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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2023

 

OR

 

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

 

For the transition period from_____ to _____

 

Commission File Number: 000-56232

 

KRAIG BIOCRAFT LABORATORIES, INC.

(Exact Name of Registrant as Specified in Charter)

 

Wyoming   83-0459707

(State or Other Jurisdiction

of Incorporation)

 

(I.R.S. Employer

Identification No.)

 

2723 South State St. Suite 150

Ann Arbor, Michigan 48104

(Address of Principal Executive Offices)

 

(734) 619-8066

(Registrant’s telephone number, including area code)

 

 

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

 

Copies to:

Hunter Taubman Fischer & Li LLC

950 Third Ave., 19th Floor

New York, NY 10022

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of exchange on which registered
None   -   -

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

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

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer Smaller reporting company
  Emerging growth company

 

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

 

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

 

As of August 14, 2023, there were 1,033,374,219 shares of the issuer’s Class A common stock, no par value per share, outstanding, 0 shares of the issuer’s Class B common stock, no par value per share, outstanding and 2 shares of preferred stock, no par value per share, outstanding.

 

 

 

 

 

 

TABLE OF CONTENTS

 

  Page
   
PART I FINANCIAL INFORMATION  
   
Item 1. Unaudited Condensed Financial Statements:
   
Condensed Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022 (Audited) 3
   
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) for the three and six months ended June 30, 2023 and 2022 4
   
Condensed Consolidated Statement of Changes in Stockholders’ Deficit for the three and six months ended June 30, 2023 (Unaudited) 5
   
Condensed Consolidated Statement of Changes in Stockholders’ Deficit for the three and six months ended June 30, 2022 (Unaudited) 6
   
Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2023 and 2022 7
   
Notes to Condensed Consolidated Financial Statements (Unaudited) 8
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 29
   
Item 3. Quantitative and Qualitative Disclosures about Market Risk 38
   
Item 4. Controls and Procedures 38
   
PART II OTHER INFORMATION  
   
Item 1. Legal proceedings 39
   
Item 1A. Risk Factors 39
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 39
   
Item 3. Defaults upon Senior Securities 39
   
Item 4. Mine Safety Disclosures 39
   
Item 5. Other information 39
   
Item 6. Exhibits 39

 

2

 

 

Kraig Biocraft Laboratories, Inc. and Subsidiary

Condensed Consolidated Balance Sheets

 

   June 30, 2023   December 31, 2022 
   (Unaudited)     
ASSETS          
Current Assets          
Cash and cash equivalents  $1,436,861   $3,862,716 
Investment in U.S. Treasury Bills at fair value (cost: $1,714,790 and $0)   1,727,811    - 
Inventory   6,580    6,580 
Prepaid expenses   1,728    15,665 
Deposit   98,480    98,480 
Total Current Assets   3,271,460    3,983,441 
           
Property and Equipment, net   75,104    87,861 
Investment in gold bullions (cost $450,216 and $450,216, respectively)   458,832    437,251 
Operating lease right-of-use asset, net   34,814    58,849 
Security deposit   3,518    3,518 
           
Total Assets  $3,843,728   $4,570,920 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
Current Liabilities          
Accounts payable and accrued expenses  $527,919   $540,339 
Note payable - related party   1,617,000    1,617,000 
Royalty agreement payable - related party   65,292    65,292 
Accounts payable and accrued expenses - related party   6,043,760    5,715,008 
Operating lease liability, current   18,019    39,200 
Loan payable   65,244    95,244 
Total Current Liabilities   8,337,234    8,072,083 
           
Long Term Liabilities          
Operating lease liability, net of current   17,145    20,697 
Total Liabilities   8,354,379    8,092,780 
           
Commitments and Contingencies (Note 9)   -    - 
           
Stockholders’ Deficit          
Preferred stock, no par value; unlimited shares authorized, none, issued and outstanding   -    - 
Preferred stock Series A, no par value; 2 and 2 shares issued and outstanding, respectively   5,217,800    5,217,800 
Common stock Class A, no par value; unlimited shares authorized, 1,033,374,219 and 1,030,940,008 shares issued and outstanding, respectively   27,160,611    27,060,611 
Common stock Class B, no par value; unlimited shares authorized, no shares issued and outstanding   -    - 
Common Stock Issuable, 1,122,311 and 1,122,311 shares, respectively   22,000    22,000 
Additional paid-in capital   10,888,790    10,834,729 
Accumulated Other comprehensive income   13,021    - 
Accumulated Deficit   (47,812,873)   (46,657,000)
           
Total Stockholders’ Deficit   (4,510,651)   (3,521,860)
           
Total Liabilities and Stockholders’ Deficit  $3,843,728   $4,570,920 

 

3

 

 

Kraig Biocraft Laboratories, Inc. and Subsidiary

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

 

  

June 30,

2023

  

June 30,

2022

  

June 30,

2023

  

June 30,

2022

 
   For the Three Months Ended   For the Six Months Ended 
  

June 30,

2023

  

June 30,

2022

  

June 30,

2023

  

June 30,

2022

 
                 
Revenue  $-   $-   $-   $- 
                     
Operating Expenses                    
General and Administrative   220,667    212,419    431,770    425,438 
Professional Fees   31,349    109,534    66,096    229,914 
Officer’s Salary   171,625    164,845    343,249    349,653 
Research and Development   57,035    49,869    126,127    77,373 
Total Operating Expenses   480,676    536,667    967,242    1,082,378 
                     
Loss from Operations   (480,676)   (536,667)   (967,242)   (1,082,378)
                     
Other Income/(Expenses)                    
Net change in unrealized gain (loss) on investment in gold bullion   (11,771)   (28,352)   21,581    (5,401)
Interest expense   (119,282)   (298,444)   (237,119)   (460,331)
Amortization of debt issue costs   -    (174,669)   -    (536,701)
Interest income   22,638    -    26,907    - 
Total Other Income/(Expenses)   (108,415)   (501,465)   (188,631)   (1,002,433)
                     
Net (Loss) before Provision for Income Taxes   (589,091)   (1,038,132)   (1,155,873)   (2,084,811)
                     
Provision for Income Taxes   -    -    -    - 
                     
Net (Loss)  $(589,091)  $(1,038,132)  $(1,155,873)  $(2,084,811)
                     
Other Comprehensive Income                    
Change in unrealized value of available-for-sale securities, net of income tax  $13,021   $-   $13,021   $- 
                     
Total Comprehensive Loss  $(576,070)  $(1,038,132)  $(1,142,852)  $(2,084,811)
                     
Net Income (Loss) Per Share - Basic and Diluted  $(0.00)  $(0.00)  $(0.00)  $(0.00)
                     
Weighted average number of shares outstanding during the period - Basic and Diluted   1,033,374,219    955,149,900    1,032,728,682    949,454,169 

 

4

 

 

Kraig Biocraft Laboratories, Inc. and Subsidiary

Condensed Consolidated Statement of Changes in Stockholders Deficit

For the three and six months ended June 30, 2023

(Unaudited)

 

   Shares   Par   Shares   Par   Shares   Par   Shares   Par   APIC   Income   Deficit   Total 
  

Preferred Stock -

Series A

  

Common Stock -

Class A

  

Common Stock -

Class B

   To be issued      

Accumulated other

Comprehensive

   Accumulated     
   Shares   Par   Shares   Par   Shares   Par   Shares   Par   APIC   Income   Deficit   Total 
                                                 
Balance, March 31, 2023 (Unaudited)   2   $5,217,800    1,033,374,219   $27,160,611            -   $-    1,122,311   $22,000   $10,786,149   $-   $(47,223,782)  $(4,037,222)
                                                             
Warrants issued for services - related parties   -    -    -    -    -    -    -    -    80,997    -    -    80,997 
                                                             
Warrants issued for services   -    -    -    -    -    -    -    -    1,487    -    -    1,487 
                                                             
Imputed interest - related party   -    -    -    -    -    -    -    -    20,157    -    -    20,157 
                                                             
Other comprehensive income   -    -    -    -    -    -    -    -    -    13,021    -     13,021 
                                                             
Net loss for the three months ended June 30, 2023        -    -    -    -    -    -    -    -    -    -    (589,091)   (589,091)
                                                             
Balance, June 30, 2023 (Unaudited)   2   $5,217,800    1,033,374,219   $27,160,611    -   $-    1,122,311   $22,000   $10,888,790   $13,021   $(47,812,873)  $(4,510,651)
                                                             
Balance, December 31, 2022 (Audited)   2   $5,217,800    1,030,940,008   $27,060,611    -   $-    1,122,311   $22,000   $10,834,729    -   $(46,657,000)  $(3,521,860)
                                                             
Warrants issued for services - related parties   -    -    -    -    -    -    -    -    98,197    -    -    98,197 
                                                             
Warrants issued for services   -    -    -    -    -    -    -    -    15,771    -    -    15,771 
                                                             
Shares issued in connection with cashless warrants exercise   -    -    2,434,211    100,000    -    -    -    -    (100,000)   -    -    - 
                                                             
Imputed interest - related party   -    -    -    -    -    -    -    -    40,093    -    -    40,093 
                                                             
Other comprehensive income   -    -    -    -    -    -    -    -    -    13,021    -    13,021 
                                                             
Net loss for the six months ended June 30, 2023   -    -    -    -    -    -    -    -    -    -    (1,155,873)   (1,155,873)
                                                             
Balance, June 30, 2023 (Unaudited)   2   $5,217,800    1,033,374,219   $27,160,611    -   $     -    1,122,311   $22,000   $10,888,790   $13,021   $(47,812,873)  $(4,510,651)

 

5

 

 

Kraig Biocraft Laboratories, Inc. and Subsidiary

Condensed Consolidated Statement of Changes in Stockholders’ Deficit

For the three and six months ended June 30, 2022

(Unaudited)

 

   Shares   Par   Shares   Par   Shares   Par   Shares   Par   APIC   Deficit   Total 
  

Preferred Stock -

Series A

  

Common Stock -

Class A

  

Common Stock -

Class B

   To be issued       Accumulated     
   Shares   Par   Shares   Par   Shares   Par   Shares   Par   APIC   Deficit   Total 
Balance, March 31, 2022 (Unaudited)   2   $5,217,800    950,905,044   $23,921,297              -   $             -    1,122,311   $22,000   $10,599,108   $(43,861,665)  $(4,101,460)
                                                        
Warrants issued for services - related parties   -    -    -    -    -    -    -    -    49,370    -    49,370 
                                                        
Warrants issued for services   -    -    -    -    -    -    -    -    7,929    -    7,929 
                                                        
Convertible debt and accrued interest conversion into common stock ($0.045/Sh-$0.064/Sh)   -    -    23,507,693    1,285,781    -    -    -    -    -    -    1,285,781 
                                                        
Imputed interest - related party   -    -    -    -    -    -    -    -    21,708    -    21,708 
                                                        
Net loss for the three months ended June 30, 2022   -    -    -    -    -           -    -    -    -    (1,038,132)   (1,038,132)
                                                        
Balance, June 30, 2022 (Unaudited)   2   $5,217,800    974,412,737   $25,207,078    -   $-    1,122,311   $22,000   $10,678,115   $(44,899,797)  $(3,774,804)

 

  

Preferred Stock -

Series A

  

Common Stock -

Class A

 

Common Stock -

Class B

  

Class A Shares

To be issued

       Accumulated     
   Shares   Par   Shares   Par  Shares   Par   Shares   Par   APIC   Deficit   Total 
Balance, December 31, 2021 (Audited)   2   $5,217,800    927,378,166   $22,385,132              -   $           -    1,122,311   $22,000   $9,894,179   $(42,814,986)  $(5,295,875)
                                                       
Warrants issued for services - related parties   -    -    -    -   -    -    -    -    103,069    -    103,069 
                                                       
Warrants issued for services   -    -    -    -   -    -    -    -    15,771    -    15,771 
                                                       
Exercise of warrants in exchange for cash ($0.06/Sh and $0.08/Sh)   -    -    11,097,959    739,864   -    -    -    -    -    -    739,864 
                                                       
Convertible debt and accrued interest conversion into common stock ($0.045/Sh-$0.064/Sh))   -    -    35,936,612    2,082,082   -    -    -    -    -    -    2,082,082 
                                                       
Imputed interest - related party   -    -    -    -   -    -    -    -    40,093    -    40,093 
                                                       
Beneficial conversion feature   -    -    -    -   -    -    -    -    625,003    -    625,003 
                                                       
Net loss for the six months ended June 30, 2022   -    -    -    -   -    -    -    -    -    (2,084,811)   (2,084,811)
                                                       
Balance, June 30, 2022 (Unaudited)   2   $5,217,800    974,412,737   $25,207,078   -   $-    1,122,311   $22,000   $10,678,115   $(44,899,797)  $(3,774,804)

 

6

 

 

Kraig Biocraft Laboratories, Inc. and Subsidiary

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

   2023   2022 
   For the six months ended June 30, 
         
   2023   2022 
Cash Flows From Operating Activities:          
Net Loss  $(1,155,873)  $(2,084,811)
Adjustments to reconcile net loss to net cash used in operations          
Depreciation expense   12,757    14,721 
Net change in unrealized appreciation and depreciation in gold bullions   (21,581)   5,401 
Change in fair value of marketable securities   13,021    - 
Amortization of debt discount   -    536,701 
Imputed interest - related party   40,093    40,093 
Warrants issued/(cancelled) to consultants   113,968    118,840 
Changes in operating assets and liabilities:          
Decrease in prepaid expenses   13,937    9,453 
Decrease in operating lease right-of-use, net   24,035    22,198 
Increase in accrued expenses and other payables - related party   328,752    182,706 
Decrease in accounts payable   (12,420)   216,060 
Decrease in operating lease liabilities, current   (24,733)   (21,499)
Net Cash Used In Operating Activities   (668,044)   (960,137)
           
           
Cash Flows From Investing Activities          
Purchase of treasury bills   (2,587,811)   - 
Proceeds from maturity of treasury bills   860,000    - 
Net Cash Used in Investing Activities   (1,727,811)   - 
           
Cash Flows From Financing Activities:          
Repayment of notes payable - related party   -    (40,000)
Proceeds from convertible note payable, net of original issue discount   -    2,990,000 
Payment of debt offering costs   -    (230,000)
Principal payments on debt   (30,000)   (30,000)
Proceeds from warrant exercise   -    739,864 
Net Cash Provided by and Used in Financing Activities   (30,000)   3,429,864 
           
Net Change in Cash and Cash Equivalents   (2,425,855)   2,469,727 
           
Cash and Cash Equivalents at Beginning of Period   3,862,716    2,355,060 
           
Cash and Cash Equivalents at End of Period  $1,436,861   $4,824,787 
           
Supplemental disclosure of cash flow information:          
           
Cash paid for interest  $-   $- 
Cash paid for taxes  $-   $- 
           
Supplemental disclosure of non-cash investing and financing activities:          
Shares issued in connection with cashless warrants exercise  $100,000   $- 
Beneficial conversion feature in connection with convertible debt  $-   $625,003 
Shares issued in connection with convertible note payable  $-   $2,082,082 

 

7

 

 

Kraig Biocraft Laboratories, Inc.

Notes to Condensed Consolidated Financial Statements as of June 30, 2023

(Unaudited)

 

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements.

 

In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all of the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of June 30, 2023 and the results of operations and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the operating results for the full fiscal year or any future period.

 

These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 29, 2023.

 

Management acknowledges its responsibility for the preparation of the accompanying unaudited consolidated financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its consolidated financial position and the consolidated results of its operations for the periods presented.

 

On July 15, 2022, the Company signed an agreement with Global Silk Solutions Joint Stock Company (GSS). Under this agreement, GSS will serve as a contract manufacturer for the Company’s recombinant spider silk.

 

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.

 

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.

 

8

 

 

On March 5, 2018, the Company issued a board resolution authorizing investment in a Vietnamese subsidiary and appointing a representative for the subsidiary.

 

On April 24, 2018, the Company announced that it had received its investment registration certificate for its new Vietnamese subsidiary Prodigy Textiles Co., Ltd.

 

On May 1, 2018, the Company announced that it had received its enterprise registration certificate for its new Vietnamese subsidiary Prodigy Textiles Co., Ltd

 

Foreign Currency

 

The assets and liabilities of Prodigy Textiles, Co., Ltd. (the Company’s Vietnamese subsidiary) whose functional currency is the Vietnamese Dong, are translated into US dollars at period-end exchange rates prior to consolidation. Income and expense items are translated at the average rates of exchange prevailing during the period. The adjustments resulting from translating the Company’s financial statements are reflected as a component of other comprehensive (loss) income. Foreign currency transaction gains and losses are recognized in net earnings based on differences between foreign exchange rates on the transaction date and settlement date.

 

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 liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

Cash and cash equivalents consist of demand deposits at financial institutions, money market funds, and highly liquid investments with original maturities of three months or less.

 

As of June 30, 2023 and December 31, 2022, the Company had $1,436,861 and $3,862,716, in cash and cash equivalent accounts.

 

Loss Per Share

 

Basic and diluted net loss per common share is computed based upon the weighted average common shares outstanding as defined by the Financial Accounting Standards Board (“FASB” Accounting Standards Codification (“ASC”) No. 260, “Earnings per Share.” For June 30, 2023 and 2022, warrants were not included in the computation of income/ (loss) per share because their inclusion is anti-dilutive.

 

The computation of basic and diluted loss per share for June 30, 2023 and December 31, 2022 excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive:

 

  

June 30,

2023

  

December 31,

2022

 
         
Stock Warrants (Exercise price - $0.001- $0.25/share)   48,460,714    54,660,032 
Stock Options (Exercise price - $0.1150/Share)   26,520,000    26,520,000 
Convertible Preferred Stock   2    2 
Total   74,980,716    81,180,034 

 

9

 

 

Investments

 

The Company has investments Treasury Bills. The Treasury Bills have remaining terms ranging from one month to three months on June 30, 2023.

 

The Company classifies its investments in Treasury Bills as available-for-sale, accounted for at fair value with unrealized gains and losses recognized in other comprehensive gain on the statement of operations and comprehensive loss.

 

The cost and estimated fair value of the Company’s investments are as follows:

 

      Gross    
       unrealized   Fair 
   Cost   gain   value 
December 31, 2022  $-   $-   $- 
Treasury Bills  $1,714,790   $13,021   $1,727,811 
Total Investments, June 30, 2023  $1,714,790   $13,021   $1,727,811 

 

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.

 

For the three months ended June 30, 2023 and 2022, the Company had $57,035 and $49,869 respectively, in research and development costs.

 

For the six months ended June 30, 2023 and 2022, the Company had $126,127 and $77,373 respectively, in research and development costs

 

Advertising Expense

 

The Company follows the policy of charging the costs of advertising to expense as incurred. There was no advertising expense in the three and six months ended June 30, 2023 and 2022.

 

Income Taxes

 

The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC No. 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC No. 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation for employees and directors in accordance with ASC 718, Compensation (“ASC 718”). ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their fair values. Under the provisions of ASC 718, stock-based compensation costs are measured at the grant date, based on the fair value of the award, and are recognized as expense over the employee’s requisite service period (generally the vesting period of the equity grant). The fair value of the Company’s common stock options are estimated using the Black Scholes option-pricing model with the following assumptions: expected volatility, dividend rate, risk free interest rate and the expected life. The Company expenses stock-based compensation by using the straight-line method. In accordance with ASC 718 and, excess tax benefits realized from the exercise of stock-based awards are classified as cash flows from operating activities. All excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) are recognized as income tax expense or benefit in the condensed consolidated statements of operations.

 

10

 

 

The Company accounts for stock-based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in ASU 2018-07.

 

Recent Accounting Pronouncements

 

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

 

Equipment

 

The Company values property and equipment at cost and depreciates these assets using the straight-line method over their expected useful life.

 

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

 

There were no impairment losses recorded for the six months ended June 30, 2023 and 2022.

 

Fair Value of Financial Instruments

 

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

 

11

 

 

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

 

  Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. We believe our carrying value of level 1 instruments approximate their fair value at June 30, 2023 and 2022.
     
  Level 2 - Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
     
  Level 3 - Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. We consider depleting assets, asset retirement obligations and net profit interest liability to be Level 3. We determine the fair value of Level 3 assets and liabilities utilizing various inputs, including NYMEX price quotations and contract terms.

 

The following are the major categories of assets measured at fair value on a recurring basis: as of June 30, 2023 and December 31, 2022, using quoted prices in active markets for identical liabilities (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):

 

The Company has consistently applied the valuation techniques in all periods presented. The following table presents the Company’s assets which were measured at fair value at June 30, 2023 and December 31, 2022:

 

   June 30, 2023   December 31, 2022 
   Fair Value Measurement Using   Fair Value Measurement Using 
   Level 1   Level 2   Level 3   Total   Level 1   Level 2   Level 3   Total 
                                 
Assets:                                        
Investment in gold  $458,832   $     -   $     -   $458,832   $437,251   $     -   $     -   $437,251 
Treasury bills   1,727,811    -    -    1,727,811    -    -    -    - 
Money market fund  $1,212,045   $-   $-   $1,212,045   $-   $-   $-   $- 
Total  $3,398,688   $-   $-   $3,398,688   $437,251   $-   $-   $437,251 

 

The Board of Directors, who serves as the Custodian, is responsible for the safekeeping of gold bullion owned by the Company.

 

Fair value of the gold bullion held by the Company is based on that day’s London Bullion Market Association (“LBMA”) Gold Price PM. “LBMA Gold Price PM” is the price per fine troy ounce of gold, stated in U.S. dollars, determined by ICE Benchmark Administration (“IBA”) following an electronic auction consisting of one or more 30-second rounds starting at 3:00 p.m. (London time), on each day that the London gold market is open for business and published shortly thereafter.

 

The fair value of the treasury bills is based on quoted market prices in an active market. The Company has determined the fair value based on financial factors that are considered level 1 inputs in the fair value hierarchy.

 

 

Money market funds included in cash and cash equivalents and U.S. government-backed securities are measured at fair value based on quoted prices in active markets, which are considered Level 1 inputs. The Company’s policy is to recognize transfers in and/or out of the fair value hierarchy as of the date in which the event or change in circumstances caused the transfer.

 

The following tables summarize activity in gold bullion for the six months ended June 30, 2023:

 

Six Months Ended June 30, 2023  Ounces   Cost   Fair Value 
             
Balance December 31, 2022   239   $1,829   $437,251 
Net change in unrealized gain   -    -    21,581 
Balance June 30, 2023   239   $1,920   $458,832 

 

12

 

 

The following tables summarize activity in gold bullion for the six months ended June 30, 2022:

 

Six Months Ended June 30, 2022  Ounces   Cost   Fair Value 
             
Balance December 31, 2021   239   $1,884   $437,212 
Net change in unrealized loss   -    -    (5,401)
Balance June 30, 2022   239   $1,884   $431,811 

 

Revenue Recognition

 

Effective January 1, 2018, the Company adopted ASC No. 606 — Revenue from Contracts with Customers. Under ASC No. 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.

 

For the three and six months ended June 30, 2023 and 2022, the Company recognized $0 and $0 respectively in revenue.

 

Concentration of Credit Risk

 

The Company at times has cash and cash equivalents in banks in excess of FDIC insurance limits. At June 30, 2023 and December 31, 2022, the Company had approximately $1,212,045 and $3,285,197, respectively in excess of FDIC insurance limits.

 

On March 12, 2023, the U.S. government took extraordinary steps to stop a potential banking crisis after the historic failure of Silicon Valley Bank, assuring all depositors at the failed institution that they could access all their money quickly, even as another major bank was shut down. The Company had no exposure to a failed bank. The Company averts risks associated with such a crisis by holding minimum cash balances required for uninterrupted operations, federal funds money market fund, and U.S. government-backed securities. As of June 30, 2023, the Company held $1,212,045 million in a federal money market fund (the “Fund”) with an investment objective to seek to provide current income while maintaining liquidity and a stable share price of $1. The Fund invests at least 99.5% of its total assets in cash, U.S. government securities, and/or repurchase agreements that are collateralized solely by U.S. government securities or cash (collectively, government securities). As such it is considered one of the most conservative investment options offered.

 

Original Issue Discount

 

For certain notes issued, the Company provides the debt holder with an original issue discount. The original issue discount is recorded as a debt discount, reducing the face amount of the note, and is amortized to amortization of original issue discount in the consolidated statements of operations over the life of the debt.

 

Debt Issue Cost

 

Debt issuance cost paid to lenders, or third parties are recorded as debt discounts and amortized to interest expense in the consolidated statements of operations, over the life of the underlying debt instrument.

 

Deposit

 

During the year ended December 31, 2022, the Company paid $98,480 as a deposit towards the purchase of inventory. As of June 30, 2023, the balance remained at $98,480.

 

NOTE 2 GOING CONCERN

 

As reflected in the accompanying financial statements, the Company has a working capital deficiency of $5,065,774 and stockholders’ deficiency of $4,510,651 and used $668,044 of cash in operations for the six months ended June 30, 2023. 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.

 

13

 

 

NOTE 3 EQUIPMENT

 

At June 30, 2023 and December 31, 2022, property and equipment, net, is as follows:

 

   June 30,
2023
   December 31,
2022
   Estimated
Useful Lives
(Years)
 
Automobile  $41,805   $41,805    5 
Laboratory Equipment   123,911    123,911    5-10 
Office Equipment   7,260    7,260    5-10 
Leasehold Improvements   82,739    82,739    2-5 
Less: Accumulated Depreciation   (180,611)   (167,854)     
Total Property and Equipment, net  $75,104   $87,861      

 

Depreciation expense for the three months ended June 30, 2023 and 2022, was $6,140 and $7,270, respectively.

 

Depreciation expense for the six months ended June 30, 2023 and 2022, was $12,757 and $14,721, respectively.

 

NOTE 4 - RIGHT TO USE ASSETS AND LEASE LIABILITY

 

We determine if an arrangement is a lease, or contains a lease, at inception and record the leases in our financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor.

 

We have a lease agreement with lease and non-lease components and have elected to utilize the practical expedient to account for lease and non-lease components together as a single combined lease component, from both a lessee and lessor perspective with the exception of direct sales-type leases and production equipment classes embedded in supply agreements. From a lessor perspective, the timing and pattern of transfer are the same for the non-lease components and associated lease component and, the lease component, if accounted for separately, would be classified as an operating lease.

 

We have elected not to present short-term leases on the balance sheet as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that we are reasonably certain to exercise. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because our lease does not provide an implicit rate of return, we used our incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments.

 

In general, leases, where we are the lessee, may include options to extend the lease term. These leases may include options to terminate the lease prior to the end of the agreed upon lease term. For purposes of calculating lease liabilities, lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise such options.

 

14

 

 

Lease expense for operating leases is recognized on a straight-line basis over the lease term as cost of revenues or operating expenses depending on the nature of the leased asset. Certain operating leases provide for annual increases to lease payments based on an index or rate. We calculate the present value of future lease payments based on the index or rate at the lease commencement date.

 

Differences between the calculated lease payment and actual payment are expensed as incurred. Amortization of finance lease assets is recognized over the lease term as cost of revenues or operating expenses depending on the nature of the leased asset.

 

Interest expense on finance lease liabilities is recognized over the lease term in interest expense.

 

Since September of 2015, we rent office space at 2723 South State Street, Suite 150, Ann Arbor, Michigan 48104, which is our principal place of business. We pay an annual rent of $2,508 for conference facilities, mail, fax, and reception services located at our principal place of business.

 

On September 5, 2019, we signed a two-year lease for a 5,000 square foot property in Lansing, MI that commenced on October 1, 2019 and ends on September 30, 2021, for its research and development headquarters. We pay an annual rent of $42,000 for year one of the lease and will pay $44,800 for year two of the lease. On April 16, 2021, the Company signed a two year amendment to this lease. Commencing on July 1, 2021 and ending on September 30, 2022, the Company paid an annualized rent of $42,000. From October 1, 2022 through September 30, 2023, the Company will pay an annual rent of $44,800. The Company recorded ROU asset of $79,862 and lease liability of $79,862 in accordance with the adoption of the new guidance.

 

On May 9, 2019 the Company signed a 5 year property lease with the Socialist Republic of Vietnam which consists of 4,560.57 square meters of space, which it leases at a current rent of approximately $45,150 per year one and two and with the 5% increase per year for three through five. On July 1, 2021, the Company ended this lease agreement, and the company recovered the associated ROU asset and lease liability of $241,800.

 

On July 1, 2021, the Company signed a 5-year property lease with the Socialist Republic of Vietnam which consists of 6,000 square meters of space, which it leases at a current rent of approximately $8,645 per year.

 

The tables below present information regarding the Company’s operating lease assets and liabilities at June 30, 2023;

 

At June 30, 2023 and December 31, 2022, the Company had no financing leases as defined in ASC 842, “Leases.”

 

  

June 30,

2023

  

December 31,

2022

 
Assets          
           
Operating lease - right-of-use asset - non-current  $34,814   $58,849 
           
Liabilities          
           
Operating lease liability  $35,164   $59,897 
           
Weighted-average remaining lease term (three months)   1.59    2.08 
           
Weighted-average discount rate   8%   8%
           
The components of lease expense were as follows:          
           
Operating lease costs          
           
Amortization of right-of-use operating lease asset  $24,035   $52,043 
Total operating lease costs  $24,035   $52,043 
           
Supplemental cash flow information related to operating leases was as follows:          
           
Operating cash outflows from operating lease (obligation payment)  $24,733   $51,344 
Right-of-use asset obtained in exchange for new operating lease liability  $-   $- 

 

15

 

 

Future minimum lease payments required under leases that have initial or remaining non-cancelable lease terms in excess of one year at June 30, 2023:

 

      
2023  $15,523 
2024   8,644 
2025   8,644 
2026   5,763 
Total lease payments   38,574 
Less: amount representing interest   (3,410)
Total lease obligations   35,164 
Less: current portion of operating lease liability   (18,019)
Long-term portion operating lease liability  $17,145 

 

NOTE 5 NOTE PAYABLE – RELATED PARTY

 

Between June 6, 2016, and December 1, 2020 the Company received a total of $1,657,000 in loans from its founder and CEO. Pursuant to the terms of the loans, the advances bear an interest at 3%, is unsecured, and due on demand. 

 

On January 26, 2022, the Company repaid $40,000 of the outstanding loan to its founder and CEO.

 

Total loan payable to the founder and CEO for as of June 30, 2023 is $1,617,000.

 

Total loan payable to the founder and CEO as of December 31, 2022 is $1,617,000.

 

During the six months ended June 30, 2023, the Company recorded $40,093 as an in-kind contribution of interest related to the loan and recorded accrued interest payable of $27,888. As of June 30, 2023, total interest payable is $218,551.

 

During the six months ended June 30, 2022, the Company recorded $40,093 as an in-kind contribution of interest related to the loan and recorded accrued interest payable of $27,267. As of December 31, 2022, total interest payable is $190,663.

 

 

NOTE 6 LOAN PAYABLE

 

On March 1, 2019, the Company entered into an unsecured promissory note with Notre Dame - an unrelated party in the amount of $265,244 in exchange for outstanding account payable due to the debtor. Pursuant to the terms of the note, the note bears 10% interest per year from the date of default until the date the loan is paid in full. The term of the loan is twenty-four months. The loan repayment commenced immediately over a twenty-four month period according to the following table.

 

1. $1,000 per month for the first nine months;

2. $2,000 per month for the months seven and eight;

3. $5,000 per month for months nine through twenty-three; and,

4. Final payment of all remaining balance, in the amount of $180,224 in month 24.

 

16

 

 

On July 8, 2021, the Company entered into an amendment to the March 1, 2019 agreement. As of the date of the amendment, the remaining outstanding balance was $180,244. The loan repayment commenced immediately following the amendment and extended over a fourteen-month period with the following terms:

 

1. $5,000 per month for months one through thirteen.
2. Final payment of the remaining balance in the amount of $115,244 split into two equal payments, of which $57,622 to be paid in month fourteen and $57,622 paid in month twenty.

 

The Company has continued to make $5,000 monthly payment against this remaining balance in lieu of the balloon payments in months fourteen and twenty. The Company expects to make the final payment on August 1, 2024.

 

During the six months ended June 30, 2023, the Company paid $30,000 of the loan balance. The remaining loan balance as of June 30, 2023 is $65,244.

 

NOTE 7 CONVERTIBLE NOTES

 

On December 11, 2020, the Company issued 3,125,000 five-year (5) warrants. The warrants had a fair value of $2,599,066, based upon using a black-scholes option pricing model with the following inputs:

 

Stock Price   $ 0.14  
Exercise price   $ 0.16  
Expected term (in years)     5  
Expected volatility