services as
directors. The Board of Directors has the authority to fix the compensation of
directors. No amounts have been paid to, or accrued to, directors in such
capacity.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The
following table provides the names and addresses of each person known to us to
own more than 5% of our outstanding shares of common stock as of January 20, 2010 and by the officers and directors,
individually and as a group. Except as otherwise indicated, all shares are owned
directly.
|
Title
of Class
|
Name
and Address
of
Beneficial Owner
|
Amount
and Nature
of
Beneficial Owner
|
Percent
of
Class
(1)
|
|
Common
Stock
|
Kim
Thompson
120
N. Washington Square, Suite 805
Lansing,
MI 48933
|
320,625,500
|
62.5%
|
|
Common
Stock
|
Lion
Equity
1001
Brickell Bay Dr, Suite 1812
Miami,
FL 33131
|
45,000,000
|
8.8%
|
|
Common
Stock
|
Sean
March
8901
South Ocean Dr. #14
W.
Hollywood, FL 33019
|
40,000,000
|
7.8%
|
|
Common
Stock
|
All
executive officers and directors as a group
|
320,625,500
|
62.5%
|
(1)The
percent of class is based on 513,377,924 shares of our Class A common stock
issued and outstanding as of January 20, 2010 .
TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS,
AND DIRECTOR INDEPENDENCE
On
October 6, 2006 the Company received $10,000 from a principal stockholder.
Pursuant to the terms of the loan, the advance bears interest at 12%, is
unsecured and matures on May 1, 2007. At December 31, 2007, the Company recorded
interest expense and related accrued interest payable of $776. As of December
31, 2007, the loan principle was repaid.
In April
2006, the Company entered into a Founder’s Stock Purchase and Intellectual
Property Transfer Agreement (the “Intellectual Property Agreement”) with its
CEO. Pursuant to the Intellectual Property Agreement, the CEO
contributed to the Company a provisional patent application pertaining to
transgenic expression system for commercial production of certain silk proteins,
in exchange for which the Company agreed to (i) issue to the CEO 33,229,200
shares of Class A common stock, (ii) certain royalty payments (which were
subsequently waived pursuant to the Addendum), (iii) an exclusive license to use
such intellectual property for non-protective apparel (which was subsequently
waived pursuant to the Addendum).
On
December 26, 2006, the Company entered into an Addendum to the Intellectual
Property Agreement (the “Addendum”), pursuant to which the CEO agreed to give up
his right to royalty payments for the intellectual property he transferred to
the Company as well as an exclusive license to use such intellectual property
for non-protective apparel. In exchange for giving up these rights in
the Addendum, the Company agreed to use its best reasonable efforts to issue the
CEO 200,000 preferred shares within 12 months of the date of the
Addendum. The preferred shares would not have any priority to
payments of dividends and would not have to have the right to receive dividend
payments. However, such preferred shares would have 100 votes per
share (20,000,000 votes). If the Company is unable, through the use
of its best reasonable efforts, to issue such preferred shares, then the Company
will provide its CEO with an alternative cash payment of $120,000 payable on the
one year anniversary of the Addendum (Also see Note 6 (C) to the audited
financial statements for the quarter ended September 30,
2009).
On
January 1, 2007, the company entered into a one year lease agreement with an
officer for office space. The agreement calls for monthly rent of
$100 plus the reimbursement to officer for internet services at $50 per
month. Payments under the agreement totaled $1,800 for the year ended
December 31, 2007. The terms of this agreement became month-to-month
on January 1, 2008. Payments under the agreement totaled $1,800 for the period
ended December 31, 2008.
As of
December 31, 2008, the Company o wed $340,263 in accrued salary to principal
stockholder. On October 10, 2008, the Company entered into an
addendum to the employment agreement whereby all unpaid back salary will accrue
interest at 7% per year. At December 31, 2008, the Company recorded
interest expense and related accrued interest payable of $5,351. In
addition, the Company granted the CEO the right to convert any accrued salary
into Class “A” Common Stock at either 1) The lowest price at which the Company’s
Class “A” Common Stock has traded over the preceding twelve month period, 2) At
the lowest bid price for the preceding thirty days, 3) The lowest price paid in
cash for the Class “A” Common Stock during the twelve months preceding the
conversion. The conversion price is the lesser of options 1-3 or
$0.02. As of December 31, 2009, no
accrued salary has been converted to Class “A” Common Stock.
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
The
General Corporation Law of Wyoming provides that directors, officers, employees
or agents of Wyoming corporations are entitled, under certain
circumstances, to be indemnified against expenses (including attorneys' fees)
and other liabilities actually and reasonably incurred by them in connection
with any suit brought against them in their capacity as a director, officer,
employee or agent, if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation, and
with respect to any criminal action or proceeding, if they had no reasonable
cause to believe their conduct was unlawful. This statute provides that
directors, officers, employees and agents may also be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by them in
connection with a derivative suit brought against them in their capacity as a
director, if they acted in good faith and in a manner they reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification may be made without court approval if such person was adjudged
liable to the corporation.
Our
Certificate of Incorporation provides that we shall indemnify any and all
persons whom we shall have power to indemnify to the fullest extent permitted by
the Wyoming Corporate Law. Article VII of our by-laws provides that we shall
indemnify our authorized representatives to the fullest extent permitted by the
Wyoming Law. Our by-laws also permit us to purchase insurance on behalf of any
such person against any liability asserted against such person and incurred by
such person in any capacity, or out of such person's status as such, whether or
not we would have the power to indemnify such person against such liability
under the foregoing provision of the by-laws.
We have
been advised that in the opinion of the Securities and Exchange Commission
indemnification for liabilities arising under the Securities Act is against
public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities is asserted by one of our directors, officers, or controlling
persons in connection with the securities being registered, we will, unless in
the opinion of our legal counsel the matter has been settled by controlling
precedent, submit the question of whether such indemnification is against public
policy to a court of appropriate jurisdiction. We will then be governed by the
court’s decision.
KRAIG
BIOCRAFT LABORATORIES, INC.
63,600,000SHARES
OF CLASS ACOMMON STOCK
PROSPECTUS
YOU
SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT WE HAVE
REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT. THIS PROSPECTUS IS NOT AN OFFER TO SELL COMMON STOCK AND IS
NOT SOLICITING AN OFFER TO BUY COMMON STOCK IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
The Date of This Prospectus Is: January __, 2010
PART
II – INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item.
13 Other Expenses Of Issuance And Distribution.
|
Securities
and Exchange Commission registration fee
|
$
|
81.48
|
||
|
Transfer
Agent Fees
|
$
|
0
|
||
|
Accounting
fees and expenses
|
$
|
1,000
|
||
|
Legal
fees and expenses
|
$
|
15,000
|
||
|
Blue
Sky fees and expenses
|
$
|
0
|
||
|
Miscellaneous
|
$
|
1,000
|
||
|
Total
|
$
|
17,081.48
|
All
amounts are estimates other than the Commission’s registration fee. We are
paying all expenses of the offering listed above. No portion of these expenses
will be borne by the selling shareholders. The selling shareholders, however,
will pay any other expenses incurred in selling their common stock, including
any brokerage commissions or costs of sale.
Item.
14 Indemnification of Directors and Officers.
The
General Corporation Law of Wyoming provides that directors, officers, employees
or agents of Wyoming corporations are entitled, under certain
circumstances, to be indemnified against expenses (including attorneys' fees)
and other liabilities actually and reasonably incurred by them in connection
with any suit brought against them in their capacity as a director, officer,
employee or agent, if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation, and
with respect to any criminal action or proceeding, if they had no reasonable
cause to believe their conduct was unlawful. This statute provides that
directors, officers, employees and agents may also be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by them in
connection with a derivative suit brought against them in their capacity as a
director, if they acted in good faith and in a manner they reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification may be made without court approval if such person was adjudged
liable to the corporation.
Our
Certificate of Incorporation provides that we shall indemnify any and all
persons whom we shall have power to indemnify to the fullest extent permitted by
the Wyoming Corporate Law. Article VII of our by-laws provides that we shall
indemnify our authorized representatives to the fullest extent permitted by the
Wyoming Law. Our by-laws also permit us to purchase insurance on behalf of any
such person against any liability asserted against such person and incurred by
such person in any capacity, or out of such person's status as such, whether or
not we would have the power to indemnify such person against such liability
under the foregoing provision of the by-laws.
We have
been advised that in the opinion of the Securities and Exchange Commission
indemnification for liabilities arising under the Securities Act is against
public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities is asserted by one of our directors, officers, or controlling
persons in connection with the securities being registered, we will, unless in
the opinion of our legal counsel the matter has been settled by controlling
precedent, submit the question of whether such indemnification is against public
policy to a court of appropriate jurisdiction. We will then be governed by the
court’s decision.
Item.
15 Recent Sales of Unregistered Securities.
We were
incorporated in the State of Wyoming in April 2006 and on April 26, 2006
33,229,200 shares of our Class “A” common stock, were issued to Kim Thompson in
exchange for intellectual property. These shares were issued in reliance on the
exemption under Section 4(2) of the Securities Act of 1933, as amended (the
“Securities Act”) and were issued as founder’s shares. These shares of our
common stock qualified for exemption under Section 4(2) of the Securities Act
since the issuance shares by us did not involve a public offering. The offering
was not a “public offering” as defined in Section 4(2) due to the insubstantial
number of persons involved in the deal, size of the offering, manner of the
offering and number of shares offered. We did not undertake an offering in which
we sold a high number of shares to a high number of investors. In addition, Mr.
Thompson had the necessary investment intent as required by Section 4(2) since
he agreed to and received share certificates bearing a legend stating that such
shares are restricted pursuant to Rule 144 of the Securities Act. This
restriction ensures that these shares would not be immediately redistributed
into the market and therefore not be part of a “public offering.” Based on an
analysis of the above factors, we have met the requirements to qualify for
exemption under Section 4(2) of the Securities Act for this
transaction.
On April
28, 2006 we issued 400 shares of our Class “A” common stock to Samuel Ching at a
price per share of $.50, for an aggregate of $400 cash. On January
26, 2007 we also issued 2,100,000 shares of our Class “A” common stock to Samuel
Ching at a price per share of $.0505 for an aggregate of
$106,000.00. These shares were issued in reliance on the exemption
under Section 4(2) of the Securities Act. These shares of our Class A common
stock qualified for exemption under Section 4(2) of the Securities Act since the
issuance shares by us did not involve a public offering. The offering was not a
“public offering” as defined in Section 4(2) due to the insubstantial number of
persons involved in the deal, size of the offering, manner of the offering and
number of shares offered. We did not undertake an offering in which we sold a
high number of shares to a high number of investors. In addition, Mr. Ching had
the necessary investment intent as required by Section 4(2) since he agreed to
and received share certificates bearing a legend stating that such shares are
restricted pursuant to Rule 144 of the Securities Act. This restriction ensures
that these shares would not be immediately redistributed into the market and
therefore not be part of a “public offering.” Based on an analysis of the above
factors, we have met the requirements to qualify for exemption under Section
4(2) of the Securities Act for this transaction.
On April
28, 2006 we issued 400 shares of our Class “A” common stock to Richard Duzenbury
at a price per share of $.50 for an aggregate of $400 cash. These
shares were issued in reliance on the exemption under Section 4(2) of the
Securities Act. These shares of our Class A common stock qualified
for exemption under Section 4(2) of the Securities Act since the
issuance shares by us did not involve a public offering. The offering was not a
“public offering” as defined in Section 4(2) due to the insubstantial number of
persons involved in the deal, size of the offering, manner of the offering and
number of shares offered. We did not undertake an offering in which we sold a
high number of shares to a high number of investors. In addition, Mr. Duzenbury
had the necessary investment intent as required by Section 4(2) since he agreed
to and received share certificates bearing a legend stating that such shares are
restricted pursuant to Rule 144 of the Securities Act. This restriction ensures
that these shares would not be immediately redistributed into the market and
therefore not be part of a “public offering.” Based on an analysis of the above
factors, we have met the requirements to qualify for exemption under Section
4(2) of the Securities Act for this transaction.
On July
5, 2006, pursuant to an Intellectual Property Agreement, we issued 1,750,000
shares of our Class “A” common stock to the University of Wyoming Foundation in
exchange for intellectual property. The Company holds a five year
call, dated from May 8, 2006, 700,000 shares held by the University of Wyoming
Foundation. These shares were issued in reliance on the exemption
under Section 4(2) of the Securities Act. These shares of our Class A common
stock qualified for exemption under Section 4(2) of the Securities Act since the
issuance shares by us did not involve a public offering. The offering was not a
“public offering” as defined in Section 4(2) due to the insubstantial number of
persons involved in the deal, size of the offering, manner of the offering and
number of shares offered. We did not undertake an offering in which we sold a
high number of shares to a high number of investors. In addition, Mr. Duzenbury
had the necessary investment intent as required by Section 4(2) since he agreed
to and received share certificates bearing a legend stating that such shares are
restricted pursuant to Rule 144 of the Securities Act. This restriction ensures
that these shares would not be immediately redistributed into the market and
therefore not be part of a “public offering.” Based on an analysis of the above
factors, we have met the requirements to qualify for exemption under Section
4(2) of the Securities Act for this transaction.
On
September 12, 2006, March 21, 2007 and August 1, 2007 pursuant to a Consulting
Agreement, we issued an aggregate of 330,000 shares of our Class “A” common
stock to Malcolm Fraser for consulting services performed. Pursuant
to the Consulting Agreement, Mr. Fraser is contractually restricted from
reselling 175,000 shares for a period of 26 months from February 26,
2007. In addition, the Consulting Agreement restricts Mr. Fraser from
resale of 60,000 shares for a period of 24 following the commencement of public
trade of the Company’s stock. These shares were issued in reliance on
the exemption under Section 4(2) of the Securities Act. These shares of our
Class A common stock qualified for exemption under Section 4(2) of the
Securities Act since the issuance shares by us did not involve a public
offering. The offering was not a “public offering” as defined in Section 4(2)
due to the insubstantial number of persons involved in the deal, size of the
offering, manner of the offering and number of shares offered. We did not
undertake an offering in which we sold a high number of shares to a high number
of investors. In addition, Mr. Fraser had the necessary investment intent as
required by Section 4(2) since he agreed to and received share certificates
bearing a legend stating that such shares are restricted pursuant to Rule 144 of
the Securities Act. This restriction ensures that these shares would not be
immediately redistributed into the market and therefore not be part of a “public
offering.” Based on an analysis of the above factors, we have met the
requirements to qualify for exemption under Section 4(2) of the Securities Act
for this transaction.
On
January 9, 2007, we issued an aggregate of 175,000 shares of our Class “A”
common stock to Worth Equity Fund, L.P., at a price per share of $0.0857, for an
aggregate of $15,000 cash. These shares were issued in reliance on
the exemption under Section 4(2) of the Securities Act. These shares of our
Class A common stock qualified for exemption under Section 4(2) of the
Securities Act since the issuance shares by us did not involve a public
offering. The offering was not a “public offering” as defined in Section 4(2)
due to the insubstantial number of persons involved in the deal, size of the
offering, manner of the offering and number of shares offered. We did not
undertake an offering in which we sold a high number of shares to a high number
of investors. In addition, Worth Equity Fund, L.P. had the necessary investment
intent as required by Section 4(2) since he agreed to and received share
certificates bearing a legend stating that such shares are restricted pursuant
to Rule 144 of the Securities Act. This restriction ensures that these shares
would not be immediately redistributed into the market and therefore not be part
of a “public offering.” Based on an analysis of the above factors, we have met
the requirements to qualify for exemption under Section 4(2) of the Securities
Act for this transaction.
On May
31, 2007 we issued an aggregate of 1,687,500 shares of our Class “A” common
stock to Lion Equity, at a price per share of $0.08, for an aggregate of
$135,000 cash. In addition, on September 12, 2007 we issued an
aggregate of 2,812,500 shares of our Class “A” common stock to Lion Equity
pursuant to the Securities Purchase Agreement. These shares were
issued in reliance on the exemption under Section 4(2) of the Securities Act.
These shares of our Class A common stock qualified for exemption under Section
4(2) of the Securities Act since the issuance shares by us did not involve a
public offering. The offering was not a “public offering” as defined in Section
4(2) due to the insubstantial number of persons involved in the deal, size of
the offering, manner of the offering and number of shares offered. We did not
undertake an offering in which we sold a high number of shares to a high number
of investors. In addition, Lion Equity had the necessary investment intent as
required by Section 4(2) since he agreed to and received share certificates
bearing a legend stating that such shares are restricted pursuant to Rule 144 of
the Securities Act. This restriction ensures that these shares would
not be immediately redistributed into the market and therefore not be part of a
“public offering.” Based on an analysis of the above factors, we have met the
requirements to qualify for exemption under Section 4(2) of the Securities Act
for this transaction.
On
September 12, 2007, we completed a Regulation D Rule 506 offering in which we
sold 9,016,500 shares of our Class A common stock to 32 investors, at a price
per share of $.03 for an aggregate offering price $270,195. The following sets
forth the identity of the class of persons to whom we sold these shares and the
amount of shares for each shareholder:
|
Sean
March
|
4,000,000
|
|
Nicholas
G. Kontos
|
2,250,000
|
|
Edward
M. Defeudis
|
830,000
|
|
Woodland
Hills Fund, SA
|
600,000
|
|
Coral
Springs Fund, SA
|
300,000
|
|
Kristin
Lee Sirota
|
10,000
|
|
Ann
Harvey
|
10,000
|
|
Barry
S. Wattenberg
|
10,000
|
|
Lucie
Rousse
|
10,000
|
|
Karen
E. Gallagher
|
6,000
|
|
Kyan
W. Kraus
|
6,000
|
|
Carlos
E. Gauch
|
5,000
|
|
Sarah
Ferreira
|
5,000
|
|
Caroline
Sirota
|
5,000
|
|
Priscila
Ferreira
|
2,500
|
|
Gene
Defeudis
|
830,000
|
|
Heidi
Thompson
|
5,000
|
|
Frank
Thompson
|
5,000
|
|
Jonathan
Sweet
|
10,000
|
|
Gary
Lam
|
2,500
|
|
Frank
Dantimo
|
6,000
|
|
Denise
M Demarco Dantimo
|
6,000
|
|
Sirota
& Associates PA
|
54,000
|
|
JR
Acquisitions & Consultants
|
28,000
|
|
Marcos
A. Lopez, Jr.
|
2,500
|
|
Olga
C. Lopez
|
2,500
|
|
Camila
Camargo
|
2,500
|
|
Bizmar
Martinez
|
2,500
|
|
Michelle
Y. Galletto
|
2,500
|
|
Inversiones
G & G Corp.
|
2,500
|
|
Douglas
Nicaragua
|
2,500
|
|
Michael
L. Price
|
3,000
|
Pursuant
to the Letter Agreement, Calm Seas Capital made a Bridge Investment in us in the
aggregate amount of $120,000, of which $100,000 was paid promptly after the
Letter Agreement was signed in July 2009 and the remaining $20,000 was paid in
late September 2009. In this Bridge Investment, Calm Seas Capital
purchased (i) twelve convertible debentures, each in the principal amount of
$10,000 (the “Bridge Debentures”) and (ii) twelve warrants each exercisable for
the purchase of 500,000 shares (the “Bridge Warrants”).
The
Bridge Debentures, which mature on December 31, 2010, bear interest at the rate
of 5% simple interest per annum, payable at maturity or convertible with the
principal, and the principal and interest shall be convertible at the option of
the holder at a fixed price of $.018 per share. The Company cannot
use any of the proceeds of the Equity Line Agreement to repay the Bridge
Debentures or any interest thereon. During any event of default, the
Bridge Debentures will bear interest at the rate of 18% per annum or such lesser
interest to the extent required under applicable usury law.
There
will be an event of default under the Bridge Debentures if the
Company
|
(i)
|
fails
to pay the principal and interest when due and payable and such failure is
not cured within 10 days of the due
date,
|
|
(ii)
|
breaches
any material term of the Bridge Debenture or Bridge and fails to cure such
breach within 10 days of the Company’s receipt of notice of such breach
from the holder,
|
|
(iii)
|
makes
an assignment for the benefit of its creditors or has a receiver or
trustee appointed,
|
|
(iv)
|
has
a money judgment entered against it for more than $10,000 and such
judgment is not vacated, bonded or stayed for 90
days,
|
|
(v)
|
enters
bankruptcy.
|
After
September 30, 2010, the Company may cause the Bridge Debentures to be converted
into shares of its Class A common stock at the lower of (i) the conversion price
then in effect and (ii) the average closing bid for the Company’s Class A common
stock for the 20 trading days prior to the date the Company gives notice that it
is converting the Bridge Debentures (but not less than $0.005 per
share).
The
conversion price of the Bridge Debentures will be proportionately adjusted in
the event of merger, sale of assets, reclassification of the Company’s capital
stock, stock split, reverse stock split or stock
dividend. Additionally, the conversion price of the Bridge Debentures
will be proportionately reduced if the Company sells shares of its Class A
common stock for a price per share less than the conversion price of the Bridge
Debentures, excluding the issuance of shares pursuant to (a) Bridge Debentures
or Bridge Warrants, (b) the Equity Line of Credit or other existing obligation
of the Company to issue shares, (c) equity compensation plans or (d) the
acquisition or another business.
The
Bridge Warrants expire on December 31, 2011. The Bridge Warrants are
exercisable at an exercise price of $.02 per share, subject to customary
adjustments for stock splits, stock dividends, distribution of non-cash assets
by the Company to its shareholders, capital reorganization, reclassification of
the capital stock of the Company, consolidation or merger of the Company with
another corporation in which the Company is not the survivor, or sale, transfer
or other disposition of all or substantially all of the Company’s assets to
another corporation. Additionally, Calm Seas Capital may exercise the
Bridge Warrants using a cashless exercise provision.
On July
1, 2009, the Company issued 280,000 shares of Class A common stock to Dr. Jarvis
as repayment for services previously provided to the Company by a consultant
having a fair value of $14,000 ($0.05/share) in accordance with a consulting
agreement.
On July
1, 2009, the Company issued 482,825 shares of Class A common stock to Dr. Fraser
as partial payment for services previously provided to the Company by a
consultant in accordance with a consulting agreement.
On
September 30, 2009, the Company issued 366,599 shares of Class A common stock
for $3,000 ($.008/share) to Sam Ching.
On January 15, 2011, the Company issued 500,000 shares of
Class A common stock to a consultant in payment for public relations and web
site development services.
These shares of our Class A common stock that we issued in July and September 2009 and January 2010 qualified for exemption under Section 4(2) of the Securities Act since the issuance shares by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of shares offered.
The
Common Stock issued in our Regulation D, Rule 506 Offering was issued in a
transaction not involving a public offering in reliance upon an exemption from
registration provided by Rule 506 of Regulation D of the Securities Act. In
accordance with Section 230.506 (b)(1) of the Securities Act, these shares
qualified for exemption under the Rule 506 exemption for this offerings since it
met the following requirements set forth in Reg.
ss.230.506:
|
(A)
|
No
general solicitation or advertising was conducted by us in connection with
the offering of any of the Shares.
|
|
(B)
|
At
the time of the offering we were not: (1) subject to the reporting
requirements of Section 13 or 15 (d) of the Exchange Act; or (2) an
“investment company” within the meaning of the federal securities
laws.
|
|
(C)
|
Neither
we, nor any of our predecessors, nor any of our directors, nor any
beneficial owner of 10% or more of any class of our equity securities, nor
any promoter currently connected with us in any capacity has been
convicted within the past ten years of any felony in connection with the
purchase or sale of any security.
|
|
(D)
|
The
offers and sales of securities by us pursuant to the offerings were not
attempts to evade any registration or resale requirements of the
securities laws of the United States or any of its
states.
|
|
(E)
|
None
of the investors are affiliated with any of our directors, officers or
promoters or any beneficial owner of 10% or more of our
securities.
|
Please
note that pursuant to Rule 506, all shares purchased in the Regulation D Rule
506 offering completed on September 12, 2007 were restricted in accordance with
Rule 144 of the Securities Act. In addition, each of these shareholders were
either accredited as defined in Rule 501 (a) of Regulation D promulgated under
the Securities Act or sophisticated as defined in Rule 506(b)(2)(ii) of
Regulation D promulgated under the Securities Act.
On August
31, 2009, we sold 366,599 shares of our Class A common stock to an existing
shareholder for $3,000. These shares were issued in reliance on the
exemption under Section 4(2) of the Securities Act. These shares of
our Class A common stock qualified for exemption under Section 4(2) of the
Securities Act of 1933 since the issuance shares by us did not involve a public
offering. The offering was not a “public offering” as defined in Section 4(2)
due to the insubstantial number of persons involved in the deal, size of the
offering, manner of the offering and number of shares offered. We did not
undertake an offering in which we sold a high number of shares to a high number
of investors. In addition, the existing shareholder had the necessary investment
intent as required by Section 4(2) since he agreed to and received share
certificates bearing a legend stating that such shares are restricted pursuant
to Rule 144 of the Securities Act. This restriction ensures that these shares
would not be immediately redistributed into the market and therefore not be part
of a “public offering.” Based on an analysis of the above factors, we have met
the requirements to qualify for exemption under Section 4(2) of the Securities
Act.
We have
never utilized an underwriter for an offering of our securities. Other than the
securities mentioned above, we have not issued or sold any
securities.
Item.
16 Exhibits and Financial Statement Schedules.
|
EXHIBIT
NUMBER
|
DESCRIPTION
|
|
3.1*
|
Articles
of Incorporation.
|
|
3.2***
|
Articles
of Amendment
|
|
3.3*
|
By-Laws.
|
|
5.1 ***
|
Opinion
of Fox Law Offices, P.A.
|
|
10.1*
|
Addendum
to the Employment Contract, dated November 6, 2006, by and between Kraig
Biocraft Laboratories, Inc. and Kim Thompson and Employment
Contract, dated as of April 26, 2006, by and between Kraig Biocraft
Laboratories, Inc. and Kim Thompson
|
|
10.2*
|
Securities
Purchase Agreement between Kraig Biocraft Laboratories and Worth Equity
Fund, L.P. and Mutual Release.
|
|
10.3*
|
Securities
Purchase Agreement between Kraig Biocraft Laboratories and Lion
Equity.
|
|
10.4***
|
Amended
Letter Agreement, dated September 14, 2009, by and between Kraig Biocraft
Laboratories and Calm Seas Capital, LLC.
|
|
10.5 ***
|
Exclusive
License Agreement, effective as of May 8, 2006, by and between The
University of Wyoming and Kraig Biocraft Laboratories, Inc. (Portions of
this exhibit have been omitted pursuant to a request for confidential
treatment.)
|
|
10.6#
|
Addendum
to the Founder’s Stock Purchase and Intellectual Property Transfer
Agreement, dated December 26, 2006, and the Founder’s Stock Purchase and
Intellectual Property Transfer Agreement dated April
26,2006.
|
|
14.1**
|
Code
of Business Conduct and Ethics.
|
|
23.1#
|
Consent
of Webb & Company, P.A.
|
|
23.2 ***
|
Consent
of Counsel, contained in Exhibit
5.1.
|
* Filed
as an exhibit to the registration statement on Form SB-2 filed with the SEC on
September 26, 2007 and incorporated by reference herein.
** Filed
as Exhibit 14.1 to the annual report on Form 10-KSB for the year ended December
31, 2007 filed with the SEC on March 26, 2008 and incorporated by reference
herein.
***Previously
filed with this registration statement.
#
Filed herewith.
@ To be
filed by amendment.
Item
17. Undertakings.
The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i. To
include any prospectus required by section 10(a)(3) of the Securities Act of
1933;
ii. To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
registration statement.
iii. To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement;
(2)
That, for the purpose of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4) Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(5)
That, for the purpose of determining liability under the Securities Act of 1933
to any purchaser:
i.
Each prospectus filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration statements relying on
Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement as of the date
it is first used after effectiveness. Provided, however, that no
statement made in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a purchaser
with a time of contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus that was
part of the registration statement or made in any such document
immediately prior to such date of first use.
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and authorized this registration statement
to be signed on its behalf by the undersigned on January
25, 2010.
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KRAIG BIOCRAFT LABORATORIES,
INC.
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By:
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/s/ Kim
Thompson
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Kim
Thompson
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President,
Chief Executive Officer, Principal Financial and Accounting Officer and
Chairman of the Board of Directors
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Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated:
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January
25, 2010
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/s/ Kim
Thompson
|
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Kim
Thompson
|
||
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President,
Chief Executive Officer, Principal Financial and Accounting Officer and
Chairman of the Board of Directors
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