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(Registrant’s
telephone number, including area code)
Securities
registered under Section 12(b) of the Exchange Act:
Title
of each class registered:
Name
of each exchange on which registered:
None
None
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, par value $.001
(Title
of class)
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 he
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 x No
o
Indicate
by check mark whether the registrant is a shell company as defined in Rule 12b-2
of the Exchange Act.
Yes o No x
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. o
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.
The
Market
We are
focusing our work on the development and production of high performance and
technical fiber. The performance fiber market is currently dominated
by two classes of product: aramid fibers and ultra high molecular weight
polyethylene fiber. These products service the need for materials
with high strength, resilience, and flexibility. Because these
synthetic performance fibers are stronger and tougher than steel, they are used
in a wide variety of military, industrial, and consumer
applications.
The users
of high performance and technical fiber include the military and police
departments, which employ them for ballistic protection. The
materials are also used for industrial applications requiring superior strength
and toughness, i.e. critical cables and abrasion/impact resistant
components. These fibers are also employed in safety equipment, and
high strength composite materials for the aero-space industry. The
Company anticipates that the materials it is developing will service on many of
these same markets.
The
Product
It has
long been known that certain fibers produced in nature possess unique mechanical
properties in terms of strength, resilience and flexibility. These
protein based fibers, exemplified by spider silk, have been the subject of much
interest to materials scientists.
We believe
that the production of recombinant protein based polymers in commercial
quantities holds the promise of a material, which is lighter, thinner, more
flexible, and tougher than aramid fibers. Other applications include use as
structural material for aircraft, and for any application in which light weight
and high strength are required.
While the
properties of spider silks are well known, there is presently no known way to
produce the fibers in commercial quantity. The spiders are
cannibalistic, and can not be raised in concentrated colonies.
The
Technology
While
scientists have been able to replicate the proteins that are the building blocks
of spider silk, the technological barrier that has stymied production, is the
incapacity to form these proteins into a fiber with the desired mechanical
characteristics.
We have
acquired the right to use the patented genetic sequences and genetic engineering
technology developed in two university laboratories. Our technology
builds upon the unique advantages of the discoveries made within the university
system. The university technology, in collaboration with our own
concepts and leadership, form the foundations of our research and product
development.
We are
working to use this genetic engineering technology to create recombinant protein
based polymers. Management is committed to steering the research
toward the development of commercial production of spider silks, spider silks
analogs and new polymers composed of recombinant proteins. The goal is to create
recombinant fibers for use in the technical textiles market.
The
Company
The
inventor of this technology concept, Kim Thompson, is the founder of Kraig
Biocraft Laboratories, Inc.
Certain
patented genetic tools, methods, and proprietary gene sequences invented and
discovered by university researchers are pivotal in our work. We have
negotiated and obtained certain exclusive proprietary rights to use the
universities’ intellectual property for our product development and
commercialization.
The
company has entered into a intellectual property and collaborative research
agreement with the University of Notre Dame, whereby the genetic work is being
conducted in concert with the University and within the University’s
laboratories. The company has also entered into an intellectual
property and sponsored research agreement with the University of
Wyoming. Pursuant to these two agreements, the company anticipates
that the genetic work will be performed primarily or exclusively within
university controlled genetic laboratories. Also pursuant to these
agreements, we have ongoing financial commitments to both universities in
connection with the collaborative and sponsored scientific and genetic
research. We are performing our research in cooperation and
collaboration with researchers within the two university systems. At
the present time, we do not itself operate any laboratories, and all
laboratories are owned and operated by the universities.
We
are in the research and development
stage. We currently have no developed products and does
not produce any revenue from the sale of products. Management
anticipates that we will remain in the research and development stage for the
next two to three years at a minimum.
Employees
We
currently have no employees other than Kim Thompson, our sole officer and
director.
Kraig
Biocraft Laboratories, Inc. was incorporated in April 2006 in
Wyoming. Our business office is located at 120 N. Washington Square, Suite 805,
Lansing, Michigan48950.
There is
no trading market for our Common Stock at present and there has been no trading
market to date. There is no assurance that a trading market will ever develop
or, if such a market does develop, that it will continue.
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a “penny stock,” for purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require: (i)
that a broker or dealer approve a person’s account for transactions in penny
stocks and (ii) the broker or dealer receive from the investor a written
agreement to the transaction, setting forth the identity and quantity of the
penny stock to be purchased. In order to approve a person’s account for
transactions in penny stocks, the broker or dealer must (i) obtain financial
information and investment experience and objectives of the person; and
(ii) make a reasonable determination that the transactions in penny stocks are
suitable for that person and that person has sufficient knowledge and experience
in financial matters to be capable of evaluating the risks of transactions in
penny stocks. The broker or dealer must also deliver, prior to any transaction
in a penny stock, a disclosure schedule prepared by the Commission relating to
the penny stock market, which, in highlight form, (i) sets forth the basis on
which the broker or dealer made the suitability determination and (ii) that the
broker or dealer received a signed, written agreement from the investor prior to
the transaction.
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading, and about commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
Holders
As of
December 31, 2007 49,934,850 shares of common stock are issued and outstanding
and held by 39 shareholders. Holders of our common stock are entitled to one
vote for each share on all matters submitted to a stockholder vote.
Holders
of common stock do not have cumulative voting rights.
Therefore,
holders of a majority of the shares of common stock voting for the election of
directors can elect all of the directors. Holders of our common stock
representing a majority of the voting power of our capital stock issued and
outstanding and entitled to vote, represented in person or by proxy, are
necessary to constitute a quorum at any meeting of our stockholders. A vote by
the holders of a majority of our outstanding shares is required to effectuate
certain fundamental corporate changes such as liquidation, merger or an
amendment to our Articles of Incorporation.
Although
there are no provisions in our charter or by-laws that may delay, defer or
prevent a change in control, we are authorized, without shareholder approval, to
issue shares of preferred stock that may contain rights or restrictions that
could have this effect.
Holders
of common stock are entitled to share in all dividends that the board of
directors, in its discretion, declares from legally available funds. In the
event of liquidation, dissolution or winding up, each outstanding share entitles
its holder to participate pro rata in all assets that remain after payment of
liabilities and after providing for each class of stock, if any, having
preference over the common stock. Holders of our common stock have no
pre-emptive rights, no conversion rights and there are no redemption provisions
applicable to our common stock.
The
issued and outstanding shares of our Common Stock were issued in accordance with
the exemptions from registration afforded by Section 4(2) of the Securities Act
of 1933.
Dividends
Since
inception we have not paid any dividends on our common stock. We currently do
not anticipate paying any cash dividends in the foreseeable future on our common
stock, when issued pursuant to this offering. Although we intend to retain our
earnings, if any, to finance the exploration and growth of our business, our
Board of Directors will have the discretion to declare and pay dividends in the
future.
Payment
of dividends in the future will depend upon our earnings, capital requirements,
and other factors, which our Board of Directors may deem relevant.
Recent Sales of Unregistered
Securities
Kraig
Biocraft Laboratories, Inc. was incorporated in April 2006 in Wyoming. Our
business office is located at 120 N. Washington Square, Suite 805, Lansing,
Michigan48950.
We were
incorporated in the State of Wyoming in April 2006 and on April 26, 2006
33,229,200 shares of our Class “A” common stock, were issued to Kim Thompson in
exchange for intellectual property. These shares were issued in reliance on the
exemption under Section 4(2) of the Securities Act of 1933, as amended (the
“Act”) and were issued as founder’s shares. These shares of our common stock
qualified for exemption under Section 4(2) of the Securities Act of 1933 since
the issuance shares by us did not involve a public offering. The offering was
not a “public offering” as defined in Section 4(2) due to the insubstantial
number of persons involved in the deal, size of the offering, manner of the
offering and number of shares offered. We did not undertake an offering in which
we sold a high number of shares to a high number of investors. In addition, Mr.
Thompson had the necessary investment intent as required by Section 4(2) since
he agreed to and received share certificates bearing a legend stating that such
shares are restricted pursuant to Rule 144 of the 1933 Securities Act. This
restriction ensures that these shares would not be immediately redistributed
into the market and therefore not be part of a “public offering.” Based on an
analysis of the above factors, we have met the requirements to qualify for
exemption under Section 4(2) of the Securities Act of 1933 for this
transaction.
On April28, 2006 we issued 400 shares of our Class “A” common stock to Samuel Ching at a
price per share of $.50, for an aggregate of $400 cash. On January26, 2007 we also issued 2,100,000 shares of our Class “A” common stock to Samuel
Ching at a price per share of $.0505 for an aggregate of
$106,000.00. These shares were issued in reliance on the exemption
under Section 4(2) of the Securities Act of 1933, as amended (the “Act”). These
shares of our common stock qualified for exemption under Section 4(2) of the
Securities Act of 1933 since the issuance shares by us did not involve a public
offering. The offering was not a “public offering” as defined in Section 4(2)
due to the insubstantial number of persons involved in the deal, size of the
offering, manner of the offering and number of shares offered. We did not
undertake an offering in which we sold a high number of shares to a high number
of investors. In addition, Mr. Ching had the necessary investment intent as
required by Section 4(2) since he agreed to and received share certificates
bearing a legend stating that such shares are restricted pursuant to Rule 144 of
the 1933 Securities Act. This restriction ensures that these shares would not be
immediately redistributed into the market and therefore not be part of a “public
offering.” Based on an analysis of the above factors, we have met the
requirements to qualify for exemption under Section 4(2) of the Securities Act
of 1933 for this transaction.
On April28, 2006 we issued 400 shares of our Class “A” common stock to Richard Duzenbury
at a price per share of $.50 for an aggregate of $400 cash. These
shares were issued in reliance on the exemption under Section 4(2) of the
Securities Act of 1933, as amended (the “Act”). These shares of our common stock
qualified for exemption under Section 4(2) of the Securities Act of 1933 since
the issuance shares by us did not involve a public offering. The offering was
not a “public offering” as defined in Section 4(2) due to the insubstantial
number of persons involved in the deal, size of the offering, manner of the
offering and number of shares offered. We did not undertake an offering in which
we sold a high number of shares to a high number of investors. In addition, Mr.
Duzenbury had the necessary investment intent as required by Section 4(2) since
he agreed to and received share certificates bearing a legend stating that such
shares are restricted pursuant to Rule 144 of the 1933 Securities Act. This
restriction ensures that these shares would not be immediately redistributed
into the market and therefore not be part of a “public offering.” Based on an
analysis of the above factors, we have met the requirements to qualify for
exemption under Section 4(2) of the Securities Act of 1933 for this
transaction.
On July5, 2006, pursuant to an Intellectual Property Agreement, we issued 1,750,000
shares of our Class “A” common stock to the University of Wyoming Foundation in
exchange for intellectual property. The Company holds a five year
call, dated from May 8, 2006, 700,000 shares held by the University of Wyoming
Foundation. These shares were issued in reliance on the exemption
under Section 4(2) of the Securities Act of 1933, as amended (the “Act”). These
shares of our common stock qualified for exemption under Section 4(2) of the
Securities Act of 1933 since the issuance shares by us did not involve a public
offering. The offering was not a “public offering” as defined in Section 4(2)
due to the insubstantial number of persons involved in the deal, size of the
offering, manner of the offering and number of shares offered. We did not
undertake an offering in which we sold a high number of shares to a high number
of investors. In addition, Mr. Duzenbury had the necessary investment intent as
required by Section 4(2) since he agreed to and received share certificates
bearing a legend stating that such shares are restricted pursuant to Rule 144 of
the 1933 Securities Act. This restriction ensures that these shares would not be
immediately redistributed into the market and therefore not be part of a “public
offering.” Based on an analysis of the above factors, we have met the
requirements to qualify for exemption under Section 4(2) of the Securities Act
of 1933 for this transaction.
On
September 12, 2006, March 21, 2007 and August 1, 2007 pursuant to a Consulting
Agreement, we issued an aggregate of 330,000 shares of our Class “A” common
stock to Malcolm Fraser for consulting services performed. Pursuant
to the Consulting Agreement, Mr. Fraser is contractually restricted from
reselling 175,000 shares for a period of 26 months from February 26,2007. In addition, the Consulting Agreement restricts Mr. Fraser from
resale of 60,000 shares for a period of 24 following the commencement of public
trade of the Company’s stock. These shares were issued in reliance on
the exemption under Section 4(2) of the Securities Act of 1933, as amended (the
“Act”). These shares of our common stock qualified for exemption under Section
4(2) of the Securities Act of 1933 since the issuance shares by us did not
involve a public offering. The offering was not a “public offering” as defined
in Section 4(2) due to the insubstantial number of persons involved in the deal,
size of the offering, manner of the offering and number of shares offered. We
did not undertake an offering in which we sold a high number of shares to a high
number of investors. In addition, Mr. Fraser had the necessary investment intent
as required by Section 4(2) since he agreed to and received share certificates
bearing a legend stating that such shares are restricted pursuant to Rule 144 of
the 1933 Securities Act. This restriction ensures that these shares would not be
immediately redistributed into the market and therefore not be part of a “public
offering.” Based on an analysis of the above factors, we have met the
requirements to qualify for exemption under Section 4(2) of the Securities Act
of 1933 for this transaction.
On
January 9, 2007, we issued an aggregate of 175,000 shares of our Class “A”
common stock to Worth Equity Fund, L.P., at a price per share of $0.0857, for an
aggregate of $15,000 cash. These shares were issued in reliance on
the exemption under Section 4(2) of the Securities Act of 1933, as amended (the
“Act”). These shares of our common stock qualified for exemption under Section
4(2) of the Securities Act of 1933 since the issuance shares by us did not
involve a public offering. The offering was not a “public offering” as defined
in Section 4(2) due to the insubstantial number of persons involved in the deal,
size of the offering, manner of the offering and number of shares offered. We
did not undertake an offering in which we sold a high number of shares to a high
number of investors. In addition, Worth Equity Fund, L.P. had the necessary
investment intent as required by Section 4(2) since he agreed to and received
share certificates bearing a legend stating that such shares are restricted
pursuant to Rule 144 of the 1933 Securities Act. This restriction ensures that
these shares would not be immediately redistributed into the market and
therefore not be part of a “public offering.” Based on an analysis of the above
factors, we have met the requirements to qualify for exemption under Section
4(2) of the Securities Act of 1933 for this transaction.
On May31, 2007 we issued an aggregate of 1,687,500 shares of our Class “A” common
stock to Lion Equity, at a price per share of $0.08, for an aggregate of
$135,000 cash. In addition, on September 12, 2007 we issued an
aggregate of 2,812,500 shares of our Class “A” common stock to Lion Equity
pursuant to the Securities Purchase Agreement. These shares were
issued in reliance on the exemption under Section 4(2) of the Securities Act of
1933, as amended (the “Act”). These shares of our common stock qualified for
exemption under Section 4(2) of the Securities Act of 1933 since the issuance
shares by us did not involve a public offering. The offering was not a “public
offering” as defined in Section 4(2) due to the insubstantial number of persons
involved in the deal, size of the offering, manner of the offering and number of
shares offered. We did not undertake an offering in which we sold a high number
of shares to a high number of investors. In addition, Lion Equity had the
necessary investment intent as required by Section 4(2) since he agreed to and
received share certificates bearing a legend stating that such shares are
restricted pursuant to Rule 144 of the 1933 Securities Act. This restriction
ensures that these shares would not be immediately redistributed into the market
and therefore not be part of a “public offering.” Based on an analysis of the
above factors, we have met the requirements to qualify for exemption under
Section 4(2) of the Securities Act of 1933 for this transaction.
On
September 12, 2007, we completed a Regulation D Rule 506 offering in which we
sold 9,016,500 shares of common stock to 32 investors, at a price per share of
$.03 for an aggregate offering price $270,195. The following sets forth the
identity of the class of persons to whom we sold these shares and the amount of
shares for each shareholder:
The
Common Stock issued in our Regulation D, Rule 506 Offering was issued in a
transaction not involving a public offering in reliance upon an exemption from
registration provided by Rule 506 of Regulation D of the Securities Act of 1933.
In accordance with Section 230.506 (b)(1) of the Securities Act of 1933, these
shares qualified for exemption under the Rule 506 exemption for this offerings
since it met the following requirements set forth in Reg.
ss.230.506:
(A)
No
general solicitation or advertising was conducted by us in connection with
the offering of any of the Shares.
(B)
At
the time of the offering we were not: (1) subject to the reporting
requirements of Section 13 or 15 (d) of the Exchange Act; or (2) an
“investment company” within the meaning of the federal securities
laws.
We have never utilized an underwriter
for an offering of our securities. Other than the securities mentioned above, we
have not issued or sold any securities.
Equity Compensation Plan
Information
The
following table sets forth certain information as of December 31, 2007, with
respect to compensation plans under which our equity securities are authorized
for issuance:
(a)
(b)
(c)
_________________
_________________
_________________
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
Weighted-average
exercise price of outstanding options, warrants and rights
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
Certain
statements contained herein, including, without limitation, statements
containing the words “believes”, “anticipates”, “expects” and words of similar
import, constitute forward-looking statements. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking
statements.
Such
factors include, among others, the following: international, national and local
general economic and market conditions: demographic changes; the ability of the
Company to sustain, manage or forecast its growth; the ability of the Company to
successfully make and integrate acquisitions; raw material costs and
availability; new product development and introduction; existing government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; competition; the loss of significant customers
or suppliers; fluctuations and difficulty in forecasting operating results;
changes in business strategy or development plans; business disruptions; the
ability to attract and retain qualified personnel; the ability to protect
technology; and other factors referenced in this and previous
filings.
Given
these uncertainties, readers of this prospectus and investors are cautioned not
to place undue reliance on such forward-looking statements.
Plan of
Operations
During
the next twelve months, we expect to take the following steps in connection with
the further development of our business and the implementation of our plan of
operations:
»
We
expect to spend approximately $150,000 on collaborative research and
development of high strength polymers at the University of Notre Dame over
the next twelve months. We believe that this research is
essential to our product development. If our financing will
allow, management will give strong consideration to accelerating the pace
of spending on research and development within the University of Notre
Dame’s laboratories.
»
We
expect to spend approximately $13,800 on collaborative research and
development of high strength polymers and spider silk protein at the
University of Wyoming over the next twelve months. We believe
that this research is important to our product
development. This level of research spending at the university
is also a requirement of our licensing agreement with the
university. If our financing will allow, management will give
strong consideration to accelerating the pace of spending on research and
development within the University of Wyoming’s
laboratories.
»
We
will actively consider pursuing collaborative research opportunities with
other university laboratories in the area of high strength
polymers. If our financing will allow, management will give
strong consideration to increasing the depth of our research to include
polymer production technologies that are closely related to our core
research
»
We
will consider buying an established revenue producing company which is
operating in the biotechnology arena, in order to broaden our financial
base and increase our research and development capability. We expect to
use a combination of stock and cash for any such
purchase.
»
We
will also actively consider pursuing collaborative research opportunities
with university laboratories in areas of research which overlap the
company’s existing research and development. One such potential
area for collaborative research which the company is considering is
protein expression platforms. If our financing will allow,
management will give strong consideration to increasing the breadth of our
research to include protein expression platform
technologies.
We have
not previously demonstrated that we will be able to expand our business through
an increased investment in our research and development efforts. We cannot
guarantee that the research and development efforts described in this
Registration Statement will be successful. Our business is subject to risks
inherent in growing an enterprise, including limited capital resources, risks
inherent in the research and development process and possible rejection of our
products in development.
If
financing is not available on satisfactory terms, we may be unable to continue
expanding our operations. Equity financing will result in a dilution to existing
shareholders.
Revenue
for the year ended December 31, 2007 was $0. This compares to $0 in
revenue for the preceding period dated from August 25, 2006 through December 31,2006. No sales are anticipated during the next twelve months as the
company will remain in the research and development stage.
Research
and development expenses for the year ended December 31, 2007 was
$177,019. This compares to $164,913 spent on research and development
in the period from August 25, 2006 to December 31,2006.
We
believe we can not satisfy our cash requirements for the next twelve months with
our current cash. Completion of our plan of operation is subject to
attaining adequate financing. We cannot assure investors that
adequate financing will be available. In the absence of such financing, we may
be unable to proceed with our plan of operations.
We
anticipate that our operational, and general & administrative expenses for
the next 12 months will total approximately $400,000. We do not anticipate the
purchase or sale of any significant equipment. We also do not expect any
significant additions to the number of employees. The foregoing represents our
best estimate of our cash needs based on current planning and business
conditions. The exact allocation, purposes and timing of any monies raised in
subsequent private financings may vary significantly depending upon the exact
amount of funds raised and our progress with the execution of our business
plan.
In the
event we are not successful in obtaining financing, we may not be able to
proceed with our business plan for the research and development of our
products. We anticipate that we will incur operating losses in the
foreseeable future. Therefore, our auditors have raised substantial doubt about
our ability to continue as a going concern.
Off-Balance Sheet
Arrangements
We do not
have any outstanding derivative financial instruments, off-balance sheet
guarantees, interest rate swap transactions or foreign currency contracts. We do
not engage in trading activities involving non-exchange traded
contracts.
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors of:
Kraig
Biocraft Laboratories, Inc.
We have
audited the accompanying balance sheets of Kraig Biocraft Laboratories, Inc., (a
development stage company), as of December 31, 2007 and 2006 and the related
statements of operations, changes in stockholders' deficiency and cash flows for
the year ended December 31, 2007, the period April 25, 2006 (Inception) to
December 31, 2006 and the period April 25, 2006 (Inception) to December 31,2007. The financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly in all
material respects, the financial position of Kraig Biocraft Laboratories, Inc.
as of December 31, 2007 and 2006 and the results of its operations and its cash
flows for the year ended December 31, 2007, the period April 25, 2006
(Inception) to December 31, 2006 and the period April 25, 2006, (Inception) to
December 31, 2007 in conformity with accounting principles generally accepted in
the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements. The Company is in the development stage with a working capital and
stockholders' deficiency of $182,197 and used $421,077 of cash in operations
from inception. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans concerning these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
Adjustments
to reconcile net loss to net cash used in operations
Stock
issued for services
22,000
145,780
167,780
Warrants
issued to employees
-
126,435
126,435
Changes
in operating assets and liabilities:
Increase
in prepaid expenses
(12,500
)
-
(12,500
)
Increase
in accrued expenses and other payables
26,574
131,820
158,394
Increase
in royality agreement payable - related party
12,857
107,143
120,000
Increase
in accounts payable
12,988
9,133
22,121
Net
Cash Provided by (Used In) Operating Activities
(411,067
)
(10,010
)
(421,077
)
Cash
Flows From Financing Activities:
Proceeds
from Notes Payable - Stockholder
-
10,000
10,000
Repayments
of Notes Payable - Stockholder
(10,000
)
-
(10,000
)
Proceeds
from issuance of common stock
526,495
400
526,895
Net
Cash Provided by Financing Activities
516,495
10,400
526,895
Net
Increase (Decrease) in Cash
105,428
390
105,818
Cash
at Beginning of Period/Year
390
-
-
Cash
at End of Period/Year
$
105,818
$
390
$
105,818
Supplemental
disclosure of cash flow information:
Cash
paid for interest
$
-
$
-
$
-
Cash
paid for taxes
$
-
$
-
$
-
SUPPLEMENTAL
DISCLOSURE OF NON CASH ITEMS
During
the period ended December 31, 2006, the principal stockholder contributed
1,166,650 shares of
common stock to the Company as an in kind contribution of stock. The
shares were retired
by the Company.
In
accordance with the May 2007 stock purchase agreement which contains an
anti-dilution clause which requires the Company to issue additional common
shares under the stock purchase agreement for any subsequent issuance at a price
below $.08 per share for a period of 12 months. The Company has issued 2,812,500
additional shares through September 2007 as a result of the subsequent stock
issuances in the amount of $84,375 ($0.03/share).
NOTE
1 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES AND ORGANIZATION
(A)
Organization
Kraig
Biocraft Laboratories, Inc. (a development stage company) (the "Company") was
incorporated under the laws of the State of Wyoming on April 25, 2006. The
Company was organized to develop high strength, protein based fiber, using
recombinant DNA technology, for commercial applications in the textile and
specialty fiber industries.
Activities
during the development stage include developing the business plan, negotiating
intellectual property agreements and raising capital.
(B) Use of
Estimates
In
preparing financial statements in conformity with generally accepted accounting
principles, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reported period. Actual results could differ from
those estimates.
(C) Cash
For
purposes of the cash flow statements, the Company considers all highly liquid
investments with original maturities of three months or less at the time of
purchase to be cash equivalents.
(D) Loss Per
Share
Basic and
diluted net loss per common share is computed based upon the weighted average
common shares outstanding as defined by Financial Accounting Standards No. 128,
“Earnings per Share.” As of December 31, 2007 and 2006, the Company
does not have any dilutive securities outstanding.
(E) Research and Development
Costs
The
Company expenses all research and development costs as incurred for which there
is no alternative future use. These costs also include the expensing of employee
compensation and employee stock based compensation.
(F) Income
Taxes
The
Company accounts for income taxes under the Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes” (“Statement
109”).
Under
Statement 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
As of
December 31, 2007, and 2006the Company has a net operating loss carry forward
of approximately $852,061 and $403,866, respectively,
available to offset future taxable income through 2027. The valuation
allowance at December 31, 2007 was $289,701. The change in the valuation
allowance for the year ended December 31, 2007 and 2006 was an increase of
$152,380 and $137,321, respectively.
(G) Stock-Based
Compensation
The
Company has adopted the provisions of SFAS No. 123R and related interpretations
as provided by SAB 107. As such, compensation cost is measured on the
date of grant at their fair value. Such compensation amounts, if any,
are amortized over the respective vesting periods of the option
grant.
Common
stock, stock options and common stock warrants issued to other than
employees or
directors are recorded on the basis of their fair value, as required by SFAS No.
123(R), which is measured as of the date required by EITF Issue 96-18,
“Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services.” In accordance
with EITF 96-18, the stock options or common stock warrants are valued using the
Black-Scholes option pricing model on the basis of the market price of the
underlying common stock on the “valuation date,” which for options and warrants
related to contracts that have substantial disincentives to non-performance is
the date of the contract, and for all other contracts is the vesting date.
Expense related to the options and warrants is recognized on a straight-line
basis over the shorter of the period over which services are to be received or
the vesting period. Where expense must be recognized prior to a valuation date,
the expense is computed under the Black-Scholes option pricing model on the
basis of the market price of the underlying common stock at the end of the
period, and any subsequent changes in the market price of the underlying common
stock up through the valuation date is reflected in the expense recorded in the
subsequent period in which that change occurs.
(H) Business
Segments
The
Company operates in one segment and therefore segment information is not
presented.
In June
2007, the Emerging SEC’s Issues Task Force (“EITF”) issued EITF No. 07-3, Accounting for Nonrefundable Advance
Payments for Goods or Services to Be Used in Future Research and Development
Activities, (“EITF 07-3”). EITF 07-3 provides guidance for upfront
payments related to goods and services of research and development costs and is
effective for fiscal years beginning after December 15, 2007. The Company is
currently evaluating the impact of EITF 07-3 on its financial
statements.
In June
2007, the EITF issued EITF No. 07-01, Accounting for Collaborative
Arrangements, (“EITF 07-1”). EITF 07-1 provides guidance for companies in
the biotechnology or pharmaceutical industries that may enter into agreements
with other companies to collaboratively develop, manufacture, and market a drug
candidate (Collaboration Agreements) and is effective for fiscal years beginning
after December 15, 2007. The Company does not expect that EITF 07-01 will have
an effect on its financial condition or results of operations.
In
September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“FAS
157”), which defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosures about
fair value measurements. FAS 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007. The Company does not expect
the adoption of FAS 157 to significantly affect its financial condition or
results of operations.
In
February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities, Including an amendment of SFAS 115
(“FAS 159”), which permits companies to choose to measure many financial
instruments and certain other items at fair value. FAS 159 is effective for
fiscal years beginning after November 15, 2007 and interim periods within those
fiscal years. The Company is currently evaluating the effect FAS 159 will have
on our consolidated financial position and results of operations
In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
160, “Noncontrolling Interests
in Consolidated Financial Statements – an amendment of ARB No.
51”. This statement improves the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting
standards that require; the ownership interests in subsidiaries held by parties
other than the parent and the amount of consolidated net income attributable to
the parent and to the noncontrolling interest be clearly identified and
presented on the face of the consolidated statement of income, changes in a
parent’s ownership interest while the parent retains its controlling financial
interest in its subsidiary be accounted for consistently, when a subsidiary is
deconsolidated, any retained noncontrolling equity investment in the former
subsidiary be initially measured at fair value, entities provide sufficient
disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners.
SFAS No.
160 affects those entities that have an outstanding noncontrolling interest in
one or more subsidiaries or that deconsolidate a subsidiary. SFAS No.
160 is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008. Early adoption is prohibited.
The adoption of this statement is not expected to have a material effect on the
Company's financial statements.
(J) Concentration of Credit
Risk
The
Company at times has cash in bank in excess of FDIC insurance limits. At
December 31, 2007the Company had approximately $7,392 in excess of FDIC
insurance limits.
(K)
Reclassification
The 2006
financial statements have been reclassified to conform to the 2007
presentation.
NOTE
2 GOING
CONCERN
As
reflected in the accompanying financial statements, the Company is in the
development stage, has a working capital deficiency and stockholders deficiency
of $182,197 and used $421,077 of cash in operations from
inception. This raises substantial doubt about its ability to
continue as a going concern. The ability of the Company to continue
as a going concern is dependent on the Company’s ability to raise additional
capital and implement its business plan. The financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
Management
believes that actions presently being taken to obtain additional funding and
implement its strategic plans provide the opportunity for the Company to
continue as a going concern.
NOTE
3 STOCKHOLDERS’
DEFCIT
(A) Common Stock Issued for
Cash
On
January 8, 2007the Company issued 175,000 shares of common stock for $15,000
($0.09/share). This agreement was subsequently terminated effective
May 23, 2007.
On
January 22, 2007the Company issued 1,200,000 shares of common stock for
$103,000 ($0.09/share). In addition, 900,000 shares were issued
for $3,000 ($0.0033/share).
On April28, 2006, the Company issued 800 shares of common stock for cash of $400 ($0.50
per share).
On April4, 2007, the Company issued 187,500 shares of common stock for cash of $15,000
($0.08 per share).
On April20, 2007, the Company issued 187,500 shares of common stock for cash of $15,000
($0.08 per share).
On May18, 2007, the Company issued 1,312,500 shares of common stock for cash of
$105,000 ($0.08 per share).
On August28, 2007the Company entered into a stock purchase agreement to issue 8,049,500
shares common stock in the amount of $241,485 ($0.03/share).
On August29, 2007the Company entered into a stock purchase agreement to issue 20,000
shares common stock in the amount of $600 ($0.03/share).
On August29, 2007the Company entered into a stock purchase agreement to issue 830,000
shares common stock in the amount of $24,900 ($0.03/share).
On
September 1, 2007the Company entered into a stock purchase agreement to issue
2,500 shares common stock in the amount of $75 ($0.03/share).
On
September 5, 2007the Company entered into a stock purchase agreement to issue
12,000 shares common stock in the amount of $360 ($0.03/share).
On
September 12, 2007the Company entered into a stock purchase agreement to issue
102,500 shares common stock in the amount of $3,075($0.03/share).
In
accordance with the May 2007 stock purchase agreement which contains an
anti-dilution clause which requires the Company to issue additional common
shares under the stock purchase agreement for any subsequent issuance at a price
below $.08 per share for a period of 12 months. The Company has issued 2,812,500
additional shares through September 2007 as a result of the subsequent stock
issuances $0.03/share.
(B) Common Stock Issued for
Intellectual Property
On April26, 2006, the Company issued 33,229,200 shares of common stock to its founder
having a fair value of $180 ($0.000005/share) in exchange for intellectual
property. The fair value of the patent was determined based upon the
historical cost of the intellectual property contributed by the
founder.
On May 8,2006, the Company entered into a license agreement for research and development.
Pursuant to the terms of the agreement, the Company issued 1,750,000 of common
stock upon execution of the agreement. The Company also received a five-year
call option from the license holder to repurchase 700,000 common shares at an
exercise price of $150,000 or $.21 per share. The option gives the Company the
right, but not the obligation to repurchase the shares of common
stock. The call option expires May 4, 2011. As of December 31, 2007
the fair value of the call option was less then the exercise price of the option
and no value has been recorded for the option (See Note 4).
On July1, 2006the Company entered into a five year consulting agreement for research
and development. Pursuant to the terms of the agreement, the Company paid 70,000
shares of common stock upon execution. These shares had a fair value
of $5,600 ($0.08/share) based upon the recent cash offering
price. Additionally, 200,000 shares of common stock were issued on
May 18, 2007 with a fair value of $16,000 ($0.08/share). As of
December 31, 2007the Company issued 60,000 shares of common stock for
consulting services rendered with a fair value of $6,000
($0.10/share).
(D) Cancellation and
Retirement of Common Stock
On
December 29, 2006, the Company’s founder returned 1,166,650 shares of common
stock to the Company. These shares were cancelled and
retired. Accordingly, the net effect on equity is $0.
(E) Common Stock
Warrants
During
2006, the Company issued 4,200,000 warrants to an officer under his employment
agreement. The Company recognized an expense of $126,435 for
the period from inception to December 31, 2006. The Company recorded
the fair value of the warrants based on the fair value of each
warrant grant estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants in
2006, dividend yield of zero, expected volatility of 183%; risk-free interest
rates of 4.98%, expected life of one year. The warrants vested
immediately. The options expire between 5 and 9 years from the
date of issuance and have an exercise price of between $.21 and $.40 per share.
During November 2006, the Company and the officer entered into an amendment to
the employment agreement whereby all the warrants were retired.
On April26, 2006, the Company entered into a five-year employment agreement with the
Company’s Chairman and Chief Executive Officer. The agreement renews annually so
that at all times, the term of the agreement is five years. Pursuant
to this agreement, the Company will pay an annual base salary of $185,000 for
the period May 1, 2006 through December 31, 2006. Base pay will be
increased each January 1st, for
the subsequent twelve month periods by six percent. The officer will
also be entitled to life, disability, health and dental
insurance. In addition, the officer received 700,000 five year
warrants at an exercise price of $.21 per share, 1,500,000 eight year warrants
at an exercise price of $ .33 per share and 2,000,000 nine year warrants at an
exercise price of $ .40 per share (See Note 3(E)). The warrants fully
vested on the date of grant. The agreement also calls for the
issuance of warrants and increase in the officer’s base compensation upon the
Company reaching certain milestones:
1. Upon the Company’s
successful laboratory development of a new silk fiber composed of one or more
proteins that are exogenous to a host, the Company will issue 500,000 eight year
warrants at an exercise price of $.20 per share and raise executive’s base
salary by 14%.
2. Upon the Company’s
successful laboratory development of a new silk fiber composed of two or more
proteins that are exogenous to a host, the Company will issue 600,000 eight year
warrants at an exercise price of $.18 per share and raise executive’s base
salary by 15%.
3. Upon the Company’s
successful laboratory development of a new silk fiber composed of at least in
part of one or more synthetic proteins, the Company will issue 900,000 eight
year warrants at an exercise price of $.18 per share and raise executive’s base
salary by 18%.
4. Upon the Company’s
successful laboratory development of a new silk fiber composed of at least in
part of one or more proteins that are genetic modifications or induced mutations
of a host silk protein, the Company will raise the executive’s base salary by
8%.
5. Upon the Company becoming
either a registered company or upon its stock trading and the company achieving
a market capitalization in excess of $35 million for over 120 calendar day
period, the executive’s base salary will increase to
$225,000.
6. Upon the Company becoming
either a registered company or upon its stock trading and the company achieving
a market capitalization in excess of $65 million for over 91 calendar day
period, the executive’s base salary will increase to
$260,000.
7. Upon the Company becoming
either a registered company or upon its stock trading and the company achieving
a market capitalization in excess of $100 million for over 91 calendar day
period, the executive’s base salary will increase to
$290,000.
8. Upon the Company becoming
either a registered company or upon its stock trading and the company achieving
a market capitalization in excess of $200 million for over 120 calendar day
period, the executive’s base salary will increase to
$365,000.
9. Upon the Company becoming
either a registered company or upon its stock trading and the company achieving
a market capitalization in excess of $350 million for over 150 calendar day
period, the executive’s base salary will increase to
$420,000.
On
November 6, 2006, the Company entered into an addendum to the employment
agreement whereby the officer agreed to retire all stock warrants issued or to
be issued under his employment agreement in return for an increase in his
severance allowance to $600,000 or seventy five percent of total salary due
under the remaining term of the employment agreement, which ever is greater and
a death benefit of $300,000 or thirty five percent of the total salary due under
the remaining term of the employment agreement.
In
addition, upon expiration or termination of the employment agreement, the
Company agrees to keep the officer employed as a consultant for a period of six
years at a rate of $4,000 per month with annual increases of 3%. The agreement
also calls for certain increases based on milestones reached by the company,
including:
1. If
the company achieves gross sales exceeding $10 million or net income exceeding
$1 million for any two years within the ten year period after the date of this
agreement or a market capitalization in excess of $45 million for over 180
calendar days within six years from the date of this agreement, the term of the
consulting agreement will be extended to 10 years.
2. If
the company achieves gross sales exceeding $19 million or net income exceeding
$3 million for any two years within the twelve year period after the date of
this agreement or a market capitalization in excess of $65 million for over 180
calendar days within six years from the date of this agreement, the term of the
consulting agreement will be extended to 20 years or the life of the officer and
his spouse at a rate of $6,500 per month with a 3% annual increase.
3. If
the company achieves gross sales exceeding $38 million or net income exceeding
$6 million for any two years within the twelve year period after the date of
this agreement or a market capitalization in excess of $120 million for over 180
calendar days within six years from the date of this agreement, the term of the
consulting agreement will be extended to 20 years or the life of the officer and
his spouse at a rate of $10,000 per month with a 3% annual
increase.
4. If
the company achieves gross sales exceeding $59 million or net income exceeding
$9 million for any year within the twelve year period after the date of this
agreement or a market capitalization in excess of $210 million for over 180
calendar days within six years from the date of this agreement, the term of the
consulting agreement will be extended to 20 years or the life of the officer and
his spouse at a rate of $15,000 per month with a 3% annual
increase.
5. If
the company achieves gross sales exceeding $78 million or net income exceeding
$12 million for any year within the twelve year period after the date of this
agreement or a market capitalization in excess of $320 million for over 180
calendar days within six years from the date of this agreement, the term of the
consulting agreement will be extended to 20 years or the life of the officer and
his spouse at a rate of $20,000 per month with a 3% annual
increase.
(B) License
Agreement
On May 8,2006, the Company entered into a license agreement. Pursuant to the
terms of the agreement, the Company paid a non-refundable license fee of
$10,000. The Company will pay a license maintenance fee of $10,000 on the one
year anniversary of this agreement and each year thereafter. The
Company will pay an annual research fee of $13,700 with first payment due
January 2007, then on each subsequent anniversary of the effective date
commencing May 4, 2007. Pursuant to the terms of the agreement the
Company may be required to pay additional fees aggregating up to a maximum of
$10,000 a year for patent maintenance and prosecution relating to the licensed
intellectual property. (See Note
3(C))
(C) Royalty and Research
Agreements
On
December 26, 2006, the Company entered into an addendum to the intellectual
property transfer agreement with an officer. In consideration of the
Company issuing either 200,000 preferred shares with the following preferences;
no dividends and voting rights equal to 100 common shares per share of preferred
stock or the payment of $120,000, the officer agreed to terminate the royalty
payments due under the agreement and give title to the exclusive license for the
non protective apparel use of the intellectual property to the
Company. On the date of the agreement, the Company did not have any
preferred stock authorized with the required
preferences.
In
accordance with SFAS 150, the Company determined that the present value of the
payment of $120,000 that was due on December 26, 2007, the one year anniversary
of the addendum, should be recorded as an accrued expense until such time as the
Company has the ability to assert that it has preferred shares
authorized. As of December 31, 2007, 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
February 1, 2007the Company entered into a consulting agreement for research
and development for a period of one year. Pursuant to the terms of
the agreement, the Company paid $50,000 upon execution. As of
December 31, 2007, the initial payment of $50,000 and the first and second
installments of $50,000 have been paid for a total amount of
$150,000. The consulting agreement is being amortized over the life
of the contract.
On
February 26, 2007the Company entered into a five year consulting agreement for
research and development. Pursuant to the terms of the agreement, the Company
paid 200,000 shares of common stock upon execution. These shares had
a fair value of $16,000 ($0.08/share) based upon the recent cash offering price.
Additionally, the Company will be required to pay $1,000 per month, or at the
Company’s option, the consulting fee may be paid in the form of Company common
stock based upon the greater of $0.10 per share or the average of the closing
price of the Company’s shares over the five days preceding such stock
issuance. As of December 31, 2007the Company issued 60,000 shares of
common stock for consulting services rendered with a fair value of $6,000
($0.10/share). The agreement also requires the Company to issue up to
450,000 additional shares to the consultant upon the consultant reaching certain
milestone events. As of December 31, 2007, the consultant has not
reached the milestone events and no additional shares are earned.
NOTE
5 RELATED PARTY
TRANSACTIONS
On
October 6, 2006the Company received $10,000 from a principal
stockholder. Pursuant to the terms of the loan, the
advance bears interest at 12%, is unsecured and matures on May 1, 2007. At
December 31, 2007, the Company recorded interest expense and related accrued
interest payable of $776. As of December 31, 2007, the loan
principle was repaid.
During
2006, the Company entered into addendum to the Intellectual Property transaction
and agreed to issue the CEO either 20,000 preferred shares or a payment of
$120,000 (See Note 4 (C).
On
January 1, 2007, the company entered into a one year lease agreement with an
officer for office space. The agreement calls for monthly rent of
$100 plus the reimbursement to officer for internet services at $50 per
month. Payments under the agreement totaled $1,800 for the year ended
December 31, 2007.
NOTE
6 SUBSEQUENT
EVENT
On
January 15, 2008the Company issued 40,000 shares of common stock for consulting
services rendered with a fair value of $4,000 ($0.10/share) (See Note
4(C)).
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities
Exchange Act of 1934, as amended (Exchange Act), as of December 31, 2007. Based
on this evaluation, our principal executive officer and principal financial
officers have concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in the
reports we file or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms and that our disclosure and controls are
designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is accumulated and
communicated to our management, including our principal executive and principal
financial officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.
Changes in internal
controls
We have
not made any changes to our internal controls subsequent to the Evaluation Date.
We have not identified any deficiencies or material weaknesses or other factors
that could significantly affect these controls, and therefore, no corrective
action was taken.
Set forth
below is a brief description of the background and business experience of our
sole executive officer and director for the past five years:
KIM
THOMPSON.
Mr. Thompson was a founder of the
California law firm of Ching & Thompson which was founded in 1997 where
he specialized in commercial litigation. He has been a partner in the
Illinois law firm of McJessy, Ching & Thompson since 2004 where he also
specializes in commercial litigation. Mr. Thompson received his
bachelor’s degree in applied economics from James Madison College, Michigan
State University, and his Juris Doctorate from the University of
Michigan.
Our
directors are appointed for a one-year term to hold office until the next annual
general meeting of our shareholders or until removed from office in accordance
with our bylaws. Our officers are appointed by our board of directors and hold
office until removed by the board. Mr. Thompson is employed as the
CEO of the company pursuant to a five year employment contract.
Our
officer and director has not filed any bankruptcy petition, been convicted of or
been the subject of any criminal proceedings or the subject of any order,
judgment or decree involving the violation of any state or federal securities
laws within the past five (5) years.
Certain Legal
Proceedings
No
director, nominee for director, or executive officer of the Company has appeared
as a party in any legal proceeding material to an evaluation of his ability or
integrity during the past five years.
Compliance With Section
16(A) Of The Exchange Act.
Section
16(a) of the Exchange Act requires the Company’s officers and directors, and
persons who beneficially own more than 10% of a registered class of the
Company’s equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and are required to
furnish copies to the Company. To the best of the Company’s knowledge, any
reports required to be filed were timely filed in fiscal year ended December 31,2007.
Code of
Ethics
We have
adopted a Code of Ethics applicable to our Chief Executive (Officer and Chief
Financial Officer. This Code of Ethics is filed herewith as an
exhibit.
ITEM
9A. CONTROLS AND PROCEDURES
Pursuant
to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”),
the Company carried out an evaluation, with the participation of the Company’s
management, including the Company’s Chief Executive Officer (“CEO”) and Chief
Accounting Officer (“CAO”) (the Company’s principal financial and accounting
officer), of the effectiveness of the Company’s disclosure controls and
procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the
end of the period covered by this report. Based upon that evaluation, the
Company’s CEO and CAO concluded that the Company’s disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in the reports that the Company files or submits under the Exchange
Act, is recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to the Company’s management, including the Company’s CEO and
CAO, as appropriate, to allow timely decisions regarding required
disclosure.
Management’s Report on
Internal Controls over Financial Reporting
Internal
control over financial reporting is a process to provide reasonable assurance
regarding the reliability of consolidated financial reporting and the
preparation of financial statements for external purposes in accordance with
U.S. generally accepted accounting principles. There has been no change in
the Company’s internal control over financial reporting during the year ended
December 31, 2007 that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
The
Company’s management, including the Company’s CEO and CAO, does not expect that
the Company’s disclosure controls and procedures or the Company’s internal
controls will prevent all errors and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, 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 the
controls can provide absolute assurance that all control issues and instances of
fraud, if any, within the Company have been detected.
Management
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, management concluded that the
company’s internal control over financial reporting was effective as of December31, 2007.
The
following summary compensation table sets forth all compensation awarded to,
earned by, or paid to the named executive officers paid by us during the fiscal
years ended December 31, 2007 and 2006 in all capacities for the accounts of our
executives, including the Chief Executive Officer (CEO) and Chief Financial
Officer (CFO):
SUMMARY
COMPENSATION TABLE
Name
and Principal Position
Year
Salary
($)
Bonus
($)
Stock
Awards
($)
Option
Awards
($)
Non-Equity
Incentive Plan Compensation ($)
Non-Qualified
Deferred Compensation Earnings
($)
All
Other Compensation
($)
Totals
($)
Kim
Thompson
2006
$
123,333(1)
0
0
$
126,435(2)
0
0
0
$
249,768
President,
Chief Executive Officer and Director
2007
$
196,100
0
0
0
0
0
8,204(3)
$
204,304
1)
Prorated
based upon a salary of $185,000 for the year such amount has not been paid
but has been accrued.
2)
None
of the options were exercised and have been subsequently
cancelled.
3)
For
the calendar year 2007, Kim Thompson is to receive $7,229 in medical and
dental insurance as well as $950 for automobile expenses pursuant to an
employment agreement entered into with
us.
Option Grants Table. There
were no individual grants of stock options to purchase our common stock made to
the executive officer named in the Summary Compensation Table from January 1,2007 through December 31, 2007. Warrants were granted to the
executive officer in 2006, however the same have been returned to the
corporation unexercised, and have been terminated.
Aggregated Option Exercises and
Fiscal Year-End Option Value Table. There were no stock options exercised
during period ending December 31, 2007, by the executive officer named in the
Summary Compensation Table.
Long-Term Incentive Plan (“LTIP”)
Awards Table. There were no awards made to a named executive officer in
the last completed fiscal year under any LTIP
Employment
Agreement
On April26, 2006, the Company entered into a five-year employment agreement with the
Company’s Chairman and Chief Executive Officer. The agreement renews annually so
that at all times, the term of the agreement is five years. Pursuant
to this agreement, the Company will pay an annual base salary of $185,000 for
the period May 1, 2006 through December 31, 2006. Base pay will be
increased each January 1st, for the subsequent twelve
month periods by six percent. The officer will also be entitled to
life, disability, health and dental insurance. In addition, the
officer received 700,000 five year warrants at an exercise price of $.21 per
share, 1,500,000 eight year warrants at an exercise price of $ .33 per share and
2,000,000 nine year warrants at an exercise price of $ .40 per share (See Note
3(E)). The warrants fully vested on the date of grant. The
agreement also calls for the issuance of warrants and increase in the officer’s
base compensation upon the Company reaching certain milestones:
1. Upon the Company’s
successful laboratory development of a new silk fiber composed of one or more
proteins that are exogenous to a host, the Company will issue 500,000 eight year
warrants at an exercise price of $.20 per share and raise executive’s base
salary by 14%.
2. Upon the Company’s
successful laboratory development of a new silk fiber composed of two or more
proteins that are exogenous to a host, the Company will issue 600,000 eight year
warrants at an exercise price of $.18 per share and raise executive’s base
salary by 15%.
3. Upon the Company’s
successful laboratory development of a new silk fiber composed of at least in
part of one or more synthetic proteins, the Company will issue 900,000 eight
year warrants at an exercise price of $.18 per share and raise executive’s base
salary by 18%.
4. Upon the Company’s
successful laboratory development of a new silk fiber composed of at least in
part of one or more proteins that are genetic modifications or induced mutations
of a host silk protein, the Company will raise the executive’s base salary by
8%.
5. Upon the Company becoming
either a registered company or upon its stock trading and the company achieving
a market capitalization in excess of $35 million for over 120 calendar day
period, the executive’s base salary will increase to $225,000.
13
6. Upon the Company becoming
either a registered company or upon its stock trading and the company achieving
a market capitalization in excess of $65 million for over 91 calendar day
period, the executive’s base salary will increase to $260,000.
7. Upon the Company becoming
either a registered company or upon its stock trading and the company achieving
a market capitalization in excess of $100 million for over 91 calendar day
period, the executive’s base salary will increase to $290,000.
8. Upon the Company becoming
either a registered company or upon its stock trading and the company achieving
a market capitalization in excess of $200 million for over 120 calendar day
period, the executive’s base salary will increase to $365,000.
9. Upon the Company becoming
either a registered company or upon its stock trading and the company achieving
a market capitalization in excess of $350 million for over 150 calendar day
period, the executive’s base salary will increase to $420,000.
On
November 6, 2006, the Company entered into an addendum to the employment
agreement whereby the officer agreed to retire all stock warrants issued or to
be issued under his employment agreement in return for an increase in his
severance allowance to $600,000 or seventy five percent of total salary due
under the remaining term of the employment agreement, which ever is greater and
a death benefit of $300,000 or thirty five percent of the total salary due under
the remaining term of the employment agreement.
In
addition, upon expiration or termination of the employment agreement, the
Company agrees to keep the officer employed as a consultant for a period of six
years at a rate of $4,000 per month with annual increases of 3%. The agreement
also calls for certain increases based on milestones reached by the company,
including:
1. If
the company achieves gross sales exceeding $10 million or net income exceeding
$1 million for any two years within the ten year period after the date of this
agreement or a market capitalization in excess of $45 million for over 180
calendar days within six years from the date of this agreement, the term of the
consulting agreement will be extended to 10 years.
2. If
the company achieves gross sales exceeding $19 million or net income exceeding
$3 million for any two years within the twelve year period after the date of
this agreement or a market capitalization in excess of $65 million for over 180
calendar days within six years from the date of this agreement, the term of the
consulting agreement will be extended to 20 years or the life of the officer and
his spouse at a rate of $6,500 per month with a 3% annual increase.
3. If
the company achieves gross sales exceeding $38 million or net income exceeding
$6 million for any two years within the twelve year period after the date of
this agreement or a market capitalization in excess of $120 million for over 180
calendar days within six years from the date of this agreement, the term of the
consulting agreement will be extended to 20 years or the life of the officer and
his spouse at a rate of $10,000 per month with a 3% annual
increase.
4. If
the company achieves gross sales exceeding $59 million or net income exceeding
$9 million for any year within the twelve year period after the date of this
agreement or a market capitalization in excess of $210 million for over 180
calendar days within six years from the date of this agreement, the term of the
consulting agreement will be extended to 20 years or the life of the officer and
his spouse at a rate of $15,000 per month with a 3% annual
increase.
5. If
the company achieves gross sales exceeding $78 million or net income exceeding
$12 million for any year within the twelve year period after the date of this
agreement or a market capitalization in excess of $320 million for over 180
calendar days within six years from the date of this agreement, the term of the
consulting agreement will be extended to 20 years or the life of the officer and
his spouse at a rate of $20,000 per month with a 3% annual
increase.
The
following table sets forth the number and percentage of shares of our common
stock owned as of December 31, 2007 by all persons (i) known to us who own
more than 5% of the outstanding number of such shares, (ii) by our director, and
(iii) by our sole officer and director as a group. Unless otherwise indicated,
each of the stockholders has sole voting and investment power with respect to
the shares beneficially owned.
On
October 6, 2006the Company received $10,000 from a principal
stockholder. Pursuant to the terms of the loan, the
advance bears interest at 12%, is unsecured and matures on May 1, 2007. At
December 31, 2007, the Company recorded interest expense and related accrued
interest payable of $776. As of December 31, 2007, the loan
principle was repaid.
During
2006, the Company entered into addendum to the Intellectual Property transaction
and agreed to issue the CEO either 20,000 preferred shares or a payment of
$120,000 (See Note 4 (C).
On
January 1, 2007, the company entered into a one year lease agreement with an
officer for office space. The agreement calls for monthly rent of
$100 plus the reimbursement to officer for internet services at $50 per
month. Payments under the agreement totaled $1,800 for the year ended
December 31, 2007.
For the
Company’s fiscal year ended December 31, 2007 and 2006, we were billed $10,684
and $12,000 by our present principal accountant for professional services
rendered for the audit of our financial statements.
For the
Company’s fiscal year ended December 31, 2007 and 2006, we were not billed for
professional services rendered for tax compliance, tax advice, and tax
planning.
All Other
Fees
The
Company did not incur any other fees related to services rendered by our
principal accountant for the fiscal years ended December 31, 2007 and
2006.
Audit and Non-Audit Service
Pre-Approval Policy
In
accordance with the requirements of the Sarbanes-Oxley Act of 2002 and the rules
and regulations promulgated thereunder, the Audit Committee has adopted an
informal approval policy that it believes will result in an effective and
efficient procedure to pre-approve services performed by the independent
registered public accounting firm.
Audit Services. Audit services
include the annual financial statement audit (including quarterly reviews) and
other procedures required to be performed by the independent registered public
accounting firm to be able to form an opinion on our financial statements. The
Audit Committee pre-approves specified annual audit services engagement terms
and fees and other specified audit fees. All other audit services must be
specifically pre-approved by the Audit Committee. The Audit Committee monitors
the audit services engagement and may approve, if necessary, any changes in
terms, conditions and fees resulting from changes in audit scope or other
items.
Audit-Related Services.
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of our financial
statements which historically have been provided to us by the independent
registered public accounting firm and are consistent with the SEC’s rules on
auditor independence. The Audit Committee pre-approves specified audit-related
services within pre-approved fee levels. All other audit-related services must
be pre-approved by the Audit Committee.
Tax Services. The Audit
Committee pre-approves specified tax services that the Audit Committee believes
would not impair the independence of the independent registered public
accounting firm and that are consistent with SEC rules and guidance. The Audit
Committee must specifically approve all other tax services.
All Other Services. Other
services are services provided by the independent registered public accounting
firm that do not fall within the established audit, audit-related and tax
services categories. The Audit Committee pre-approves specified other services
that do not fall within any of the specified prohibited categories of
services.
Procedures. All proposals for
services to be provided by the independent registered public accounting firm,
which must include a detailed description of the services to be rendered and the
amount of corresponding fees, are submitted to the Chairman of the Audit
Committee and the Chief Financial Officer. The Chief Financial Officer
authorizes services that have been pre-approved by the Audit Committee. If there
is any question as to whether a proposed service fits within a pre-approved
service, the Audit Committee chair is consulted for a determination. The Chief
Financial Officer submits requests or applications to provide services that have
not been pre-approved by the Audit Committee, which must include an affirmation
by the Chief Financial Officer and the independent registered public accounting
firm that the request or application is consistent with the SEC’s rules on
auditor independence, to the Audit Committee (or its Chair or any of its other
members pursuant to delegated authority) for approval.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, there unto duly authorized.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
