Kraig Biocraft Laboratories, Inc - Quarter Report: 2017 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2017

 

OR

 

☐	TRANSITION REPORT PURSUANT TO PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from_____ to _____

 

KRAIG BIOCRAFT LABORATORIES, INC.

(Exact Name of Registrant as Specified in Charter)

 

Wyoming				83-0459707
(State or Other Jurisdiction of Incorporation)		(Commission File No.)		(I.R.S. Employer Identification No.)

 

2723 South State St. Suite 150 Ann Arbor, Michigan 48104		(734) 619-8066
(Address of Principal Executive Offices)		(Registrant’s Telephone Number)

 

(Former name and address, if changed since last report)

 

Copies to:

Hunter Taubman Fischer & Li LLC

1450 Broadway, 26th Floor

New York, NY 10018

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑   No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File  required to be submitted and posted to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer    ☐

Accelerated filer    ☐

Non-accelerated filer   ☐

Smaller reporting company  ☑ Emerging growth company  ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐   No ☑

 

As of August 10, 2017, there were 802,196,748 shares of the issuer’s common stock, no par value per share, outstanding, and 2 shares of preferred stock, no par value per share, outstanding.

 

 

TABLE OF CONTENTS

 

	Page
PART I FINANCIAL INFORMATION
Item 1. Unaudited Condensed Financial Statements:	3
Condensed Balance Sheets as of June 30, 2017 (Unaudited) and December 31, 2016 (Audited)	3
Condensed Statements of Operations (Unaudited) for the three and six month periods ended June 30, 2017 and 2016	4
Condensed Statements of Stockholders’ Deficit (Unaudited) for the six months ended June 30, 2017 and the year ended December 31, 2016 (Audited)	5
Condensed Statements of Cash Flows (Unaudited) for the six month periods ended June 30, 2017 and 2016	6
Notes to Condensed Financial Statements (Unaudited)	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3. Quantitative and Qualitative Disclosures about Market Risk	25
Item 4. Controls and Procedures	25
PART II OTHER INFORMATION	25
Item 1. Legal proceedings	25
Item 1A. Risk Factors	25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3. Defaults upon Senior Securities	26
Item 4. Mine Safety Disclosures	26
Item 5. Other information	26

 

 

 

PART I

 

ITEM 1. FINANCIAL STATEMENTS

 

Kraig Biocraft Laboratories, Inc.

Balance Sheets

(Unaudited)

ASSETS
	June 30, 2017	December 31, 2016
	(Unaudited)
Current Assets
Cash	$228,760	$298,859
Accounts receivable, net	-	31,858
Prepaid expenses	250	1,324
Total Current Assets	229,010	332,041
Property and Equipment, net	62,078	51,618
Total Assets	$291,088	$383,659
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued expenses	$581,383	$513,562
Note payable - related party	50,000	50,000
Royalty agreement payable - related party	65,292	65,292
Accounts payable and accrued expenses - related party	2,392,986	2,115,618
Total Current Liabilities	3,089,661	2,744,472
Commitments and Contingencies
Stockholders' Deficit
Preferred stock Series A, no par value;
2 and 2 shares issued and outstanding, respectively	5,217,800	5,217,800
Common stock Class A, no par value; unlimited shares authorized,
787,451,545 and 773,627,964 shares issued and outstanding, respectively	13,666,511	12,958,757
Common stock Class B, no par value; unlimited shares authorized,
no shares issued and outstanding	-	-
Common Stock Issuable, 15,867,514 and 5,778,633 shares, respectively	652,200	279,754
Additional paid-in capital	2,805,379	2,568,855
Accumulated Deficit	(25,140,463)	(23,385,979)
Total Stockholders' Deficit	(2,798,573)	(2,360,813)
Total Liabilities and Stockholders' Deficit	$291,088	$383,659

 

 

 

 

 

Kraig Biocraft Laboratories, Inc.

Condensed Statements of Operations (Unaudited)

For the three and six month periods ended June 30, 2017 and 2016

 

 

	For the Three Months Ended		For the Six Months Ended
	June 30, 2017	June 30, 2016	June 30, 2017	June 30, 2016
Revenue	$-	$-	$-	$-
Operating Expenses
General and Administrative	904,866	106,808	1,056,511	224,675
Professional Fees	146,922	146,235	222,909	290,248
Officer's Salary	109,958	107,810	220,680	213,189
Rent - Related Party	2,880	-	4,800	-
Research and Development	51,417	139,853	165,607	250,534
Total Operating Expenses	1,216,043	500,706	1,670,507	978,646
Loss from Operations	(1,216,043)	(500,706)	(1,670,507)	(978,646)
Other Income/(Expenses)
Gain on forgiveness of debt	-	5,704	-	5,704
Interest expense	(43,830)	(33,063)	(83,977)	(64,103)
Total Other Income/(Expenses)	(43,830)	(27,359)	(83,977)	(58,399)
Net (Loss) before Provision for Income Taxes	(1,259,873)	(528,065)	(1,754,484)	(1,037,045)
Provision for Income Taxes	-	-	-	-
Net (Loss)	$(1,259,873)	$(528,065)	$(1,754,484)	$(1,037,045)
Net Income (Loss) Per Share - Basic and Diluted	$(0.00)	$(0.00)	$(0.00)	$(0.00)
Weighted average number of shares outstanding
during the period - Basic and Diluted	783,593,269	731,190,422	781,227,778	721,079,852

 

 

 

Kraig Biocraft Laboratories, Inc.

Condensed Statements of Stockholders’ Deficit

For the six months ended June 30, 2017 (Unaudited)

					Common Stock -
					Class A Shares
	Preferred Stock - Series A		Common Stock - Class A		To be issued			Accumulated Deficit
	Shares	Par	Shares	Par	Shares	Par	APIC		Total
Balance, December 31, 2016	2	$5,217,800	773,627,964	$12,958,757	5,778,633	$279,754	$2,568,855	$(23,385,979)	$(2,360,813)
Stock issued for cash ($0.0491/share)	-	$-	9,167,259	$450,000	-	$-	$-	$-	$450,000
Warrants issued for services - related party	-	$-	-	$-	-	$-	$17,473	$-	$17,473
Warrants issued for services	-	$-	-	$-	-	$	$848,011	$-	$848,011
Exercise of 15,000,000 warrants in exchange for stock	-	$-	-	$-	14,745,203	$630,200	$(630,200)	$-	$-
Issued shares for warrant exercise issuable as of December 31, 2016	-	$-	3,906,322	$224,904	(3,906,322)	$(224,904)	$-	$-	$-
Issued shares for services issuable as of December 31, 2016	-	$-	750,000	$32,850	(750,000)	$(32,850)	$-	$-	$-
Imputed interest - related party	-	$-	-	$-	-	$-	$1,240	$-	$1,240
Net loss for the six months ended June 30, 2017	-	$-	-	$-	-	$-	$-	$(1,754,484)	$(1,754,484)
Balance, June 30, 2017	2	$5,217,800	787,451,545	$13,666,511	15,867,514	$652,200	$2,805,379	$(25,140,463	$(2,798,573)

 

 

Kraig Biocraft Laboratories, Inc.

Condensed Statements of Cash Flows (unaudited)

For the six month periods ended June 30, 2017 and 2016

 

	For the six months ended June 30, 2017
	2017	2016
Cash Flows From Operating Activities:
Net Loss	$(1,754,484)	$(1,037,045)
Adjustments to reconcile net loss to net cash used in operations
Depreciation expense	8,714	8,371
Gain on forgiveness of debt	-	5,704
Imputed interest - related party	1,240	-
Warrants issued to consultants	848,011	-
Warrants issued to related party	17,472	143,282
Changes in operating assets and liabilities:
(Increase) Decrease in prepaid expenses	1,074	(1,753)
Decrease in accounts receivables, net	31,858	-
Increase in accrued expenses and other payables - related party	277,368	261,780
Increase in accounts payable	67,822	13,385
Net Cash Used In Operating Activities	(500,925)	(606,276)
Cash Flows From Investing Activities:
Purchase of Fixed Assets and Domain Name	(19,174)	-
Net Cash Used In Investing Activities	(19,174)	-
Cash Flows From Financing Activities:
Proceeds from Notes Payable - related party	-	50,000
Proceeds from issuance of common stock	450,000	425,000
Net Cash Provided by Financing Activities	450,000	475,000
Net Increase in Cash	(70,099)	(131,276)
Cash at Beginning of Period	298,859	238,188
Cash at End of Period	$228,760	$106,912
Supplemental disclosure of cash flow information:
Cash paid for interest	$-	$-
Cash paid for taxes	$-	$-
Supplemental disclosure of non-cash investing and financing activities:
Shares issued in connection with cashless warrants exercise	$405,296	$1,071,973
Settlement of accounts payable with stock issuance	$-	$296
Shares issued from stock payable	$32,850	-

 

 

 

Kraig Biocraft Laboratories, Inc.

Notes to Condensed Financial Statements (Unaudited)

As of June 30, 2017 and 2016

 

NOTE 1    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

 

(A)  Basis of Presentation

 

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in The United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial information.  Accordingly, they do not include all the information necessary for a comprehensive presentation of financial position and results of operations.

 

It is management's opinion, however that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statements presentation.  The results for the interim period are not necessarily indicative of the results to be expected for the year.

 

Kraig Biocraft Laboratories, Inc. (the "Company") was incorporated under the laws of the State of Wyoming on April 25, 2006. The Company was organized to develop high strength, protein based fiber, using recombinant DNA technology, for commercial applications in the textile and specialty fiber industries.

 

(B) Use of Estimates

 

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period.  Actual results could differ from those estimates.

 

(C) Cash

 

For purposes of the cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.  There were no cash equivalents as of June 30, 2017 or December 31, 2016.

 

(D) Loss Per Share

 

Basic and diluted net loss per common share is computed based upon the weighted average common shares outstanding as defined by FASB Accounting Standards Codification No. 260, “Earnings per Share.” For June 30, 2017 and June 30, 2016, warrants were not included in the computation of income/ (loss) per share because their inclusion is anti-dilutive.

 

The computation of basic and diluted loss per share for June 30, 2017 and June 30, 2016 excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive:

 

	June 30, 2017	June 30 , 2016
Stock Warrants (Exercise price - $0.001/share)	47,800,000	16,500,000
Convertible Preferred Stock	2	2
Total	47,800,002	16,500,002

 

  

(E) Research and Development Costs

 

The Company expenses all research and development costs as incurred for which there is no alternative future use. These costs also include the expensing of employee compensation and employee stock based compensation.

 

(F) Income Taxes

 

The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”).  Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

 Effective January 1, 2009, the Company adopted guidance regarding accounting for uncertainty in income taxes. This guidance clarifies the accounting for income taxes by prescribing the minimum recognition threshold an income tax position is required to meet before being recognized in the financial statements and applies to all federal or state income tax positions. Each income tax position is assessed using a two-step process. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is expected to meet the more likely than not criteria, the benefit recorded in the financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement. As of June 30, 2017 and December 31, 2016 there were no amounts that had been accrued in respect to uncertain tax positions.

(G) Derivative Financial Instruments

 

Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.

 

Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the Black-Scholes option-pricing model.

 

(H) Stock-Based Compensation

 

In December 2004, the FASB issued FASB Accounting Standards Codification No. 718, Compensation – Stock Compensation.  Under FASB Accounting Standards Codification No. 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans.  As such, compensation cost is measured on the date of grant at their fair value.  Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant.  The Company applies this statement prospectively.

 

 Equity instruments (“instruments”) issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB Accounting Standards Codification No. 718.  FASB Accounting Standards Codification No. 505, Equity Based Payments to Non-Employees defines the measurement date and recognition period for such instruments.  In general, the measurement date is when either a (a) performance commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the FASB Accounting Standards Codification.

 

The Company operates in one segment and therefore segment information is not presented.

 

 (J) Recent Accounting Pronouncements

 

 In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2016-01, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.

 

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 affects any entity that enters into a lease, with some specified scope exemptions. The guidance in this Update supersedes Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For public companies, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact of adopting ASU No. 2016-02 on our financial statements.

 

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) that clarifies how to apply revenue recognition guidance related to whether an entity is a principal or an agent. ASU 2016-08 clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer and provides additional guidance about how to apply the control principle when services are provided and when goods or services are combined with other goods or services. The effective date for ASU 2016-08 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company has not yet determined the impact of ASU 2016-08 on its financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation, or ASU No. 2016-09. The areas for simplification in this Update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively. An entity may elect to apply the amendments related to the presentation of excess tax benefits on the statement of cash flows using either a prospective transition method or a retrospective transition method. We are currently evaluating the impact of adopting ASU No. 2016-09 on our financial statements.

 

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides further guidance on identifying performance obligations and improves the operability and understandability of licensing implementation guidance. The effective date for ASU 2016-10 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years.  In May 2016, the FASB issued ASU 2016-12 “Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients,” which amends the guidance on transition, collectability, non-cash consideration, and the presentation of sales and other similar taxes. ASU 2016-12 clarifies that, for a contract to be considered completed at transition, all (or substantially all) of the revenue must have been recognized under legacy GAAP. In addition, ASU 2016-12 clarifies how an entity should evaluate the collectability threshold and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard’s contract criteria. The standard allows for both retrospective and modified retrospective methods of adoption. The Company has not yet determined the impact of ASU 2016-10 on its financial statements.

 

In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Statements," which requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2019 (fiscal year 2021 for the Company). The Company has not yet determined the potential effects of the adoption of ASU 2016-13 on its Financial Statements.

 

In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments," which aims to eliminate diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. ASU 2016-15 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017 (fiscal year 2019 for the Company). The Company has not yet determined the potential effects of the adoption of ASU 2016-15 on its Financial Statements.

 

In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01), which revises the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities is a business. This guidance will be effective for us in the first quarter of 2018 on a prospective basis, and early adoption is permitted. The Company has not yet determined the potential effects of the adoption of ASU 2016-15 on its Financial Statements.

 

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04), which eliminates step two from the goodwill impairment test. Under ASU 2017-04, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit. This guidance will be effective for us in the first quarter of 2020 on a prospective basis, and early adoption is permitted. The Company has not yet determined the potential effects of the adoption of ASU 2016-15 on its Financial Statements.

 

All other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.

 

 

 (K) Reclassification

 

The 2016 financial statements have been reclassified to conform to the 2017 presentation.

 

(L) Equipment

 

The Company values property and equipment at cost and depreciates these assets using the straight-line method over their expected useful life. The Company uses a five year life for automobiles.

 

In accordance with FASB Accounting Standards Codification No. 360, Property, Plant and Equipment, the Company carries long-lived assets at the lower of the carrying amount or fair value. Impairment is evaluated by estimating future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected undiscounted future cash flow is less than the carrying amount of the assets, an impairment loss is recognized. Fair value, for purposes of calculating impairment, is measured based on estimated future cash flows, discounted at a market rate of interest.

 

 

There were no impairment losses recorded as of June 30, 2017 and year ended December 31, 2016.

  

(M) Fair Value of Financial Instruments

 

We hold certain financial assets, which are required to be measured at fair value on a recurring basis in accordance with the Statement of Financial Accounting Standard No. 157, “Fair Value Measurements” (“ASC Topic 820-10”).   ASC Topic 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  ASC Topic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Level 1 instruments include cash, account receivable, prepaid expenses, inventory and account payable and accrued liabilities. The carrying values are assumed to approximate the fair value due to the short term nature of the instrument.

 

The three levels of the fair value hierarchy under ASC Topic 820-10 are described below:

 

°	Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.  We believe our carrying value of level 1 instruments approximate their fair value at June 30, 2017 and December 31, 2016.
°	Level 2 - Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

 

°

Level 3 - Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. We consider depleting assets, asset retirement obligations and net profit interest liability to be Level 3. We determine the fair value of Level 3 assets and liabilities utilizing various inputs, including NYMEX price quotations and contract terms.

 

	June 30, 2017	December 31, 2016
Level 1	$-	$-
Level 2	-	-
Level 3	-	-
Total	$-	$-

 

 

 

 (N) Revenue Recognition

 

The Company’s revenues are generated primarily from contracts with the U.S. Government. The Company performs work under the cost-plus-fixed-fee contract.

 

Cost-plus-fixed-fee contracts—Revenue is recognized on cost-plus-fixed-fee contracts with the U.S. Government on the basis of partial performance equal to costs incurred plus an estimate of applicable fees earned as the Company becomes contractually entitled to reimbursement of costs and the applicable fees.  Invoicing for costs and applicable fees are reported to the U.S. Government on a monthly basis and invoices are typically paid within 30 days.

 

For the three and six months ended June 30, 2017 and June 30, 2016, the Company recognized $0,$0,$0 and $0, respectively in revenue from the Government contract.

 

(O) Concentration of Credit Risk

 

The Company at times has cash in banks in excess of FDIC insurance limits. At June 30, 2017 and December 31, 2016, the Company had approximately $21,240 and $48,859, respectively in excess of FDIC insurance limits.

 

At June 30, 2017 and December 31, 2016, the Company had a concentration of accounts receivable of:

Customer	June 30, 2017	December 31, 2016
Customer A	0%	100%
Customer A	-	$31,858

 

For the six months June 30, 2017 and 2016, the Company had a concentration of sales of:

Customer	June 30, 2017	June 30, 2016
Customer A	0%	0%
Customer A	$-	$-

 

For the three and six months ended June 30, 2017 and 2016, the Company booked $0 and $0 for doubtful accounts.

 

 

NOTE 2   GOING CONCERN

 

As reflected in the accompanying unaudited financial statements, the Company has a working capital deficiency of $2,860,651 and stockholders’ deficiency of $2,798,573 and used $500,925 of cash in operations for the six months ended June 30, 2017.  This raises substantial doubt about its ability to continue as a going concern.  The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan.  The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.

  

NOTE 3 EQUIPMENT

 

At June 30, 2017 and December 31, 2016, property and equipment, net, is as follows:

	As of June 30, 2017	As of December 31, 2016
Automobile	$41,805	$41,805
Laboratory Equipment	58,484	39,310
Office Equipment	6,466	6,466
Less: Accumulated Depreciation	(44,677)	(35,963)
Total Property and Equipment, net	$62,078	$51,618

 

Depreciation expense for the six months ended June 30, 2017 and 2016 was $8,714 and $8,371 respectively.

 

Depreciation expense for the three months ended June 30, 2017 and 2016 was $4,339 and $4,186 respectively.

 
NOTE 4   ACRRUED INTEREST – RELATED PARTY

 

On June 6, 2016, the Company received $50,000 from a principal stockholder.  Pursuant to the terms of the loan, the advance bears interest at 3%, is unsecured and due on demand. The Company recorded accrued interest payable of $1,225 as of June 30, 2017.  In addition, the Company recorded $1,425 as an in-kind contribution of interest related to the loan for the year ended December 31, 2016. During the six months ended June 30, 2017 the Company recorded $1,240 as an in-kind contribution of interest related to the loan

 

NOTE 5    STOCKHOLDERS’ DEFICIT

 

(A)       Common Stock Issued for Cash

 

On February 16, 2016 the Company issued 5,630,631 share of common stock for $100,000 ($0.018/share).

 

On March 28, 2016 the Company issued 5,411,255 share of common stock for $100,000 ($0.018/share).

 

On April 25, 2016 the Company issued 5,952,381 share of common stock for $100,000 ($0.017/share).

 

On June 28, 2016 the Company issued 7,812,500 share of common stock for $125,000 ($0.016/share).

 

On July 26, 2016 the Company issued 6,028,939 shares of common stock for $150,000 ($0.025/share).

 

On August 8, 2016 the Company issued 2,181,501 shares of common stock for $100,000 ($0.046/share).

 

On August 18, 2016 the Company issued 1,838,235 shares of common stock for $100,000 ($0.054/share).

 

On September 9, 2016 the Company issued 2,604,167 shares of common stock for $100,000 ($0.038/share).

 

On October 21, 2016 the Company issued 4,166,667 shares of common stock for $150,000 ($0.036/per share).

 

On January 25, 2017, the Company issued 2,678,571 share of common stock for $150,000 ($0.056/share).

 

On April 6, 2017, the Company issued 2,083,333 share of common stock for $100,000 ($0.05/share).

 

 On June 12, 2017, the Company issued 2,268,603 shares of common stock for $100,000 ($0.044/share)

 

On June 15, 2017, the Company issued 2,136,752 shares of common stock for $100,000 ($0.047/share)

 

 (B) Common Stock Issued for Services

 

Shares issued for services as mentioned below were valued at the closing price of the stock on the date of grant.

 

 On April 4, 2016, the Company issued 12,000 shares with a fair value of $296 ($0.0247/share) to a consultant as consideration for consulting fees owed from October 1, 2015 through March 31, 2016 of $6,000. The issuance of shares resulted in gain on settlement of accounts payable of $5,704.

 

On November 7, 2016, the Company issued 12,000 shares with a fair value of $512 ($0.0427/share) to a consultant as consideration for consulting fees owed from April 1, 2016 through October 31, 2016 of $6,000. The issuance of shares resulted in gain on settlement of accounts payable of $5,488.

 

On December 4, 2016, the Company granted 750,000 shares valued at $32,850 ($0.0438/share) to a consultant for services rendered. The shares were issued subsequent to period end on January 25, 2017.

 

On December 30, 2016, the Company recorded 3,906,322 issuable shares with a fair value of $224,904 ($0.0575/share) to two consultants for services rendered. Those shares were issued on January 23, 2017.

 

On January 25, 2017, the Company issued 750,000 shares of common stock previously recorded as common stock issuable for the year end December 31, 2016 (See Note 6 (C)).

  

(C) Common Stock Warrants

 

On January 1, 2016, the Company issued 3-year warrant to purchase 6,000,000 shares of common stock at $0.001 per share to a related party for services to be rendered. The warrants had a fair value of $142,526, based upon the Black-Scholes option-pricing model on the date of grant and vested on February 20, 2017, and will be exercisable commencing on February 20, 2018, and for a period expiring on February 20, 2021. During the six months ended June 30, 2017, the Company recorded $17,473 as an expense for warrants issued to related party. 

 

Grant Date

Expected dividends	0%
Expected volatility	78.58%
Expected term	3 years
Risk free interest rate	1.32%
Expected forfeitures	0%

 

On April 7, 2016, the Company issued 958,506 shares in connection with the cashless exercise of the 1,000,000 warrants.

 

On April 7, 2016, the Company issued 958,506 shares in connection with the cashless exercise of the 1,000,000 warrants 

 

On May 5, 2016, the Company issued 7,627,907 shares in connection with the cashless exercise of the 8,000,000 warrants.

 

On June 23, 2016, the Company issued 12,867,681 shares in connection with the cashless exercise of the 13,500,000 warrants.

 

On November 7, 2016, the Company issued 1,496,703 shares in connection with the cashless exercise of the 1,500,000 warrants.

 

On December 30, 2016, the Company recorded stock issuable of 1,953,161 shares in connection with the cashless exercise of the 1,500,000 warrants.  The shares were subsequently issued on January 23, 2017.

 

On December 30, 2016, the Company recorded stock issuable of 1,953,161 shares in connection with the cashless exercise of the 1,500,000 warrants.  The shares were subsequently issued on January 23, 2017.

 

On July 26, 2016, the Company issued 4-year warrant to purchase 10,000,000 shares of common stock at $0.001 per share to a consultant for services rendered. The warrants had a fair value of $365,157, based upon the Black-Scholes option-pricing model on the date of grant and are fully vested on the date granted. Warrants will become exercisable on July 26, 2018, and for a period of 4 years expiring on July 26, 2022. During the years ended December 31, 2016, the Company recorded $365,157 as an expense for such warrants issued. 

 

Expected dividends	0%
Expected volatility	93.6%
Expected term	4 years
Risk free interest rate	1.01%
Expected forfeitures	0%

 

 

On July 26, 2016, the Company issued 4-year warrant to purchase 8,000,000 shares of common stock at a price of $0.001 per share to a consultant for services rendered. The warrants had a fair value of $292,126, based upon the Black-Scholes option-pricing model on the date of grant and are fully vested on the date granted. Warrants will become exercisable on July 26, 2018, and for a period of 4 years expiring on July 26, 2022. During the years ended December 31, 2016, the Company recorded $292,126 as an expense for such warrants issued. 

 

Expected dividends	0%
Expected volatility	93.60%
Expected term	4 years
Risk free interest rate	1.01%
Expected forfeitures	0%

 

 On October 2, 2016, the Company issued 2-year warrant to purchase 2,300,000 shares of common stock at an exercise price of $0.04 per share to a consultant for services rendered. The warrants had a fair value of $68,686, based upon the Black-Scholes option-pricing model on the date of grant and are fully vested on the date granted. Warrants will become exercisable on August 25, 2019, and for a period of 2 years expiring on August 25, 2021. During the years ended December 31, 2016, the Company recorded $68,686 as an expense for such warrants issued (See Note 6(C)).

 

Expected dividends	0%
Expected volatility	107.51%
Expected term	2 years
Risk free interest rate	0.82%
Expected forfeitures	0%

 

On December 8, 2016 the company issued, the Company issued 4-year warrant to purchase 15,000,000 shares of common stock at an exercise price of $0.001 per share to a consultant for services rendered. The warrants had a fair value of $630,259, based upon the Black-Scholes option-pricing model on the date of grant and are fully vested on the date granted. Warrants will be exercisable on June 12, 2017, and for a period of 2 years expiring on December 8, 2019. During the years ended December 31, 2016, the Company recorded $630,259 as an expense for warrants.

 

On June 20, 2017 the Company recorded stock payable of 14,745,203 shares in connection with the cashless exercise of the 15,000,000 warrants (See Note 6 (C)).

 

Expected dividends	0%
Expected volatility	106.57%
Expected term	2 years
Risk free interest rate	1.15%
Expected forfeitures	0%

 

On February 6, 2017 the company issued, the Company issued 4-year warrant to purchase 750,000 shares of common stock at an exercise price of $0.03 per share to a consultant for services rendered. The warrants had a fair value of $44,421, based upon the Black-Scholes option-pricing model on the date of grant and are fully vested on March 6, 2018 as long as the employee remains as full time. Warrants will be exercisable on October 6, 2019, and for a period of 3 years expiring on October 6, 2022. During the six months ended June 30, 2017, the Company recorded $5,161 as an expense for warrants issued. On May 2, 2017, the Company cancelled a 750,000 share warrant with a consultant as the consultant was terminated and the option expense was recaptured by the Company.  

 

Expected dividends	0%
Expected volatility	106.40%
Expected term	3 years
Risk free interest rate	1.43%
Expected forfeitures	0%

 

On June 26, 2017 the company issued, the Company issued 2-year warrant to purchase 15,000,000 shares of common stock at an exercise price of $0.001 per share to a consultant for services rendered. The warrants had a fair value of $848,011, based upon the Black-Scholes option-pricing model on the date of grant and are fully vested on the date granted.  Warrants will be exercisable on December 26, 2017, and for a period of 2 years expiring on June 26, 2019. During the six months ended June 30, 2017, the Company recorded 848,011 as an expense for warrants issued.

Expected dividends	0%
Expected volatility	102.65%
Expected term	2 years
Risk free interest rate	1.38%
Expected forfeitures	0%

 

 

	Number of Warrants	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (in Years)
Balance, December 31, 2016	47,800,000	$0.001	3.8
Granted	15,750,000	$0.03
Exercised	15,000,000	$0.001
Cancelled/Forfeited	(750,000)	$0.03
Balance, June 30, 2017	47,800,000
Intrinsic Value	$2,772,400		3.2

 

For the six months ended June 30, 2017, the following warrants were outstanding:

 

Exercise Price Warrants Outstanding	Warrants Exercisable	Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
$0.001	45,500,000	3.8	$2,639,000
$0.04	2,300,000	4.156	$133,400

 

For the year ended December 31, 2016, the following warrants were outstanding:

 

Exercise Price Warrants Outstanding	Warrants Exercisable	Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
$0.001	45,500,000	4.1	$2,434,250
$0.04	2,300,000	5	$123,050

 

 (D)  Amendment to Articles of Incorporation

 

On February 16, 2009, the Company amended its articles of incorporation to amend the number and class of shares the Company is authorized to issue as follows:

 

●	Common stock Class A, unlimited number of shares authorized, no par value
●	Common stock Class B, unlimited number of shares authorized, no par value
●	Preferred stock, unlimited number of shares authorized, no par value

 

Effective December 17, 2013, the Company amended its articles of incorporation to designate a Series A no par value preferred stock.  Two shares of Series A Preferred stock have been authorized.

 

NOTE 6    COMMITMENTS AND CONTINGENCIES

 

On November 10, 2010, the Company entered into an addendum to the employment agreement with its CEO, effective January 1, 2011 through the December 31, 2015.  The term of the agreement is a five year period at an annual salary of $210,000.  There is a 6% annual increase.    For the year ending December 31, 2015, the annual salary was $281,027.  The employee is also to receive a 20% bonus based on the annual based salary.  Any stock, stock options bonuses have to be approved by the board of directors. On January 1, 2016 the agreement renewed with the same terms for another 5 years with an annual salary of $297,889 for the year ended December 31, 2016. Subsequently, on January 1, 2017 the agreement renewed with the same terms for another 5 years with an annual salary of $315,764 for the year ended December 31, 2017 (See Note 8).

On October 2, 2014, the Company entered into a letter agreement for an equity line of financing up to $7,500,000 (the “Letter Agreement”) with Calm Seas Capital, LLC (“Calm Seas”).

 

Under the Letter Agreement, over a 24 month period from the Effective Date we may put to Calm Seas up to an aggregate of $7,500,000 in shares of our Class A common stock for a purchase price equal to 80% of the lowest price of our Class A common stock during the five consecutive trading days immediately following the date we deliver notice to Calm Seas of our election to put shares pursuant to the Letter Agreement.  We may put shares bi-monthly.  The dollar value that will be permitted for each put pursuant to the Letter Agreement will be the lesser of: (A) the product of (i) 200% of the average daily volume in the US market of our Class A common stock for the ten trading days prior to the date we deliver our put notice to Calm Seas multiplied by (ii) the average of the daily closing prices for the ten (10) trading days immediately preceding the date we deliver our put notice to Calm Seas, or (B) $100,000.  We will automatically withdraw our put notice to Calm Seas if the lowest closing bid price used to determine the purchase price of the put shares is not at least equal to seventy-five percent (75%) of the average closing “bid” price for our Class A common stock for the ten (10) trading days prior to the date we deliver our put notice to Calm Seas. Notwithstanding the $100,000 ceiling for each bi-monthly put, as described above, we may at any time request Calm Seas to purchase shares in excess of such ceiling, either as a part of bi-monthly puts or as an additional put(s) during such month.  If Calm Seas, in its sole discretion, accepts such request to purchase additional shares, then we may include the put for additional shares in our monthly put request or submit an additional put for such additional shares in accordance with the procedure set forth above.

 

The Letter Agreement will terminate when any of the following events occur:

 

●	Calm Seas has purchased an aggregate of $7,500,000 of our Class A common stock; or

 

●	The second anniversary from the Effective Date.

 

On January 23, 2015, the board of directors appointed Mr. Jonathan R. Rice as our Chief Operating Officer. Mr. Rice’s employment agreement has a term of one year and can be terminated by either the Company or Mr. Rice at any time. Under the employment agreement, Mr. Rice is entitled to an annual cash compensation of $120,000, which includes salary, health insurance, 401K retirement plan contributions, etc. The Company also agreed to reimburse Mr. Rice for his past educational expenses of approximately $11,000. In addition, Mr. Rice will be issued a three-year warrant to purchase 2,000,000 shares of common stock of the Company at an exercise price of $0.001 per share pursuant to the employment agreement. Additionally, on May 28, 2015, the Company issued a three-year warrant to purchase 3,000,000 shares of common stock of the Company at an exercise price of $0.001 per share to Mr. Rice. The warrant fully vests on October 28, 2016. For the year ended December 31, 2015, the Company recorded $121,448 for the warrants issued to Mr. Rice. On January 14, 2016 the Company signed a new employment agreement with Mr. Rice, our COO. The employment agreement has a term of one year and can be terminated by either the Company or Mr. Rice at any time. Under the employment agreement, Mr. Rice is entitled to an annual cash compensation of $140,000, which includes salary, health insurance, 401K retirement plan contributions, etc. In addition, Mr. Rice will be issued a three-year warrant to purchase 6,000,000 shares of common stock of the Company at an exercise price of $0.001 per share pursuant to the employment agreement. For the year ended December 31, 2016, the Company recorded $193,652 for the warrants issued to Mr. Rice in 2016. For the six months ended June 30, 2017 the Company recorded $17,473 for the warrants issued to Mr. Rice in 2016.

 

 (A)License Agreement

 

On May 8, 2006, the Company entered into a license agreement.  Pursuant to the terms of the agreement, the Company paid a non-refundable license fee of $10,000. The Company will pay a license maintenance fee of $10,000 on the one year anniversary of this agreement and each year thereafter.  The Company will pay an annual research fee of $13,700 with first payment due January 2007, then on each subsequent anniversary of the effective date commencing May 4, 2007.  The annual research fees are accrued by the Company for future payment. Pursuant to the terms of the agreement the Company may be required to pay additional fees aggregating up to a maximum of $10,000 a year for patent maintenance and prosecution relating to the licensed intellectual property. 

 

On October 28, 2011, the Company entered into a license agreement with the University of Notre Dame. Under the agreement, the Company received exclusive and non-exclusive rights to certain spider silk technologies including commercial rights with the right to sublicense such intellectual property. In consideration of the licenses granted under the agreement, the Company agreed to issue to the University of Notre Dame 2,200,000 shares of its common stock and to pay a royalty of 2% of net sales.  On March 4, 2015, the Company entered into a new Intellectual Property / Collaborative Research Agreement with Notre Dame extending the duration of the agreement through March 2016. In February of 2016 this agreement was extended to July 31, 2016.  Under the agreement the Company will provide approximately $534,000 in financial support. The license agreement has a term of 20 years which can be extended on an annual basis after that. It can be terminated by the University of Notre Dame if the Company defaults on its obligations under the agreement and fails to cure such default within 90 days of a written notice by the university. The Company can terminate the agreement upon a 90 day written notice subject to payment of a termination fee of $5,000 if the termination takes place within 2 years after its effectiveness, $10,000 if the termination takes place within 4 years after its effectiveness and $20,000 if the Agreement is terminated after 4 years.  On May 5, 2017 the Company signed an ademdun to that agreemeent relating to tangible property and project intellecual property.

 

 

(B)Royalty and Research Agreements

 

On May 1, 2008 the Company entered into a five year consulting agreement for research and development. Pursuant to the terms of the agreement, the Company will be required to pay $1,000 per month, or at the Company’s option, the consulting fee may be paid in the form of Company common stock based upon the greater of $0.05 per share or the average of the closing price of the Company’s shares over the five days preceding such stock issuance.  As of September 30, 2011, the Company had accrued $17,000 of accounts payable for the services provided of which was paid in common stock on July 1, 2009.  As of September 30, 2011 the Company issued 280,000 shares of common stock in exchange for $14,000 of accounts payable for the services performed.  On March 19, 2014, the Company entered into a five year consulting agreement for general advisor and consulting services.  As consideration for the services performed, the Company agrees to pay the consultant a fee of $1,000 per month.  At the Company’s option, said consulting fee may be paid to the consultant in the form of Company stock based upon the greater of $0.50/share or the average of the closing price of the Company’s common stock over the five days preceding such stock issuance.  On March 28, 2014, the Company issued 44,000 shares of common stock as consideration for consulting fees owed from September 1, 2012 through March 31, 2014. On October 9, 2014 the Company issued 12,000 shares with a fair value of $484 ($0.0403/share) to a consultant as consideration for consulting fees owed from April 1, 2014 through September 30, 2014 of $12,000.  The issuance of shares resulted in gain on settlement of accounts payable of $11,516. The consultant also received a bonus of 4,000 shares with a fair value of $161 ($0.0403/share).During the years ended December 31, 2015 the Company issued 24,000 shares with a fair value of $730 ($0.03367/share) to a consultant as consideration for consulting fees owed from October 1, 2014 through September 30, 2015 of $12,000. The issuance resulted in gain on settlement of accounts payable of 23,245. During the years ended December 31, 2016, the Company issued 24,000 shares with a fair value of $808 ($0.03367/share) to a consultant as consideration for consulting fees owed from October 1, 2015 through October 31, 2016 of $12,000. The issuance resulted in gain on settlement of accounts payable of 11,191 (See Note 5 (B)).

 

On December 26, 2006, the Company entered into an addendum to the intellectual property transfer agreement with Mr Thompson, its CEO.  In consideration of the Company issuing either 200,000 preferred shares with the following preferences; no dividends and voting rights equal to 100 common shares per share of preferred stock or the payment of $120,000, the officer agreed to terminate the royalty payments due under the agreement and give title to the exclusive license for the non-protective apparel use of the intellectual property to the Company.  On the date of the agreement, the Company did not have any preferred stock authorized with the required preferences.  In accordance with FASB Accounting Standards Codification No 480, Distinguishing Liabilities from Equity, the Company determined that the present value of the payment of $120,000 that was due on December 26, 2007, the one year anniversary of the addendum, should be recorded as an accrued expense until such time as the Company has the ability to assert that it has preferred shares authorized.  As of March 31, 2010, the Company has recorded $120,000 in accrued expenses- related party.  On December 21, 2007 the officer extended the due date to July 30, 2008.  On May 30, 2008 the officer extended the due date to December 31, 2008.  On October 10, 2008, the officer extended the due date to the earlier of (a) March 30, 2010 or (b) upon demand by the officer.  The due date was extended to March 31, 2011.  On September 8, 2009, a payment of $15,000 was paid to the officer. An additional payment of $10,000 was made on October 19, 2009 and December 1, 2009, respectfully.  Additionally, the accrued expenses are accruing 7% interest per year. On January 15, 2010 an additional payment of $10,000 was made.  During the quarter ending September 30, 2010 an additional payment of $8,000 was made. During the quarter ending September 30, 2012 an additional payment of $1,000 was made.  During the year ended December 31, 2013, an additional payment of $1,280 was made.  During the year ended December 31, 2014, an additional loan of $572 was made.  As of June 30, 2017 and December 31, 2016, the outstanding balance is $65,292. As of June 30, 2017, the Company recorded interest expense and related accrued interest payable of $2,285.

 

On June 6, 2012, the Company entered into a consulting agreement for intellectual property and collaborative research and development with an American university.  The agreement covers ongoing research and development work performed by the university at the Company’s behest and with the Company’s assistance. On March 4, 2015, the Company entered into a new Intellectual Property / Collaborative Research Agreement with Notre Dame extending the duration of the agreement through March 2016. Pursuant to the terms of the agreement, the Company will be required to pay approximately $534,000 for research and development over the two-year period. For the year ended December 31, 2016 and 2015, respectively, the company recorded $397,136 and $432,008 in research and development fees. On September 20, 2015 this agreement was amended to increase the total funding by approximately $179,000. In February 2016, this agreement was extended to July 31, 2016. In August 2016 this agreement was amended to increase the total funding by approximately $175,000 and the duration of this agreement was extended to December 31, 2016.  In May 2017 this agreement was amended to increase the total funding by approximately $189,000 and the duration of this agreement was extended to June 30, 2017. The Company is currently reviewing whether it is in the interest of its research and development program to renew the agreement for the remainder of 2017.  The Company anticipates negotiating a new Collaborative Research Agreement with the University of Notre Dame for 2018 at reduced levels of funding.

On December 30, 2015, the Company entered into a cooperative agreement for the research and pilot production of hybrid silkworms in Vietnam.  Under this agreement, the Company will establish a subsidiary in Vietnam where it will develop and produce hybrid silkworms. As of June 30, 2017, the subsidiary was not yet established and no work has been performed in Vietnam as of June 30, 2017.  The Company has not received final governmental approval to implement the agreement.

(C) Consulting Agreement

 

On July 9, 2013, the Company entered into an agreement with a consultant to provide investor relations services in exchange for a warrant for 10,000,000 common shares at $.001 with a cashless provision and a five year term.

 

 

On September 30, 2013, the Company entered into a Collaborative Yarn and Textile Development Agreement with a technical textile manufacturing company.  Pursuant to the terms of that agreement, the Company has agreed to supply the technical textile manufacturing company with sample quantities of the Company’s recombinant spider silk for the purpose of developing and testing new textiles which are made from, or which incorporate recombinant spider silk.  The agreement provides that the two companies will jointly share, on an equal basis, any intellectual property, including any utility patents, which are developed as a result of this collaboration.  Such intellectual property potentially includes utility patents on textile designs.  The Company has agreed that it will pay half of the cost associated with the filing and prosecution of utility patents relating to intellectual property which is developed through its collaboration with the technical textile manufacturing company.

On October 15, 2013, the Company entered into an intellectual property agreement with a scientific researcher relating to the development of new recombinant silk fibers.  Under the terms of that agreement, the scientific researcher will transfer to the Company his rights to intellectual property, inventions and trade secrets which the researcher develops relating to recombinant silk.  The researcher will receive 8,000,000 warrants of the Company’s stock, exercisable 24 months from the date of the agreement.  The researcher will also receive additional warrants when and if the researcher develops advanced recombinant silk fibers for the Company’s use.  Under the terms of the agreement the researcher will receive 10,000,000 warrants in the event that he develops a new recombinant silk fiber with certain performance characteristics, and another 10,000,000 warrants if he develops a second recombinant silk fiber with certain characteristics.  If the consultant performs the contract in good faith the consultant will be entitled to an additional 8,000 warrants.  The warrants described in this note all contain a cashless exercise provision and are exercisable on the 24 month anniversary of the date on which they were issuable under the agreement.  On July 26, 2016 the Company issued a warrant for 10,000,000 to the researcher in accordance with this agreement for the development of a new recombinant silk fiber.  On July 26, 2016 the Company issued a warrant for 8,000,000 to the researcher upon reaching the 24 month of this agreement.

 

On February 17, 2014, the Company entered into two consulting agreements with two consultants for independent technical expertise to further the Company’s business plans and scientific research and development.  As consideration for the services performed, the Company agrees to issue the following to each of the consultants:

 

	●	Within 30 days of the date of this agreement, a warrant for six hundred thousand shares of the Company’s common stock to be exercisable on the 14 month anniversary of this agreement for a period of 12 months with a cashless exercise provision.
	●	Within 30 days of the date of this agreement, a warrant for one million shares of the Company’s common stock to be exercisable on the 20 month anniversary of this agreement for a period of 12 months with a cashless exercise provision.
	●	Within 30 days of the date of this agreement, a warrant for two million shares of the Company’s common stock to be exercisable on the 32 month anniversary of this agreement for a period of 12 months with a cashless exercise provision.
	●	Based on the consultants reaching two sets of benchmarks, two separate warrants for one million five hundred thousand shares of the Company’s common stock to be exercisable on the 28 month anniversary of this agreement for a period of 12 months with a cashless exercise provision.
	●	On the three year anniversary, assuming the consultant acted in good faith and the Company’s board of directors approval, a warrant for one million five hundred thousand shares of the Company’s common stock to be exercisable on the 28 month anniversary of this agreement for a period of 12 months with a cashless exercise provision.

 

On June 22, 2015, the Company entered into an agreement with a consultant to provide investor relations services until December 16, 2015.   As consideration for the services performed, the Company agrees to issue a 3-year warrant to purchase 15,000,000 shares of common stock at $0.001 per share with a cashless exercise provision. On June 22, 2015, the company issued such warrant with a fair value of $590,335 (See Note 5(C)).

 

On November 11, 2015, the Company entered into an agreement with a consultant to provide advisory services. As consideration for the services performed, the Company agreed to pay the consultant $10,000.

 

On January 23, 2016, the Company entered into an agreement with a consultant to provide investor relations services for four months. As consideration for the services performed, the Company agrees to pay $25,000 dollar monthly payments. During the course of that contract, additional services were rendered for a consideration amounting a total of $31,000.  During the years ended December 31, 2016, the Company paid $131,000.

 

On August 25, 2016, the Company entered into an agreement with a consultant to provide consulting services in helping the Company expand its operations. The agreement commenced on August 25, 2016 and will continue for 18 months. In return, the Company agrees to issue a 2-year warrant to purchase 2,300,000 shares of common stock at a price of $0.04 per share. On October 2, 2016, the company issued such warrant with a fair value of $590,335 (See Note 5(C)). On January 24, 2017, the Company agreed to continue the agreement and agreed to advance $10,000 for costs and expenses incurred.

 

On December 1, 2016, the Company entered into an agreement with a consultant to provide investor relations services for one year.  As consideration for the services performed, the Company agrees to issue a 2-year warrant to purchase 15,000,000 shares of common stock at a price of $0.001 per share with a cashless exercise provision. On December 8, 2016, the company issued such warrant with a fair value of $630,564 (See Note 5(C)).

 

 

On December 4, 2016, the Company entered into an agreement with a consultant to provide investor relations services. The agreement commenced on December 4, 2016 and will continue for twelve months. As consideration for the services performed, the Company will issue 750,000 shares with a fair value of $32,850 ($0.0321/share) to this consultant. For the year ended December 31, 2016, the Company recorded 750,000 as common stock issuable. Shares were subsequently issued on January 25, 2017 (See Note 8).

 

On June 26, 2017, the Company entered into an agreement with a consultant to provide investor relations services for six months.  As consideration for the services performed, the Company agrees to issue a 2-year warrant to purchase 15,000,000 shares of common stock at a price of $0.001 per share with a cashless exercise provision. On June 26, 2016, the company issued such warrant with a fair value of $848,011  (See Note 5(C)).

 

(D) Operating Lease Agreement

 

Starting in February of 2015, we rent additional office space in East Lansing, Michigan.  In July 2015, the Company signed a new lease for its East Lansing, Michigan office space. On February 1, 2016 the Company signed a six (6) month lease extension for its East Lansing office. In July 2016 the Company signed a twelve (12) month lease extension for its East Lansing office. The Company pays an annual rent of $5,187 for office space, conference facilities, mail, fax, and reception services.

 

Starting in September of 2015, we rent office space at 2723 South State Street, Suite 150, Ann Arbor, Michigan 48104, which is our principal place of business. We pay an annual rent of $2,112 for conference facilities, mail, fax, and reception services located at our principal place of business.

 

On June 29, 2016 the Company signed a twelve (12) month lease for new office space in Vietnam. The Company pays an annual rent of $2,329 for office space and reception services. The company ended this lease on June 29, 2017.

 

On July 19, 2016 the Company signed a month to month lease for a production facility in Indiana. The Company pays a monthly rent of $670 for office space light industrial manufacturing space.

 

 Rent expense for the six months ended June 30, 2017 and 2016 was $6,880 and $3,843, respectively.

 

On January 23, 2017 the Company signed an 8 year property lease with the Company’s President for land in Texas where the Company grows its mulberry. The Company pays a monthly rent of $960. Rent expense – related party for the six months ended June 30, 2017 and 2016 was $4,800 and $0, respectively (See Note 7).

 

 

NOTE 7    RELATED PARTY TRANSACTIONS

 

On December 26, 2006, the Company entered into an addendum to the intellectual property transfer agreement with Mr. Thompson, its CEO.  Pursuant to the addendum, the Company agreed to issue either 200,000 preferred shares with the following preferences; no dividends and voting rights equal to 100 common shares per share of preferred stock or the payment of $120,000, the officer agreed to terminate the royalty payments due under the agreement and give title to the exclusive license for the non-protective apparel use of the intellectual property to the Company.  On the date of the agreement, the Company did not have any preferred stock authorized with the required preferences.  In accordance with FASB Accounting Standards Codification No. 480, Distinguishing Liabilities from Equity, the Company determined that the present value of the payment of $120,000 that was due on December 26, 2007, one year anniversary of the addendum, should be recorded as an accrued expense until such time as the Company has the ability to assert that it has preferred shares authorized.  As of March 31, 2010, the Company has recorded $120,000 in royalty agreement payable- related party.  On December 21, 2007 the officer extended the due date to July 30, 2008.  On May 30, 2008, the officer extended the due date to March 31, 2009.  On October 10, 2008, the officer extended the due date to the earlier of (a) March 30, 2010 or (b) upon demand by the officer. On March 30, 2010, the officer extended the due date to the earlier of (a) March 30, 2010 or (b) upon demand by the officer.  On September 8, 2009, a payment of $15,000 was paid to the officer. On October 19, 2009 and December 1, 2009, $10,000 was paid to the officer respectfully.  An additional payment of $10,000 was made on January 15, 2010.  During the quarter ending September 30, 2010 an additional payment of $8,000 was made. During the year ended December 31, 2012 an additional payment of $1,000 was made. During the year ended December 31, 2013 an additional payment of $1,280 was made.  During the year ended December 31, 2014, an additional loan of $572 was made.  As of June 30, 2017 the outstanding balance is $65,292.  Additionally, the accrued expenses are accruing 7% interest per year.  As of June 30, 2017, the Company recorded interest expense and related accrued interest payable of $2,285.

 

 

 

On January 23, 2015, the board of directors appointed Mr. Jonathan R. Rice as its Chief Operating Officer. The employment agreement has a term of one year and can be terminated by either the Company or Mr. Rice at any time. Under the employment agreement, Mr. Rice is entitled to an annual cash compensation of $120,000, which includes salary, health insurance, 401K retirement plan contributions, etc. The Company also agreed to reimburse Mr. Rice for his past educational expenses of approximately $11,000. In addition, Mr. Rice was issued a three-year warrant to purchase 2,000,000 shares of common stock of the Company at an exercise price of $0.001 per share pursuant to the employment agreement. Additionally, on May 28, 2015, the Company issued a three-year warrant to purchase 3,000,000 shares of common stock of the Company at an exercise price of $0.001 per share. The warrant fully vests on October 28, 2016. On January 14, 2016 the Company signed a new employment agreement with Mr. Rice, the COO. The employment agreement has a term of one year and can be terminated by either the Company or Mr. Rice at any time. Under the employment agreement, Mr. Rice is entitled to an annual cash compensation of $140,000, which includes salary, health insurance, 401K retirement plan contributions, etc. In addition, Mr. Rice will be issued a three-year warrant to purchase 6,000,000 shares of common stock of the Company at an exercise price of $0.001 per share pursuant to the employment agreement. For the year ended December 31, 2016, the Company recorded $193,654 for the warrants issued to Mr Rice. For the six months ended June 30, 2017 the Company recorded $17,473 for the warrants issued to Mr. Rice in 2016.

 

On May 28, 2015, the Company issued 3-year warrant for 3,000,000 shares to a related party, with an exercise price of $0.001 per share. The warrants were granted for services to be rendered. The warrants had a fair value of $117,503, based upon the Black-Scholes option-pricing model on the date of grant and vesting on October 28, 2016, and will be exercisable on May 28, 2018, and for a period expiring on May 28, 2022. During the years ended of December 31, 2016 and 2015, the Company recorded $68,600 and $49,129 as an expense for warrants issued to related party.

 

On January 1, 2016, the Company issued 3-year warrant for 6,000,000 shares to a related party, with an exercise price of $0.001 per share. The warrants were granted for services to be rendered. The warrants had a fair value of $142,526, based upon the Black-Scholes option-pricing model on the date of grant and vesting on February 20, 2017, and will be exercisable on February 20, 2018, and for a period expiring on February 20, 2021. During the six months ended June 30, 2017, the Company recorded $17,473 as an expense for warrants issued to related party.

On June 6, 2016, the Company borrowed $50,000 from a principal stockholder.  Pursuant to the terms of the loan, the loan is unsecured carrying an annual interest at 3% and due on demand.  The Company recorded accrued interest payable of $1,622 as of June 30, 2017. In addition, the Company recorded $1,425 as an in-kind contribution of interest related to the loan for the year ended December 31, 2016 and $1,240 as an in-kind contribution of interest related to the loan for the six months ended June 30, 2017.

 

On August 4, 2016 the Company issued a bonus of $20,000 payable to Mr. Rice if he remains employed with the Company through March 31, 2018.

 

As of December 31, 2016 there was $561,245 of accrued interest- related party and $15,532 in shareholder loan interest – related party included in accounts payable and accrued expenses – related party, which is owed to the Company’s Chief Executive officer.

 

On January 23, 2017 the Company signed an 8 year property lease with the Company’s President for land in Texas. The Company pays $960 per month starting on February 1, 2017 and uses this facility to grow mulberry for its U.S. silk operations.

 

 As of June 30, 2017 and December 31, 2016, there was $224,038 and $187,756, respectively, included in accounts payable and accrued expenses - related party, which is owed to the Company’s Chief Executive Officer and Chief Operations Officer.

 

 As of June 30, 2017 there was $642,235 of accrued interest- related party and $17,279 in shareholder loan interest – related party included in accounts payable and accrued expenses – related party, which is owed to the Company’s Chief Executive officer.

 

On January 23, 2017 the Company signed an 8 year property lease with the Company’s President for land in Texas. The Company pays a monthly rent of $960. Rent expense – related party for the six months ended June 30, 2017 and 2016 was $4,800 and $0, respectively. 

 

 As of June 30, 2017, the Company owes $1,549,923 in accrued salary to principal stockholder, $24,772 to the Company’s COO, and $2,260 to its office employees. 

 

As of December 31, 2016, the Company owes $1,392,041 in accrued salary to principal stockholder, $20,000 to the Company’s COO, and $421 to its intern. 

 

The Company owes $65,292 in royalty payable to related party as of June 30, 2017 and December 31, 2016.

 

 

NOTE 8    SUBSEQUENT EVENTS

 

 In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through August 14, 2017, the date the financial statements were available to be issued.

 

On July 24, 2017, the Company signed a contract with the US Army to research and deliver recombinant spider silk fibers and threads.

 

On July 27, 2017, the Company signed a twelve (12) month lease extension on its East Lansing office.

 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF 

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

FORWARD-LOOKING INFORMATION

 

The following information should be read in conjunction with Kraig Biocraft Laboratories, Inc. and its subsidiaries ("we", "us", "our", or the “Company”) condensed unaudited financial statements and the notes thereto contained elsewhere in this report. Information in this Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this Form 10-Q that does not consist of historical facts, are "forward-looking statements."  Statements accompanied or qualified by, or containing words such as "may," "will," "should," "believes," "expects," "intends," "plans," "projects," "estimates," "predicts," "potential," "outlook," "forecast," "anticipates," "presume," and "assume" constitute forward-looking statements, and as such, are not a guarantee of future performance. 

 

Forward-looking statements are subject to risks and uncertainties, certain of which are beyond our control. Actual results could differ materially from those anticipated as a result of the factors described in the “Risk Factors” and detailed in our other Securities and Exchange Commission (“SEC”) filings. Risks and uncertainties can include, among others, international, national and local general economic and market conditions: demographic changes; the ability of the Company to sustain, manage or forecast its growth; the ability of the Company to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to obtain sufficient financing to continue and expand business operations; the ability to develop technology and products; changes in technology and the development of technology and intellectual property by competitors; the ability to protect technology and develop intellectual property; and other factors referenced in this and previous filings. Consequently, investors should not place undue reliance on forward-looking statements as predictive of future results. 

 

Because of these risks and uncertainties, the forward-looking events and circumstances discussed in this report or incorporated by reference might not transpire. Factors that cause actual results or conditions to differ from those anticipated by these and other forward-looking statements include those more fully described elsewhere in this report and in the “Risk Factors” section of our registration statement on Form S-1.

 

The Company disclaims any obligation to update the forward-looking statements in this report.

 

Overview

 

Kraig Biocraft Laboratories, Inc. is a corporation organized under the laws of Wyoming on April 25, 2006. We were organized to develop high strength fibers using recombinant DNA technology, for commercial applications in both the specialty fiber and technical textile industries. Specialty fibers are engineered for specific uses that require exceptional strength, flexibility, heat resistance and/or chemical resistance. The specialty fiber market is exemplified by two synthetic fiber products: aramid fibers and ultra-high molecular weight polyethylene fiber. The technical textile industry involves products for both industrial and consumer products, such as filtration fabrics, medical textiles (e.g., sutures and artificial ligaments), safety and protective clothing and fabrics used in military and aerospace applications (e.g., high-strength composite materials).

 

We are using genetic engineering technologies to develop fibers with greater strength, resiliency and flexibility for use in our target markets, namely the textile, specialty fiber and technical textile industries.

 

The Report of Independent Registered Public Accounting Firm to our financial statements as of December 31, 2016 include an explanatory paragraph stating that our net loss from operations and net capital deficiency at December 31, 2016 raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Plan of Operations

 

During the next twelve months, we expect to take the following steps in connection with the further development of our business and the implementation of our plan of operations: 

 

	●	We plan to accelerate both our microbiology and selective breeding programs as well as providing more resources for our material testing protocols in the second half of 2017 and in 2018. We have spent approximately $165,607 between January 2017 and June 2017 on collaborative research and development of high strength polymers at the University of Notre Dame. We are currently reviewing plans for research spending for the second half of 2017 and 2018. We expect to continue funding the collaborative research and development of high strength polymers at the University of Notre Dame.
	●	We expect to spend approximately $13,700 on collaborative research and development of high strength polymers and spider silk protein at the University of Wyoming over the next twelve months. This level of research spending at the university is also a requirement of our licensing agreement with the university.
	●	We will actively consider pursuing collaborative research opportunities with other university laboratories in the area of high strength polymers. If our financing allows, management will give strong consideration to increasing the depth of our research to include polymer production technologies that are closely related to our core research.

 

	●	We will consider buying an established revenue producing company in a compatible business, in order to broaden our financial base and facilitate the commercialization of our products. We expect to use a combination of stock and cash for any such purchase.
	●	We will also actively consider pursuing collaborative research opportunities with both private and university laboratories in areas of research which overlap the company’s existing research and development. One such potential area for collaborative research which the company is considering is protein expression platforms. If our financing allows, management will give strong consideration to increasing the breadth of our research to include protein expression platform technologies.
	●	We plan to actively pursue collaborative research and product testing, opportunities with companies in the biotechnology, materials, textile and other industries.
	●	We plan to actively pursue collaborative commercialization, marketing and manufacturing opportunities with companies in the textile and material sectors for the fibers we developed and for any new polymers that we create in 2017.
	●	We plan to actively pursue the development of commercial scale production of our recombinant materials including Monster Silk® and Dragon SilkTM

 

We have not previously demonstrated that we will be able to expand our business through an increased investment in our research and development efforts or commercialization efforts. We cannot guarantee that the research and development or commercialization efforts described in this filing will be successful. Our business is subject to risks inherent in growing an enterprise, including limited capital resources, risks inherent in the research and development process, risks in commercailization scale up, and possible rejection of our products in development.

 

If financing is not available on satisfactory terms, we may be unable to continue our operations. Equity financing will result in a dilution to existing shareholders.

 

 

Three months ended June 30, 2017 compared to the Three Months Ended June 30, 2016

 

Our revenue, operating expenses, and net loss from operations for the three month period ended June 30, 2017 as compared to the three month period ended June 30, 2016, were as follows – some balances on the prior period’s combined financial statements have been reclassified to conform to the current period presentation:

 

 

 

	Three Months Ended			% Change
	6/30/17		Increase (Decrease)
	2017	2016	Change
NET REVENUES	$-	$-	-	100.00%
COSTS OF REVENUES	-	-	-
Gross Profit	-	-	-
OPERATING EXPENSES:
General and Administrative	904,866	106,808	798,058	747.19%
Professional Fees	146,922	146,235	687	0.47%
Officer's Salary	109,958	107,810	2,148	1.99%
Rent - related party	2,880	-	2,880	100.00%
Research and Development	51,417	139,853	(88,436)	-63.23%
Total operating expenses	1,216,043	500,706	(751,337)	142.87%
Loss from operations	(1,216,043)	(500,706)	751,337	142.87%
Gain on forgiveness of debt	-	5,704	(5,704)	-100.00%
Interest expense	(43,830)	(33,063)	10,767	32.57%
Net Loss	$(1,259,873)	$(528,065)	731,808	-138.58%

  

Net Revenues:  During the three months ended June 30, 2017, we realized $0 of revenues from our business. During the three months ended June 30, 2016, we realized $0 of revenues from our business. The change in revenues between the quarter ended June 30, 2017and 2016 was $0 or 0%.

 

Cost of Revenues:  Costs of revenues for the three months ended June 30, 2017 were $0, as compared to $0 for the three months ended June 30, 2016, a change of $0 or 0%.

 

Gross Profit: During the three months ended June 30, 2017, we realized a gross profit of $0, as compared to $0 for the three months ended June 30, 2016, a change of $0 or 0%.

 

Research and development expenses:  During the three months ended June 30, 2017 we incurred $51,417 research and development expenses. During the three months ended June 30, 2016 we incurred $139,853 of research and development expenses, a decrease of $88,436 or (63.23%) compared with the same period in 2017. The research and development expenses are attributable to the research and development with the Notre Dame University; this decrease was due to the timing of research related activity and related charges and a shift to prioritize silk production at our Indiana factory.

 

Professional Fees:  During the three months ended June 30, 2017, we incurred $146,922 professional expenses, which increased by $686 or 0.47 % from $146,235 for the three months ended June 30, 2016. The increase in professional fees expense was attributable to increased expenses related to intellectual property protection of the research and development activities during the three months ended June 30, 2017.

 

Officers Salary:  During the three months ended June 30, 2017, officers’ salary expenses increased to $109,958 or 1.99% from $107,810 for the three months ended June 30, 2016. The increase in officer’s salary expenses was attributable to the timing of officer’s salary expenses.

 

  General and Administrative Expense: General and administrative expenses increased by $798,058 or 747.19% to $904,866 for the three months ended June 30, 2017 from $106,808 for the three months ended June 30, 2016. Our general and administrative expenses for the three months ended June 30, 2017 consisted of consulting fees of $6,256 and other general and administrative expenses (which includes expenses such as Auto, Business Development, SEC Filing, Investor Relations, General Office, warrant Compensation) of $880,744, Travel of $271, and office salary of $17,594, for a total of $904,866. Our general and administrative expenses for the three months ended June 30, 2016 consisted of consulting fees of $3,576, and other general and administrative expenses (which includes expenses such as: Auto, Business Development, SEC Filing, Investor Relations, General Office, warrant Compensation of $99,684, Travel of $90, and office salary of $3,458, for a total of $106,808. The primary reason for the increase in comparing the three months ended June 30, 2017 to the corresponding period for 2016 was mainly due to the issuance of a warrant for services.

 

Rent – Related Party:  During the three months ended June 30, 2017, rent- related party expense increased to $2,880 or 100% from $0 for the three months ended June 30, 2016. The increase in rent-related party expense was attributable to the signing on January 23, 2017 the Company signed an 8 year property lease with the Company’s President.

 

Gain on Forgiveness of Debt:  Gain on forgiveness of debt decreased by $5,704 from $0 for the three month period ended June 30, 2017 from $5,704 for the six month period ended June 30, 2016. The decrease was primarily due to no debt forgiven during the period.

 

 

Interest Expense:  Interest expense increased by $10,767 to $43,830 for the three month period ended June 30, 2017 from $33,063 for the three month period ended June 30, 2016. The increase was primarily due to interest on the loans.

 

          Net Loss:  Net loss increased by $715,337, or 142.87%, to a net loss of $1,259,873 for the three month period ended June 30, 2017 from a net loss of $528,065 for the three month period ended June 30, 2016. This incrase in net loss was driven primarily by the issuance of a warrant for services.

 

Six months ended June 30, 2017 compared to the Six Months Ended June 30, 2016

 

Our revenue, operating expenses, and net loss from operations for the six month period ended June 30, 2017 as compared to the six month period ended June 30, 2016, were as follows – some balances on the prior period’s combined financial statements have been reclassified to conform to the current period presentation:

 

 

	Six Months Ended			% Change
	6/30/17		Increase (Decrease)
	2017	2016	Change
NET REVENUES	$-	$-	-	100.00%
COSTS OF REVENUES	-	-	-
Gross Profit	-	-	-
OPERATING EXPENSES:
General and Administrative	1,056,511	224,675	831,836	370.24%
Professional Fees	222,909	290,248	(67,339)	-23.20%
Officer's Salary	220,680	213,189	7,491	3.51%
Rent - related party	4,800	-	4,800	100.00%
Research and Development	165,607	250,534	(84,927)	-33.90%
Total operating expenses	1,670,507	978,646	691,861	70.70%
Loss from operations	1,670,507	(978,646)	691,861	70.70%
Gain on forgiveness of debt	-	5,704	(5,704)	-100.00%
Interest expense	(83,977)	(64,103)	(19,874)	31.00%
Net Loss	$(1,754,484)	$(1,037,045)	717,439	69.18%

 

Net Revenues:  During the six months ended June 30, 2017, we realized $0 of revenues from our business. During the six months ended June 30, 2016, we realized $0 of revenues from our business. The change in revenues between the quarter ended June 30, 2017 and 2016 was $0 or 0%.

 

Cost of Revenues:  Costs of revenues for the six months ended June 30, 2017 were $0, as compared to $0 for the six months ended June 30, 2016, a change of $0 or 0%.

 

Gross Profit: During the six months ended June 30, 2017, we realized a gross profit of $0, as compared to $0 for the six months ended June 30, 2016, a change of $0 or 0%.

 

Research and development expenses:  During the six months ended June 30, 2017 we incurred $165,607 research and development expenses. During the six months ended June 30, 2016 we incurred $250,534 of research and development expenses, a decrease of $84,927 or 33.90% compared with the same period in 2017. The research and development expenses are attributable to the research and development with the Notre Dame University; this decrease was due to the timing of research related activity and related charges and the hiring of an additional lab team member.

 

Professional Fees:  During the six months ended June 30, 2017, we incurred $222,909 professional expenses, which decreased by $67,339 or (23.20%) from $290,248 for the six months ended June 30, 2016. The decrease in professional fees expense was attributable to increased expenses related to intellectual property protection of the research and development activities during the six months ended June 30, 2017.

 

Officers Salary:  During the six months ended June 30, 2017, officers’ salary expenses increased to $220,680 or 3.51% from $213,189 for the six months ended June 30, 2016. The increase in officer’s salary expenses was attributable to an increase in the Chief Executive Officers salary.

 

General and Administrative Expense: General and administrative expenses increased by $831,836 or 370.24% to $1,056,511 for the six months ended June 30, 2017 from $224,675 for the six months ended June 30, 2016. Our general and administrative expenses for the six months ended June 30, 2017 consisted of consulting fees of $54,967 and other general and administrative expenses (which includes expenses such as Auto, Business Development, SEC Filing, Investor Relations, General Office, warrant Compensation) of $957,272, Travel of $21,850 and office salary of $22,422 for a total of $1,056,511. Our general and administrative expenses for the six months ended June 30, 2016 consisted of salaries and benefits of $3,458, consulting fees of $6,576, and other general and administrative expenses (which includes expenses such as: Auto, Business Development, SEC Filing, Investor Relations, General Office, warrant Compensation of $214,472, and travel of $169 for a total of $224,675. The primary reason for the increase in comparing the six months ended June 30, 2017 to the corresponding period for 2016 was mainly due to the issuance of a warrant for services.

 

Rent – Related Party:  During the six months ended June 30, 2017, rent- related party expense increased to $4,800 or 100% from $0 for the six months ended June 30, 2016. The increase in rent-related party expense was attributable to the signing on January 23, 2017 the Company signed an 8 year property lease with the Company’s President.

 

Gain on Forgiveness of Debt:  Gain on forgiveness of debt decreased to $5,704 from $0 for the six month period ended June 30, 2017 from $5,704 for the six month period ended June 30, 2016. The decrease was primarily due to no debt forgiven during the period.

 

 

Interest Expense:  Interest expense increased by $19,874 to $83,977 for the six month period ended June 30, 2017 from $64,103 for the six month period ended June 30, 2016. The increase was primarily due to interest on the loans.