ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Caution Regarding Forward-Looking Information
The following discussion and analysis of our financial condition and result of operations should be read in conjunction with our audited consolidated financial statements and the notes to those financial statements appearing elsewhere in this Form 10-K. This discussion contains forward-looking statements and involves numerous risks and uncertainties contained in this report and the other reports we file with the Securities and Exchange Commission. Our actual results may differ materially from those contained in any forward-looking statements.
The following section reflects management’s views on the financial condition as of December 31, 2025, and 2024, and the results of operations and cash flows for the fiscal years ended December 31, 2025 and 2024. This section is provided as a supplement to, and should be read in conjunction with, the Company’s audited consolidated financial statements and related notes to the consolidated financial statements contained elsewhere in this report.
Overview
Kraig Biocraft Laboratories, Inc., a Wyoming corporation, is a corporation organized to develop high strength fibers using recombinant DNA technology for commercial applications including technical textiles. We use genetically engineered silkworms that produce spider silk proteins to create our recombinant spider silk. Applications include performance apparel, workwear, filtration, luxury fashion, flexible composites, medical implants, cosmetics and more. We believe that we are a world leader in the research, development, and production of commercially scalable and cost-effective spider silk fiber. Our primary proprietary fiber technology utilizes natural and engineered variants of spider silk produced in domesticated mulberry silkworms. Our business brings twenty-first century biotechnology to the historical silk industry. We are introducing materials with innovative properties into an established commercial ecosystem of silkworm rearing, silk spinning, weaving, and manufacture of garments and other products.
We are using genetic engineering technologies to develop fibers with greater strength, resiliency, and flexibility for use in our target markets, including the specialty fiber and technical textile industries. We believe that the genetically engineered protein-based fibers we seek to produce have properties that are in some ways superior to the materials currently available in the marketplace. Production of our product in commercial quantities holds what we believe to be potential life-saving ballistic resistant material, which we believe is lighter, thinner, more flexible, and tougher than steel. Other potential applications for spider silk based recombinant fibers include use as structural material and for any application in which light weight and high strength are required. We believe that fibers made with recombinant protein-based polymers will make significant inroads into the specialty fiber and technical textile markets.
Through our technologies, the introduction of the gene sequence based on those found in native spider silk, results in a germline transformation and is therefore self-perpetuating. Our recombinant spider silk fibers incorporate the silk proteins found in spider silk with native silkworm silk proteins. This combination of native silkworm proteins combined with spider silk protein structures results in new and unique recombinant silk fibers. This technology is in essence a protein expression platform which has other potential applications including diagnostics and pharmaceutical production. Moreover, our technologies are “green” inasmuch as our fibers and textiles are derived from nature and do not use any petrochemicals as an input into the fibers.
The Report of Independent Registered Public Accounting Firm to our financial statements as of December 31, 2024, and as of December 31, 2025, include an explanatory paragraph stating that our net loss from operations and net capital deficiency at December 31, 2025, raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Plan of Operations
During the next twelve months, we expect to take the following steps in connection with the further development of our business and the implementation of our plan of operations:
We plan to accelerate and expand commercial scale production of our recombinant spider silk .
We plan to expand our research and development to accelerate our work in creating next generation materials and to improve the robustness of our recombinant spider silk lines.
We plan to create a line of recombinant spider silk fashion wear either under our own brand name or in partnership with existing commercial entities.
We plan to continue the expansion of our overseas production operations, including working with local contractors or cooperatives and the hiring of additional direct staff, as needed.
We plan to accelerate our microbiology research and development to create more advanced materials. We plan to develop more advanced spider silk and non-spider silk-based fibers for select target markets.
We will consider buying an established revenue producing company in a compatible business, in order to broaden our financial base and facilitate the commercialization of our products; as of the date hereof, we have not had any formal discussion or entered into any definitive agreements regarding any such purchase.
We plan to increase the breadth of our research to include protein expression platform technologies.
We plan to actively pursue collaborative research and product testing opportunities with companies in the biotechnology, materials, textile, and other industries.
We plan to actively pursue additional collaborative commercialization, marketing, and manufacturing opportunities with companies in the textile and material sectors for the fibers we developed and for any new polymers that we create in 2026 and going forward.
We plan to actively pursue an uplist to a national exchange if such an opportunity presents itself.
Limited Operating History
We have not previously demonstrated that we will be able to expand our business through an increased investment in our research and development efforts. We cannot guarantee that the research and development efforts described in this filing will be successful. Our business is subject to risks inherent in growing an enterprise, including limited capital resources, risks inherent in the research and development process, risks inherent in working with living organisms, political and legal risks associated with transgenics, and possible rejection of our products in development.
If financing is not available on satisfactory terms, we may be unable to continue our research and development and other operations. Equity financing will result in dilution to existing stockholders.
Standby Equity Purchase Agreement
On January 21, 2025, we entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, LTD., a Cayman Islands exempt limited company (the “Investor”). Capitalized terms used herein, but not otherwise defined, have the meaning ascribed to such terms in the SEPA, a copy of which is filed herewith as Exhibit 10.14.
Pursuant to the SEPA, the Company has the right to sell to the Investor up to $10 million of its shares of common stock, subject to certain limitations and conditions set forth in the SEPA, from time to time during the term of the SEPA. Sales of the shares of common stock to the Investor under the SEPA, and the timing of any such sales, are at the Company’s option, and the Company is under no obligation to sell any shares of common stock to the Investor under the SEPA except in connection with notices that may be submitted by the Investor, in certain circumstances as described below.
Upon the satisfaction of the conditions to the Investor’s purchase obligation set forth in the SEPA, including having a registration statement registering the resale of the shares of common stock issuable under the SEPA declared effective by the SEC, the Company will have the right, but not the obligation, from time to time at its discretion until the SEPA is terminated to direct the Investor to purchase a specified number of shares of common stock (“Advance”) by delivering written notice to the Investor (“Advance Notice”). While there is no mandatory minimum amount for any Advance, it may not exceed an amount equal to 100% of the average of the daily traded amount during the five consecutive trading days immediately preceding an Advance Notice.
In addition to the satisfaction of the conditions, the Investor shall not be obligated to purchase or acquire, and shall not purchase or acquire, any common stock under the SEPA which, when aggregated with all other common stock beneficially owned by the Investor and its affiliates, would result in the beneficial ownership by the Investor and its affiliates (on an aggregated basis) of a number of shares of common stock exceeding 4.99% of the then outstanding voting power or number of common shares. In addition, in no event shall an Advance exceed the number of common shares registered in respect of the transactions contemplated hereby under the registration statement then in effect.
The Company shall pay the Investor a structuring fee in an amount of $25,000, of which $10,000 has been paid, and $15,000 shall be paid on the earlier of (a) the Closing of the first Advance, or (b) the termination of the SEPA. The Company paid the remaining balance of $15,000 structuring fee on January 21, 2025. Additionally, within three days of signing the SEPA (the “Effective Date”), the Company shall pay a commitment fee in an amount equal to 1.00% of the Commitment Amount (the “Commitment Fee”) consisting of such number of Common Shares that is equal to the Commitment Fee divided by the average of the daily VWAPs of the Common Shares during the 3 Trading Days immediately prior to the Effective Date (the “Commitment Shares”). The Commitment Shares issuable hereunder shall be included on the initial Registration Statement.
The SEPA will automatically terminate on the earliest to occur of (i) 36-month anniversary of the Effective Date or (ii) the date on which the Investor shall have made payment of Advances pursuant to the SEPA for shares of common stock equal to the Commitment Amount. The Company has the right to terminate the SEPA at no cost or penalty upon five (5) trading days’ prior written notice to the Investor, provided that there are no outstanding Advance Notices for which shares of common stock need to be issued. Neither the Company nor the Investor may assign or transfer their respective rights and obligations under the SEPA, and no provision of the SEPA may be modified or waived other than by an instrument in writing signed by both parties.
The SEPA contains customary representations, warranties, conditions, and indemnification obligations of the parties. The representations, warranties and covenants contained in such agreements were made only for purposes of such agreements and as of specific dates, were solely for the benefit of the parties to such agreements and may be subject to limitations agreed upon by the contracting parties.
The net proceeds received by the Company under the SEPA will depend on the frequency and prices at which the Company sells its shares of common stock to the Investor. The Company expects that any proceeds received from such sales to the Investor will be used for working capital and general corporate purposes.
Results of Operations for the Years ended December 31, 2024, and 2025
Our revenue, operating expenses, and net loss from operations for the years ended December 31, 2025, as compared to the year ended December 31, 2024, were as follows – some balances on the prior period’s combined financial statements have been reclassified to conform to the current period presentation:
Years Ended
% Change
December 31,
Increase
Change
(Decrease)
NET REVENUES
COSTS OF REVENUES
Gross Profit
OPERATING EXPENSES:
General and Administrative
Professional Fees
Officer’s Salary
Research and Development
Total operating expenses
Loss from operations
Interest expense
Net change in unrealized appreciation on investment in gold bullion
Gain on sale of gold
Interest income
Net Loss
Net Revenues : During the year ended December 31, 2025, we realized $0 of revenues from our business. During the year ended December 31, 2024, we realized $0 of revenues from our business. Accordingly, there was no change in revenues between the years ended December 31, 2025 and 2024.
Research and development expenses : During the year ended December 31, 2025, we incurred $165,758 of research and development expenses, an increase of $164,374 or 0.84% compared with the same period in 2024. The increase was due to the timing of research related activity and costs by insources the Company’s research operations.
Professional Fees: During year ended December 31, 2025, we incurred $379,218 professional expenses, which increased by $88,905 or 30.62% from $290,313 for year ended December 31, 2024. The increase in professional fees expense was attributable to increased expenses related to investor relations and legal services during year ended December 31, 2025.
Officers Salary: During year ended December 31, 2025, officers’ salary expenses decreased to $871,049 or 0.14% compared to $872,289 for year ended December 31, 2024. The decrease is due an increase in officer’s to contractual terms of employment with a slight offset in COO and Directors salary. In order to conserve Company resources, the CEO agreed to accrue and not collect a majority of his salary for 2025.
General and Administrative Expense : General and administrative expenses increased by $211,183 or 12.08% to $1,958,768 for year ended December 31, 2025, from $1,747,585 for year ended December 31, 2024. Our general and administrative expenses for year ended December 31, 2025, consisted of other general and administrative expenses (which includes expenses such as Auto, Business Development, SEC Filing, Investor Relations, General Office, warrant Compensation) of $1,436,418, Travel of $55,339, office salary of $422,033, and consulting of $44,978 for a total of $1,958,768. Our general and administrative expenses for year ended December 31, 2024 consisted of other general and administrative expenses (which includes expenses such as Auto, Business Development, SEC Filing, Investor Relations, General Office, warrant Compensation) of $1,052,808, Travel of $65,631, office salary of $467,931, and consulting of $161,215 for a total of $1,747,585.
Interest Expense : Interest expense increased to $570,709, or 7.76% for the year ended December 31, 2025, compared to $529,603 for the year ended December 31, 2024. The increase was primarily due to interest on the related party loans and accounts payable and accrued expenses to the related parties.
Net Change in Unrealized Depreciation on Investment in Gold Bullion : Net change in unrealized appreciation on investment in gold bullion decreased by $23,631 to $110,198 for the year ended December 31, 2025, from $133,829 for the year ended December 31, 2024. The decrease was primarily due to a net change in unrealized depreciation on investment in gold bullion.
Net Loss : Net loss increased by $224,414, or 6.60%, to a net loss of $3,623,353 for the year ended December 31, 2025, from a net loss of $3,398,939 for the year ended December 31, 2024. This increase in net loss was driven primarily by an increase in warrant compensation, professional fees, research and development and slightly offset by a decrease in officer’s salary expense.
Capital Resources and Liquidity
Our financial statements have been presented on the basis that we have a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As presented in the financial statements, we incurred a net loss of $3,623,353 during the year ended December 31, 2025, and losses are expected to continue in the near term. The accumulated deficit is $56,709,072 at December 31, 2025. Refer to Note 2 for our discussion of stockholder deficit. We have been funding our operations through private loans and the sale of common stock in private placement transactions. Refer to Note 6 and Note 7 in the financial statements for our discussion of notes payable and shares issued, respectively. Our cash resources are insufficient to meet our planned business objectives without additional financing. These and other factors raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of our company to continue as a going concern.
Management anticipates that significant additional expenditures will be necessary to develop and expand our business before significant positive operating cash flows can be achieved. Our ability to continue as a going concern is dependent upon our ability to raise additional capital and to ultimately achieve sustainable revenues and profitable operations. At December 31, 2025, we had $1,790,236 of cash and cash equivalents on hand. These funds are insufficient to complete our business plan and as a consequence, we will need to seek additional funds, primarily through the issuance of debt or equity securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in the case of equity financing.
Management has undertaken steps as part of a plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond. These steps include (a) raising additional capital and/or obtaining financing; (b) controlling overhead and expenses; and (c) executing material sales or research contracts. There can be no assurance that the Company can successfully accomplish these steps and it is uncertain that the Company will achieve a profitable level of operations and obtain additional financing. There can be no assurance that any additional financing will be available to the Company on satisfactory terms and conditions, if at all. As of the date of this Report, we have not entered into any formal agreements regarding the above.
In the event the Company is unable to continue as a going concern, the Company may elect or be required to seek protection from its creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered this alternative, nor does management view it as a likely occurrence.
Cash, total current assets, total assets, total current liabilities, and total liabilities as of December 31, 2025, as compared to December 31, 2024, were as follows:
December 31, 2025
December 31, 2024
Cash and Cash Equivalents
Inventory
Prepaid expenses
Total current assets
Total assets
Total current liabilities
Total liabilities
At December 31, 2025, we had a working capital deficit of $8,576,604, compared to a working capital deficit of $8,874,143 at December 31, 2024. Current liabilities increased to $10,564,498 at December 31, 2025, from $9,654,954 at December 31, 2024, primarily as a result of accounts payable.
For the year ended December 31, 2025, net cash used in operations of $1,788,970 was the result of a net loss of $3,623,353 offset by depreciation expense of $25,113, net change in unrealized appreciation in gold bullions of $110,198, gain on sale of gold bullions of $200,433, stock issued for services of $834,600, warrants issuance of $259,493, options issuance of $22,748, imputed interest on related party loans of $79,275, decrease in prepaid expenses of $10,799, increase in inventory of $22,183, and a decrease in operating lease right of use of $55,663, an increase of accrued expenses and other payables-related party of $947,747, increase in accounts payable of $11,891 and a decrease in operating lease liabilities of $56,350.
For the year ended December 31, 2024, net cash used in operations of $1,839,086 was the result of a net loss of $3,398,939 offset by depreciation expense of $26,159, net change in unrealized appreciation in gold bullions of $133,829, warrants issuance of $851,205, imputed interest on related party loans of $81,072, increase in prepaid expenses of $45,235, increase in deposits of $3,656, and a decrease in operating lease right of use of $49,209, an increase of accrued expenses and other payables-related party of $818,538, a decrease in accounts payable of $39,635 and a decrease in operating lease liabilities of $48,172.
Net cash provided by our investing activities were $438,042 for the year ended December 31, 2025 and net cash used in our investing activities were $4,240 for the year ended December 31, 2024. During the year ended December 31, 2025, the Company had net proceeds from the sale of its investment in gold of $443,437 and purchase of fixed assets of $5,395. During the year ended December 31, 2024, the Company had purchase of fixed assets of $4,240.
Our financing activities resulted in a cash inflow of $2,467,900 for the year ended December 31, 2025, which is represented by $2,602,900 proceeds from the sale of stock, $10,000 payment in debt offering costs and $125,000 in principal repayment of debt to a related party.
Our financing activities resulted in a cash outflow of $35,244 for the year ended December 31, 2024, which is represented by $35,244 loan repayment.
Critical Accounting Policies
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, and revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk, and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Our significant accounting policies are summarized in Note 1 of our financial statements. While all these significant accounting policies impact its financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our results of operations, financial position or liquidity for the periods presented in this report.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
ASU 2025-05 — Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets
In July 2025, the FASB issued ASU 2025-05, which provides (1) all entities with a practical expedient and (2) entities other than public business entities with an accounting policy election when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606, Revenue from Contracts with Customers.
The practical expedient allows an entity to assume that, when estimating expected credit losses, current conditions as of the balance sheet date remain unchanged for the remaining life of the asset. The accounting policy election permits nonpublic entities that elect the practical expedient to also consider collection activity occurring after the balance sheet date when estimating expected credit losses.
The standard is effective for fiscal years beginning after December 15, 2025, and for interim periods within those annual reporting periods. Early adoption is permitted.
Accordingly, the Company will adopt ASU 2025-05 for its fiscal year beginning July 1, 2026.
The Company has evaluated ASU 2025-05 and does not expect the standard to have a material impact on its financial condition, results of operations, or cash flows.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures , to require enhanced disclosures that include reportable segment expenses. The amendments in this update provide that a business entity disclose significant segment expenses, segment profit or loss (after significant segment expenses), and allows reporting of additional measures of a segments profit or loss if used in assessing segment performance. Such disclosures apply to entities with a single reportable segment. These amendments were effective for the Company in 2024 and retrospectively to all prior periods using the significant segment expense categories identified. The impact of the adoption of the amendments in this update was not material to the Company’s consolidated financial position and results of operations, as the requirements impact only segment reporting disclosures in the footnotes to the Company’s consolidated financial statements.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In November 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses to improve the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses including purchases of inventory, employee compensation, depreciation and intangible asset amortization in commonly presented expense captions such as cost of sales, selling, general and administrative expense, and research and development. These amendments are effective for the Company for annual periods in 2027, applied prospectively, with early adoption permitted, and interim periods beginning in 2028. The Company intends to adopt the amendments in this update prospectively in 2027 for annual periods and in 2028 for interim periods. The impact of the adoption of the amendments in this update is not expected to be material to the Company’s consolidated financial position and results of operations, as the requirements only require more detailed disclosures in the footnotes to the Company’s consolidated financial statements.
In March 2024, the FASB issued ASU No. 2024-02, Codification Improvements - Amendments to Remove References to the Concepts Statements to remove various references to concepts statements from the FASB Accounting Standards Codification. This guidance is to clarify guidance, simplify wording or structure of guidance, and other minor improvements. These amendments are effective for the Company for annual periods in 2025, applied prospectively, with early adoption and retrospective application permitted. The Company intends to adopt the amendments in this update prospectively in 2025. The impact of the adoption of the amendments in this update is not expected to be material to the Company’s consolidated financial position and results of operations.
In March 2024, the FASB issued ASU No. 2024-01, Compensation - Stock Compensation (Topic 718) - Scope Application of Profits Interest and Similar Awards, to clarify whether profits interest and similar awards should be accounted for in accordance with Topic 718, Compensation - Stock Compensation. The guidance applies to all business entities that issue profits interest awards as compensation to employees or nonemployees in exchange for goods or services. These amendments are effective for the Company for annual and interim periods in 2025, applied prospectively, with early adoption and retrospective application permitted. As the Company does not issue profit interest awards, the impact of the adoption of the amendments in this update is not expected to be material to the Company’s consolidated financial position and results of operations.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures , to require enhanced income tax disclosures to provide information to assess how an entity’s operations and related tax risks, tax planning, and operational opportunities affect its tax rate and prospects for future cash flows. The amendments in this update provide that a business entity disclose (1) a tabular income tax rate reconciliation, using both percentages and amounts, (2) separate disclosure of any individual reconciling items that are equal to or greater than 5% of the amount computed by multiplying the income (loss) from continuing operations before income taxes by the applicable statutory income tax rate, and disaggregation of certain items that are significant and (3) amount of income taxes paid (net of refunds received) disaggregated by federal, state and foreign jurisdictions, including separate disclosure of any individual jurisdictions greater than 5% of total income taxes paid. These amendments are effective for the Company for annual periods in 2025, applied prospectively, with early adoption and retrospective application permitted. The Company intends to adopt the amendments in this update prospectively in 2025. The impact of the adoption of the amendments in this update is not expected to be material to the Company’s consolidated financial position and results of operations, since the amendments require only enhancement of existing income tax disclosures in the footnotes to the Company’s consolidated financial statements.
