# Kraig Biocraft Laboratories, Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [Kraig Biocraft Laboratories, Inc.](/companies/kblb.md) (CIK 1413119)
- Form: 10-Q
- Filed: 2023-08-14
- Accepted by EDGAR: Aug 14, 2023, 16:35 ET
- Period: 2023-06-30
- Accession: 0001493152-23-028545
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1413119/000149315223028545/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1413119/000149315223028545/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Research and development | 3 months, 2023-04-01 to 2023-06-30 | $57.0k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2023-01-01 to 2023-06-30 | $126.1k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | −$480.7k | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | −$967.2k | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | −$589.1k | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | −$1.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.00 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | $0.00 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.00 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | $0.00 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 1,033,374,219 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 1,032,728,682 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | −$668.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Current assets | at 2023-06-30 | $3.3m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $3.8m | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $8.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $8.4m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-06-30 | −$4.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 34,727 characters.

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. Kraig Labs was organized to develop high strength fibers using recombinant DNA technology for commercial applications in technical textile. We use genetically engineered silkworms that produce spider silk proteins to create our recombinant spider silk. Applications include performance apparel, workwear, filtration, luxury fashion, flexible composites, medical implants, cosmetics and more. We believe that we have been a leader in the research and development of commercially scalable and cost effective spider silk for technical textile and non-fibrous applications. Our primary proprietary fiber technology includes natural and engineered variants of spider silk produced in domesticated mulberry silkworms. Our business brings twenty-first century biotechnology to the historical silk industry, permitting us to introduce materials with innovative properties and claims into an established commercial ecosystem of silkworm rearing, silk spinning and weaving, and manufacture of garments and other products that can include our specialty fibers and textiles. 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 that come from petroleum derivatives: (1) aramid fibers; and (2) ultra-high molecular weight polyethylene fibers. 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 specialty fiber and technical textile industries.

In 2020, we developed a new technology platform, based on a non-CRISPR Cas9 gene editing knock-in knock-out technology. This is our first knock-in knock-out technology which we are now using for the development of advanced materials. This system is built on our eco-friendly and cost-effective silkworm production system, which we believe is more advanced than current competing methods. Knock-in knock-out technology allows for the targeting of specific locations and genetic traits for modification, addition, and removal. This capability should allow us to accelerate new product developments and bring products to market more quickly. This capability also allows for genetic trait modifications that were previously impractical, creating opportunities for products outside of silk fibers and increased flexibility in production location.

Based on our internal analysis, management believes that this new platform technology will allow us to outpace and surpass Dragon Silk, a fiber that we developed with our previous tools. Samples of Dragon Silk have already demonstrated to be tougher than many fibers used in bullet proof vests. We expect that this new approach will yield materials beyond those capabilities based upon its potential for significantly improved purity.

In August 2019, we received authorization from governmental authorities to begin rearing genetically enhanced silkworms at our production facility in Vietnam. In October 2019, the Company delivered the first batch of these silkworms and began operations. These silkworms served as the basis for the commercial expansion of our proprietary silk technology. On November 4, 2019, we reported that we had successfully completed rearing the first batch of its transgenic silkworms at the Quang Nam production factory. Seasonal challenges in late December 2019 slowed production operations and governmental restrictions imposed due to the global COVID pandemic further delayed our operations in 2020. In January of 2021, we received the first shipment of silk from our factory in Vietnam. We believe that we will be able to target metric tons of capacity of our recombinant spider silk fiber per annum from this factory once it reaches maximum utilization. This capacity will allow us to address initial demand for our products and materials for various applications in the protective, performance, and luxury textile markets.

On November 23, 2020, we entered into a Strategic Partnership Agreement (the “**SPA”**) with Mthemovement Kings Pte Ltd (“**Kings”**). Kings is an eco-friendly luxury streetwear apparel line, part of the Kings Group of Companies and its affiliated companies. On January 25, 2021, the parties exchanged signatures for an amendment to the Agreement, which amended the procedures for termination of the SPA to only allow for the termination of the SPA by mutual agreement of the Company and Kings following a consultation period of 120 (one hundred and twenty) calendar days or such period as agreed otherwise between the parties (the “**Amendment,”** together with the SPA, the “**Agreement”).**

Pursuant to the Agreement, the parties formed a joint venture, Spydasilk Enterprises Pte. Ltd., to develop and sell the Company’s spider silk fibers under the new innovative apparel and fashion brand, trade named SpydaSilk™ and potential other trademarks to be announced. All intellectual property related to SpydaSilk™ will be jointly owned by the Company and Kings.

The Report of Independent Registered Public Accounting Firm to our financial statements as of December 31, 2022 includes an explanatory paragraph stating that our net loss from operations and net capital deficiency at December 31, 2022 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 expand our research and development to accelerate our work in creating next generation materials and to improve the robustness of our recombinant spider silk lines. This will involve new selective breed protocols, the creation of new hybrids, and the develop of new transgenics utilizing plasmids that are already in an advanced state of development.
- We plan to develop a line of fabrics and apparel under a joint venture with Kings to create a line of fashion wear under Spydasilk Enterprises Pte. Ltd., with trade names including SpydasilkTM, SpydraTM and others.
- We plan to continue the expansion of our production capacity at our facilities in Quang Nam, Vietnam.
- We plan to overcome the current bottleneck in production by improving the overall robustness of our recombinant spider silk lines through a combination of climate acclimation and implementation of a multiple-strain hybrid breeding program. This program has already been initiated and is being rapidly accelerated.
- We plan to accelerate both our microbiology and selective breeding programs, as well as provide more resources for our material testing protocols. We spent approximately $126,000 over the last 6 months on research and development of high strength polymers. In 2023, we are directing our research and development efforts on growing our internal capabilities..
- We will consider buying an established revenue producing company in a compatible business, in order to broaden our financial base and facilitate the commercialization of our products; as of the date hereof, we have not had any formal discussion or entered into any definitive agreements regarding any such purchase.
- We will also actively consider pursuing collaborative research opportunities with private 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 strongly consider increasing the breadth of our research to include protein expression platform technologies.

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- 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 additional 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 2023 and going forward.
- We plan to actively pursue the development of commercial scale production of our recombinant materials including Monster Silk®, Dragon SilkTM, SpydasilkTM, and SpydraTM.

### Limited Operating History

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

If financing is not available on satisfactory terms, we may be unable to continue our research and development and other operations. Equity financing will result in dilution to existing stockholders.

### Impact of COVID-19 Outbreak

On January 30, 2020, the World Health Organization declared the coronavirus outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world relating to coronavirus include restrictions on travel, quarantines in certain areas, and forced closures for certain types of public places and businesses. Governmental actions taken relating to coronavirus are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. While the closures and limitations on movement, domestically and internationally, are expected to be temporary, if these actions continue, the duration of the supply chain disruption could reduce the availability or result in delays, of materials or supplies to and from the Company, which in turn could materially interrupt the Company’s business operations. Given the speed and frequency of the continuously evolving developments with respect to this pandemic, the Company cannot reasonably estimate the magnitude of the impact to its consolidated results of operations. We have taken every known and reasonable precaution possible to ensure the safety of our employees.

On March 19, 2020, we furloughed non-essential staff in response to governmental regulations relating to COVID. This decision primarily impacted staff at our fully owned subsidiary, Prodigy Textiles, in Vietnam and resulted in the temporary closing of silk rearing operations at that facility. As of the date hereof, we have resumed silk production operations at the factory in Vietnam. The Company supported its furloughed staff and paid their salaries during all mandatory closures. During the duration of the furlough, the Company’s CEO voluntarily waved the payment or accrual of his salary. The Company leveraged this forced closure time to improve its production infrastructure based on the lessons learned from its operations. After the mandated closure, the Company has enhanced its production operations with process automation, moved its production headquarters to a facility designed for silk production, created a more self-reliant supply chain, and established a microbiology laboratory in its factory for enhanced quality control. On October 24, 2020, silk production operations at the factory resumed.

The actions of governments in response to COVID, both domestic and foreign, impacted our ability to transport goods, people, essential equipment, and other items essential to our production. In turn, these restrictions are impacting our ability to produce intermediate and end products and are delaying our timelines for commercialization and revenue.

Additionally, it is reasonably possible that estimates made in the financial statements have been, or will be, materially and adversely impacted in the near term as a result of these conditions, including losses on inventory; impairment losses related to goodwill and other long-lived assets and current obligations.

### Three months ended June 30, 2023 compared to the three months ended June 30, 2022

Our revenue, operating expenses, and net loss from operations for the three month period ended June 30, 2023 as compared to the three month period ended June 30, 2022, 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 June 30, 2023 | 2022 | Change | % Change Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| NET REVENUES | $- | $- | - | - |
| OPERATING EXPENSES: |  |  |  |  |
| General and Administrative | 220,667 | 212,419 | 8,248 | 3.88% |
| Professional Fees | 31,349 | 109,534 | (78,185) | -71.38% |
| Officer’s Salary | 171,625 | 164,845 | 6,780 | 4.11% |
| Research and Development | 57,035 | 49,869 | 7,166 | 14.37% |
| **Total operating expenses** | 480,676 | 536,667 | (55,991) | -10.43% |
| **Loss from operations** | (480,676) | (536,667) | 55,991 | -10.43% |
| Interest expense | (119,282) | (298,444) | 179,162 | -60.03% |
| Amortization of debt issue costs | - | (174,669) | 174,669 | -100.00% |
| Net change in unrealized appreciation on investment in gold bullion | (11,771) | (28,352) | 16,581 | -58.48% |
| Interest income | 22,638 | - | 22,638 | 100.00% |
| **Net Loss** | $(589,091) | $(1,038,132) | 449,041 | -43.25% |

Net Revenues: During the three months ended June 30, 2023, we realized $0 of revenues from our business. During the three months ended June 30, 2022, we realized $0 of revenues from our business. The change in revenues between the quarter ended June 30, 2023 and 2022 was $0 or 0%.

Cost of Revenues: Costs of revenues for the three months ended June 30, 2023 were $0, as compared to $0 for the three months ended June 30, 2022, a change of $0 or 0%.

Gross Profit: During the three months ended June 30, 2023, we realized a gross profit of $0, as compared to $0 for the three months ended June 30, 2022, a change of $0 or 0%.

Research and development expenses: During the three months ended June 30, 2023, we incurred $57,035 of research and development expenses. During the three months ended June 30, 2022, we incurred $49,869 of research and development expenses. This was an increase of $7,166 or 14.37% in 2023 compared with the same period in 2022. This increase was due to an increase in research spending.

Professional Fees: During the three months ended June 30, 2023, we incurred $31,349 of professional expenses, which decreased by $78,185 or 71.38% from $109,534 for the three months ended June 30, 2022. This decrease was primarily due to a decrease in professional fees and in investor relations services.

Officers Salary: During the three months ended June 30, 2023, officers’ salary expenses decreased to $171,625 or 4.11% from $164,845 for the three months ended June 30, 2022. This change was primarily due to a 6% annual increase for the Company’s CEO for the three months ended June 30, 2022.

General and Administrative Expense: General and administrative expenses increased by $8,248 or 3.88% to $220,667 for the three months ended June 30, 2023 from $212,419 for the three months ended June 30, 2022. Our general and administrative expenses for the three months ended June 30, 2023 consisted of other general and administrative expenses (which includes expenses such as auto, business development, SEC filings, investor relations, general office, warrants and shares issued for services) of $141,500, travel of $4,376, and office salary of $74,791 for a total of $220,667. Our general and administrative expenses for the six months ended June 30, 2022, consisted of other general and administrative expenses (which includes expenses such as auto, business development, SEC filings, investor relations, general office, warrants and shares issued for services) of $23,797, travel of $12,388, consulting $30,000 and office salary of $146,234 for a total of $212,419.

Net Change in Unrealized Depreciation on Investment in Gold Bullion: Net change in unrealized appreciation on investment in gold bullion increased by $16,581 to $11,771 for the three-month period ended June 30, 2023 from $28,352 for the three month period ended June 30, 2022. The increase was primarily due to a net change in unrealized appreciation on investment in gold bullion.

Interest Expense: Interest expense decreased by $179,162 to $119,282 for the three-month period ended June 30, 2023 from $298,444 for the three month period ended June 30, 2022. The decrease was primarily due to interest on certain Company loans.

Amortization of original issue and debt discounts: Amortization of original issue and debt discount decreased to $0, or 0% for the three months ended June 30, 2023 compared to $174,669 for the three months ended June 30, 2022. The decrease was primarily due to amortization of original issue and debt discounts on convertible loans.

Net Loss: Net loss decreased by $449,041, or 43.25%, to a net loss of $589,091 for the three-month period ended June 30, 2023 from a net loss of $1,038,132 for the three month period ended June 30, 2022. This decrease in net loss was primarily attributable to decreases in amortization of original issue debt discount, warrant expense, professional fees and general and administrative expenses and offset by an increase in research and development fees.

### Six months ended June 30, 2023 compared to the six months ended June 30, 2022

Our revenue, operating expenses, and net loss from operations for the six month period ended June 30, 2023 as compared to the six month period ended June 30, 2022, 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 June 30, 2023 | 2022 | Change | % Change Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| NET REVENUES | $- | $- | - | - |
| OPERATING EXPENSES: |  |  |  |  |
| General and Administrative | 431,770 | 425,438 | 6,332 | 1.49% |
| Professional Fees | 66,096 | 229,914 | (163,818) | -71.25% |
| Officer’s Salary | 343,249 | 349,653 | (6,404) | -1.83% |
| Research and Development | 126,127 | 77,373 | 48,754 | 63.01% |
| **Total operating expenses** | 967,242 | 1,082,378 | (115,136) | -10.64% |
| **Loss from operations** | (967,242) | (1,082,378) | 115,136 | -10.64% |
| Interest expense | (237,119) | (460,331) | 223,212 | -48.49% |
| Amortization of debt issue costs | - | (536,701) | 536,701 | -100.00% |
| Net change in unrealized appreciation on investment in gold bullion | 21,581 | (5,401) | 26,982 | -499.57% |
| Interest income | 26,907 | - | 26,907 | 100.00% |
| **Net Loss** | $(1,155,873) | $(2,084,811) | 928,938 | -44.56% |

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Net Revenues: During the six months ended June 30, 2023, we realized $0 of revenues from our business. During the six months ended June 30, 2022, we realized $0 of revenues from our business. The change in revenues between the quarter ended June 30, 2023 and 2022 was $0 or 0%.

Cost of Revenues: Costs of revenues for the six months ended June 30, 2023 were $0, as compared to $0 for the six months ended June 30, 2022, a change of $0 or 0%.

Gross Profit: During the six months ended June 30, 2023, we realized a gross profit of $0, as compared to $0 for the six months ended June 30, 2022, a change of $0 or 0%.

Research and development expenses: During the six months ended June 30, 2023, we incurred $126,127 of research and development expenses. During the six months ended June 30, 2022, we incurred $77,373 of research and development expenses. This was an increase of $48,754 or 63.01% in 2023 compared with the same period in 2022. This increase was due to an increase in research spending.

Professional Fees: During the six months ended June 30, 2023, we incurred $66,096 of professional expenses, which decreased by $163,818 or 71.25% from $229,914 for the six months ended June 30, 2022. This decrease was primarily due to a decrease in professional fees and in investor relations services.

Officers Salary: During the six months ended June 30, 2023, officers’ salary expenses decreased to $343,249 or 1.83% from $349,653 for the six months ended June 30, 2022. This change was primarily due to a 6% annual increase for the Company’s CEO and offset by a bonus paid to the Company’s COO for the six months ended June 30, 2022.

General and Administrative Expense: General and administrative expenses increased by $6,332 or 1.49% to $431,770 for the six months ended June 30, 2023 from $425,438 for the six months ended June 30, 2022. Our general and administrative expenses for the six months ended June 30, 2023 consisted of other general and administrative expenses (which includes expenses such as auto, business development, SEC filings, investor relations, general office, warrants and shares issued for services) of $273,997, travel of $12,168, and office salary of $145,605 for a total of $431,770. Our general and administrative expenses for the six months ended June 30, 2022 consisted of other general and administrative expenses (which includes expenses such as auto, business development, SEC filings, investor relations, general office, warrants and shares issued for services) of $139,687, travel of $15,389, consulting $60,000 and office salary of $210,362 for a total of $425,438.

Net Change in Unrealized Depreciation on Investment in Gold Bullion: Net change in unrealized appreciation on investment in gold bullion increased by $26,982 to $21,581 for the six-month period ended June 30, 2023 from $5,401 for the six month period ended June 30, 2022. The increase was primarily due to a net change in unrealized appreciation on investment in gold bullion.

Interest Expense: Interest expense decreased by $223,212 to $237,119 for the six-month period ended June 30, 2023 from $460,331 for the six month period ended June 30, 2022. The decrease was primarily due to interest on certain Company loans.

Amortization of original issue and debt discounts: Amortization of original issue and debt discount decreased to $0, or 0% for the six months ended June 30, 2023 compared to $536,701 for the six months ended June 30, 2022. The decrease was primarily due to amortization of original issue and debt discounts on convertible loans.

Net Loss: Net loss decreased by $928,938, or 47.31%, to a net loss of $1,155,873 for the six-month period ended June 30, 2023 from a net loss of $2,084,811 for the six month period ended June 30, 2022. This decrease in net loss was primarily attributable to decreases in amortization of original issue debt discount, warrant expense, professional fees and general and administrative expenses and offset by an increase in research and development fees.

### Capital Resources and Liquidity

Our financial statements have been presented on the basis that are a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As presented in the unaudited condensed financial statements, we incurred a net loss of $1,098,575 during the six months ended June 30, 2023, and losses are expected to continue in the near term. The accumulated deficit is $47,755,575 at June 30, 2023. Refer to Note 2 for our discussion of stockholder deficit. We have been funding our operations through private loans and the sale of common stock in private placement transactions. Refer to Note 6 and Note 7 in the financial statements for our discussion of notes payable and shares issued, respectively. Our cash resources are insufficient to meet our planned business objectives without additional financing. These and other factors raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of our company to continue as a going concern.

Management anticipates that significant additional expenditures will be necessary to develop and expand our business before significant positive operating cash flows can be achieved. Our ability to continue as a going concern is dependent upon our ability to raise additional capital and to ultimately achieve sustainable revenues and profitable operations. At June 30, 2023, we had 1,436,861 of cash and cash equivalents on hand. These funds are insufficient to complete our business plan and as a consequence, we will need to seek additional funds, primarily through the issuance of debt or equity securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in the case of equity financing.

Management has undertaken steps as part of a plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond. These steps include (a) raising additional capital and/or obtaining financing; (b) controlling overhead and expenses; and (c) executing material sales or research contracts. There can be no assurance that the Company can successfully accomplish these steps and it is uncertain that the Company will achieve a profitable level of operations and obtain additional financing. There can be no assurance that any additional financing will be available to the Company on satisfactory terms and conditions, if at all. As of the date of this Report, we have not entered into any formal agreements regarding the above.

In the event the Company is unable to continue as a going concern, the Company may elect or be required to seek protection from its creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered this alternative, nor does management view it as a likely occurrence.

Cash and cash equivalents, total current assets, total assets, total current liabilities and total liabilities as of June 30, 2023 as compared to December 31, 2022, were as follows:

|  | June 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Cash and cash equivalents | $1,436,861 | $3,862,716 |
| Investment in U.S. Treasury Bills at fair value (cost: $1,714,790 and $0) | $1,727,811 | $- |
| Inventory | $6,580 | $6,580 |
| Prepaid expenses | $1,728 | $15,665 |
| Deposits | $98,480 | $98,480 |
| Total current assets | $3,271,460 | $3,983,441 |
| Total assets | $3,843,728 | $4,570,920 |
| Total current liabilities | $8,337,234 | $8,072,083 |
| Total liabilities | $8,354,379 | $8,092,780 |

At June 30, 2023, we had a working capital deficit of $5,065,774 compared to a working capital deficit of $4,088,642 at December 31, 2022. Current liabilities increased to $8,337,234 at June 30, 2023 from $8,072,083 at December 31, 2022, primarily as a result of accounts payable – related party.

For the six months ended June 30, 2023, net cash used in operations of $668,044 was the result of a net loss of $1,142,852 offset by depreciation expense of $12,757, net change in unrealized depreciation in gold bullions of $21,581, warrants issuance of $113,968, imputed interest on related party loans of $40,093, decrease in prepaid expenses of $13,937, decrease in operating lease right of use of $24,035, an increase of accrued expenses and other payables-related party of $328,752, decrease in accounts payable of $12,420 and a decrease in operating lease liabilities of $24,733.

For the six months ended June 30, 2022, net cash used in operations of $960,137 was the result of a net loss of $2,084,811 offset by depreciation expense of $14,721, net change in unrealized depreciation in gold bullions of $5,401, amortization of debt discount of $536,701, warrants issuance of $118,840, imputed interest on related party loans of $40,093, decrease in prepaid expenses of $9,453 and a decrease in operating lease right of use of $22,198, an increase of accrued expenses and other payables-related party of $182,706, increase in accounts payable of $216,060 and a decrease in operating lease liabilities of $21,499.

Net cash used in our investing activities were $1,727,811 and $0 for the six months ended June 30, 2023 and June 30, 2022, respectively. During the six months ended June 30, 2023, the Company had net purchases of treasury bills of $2,587,811 and net proceeds from maturities of treasury bills of $860,000.

Our financing activities resulted in a cash outflow of $30,000 for the six months ended June 30, 2023 is represented loan repayment.

Our financing activities resulted in a cash inflow of $3,429,864 for the six months ended June 30, 2022 is represented by proceeds from convertible notes payable, net of $2,990,000, repayment of notes payable – related party of $40,000, $30,000 loan repayment, payment of debt offering costs of $230,000, and proceeds from a warrant exercise for $739,864.

### Critical Accounting Policies

Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2022, for disclosures regarding the Company’s critical accounting policies and estimates, as well as updates further disclosed in our interim financial statements as described in this Form 10-Q.

### Recent Accounting Pronouncements

In August 2020, FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity; Own Equity (“ASU 2020-06”), as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Among other changes, the new guidance removes from GAAP separation models for convertible debt that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will no longer separately present such embedded conversion features in equity and will instead account for the convertible debt wholly as debt. The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the Company’s current accounting treatment under the current guidance. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the fiscal year. The Company adopted the guidance under ASU 2020-06 on January 1, 2022. The adoption of this guidance and had no material impact on the Company’s financial statements.

## Controls and procedures

As filed, 3,465 characters.

#### Evaluation of Disclosure Controls and Procedures

As of the end of our fiscal quarter ended June 30, 2023, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon those evaluations, management concluded that our disclosure controls and procedures were not effective as of June 30, 2023, to cause the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods prescribed by SEC, and that such information is accumulated and communicated to management, including our chief executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Going forward from this filing, the Company intends to work on establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

#### Changes in Internal Control over Financial Reporting

During the quarter covered by this Report, there were no changes in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. Although we continue to educate our management personnel to increase its ability to comply with the disclosure requirements and financial reporting controls and management oversight of accounting and reporting functions in the future, as we stated in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, we do not expect to remediate the weaknesses in our internal controls over financial reporting until the time when we start to commercialize a recombinant fiber or such time as we have sufficient cash flow to carry out our remediation plans.

## Risk factors

As filed, 467 characters.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this item. A description of risk factors can be found on our registration statement on Form S-1 located through the SEC EDGAR system or on the company website www.kraiglabs.com/sec-filings/. Information contained on, or that can be accessed through, our website does not constitute a part of this report.

Filed Aug 14, 2023.
Source: SEC EDGAR, the filing index for accession 0001493152-23-028545. Last ingested by Listed: Oct 24, 2026, 15:09 ET. No prices; not investment advice.