Kraig Biocraft Laboratories, Inc.: Form 10-Q for the period ended Jun 30, 2025

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., a Wyoming corporation, is a corporation organized to develop high strength fibers using recombinant DNA technology for commercial applications including technical textiles. 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 are a world leader in the research, development, and production of commercially scalable and cost-effective spider silk fiber. Our primary proprietary fiber technology utilizes natural and engineered variants of spider silk produced in domesticated mulberry silkworms. Our business brings twenty-first century biotechnology to the historical silk industry. We are introducing materials with innovative properties into an established commercial ecosystem of silkworm rearing, silk spinning, weaving, and manufacture of garments and other products.

We are using genetic engineering technologies to develop fibers with greater strength, resiliency, and flexibility for use in our target markets, including the specialty fiber and technical textile industries. We believe that the genetically engineered protein-based fibers we seek to produce have properties that are in some ways superior to the materials currently available in the marketplace. Production of our product in commercial quantities holds what we believe to be potential life-saving ballistic resistant material, which we believe is lighter, thinner, more flexible, and tougher than steel. Other potential applications for spider silk based recombinant fibers include use as structural material and for any application in which light weight and high strength are required. We believe that fibers made with recombinant protein-based polymers will make significant inroads into the specialty fiber and technical textile markets.

Through our technologies, the introduction of the gene sequence based on those found in native spider silk, results in a germline transformation and is therefore self-perpetuating. Our recombinant spider silk fibers incorporate the silk proteins found in spider silk with native silkworm silk proteins. This combination of native silkworm proteins combined with spider silk protein structures results in new and unique recombinant silk fibers. This technology is in essence a protein expression platform which has other potential applications including diagnostics and pharmaceutical production. Moreover, our technologies are “green” inasmuch as our fibers and textiles are derived from nature and do not use any petrochemicals as an input into the fibers.

The Report of Independent Registered Public Accounting Firm to our financial statements as of December 31, 2023, and as of December 31, 2024, include an explanatory paragraph stating that our net loss from operations and net capital deficiency at December 31, 2024 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 and expand commercial-scale production of our recombinant spider silk.
• 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.
• We plan to create a line of recombinant spider silk fashion wear either under our own brand name or in partnership with existing commercial entities.
• We plan to continue the expansion of our overseas production operations, including working with local contractors or cooperatives and the hiring of additional direct staff, as needed.
• We plan to accelerate our microbiology research and development to create more advanced materials. We plan to develop more advanced spider silk and non-spider silk-based fibers for select target markets.
• 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 that overlap the company’s existing research and development. If our financing allows, management will strongly consider 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 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 2025 and going forward.
• We plan to actively pursue an uplist to a national exchange if such an opportunity presents itself.

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.

Note Financing

January 2022

On January 18, 2022, we entered into a securities purchase agreement with YA II PN, LTD., a Cayman Islands exempt company (“Yorkville”), pursuant to which Yorkville purchased secured convertible debentures (the “Securities Purchase Agreement”) in the aggregate principal amount of USD$3,000,000 (the “Convertible Debentures”), which are convertible into shares of Common Stock (as converted, the “Conversion Shares”), of which a secured convertible debenture (the “First Convertible Debenture”) in the principal amount of $1,500,000 (the “First Convertible Debenture Purchase Price”) shall be issued upon signing the Securities Purchase Agreement and a secured convertible debenture (the “Second Convertible Debenture,” together with the First Convertible Debenture, each a “Convertible Debenture” and collectively, the “Convertible Debentures”) in the principal amount of $1,500,000 (the “Second Convertible Debenture Purchase Price”) shall be issued on or about the date that the Securities and Exchange Commission declares the registration statement registering the shares of common stock underlying the notes effective (collectively, the First Convertible Debenture Purchase Price and the Second Convertible Debenture Purchase Price shall collectively be referred to as the “Purchase Price”) (the “Yorkville Transaction”). These additional funds, together with those from the previously completed transactions we conducted with Yorkville between December 2020 and March 2021, account for an $8 million total Yorkville investment; as of November 17, 2022, all debentures to Yorkville pursuant thereto have been satisfied. The Company also issued Yorkville a warrant to purchase 12,500,000 shares of the Company’s Common Stock, at an initial exercise price of $0.12 per share and a warrant to purchase 4,285,714 shares of the Company’s Common Stock, at an initial exercise price of $0.14 per share. The warrants have a term of five (5) years and can be exercised via cashless exercise. If the Company issues or sells securities at a price less than the applicable warrant exercise price, the exercise price of the applicable warrant shall be reduced to such lower price. The warrants also have the same ownership cap as set forth in the Convertible Debentures, as described below.

In connection with the Securities Purchase Agreement, the Company also entered into a Registration Rights Agreement with Yorkville, pursuant to which the Company agreed to register all of the shares of Common Stock underlying the Convertible Debentures and warrants and with respect to subsequent registration statements, if any, such number of shares of Common Stock as requested by Yorkville not to exceed 300% of the maximum number of shares of Common Stock issuable upon conversion of all Convertible Debentures then outstanding (assuming for purposes hereof that (x) such Convertible Debentures are convertible at the then current conversion price and (y) any such conversion shall not take into account any limitations on the conversion of the Convertible Debentures set forth therein, in each case subject to any cutbacks set forth in the Registration Rights Agreement.

Upon signing the letter of intent for the Yorkville Transaction, the Company paid $10,000 to an affiliate of Yorkville, for due diligence and structuring.

The Securities Purchase Agreement also contained customary representation and warranties of the Company and the Investor, indemnification obligations of the Company, termination provisions, and other obligations and rights of the parties.

The foregoing description of the Securities Purchase Agreement, Convertible Debentures, Warrant, Security Agreement, IP Security Agreement, Registration Rights Agreement and Guaranty Agreement is qualified by reference to the full text of the forms of Securities Purchase Agreement, Convertible Debenture and Warrant, which are filed as Exhibits hereto and incorporated herein by reference.

Maxim Group LLC received a cash placement agent fee of $230,000.

Standby Equity Purchase Agreement

On January 21, 2025, we entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, LTD., a Cayman Islands exempt limited company (the “Investor”). Capitalized terms used herein, but not otherwise defined, have the meaning ascribed to such terms in the SEPA, a copy of which is filed herewith as Exhibit 10.10.

Pursuant to the SEPA, the Company has the right to sell to the Investor up to $10 million of its shares of common stock, subject to certain limitations and conditions set forth in the SEPA, from time to time during the term of the SEPA. Sales of the shares of common stock to the Investor under the SEPA, and the timing of any such sales, are at the Company’s option, and the Company is under no obligation to sell any shares of common stock to the Investor under the SEPA except in connection with notices that may be submitted by the Investor, in certain circumstances as described below.

Upon the satisfaction of the conditions to the Investor’s purchase obligation set forth in the SEPA, including having a registration statement registering the resale of the shares of common stock issuable under the SEPA declared effective by the SEC, the Company will have the right, but not the obligation, from time to time at its discretion until the SEPA is terminated to direct the Investor to purchase a specified number of shares of common stock (“Advance”) by delivering written notice to the Investor (“Advance Notice”). While there is no mandatory minimum amount for any Advance, it may not exceed an amount equal to 100% of the average of the daily traded amount during the five consecutive trading days immediately preceding an Advance Notice.

In addition to the satisfaction of the conditions, the Investor shall not be obligated to purchase or acquire, and shall not purchase or acquire, any common stock under the SEPA which, when aggregated with all other common stock beneficially owned by the Investor and its affiliates, would result in the beneficial ownership by the Investor and its affiliates (on an aggregated basis) of a number of shares of common stock exceeding 4.99% of the then outstanding voting power or number of common shares. In addition, in no event shall an Advance exceed the number of common shares registered in respect of the transactions contemplated hereby under the registration statement then in effect.

The Company shall pay the Investor a structuring fee in an amount of $25,000, of which $10,000 has been paid, and $15,000 shall be paid on the earlier of (a) the Closing of the first Advance, or (b) the termination of the SEPA. Additionally, within three days of signing the SEPA (the “Effective Date”), the Company shall pay a commitment fee in an amount equal to 1.00% of the Commitment Amount (the “Commitment Fee”) consisting of such number of Common Shares that is equal to the Commitment Fee divided by the average of the daily VWAPs of the Common Shares during the 3 Trading Days immediately prior to the Effective Date (the “Commitment Shares”). The Commitment Shares issuable hereunder shall be included on the initial Registration Statement.

The SEPA will automatically terminate on the earliest to occur of (i) 36-month anniversary of the Effective Date or (ii) the date on which the Investor shall have made payment of Advances pursuant to the SEPA for shares of common stock equal to the Commitment Amount. The Company has the right to terminate the SEPA at no cost or penalty upon five (5) trading days’ prior written notice to the Investor, provided that there are no outstanding Advance Notices for which shares of common stock need to be issued. Neither the Company nor the Investor may assign or transfer their respective rights and obligations under the SEPA, and no provision of the SEPA may be modified or waived other than by an instrument in writing signed by both parties.

The SEPA contains customary representations, warranties, conditions, and indemnification obligations of the parties. The representations, warranties and covenants contained in such agreements were made only for purposes of such agreements and as of specific dates, were solely for the benefit of the parties to such agreements and may be subject to limitations agreed upon by the contracting parties.

The net proceeds received by the Company under the SEPA will depend on the frequency and prices at which the Company sells its shares of common stock to the Investor. The Company expects that any proceeds received from such sales to the Investor will be used for working capital and general corporate purposes.

During the six months ended June 30, 2025, the Company sold 10,986,934 shares of Common Stock in exchange for $881,367.

Three months ended June 30, 2025, compared to the three months ended June 30, 2024:

Our revenue, operating expenses, and net loss from operations for the three month period ended June 30, 2025, as compared to the three month period ended June 30, 2024, were as follows – some balances on the prior period’s combined financial statements have been reclassified to conform to the current period presentation:

Net Revenues: During the three months ended June 30, 2025, we realized $0 of revenues from our business. During the three months ended June, 2024, we realized $0 of revenues from our business. The change in revenues between the quarter ended June 30, 2025, and 2024 was $0 or 0%.

Cost of Revenues: Costs of revenues for the three months ended June 30, 2025, were $0, as compared to $0 for the three months ended June 30, 2024, a change of $0 or 0%.

Gross Profit: During the three months ended June 30, 2025, we realized a gross profit of $0, as compared to $0 for the three months ended June 30, 2024, a change of $0 or 0%.

Research and development expenses: During the three months ended June 30, 2025, we incurred $63,888 of research and development expenses. During the three months ended June 30, 2024, we incurred $49,414 of research and development expenses. This was an increase of $14,474 or 29.29% in 2025 compared with the same period in 2024. This increase was due to a increase in research spending.

Professional Fees: During the three months ended June 30, 2025, we incurred $43,625 of professional expenses, which decreased by $60,573 or 58.13% from $104,198 for the three months ended June 30, 2024. 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, 2025, officers’ salary expenses decreased to $186,197 or 20.70% from $234,788 for the three months ended June 30, 2024. This change was primarily due to a 6.0% annual increase for the Company’s CEO and offset by a bonus paid to the Company’s COO and Director for the three months ended June 30, 2024.

General and Administrative Expense: General and administrative expenses decreased by $753,703 or 68.66% to $344,035 for the three months ended June 30, 2025, from $1,097,738 for the three months ended June 30, 2024. Our general and administrative expenses for the three months ended June 30, 2025, consisted of other general and administrative expenses (which include expenses such as auto, business development, SEC filings, investor relations, general office, warrants and shares issued for services) of $200,262, travel of $15,421, and office salary of $128,352 for a total of $344,035.

Our general and administrative expenses for the three months ended June 30, 2024 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 $942,767, travel of $27,341, and office salary of $127,630 for a total of $1,097,738.

Net Change in Unrealized Appreciation and Depreciation on Investment in Gold Bullion: Net change in unrealized appreciation on investment in gold bullion decreased by $30,637 to depreciation of $10,011 for the three-month period ended June 30, 2025, from appreciation of $20,626 for the three-month period ended June 30, 2024. The decrease was primarily due to a net change in unrealized appreciation on investment in gold bullion.

Interest Expense: Interest expense increased by $11,097 to $141,986 for the three-month period ended June 30, 2025 5, from $130,889 for the three month period ended June 30, 2024. The increase was primarily due to interest on certain Company loans.

Impairment of Right of Use Asset: Impairment of right of use asset decreased by $30,084 to $0 for the three-month period ended June 30, 2025 from $30,084 for the three month period ended June 30, 2024. This decrease was due to the Company’s negotiations to terminate its ROU lease arrangement.

Gain from sale of investment in gold: Gain from sale of investment in gold increased by $62,469 to $62,469 for the three months ended June 30, 2025 from $0 for the three months ended June 30, 2025. This increase was due to the Company’s partial sale of its investment in gold.

Net Loss: Net loss decreased by $880,056, or 54.79%, to a net loss of $726,133 for the three-month period ended June 30, 2025 from a net loss of $1,606,189 for the three month ending June 30, 2024. This decrease in net loss was primarily attributable to decreases in general and administrative expenses, professional fees, officers’ salary, and offset by an increase in research and development fees.

Six months ended June 30, 2025, compared to the six months ended June 30, 2024:

Our revenue, operating expenses, and net loss from operations for the six month period ended June 30, 2025, as compared to the six month period ended June 30, 2024, were as follows – some balances on the prior period’s combined financial statements have been reclassified to conform to the current period presentation:

Net Revenues: During the six months ended June 30, 2025, we realized $0 of revenues from our business. During the six months ended June, 2024, we realized $0 of revenues from our business. The change in revenues between the quarter ended June 30, 2025, and 2024 was $0 or 0%.

Cost of Revenues: Costs of revenues for the six months ended June 30, 2025, were $0, as compared to $0 for the six months ended June 30, 2024, a change of $0 or 0%.

Gross Profit: During the six months ended June 30, 2025, we realized a gross profit of $0, as compared to $0 for the six months ended June 30, 2024, a change of $0 or 0%.

Research and development expenses: During the six months ended June 30, 2025, we incurred $87,764 of research and development expenses. During the six months ended June 30, 2024, we incurred $78,849 of research and development expenses. This was an increase of $8,915 or 11.31% in 2025 compared with the same period in 2024. This increase was due to a increase in research spending.

Professional Fees: During the six months ended June 30, 2025, we incurred $106,660 of professional expenses, which decreased by $73,720 or 40.87% from $180,380 for the six months ended June 30, 2024. 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, 2025, officers’ salary expenses decreased to $370,927 or 10.30% from $413,506 for the six months ended June 30, 2024. This change was primarily due to a 6.0% annual increase for the Company’s CEO and offset by a bonus paid to the Company’s COO and Director for the six months ended June 30, 2024.

General and Administrative Expense: General and administrative expenses decreased by $609,227 or 48.27% to $652,886 for the six months ended June 30, 2025, from $1,262,113 for the six months ended June 30, 2024. Our general and administrative expenses for the six months ended June 30, 2025, consisted of other general and administrative expenses (which include expenses such as auto, business development, SEC filings, investor relations, general office, warrants and shares issued for services) of $368,423, travel of $26,321, and office salary of $258,142 for a total of $652,886.

Our general and administrative expenses for the six months ended June 30, 2024 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 $982,728, travel of $40,707, and office salary of $238,678 for a total of $1,262,113.

Net Change in Unrealized Appreciation and Depreciation on Investment in Gold Bullion: Net change in unrealized appreciation on investment in gold bullion increased by $43,288 to $107,477 for the six-month period ended June 30, 2025, from appreciation of $64,189 for the six month period ended June 30, 2024. The increase was primarily due to a net change in unrealized appreciation on investment in gold bullion.

Interest Expense: Interest expense increased by $21,511 to $282,334 for the six-month period ended June 30, 2025, from $260,823 for the six month period ended June 30, 2024. The increase was primarily due to interest on certain Company loans.

Impairment of Right of Use Asset: Impairment of right of use asset decreased by $30,084 to $0 for the six-month period ended June 30, 2025 from $30,084 for the six month period ended June 30, 2024. This decrease was due to the Company’s negotiations to terminate its ROU lease arrangement.

Gain from sale of investment in gold: Gain from sale of investment in gold increased by $62,469 to $62,469 for the six months ended June 30, 2025 from $0 for the six months ended June 30, 2025. This increase was due to the Company’s partial sale of its investment in gold.

Net Loss: Net loss decreased by $787,898, or 37.27%, to a net loss of $1,326,166 for the six-month period ended June 30, 2025 from a net loss of $2,114,064 for the six month ending June 30, 2024. This decrease in net loss was primarily attributable to decreases in general and administrative expenses, professional fees, officers’ salary, and offset by an increase in research and development fees.

Capital Resources and Liquidity

Our financial statements have been presented on the basis that we have 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 $1,326,166 during the six months ended June 30, 2025, and losses are expected to continue in the near term. The accumulated deficit is $54,411,885 at June 30, 2025. 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. 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, 2025, we had $785,462 of cash on hand. These funds are insufficient to complete our business plan and as a consequence, we will need to seek additional funds, primarily through the issuance of debt or equity securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in the case of equity financing.

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

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

Cash and cash equivalents, total current assets, total assets, total current liabilities, and total liabilities as of June 30, 2025, as compared to December 31, 2024, were as follows:

At June 30, 2025, we had a working capital deficit of $9,190,723, compared to a working capital deficit of $8,874,143 at December 31, 2024. Current liabilities increased to $10,029,698 at June 30, 2025, from $9,614,428 at December 31, 2024, primarily as a result of accounts payable – related party.

For the six months ended June 30, 2025, net cash used in operations of $902,624 was the result of a net loss of $1,326,166 offset by depreciation expense of $11,520, net change in unrealized appreciation in gold bullions of $107,477, gain on sale of gold bullions of $62,469, warrants issuance of $98,069, options issuance of $8,394, imputed interest on related party loans of $40,093, a decrease in prepaid expenses of $13,508, a decrease in operating lease right of use of $27,662, an increase of accrued expenses and other payables-related party of $413,426, increase in accounts payable of $9,514 and a decrease in operating lease liabilities of $28,698.

For the six months ended June 30, 2024, net cash used in operations of $1,000,303 was the result of a net loss of $2,114,064 offset by depreciation expense of $13,459, impairment of right of use asset of $30,084, net change in unrealized appreciation in gold bullions of $64,189, warrants issuance of $789,227, imputed interest on related party loans of $40,314, decrease in prepaid expenses of $9,454, and an increase in operating lease right of use of $23,961, an increase of accrued expenses and other payables-related party of $320,184, decrease in accounts payable of $25,472 and a decrease in operating lease liabilities of $23,261.

Net cash used in our investing activities were $143,455 and $0 for the six months ended June 30, 2025, and June 30, 2024, respectively. During the six months ended June 30, 205, the Company had net proceeds from the sale investment in gold of $147,238 and purchase of fixed assets of $3,783.

Our financing activities resulted in a cash inflow of $881,367 for the six months ended June 30, 2025, which is represented by $881,367 proceeds from the sale of stock and $0 payment in debt offering costs.

Our financing activities resulted in a cash outflow of $30,000 for the six months ended June 30, 2024, which is represented by $30,000 loan repayment.

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, 2024, 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

Recently Adopted Accounting Pronouncements

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures, to require enhanced disclosures that include reportable segment expenses. The amendments in this update provide that a business entity disclose significant segment expenses, segment profit or loss (after significant segment expenses), and allows reporting of additional measures of a segments profit or loss if used in assessing segment performance. Such disclosures apply to entities with a single reportable segment. These amendments were effective for the Company in 2024 and retrospectively to all prior periods using the significant segment expense categories identified. The impact of the adoption of the amendments in this update was not material to the Company’s consolidated financial position and results of operations, as the requirements impact only segment reporting disclosures in the footnotes to the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

In November 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses to improve the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses including purchases of inventory, employee compensation, depreciation and intangible asset amortization in commonly presented expense captions such as cost of sales, selling, general and administrative expense, and research and development. These amendments are effective for the Company for annual periods in 2027, applied prospectively, with early adoption permitted, and interim periods beginning in 2028. The Company intends to adopt the amendments in this update prospectively in 2027 for annual periods and in 2028 for interim periods. The impact of the adoption of the amendments in this update is not expected to be material to the Company’s consolidated financial position and results of operations, as the requirements only require more detailed disclosures in the footnotes to the Company’s consolidated financial statements.

In March 2024, the FASB issued ASU No. 2024-02, Codification Improvements - Amendments to Remove References to the Concepts Statements to remove various references to concepts statements from the FASB Accounting Standards Codification. This guidance is to clarify guidance, simplify wording or structure of guidance, and other minor improvements. These amendments are effective for the Company for annual periods in 2025, applied prospectively, with early adoption and retrospective application permitted. The Company intends to adopt the amendments in this update prospectively in 2025. The impact of the adoption of the amendments in this update is not expected to be material to the Company’s consolidated financial position and results of operations.

In March 2024, the FASB issued ASU No. 2024-01, Compensation - Stock Compensation (Topic 718) - Scope Application of Profits Interest and Similar Awards, to clarify whether profits interest and similar awards should be accounted for in accordance with Topic 718, Compensation - Stock Compensation. The guidance applies to all business entities that issue profits interest awards as compensation to employees or nonemployees in exchange for goods or services. These amendments are effective for the Company for annual and interim periods in 2025, applied prospectively, with early adoption and retrospective application permitted. As the Company does not issue profit interest awards, the impact of the adoption of the amendments in this update is not expected to be material to the Company’s consolidated financial position and results of operations.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures, to require enhanced income tax disclosures to provide information to assess how an entity’s operations and related tax risks, tax planning, and operational opportunities affect its tax rate and prospects for future cash flows. The amendments in this update provide that a business entity disclose (1) a tabular income tax rate reconciliation, using both percentages and amounts, (2) separate disclosure of any individual reconciling items that are equal to or greater than 5% of the amount computed by multiplying the income (loss) from continuing operations before income taxes by the applicable statutory income tax rate, and disaggregation of certain items that are significant and (3) amount of income taxes paid (net of refunds received) disaggregated by federal, state and foreign jurisdictions, including separate disclosure of any individual jurisdictions greater than 5% of total income taxes paid. These amendments are effective for the Company for annual periods in 2025, applied prospectively, with early adoption and retrospective application permitted. The Company intends to adopt the amendments in this update prospectively in 2025. The impact of the adoption of the amendments in this update is not expected to be material to the Company’s consolidated financial position and results of operations, since the amendments require only enhancement of existing income tax disclosures in the footnotes to the Company’s consolidated financial statements.

There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on our consolidated financial position, results of operations or cash flows.

Evaluation of Disclosure Controls and Procedures

As of the end of our fiscal quarter ended June 30, 2025, 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, 2025, 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, 2024, 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.

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/ (http://www.kraiglabs.com/sec-filings/). Information contained on, or that can be accessed through, our website does not constitute a part of this report.