KBLB 10-Q Quarterly Report Sept. 30, 2014

KRAIG BIOCRAFT LABORATORIES, INC

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10-Q 1 kblb_10q.htm QUARTERLY REPORT kblb_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2014

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

For the transition period from __________ to __________

Commission File Number 333-146316

KRAIG BIOCRAFT LABORATORIES, INC.

(Exact name of registrant as specified in its charter)

Wyoming		83-0459707
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

120 N. Washington Square, Suite 805, Lansing, Michigan 48933

(Address of principal executive offices) (Zip Code)

(517) 336-0807

(Registrant's telephone number, including area code)

N/A

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

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 þ No o

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

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	þ
(Do not check if a smaller reporting company)

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

There were 673,974,429 shares of the registrant’s common stock, no par value, outstanding as of October 22, 2014.

TABLE OF CONTENTS

		Page
PART I - Financial Information

Item 1.	Financial Statements.	F-1

	Condensed Balance Sheets as of September 30, 2014 (Unaudited) and December 31, 2013	F-1

	Condensed Statements of Operations for the three and nine months ended September 30, 2014 and 2013 (Unaudited) and for the period from April 25, 2006 (Inception) to September 30, 2014 (Unaudited)	F-2

	Condensed Statement of Changes in Stockholders’ Deficit for the period from April 25, 2006 (Inception) to September 30, 2014 (Unaudited)	F-3

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 (Unaudited) and for the period from April 25, 2006 (Inception) to September 30, 2014 (Unaudited)	F-11

	Notes to Condensed Financial Statements (Unaudited)	F-12

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	1

Item 4.	Controls and Procedures	5

PART II - Other Information

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6

Item 5.	Other Information	6

Item 6.	Exhibits.	7

Signatures		8

Exhibits/Certifications

PART 1 - FINANCIAL INFORMATION

Kraig Biocraft Laboratories, Inc.
(A Development Stage Company)
Condensed Balance Sheets
(Unaudited)


ASSETS

	September 30, 2014			December 31, 2013

Current Assets
Cash	$	726,857		$	295,381
Prepaid expenses		26,351			1,743
Total Current Assets		753,208			297,124

Property and Equipment, net		9,397			14,093

Total Assets	$	762,605		$	311,217


LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
Accounts payable and accrued expenses	$	469,961		$	362,436
Current portion of loan payable		1,082			3,981
Royalty agreement payable - related party		65,292			64,720
Accounts payable and accrued expenses - related party		1,041,894			1,081,482
Total Current Liabilities		1,578,229			1,512,619

Commitments and Contingencies

Stockholders' Deficit
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,
673,958,429 and 635,241,994 shares issued and outstanding, respectively		9,812,200			7,810,920
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		1,891,062			2,053,236
Deficit accumulated during the development stage		(17,758,686	)		(16,305,358	)
		.			.
Total Stockholders' Deficit		(815,624	)		(1,201,402	)

Total Liabilities and Stockholders' Deficit	$	762,605		$	311,217

F-1

Kraig Biocraft Laboratories, Inc.
(A Development Stage Company)
Condensed Statements of Operations
(Unaudited)

	For the Three Months Ended						For the Nine Months Ended						For the Period from April 25, 2006 (Inception) to
	September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013			September 30, 2014


Revenue	$	-		$	-		$	-		$	-		$	-

Operating Expenses
General and Administrative		31,328			772,503			826,708			833,376			4,141,738
Public Relations		-			-			-			-			619,890
Amortization of Debt Discount		-			-			-			-			120,000
Professional Fees		59,313			13,111			112,828			58,583			626,276
Officer's Salary		62,528			58,899			187,585			176,787			2,028,233
Contract Settlement		-			-			-			-			107,143
Research and Development		68,801			96,368			292,940			416,418			2,084,383
Total Operating Expenses		221,970			940,881			1,420,061			1,485,164			9,727,663

Loss from Operations		(221,970	)		(940,881	)		(1,420,061	)		(1,485,164	)		(9,727,663	)

Other Income/(Expenses)
Gain on forgiveness of debt		-			6,775			19,136			6,775			25,911
Other income		-			-			-			-			7,881
Bad debt expense		-			-			-			-			(6,238	)
Interest income		-			-			-			47			239
Loss on settlement of accrued payroll - related party		-			-			-			-			(5,187,800	)
Change in fair value of embedded derivative liability		-			-			-			-			(2,790,185	)
Change in fair value of embedded derivative liability-related party		-			-			-			-			119,485
Interest expense		(17,071	)		(15,953	)		(52,403	)		(50,014	)		(200,316	)
Total Other Income/(Expenses)		(17,071	)		(9,178	)		(33,267	)		(43,192	)		(8,031,023	)

Net (Loss) before Provision for Income Taxes		(239,041)			(950,059)			(1,453,328)			(1,528,356)			(17,758,686)

Provision for Income Taxes		-			-			-			-			-

Net (Loss)	$	(239,041	)	$	(950,059	)	$	(1,453,328	)	$	(1,528,356	)	$	(17,758,686	)

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		665,681,446			620,402,696			658,620,828			610,945,312

F-2

Kraig Biocraft Laboratories, Inc.
(A Development Stage Company)
Condensed Statement of Changes in Stockholders Deficit
For the period from April 25, 2006 (inception) to September 30, 2014
(Unaudited)

	Preferred Stock - Series A				Common Stock - Class A					Common Stock - Class B					Common Stock - Class A Shares				Deferred		Deficit Accumulated during
	Shares		Par		Shares			Par		Shares		Par			Par		APIC		Compensation		Development Stage


Balance, April 25, 2006		-	$	-		-		$	-		-	$	-	-	$	-	$	-		-	$	-		$	-

Stock issued to founder		-		-		332,292,000			180		-		-	-		-		-		-		-			180

Stock issued for services ($.01/share)		-		-		17,500,000			140,000		-		-	-		-		-		-		-			140,000

Stock issued for services ($.01/share)		-		-		700,000			5,600		-		-	-		-		-		-		-			5,600

Stock contributed by shareholder		-		-		(11,666,500	)		-		-		-	-		-		-		-		-			-

Stock issued for cash ($.05/share)		-		-		4,000			200		-		-	-		-		-		-		-			200

Stock issued for cash ($.05/share)		-		-		4,000			200		-		-	-		-		-		-		-			200

Fair value of warrants issued		-		-		-			-		-		-	-		-		126,435		-		-			126,435

Net Loss		-		-		-			-		-		-	-		-		-		-		(530,321	)		(530,321	)

Balance, December 31, 2006		-		-		338,833,500			146,180		-		-	-		-		126,435		-		(530,321	)		(257,706	)

Stock issued for cash ($.01/share)		-		-		1,750,000			15,000		-		-	-		-		-		-		-			15,000

Stock issued for cash ($.01/share)		-		-		12,000,000			103,000		-		-	-		-		-		-		-			103,000

Stock issued for cash ($.0003/share)		-		-		9,000,000			3,000		-		-	-		-		-		-		-			3,000

F-3


Stock issued for cash ($.01/share)	-	-	1,875,000	15,000	-	-	-	-	-		-	-		15,000

Stock issued for cash ($.01/share)	-	-	1,875,000	15,000	-	-	-	-	-		-	-		15,000
														-
Stock issued for services ($.01/share)	-	-	2,000,000	16,000	-	-	-	-	-		-	-		16,000

Stock issued for cash ($.01/share)	-	-	13,125,000	105,000	-	-	-	-	-		-	-		105,000

Stock issued for cash ($.003/share)	-	-	80,495,000	241,485	-	-	-	-	-		-	-		241,485

Stock issued for cash ($.003/share)	-	-	200,000	600	-	-	-	-	-		-	-		600

Stock issued for cash ($.003/share)	-	-	8,300,000	24,900	-	-	-	-	-		-	-		24,900

Stock issued for cash ($.003/share)	-	-	25,000	75	-	-	-	-	-		-	-		75

Stock issued for cash ($.003/share)	-	-	120,000	360	-	-	-	-	-		-	-		360

Stock issued for cash ($.003/share)	-	-	1,025,000	3,075		-		-	-		-	-		3,075

Stock issued in connection to cash offering	-	-	28,125,000	84,375	-	-	-	-	(84,375	)	-	-		-

Stock issued for services ($.01/share)	-	-	600,000	6,000	-	-	-	-	-		-	-		6,000

Net loss, for the year ended December 31, 2007	-	-	-	-	-	-	-	-	-		-	(472,986	)	(472,986	)

Balance, December 31, 2007	-	-	499,348,500	779,050	-	-	-	-	42,060		-	(1,003,307	)	(182,197	)

Stock issuable for services ($.01/share)	-	-	-	-	-	-	400,000	4,000	-		-	-		4,000

Net loss, for the year ended December 31, 2008	-	-	-	-	-	-	-	-	-		-	(1,721,156	)	(1,721,156	)

Balance, December 31, 2008	-	-	499,348,500	779,050	-	-	400,000	4,000	42,060		-	(2,724,463	)	(1,899,353	)

F-4


Stock issued for cash ($.01/share)	-	-	2,500,000	25,000	-	-	-	-	-	-		-		25,000

Stock issued for cash ($.008/share)	-	-	366,599	3,000	-	-	-	-	-	-		-		3,000

Stock issued for services	-	-	280,000	14,000	-	-	722,311	18,000	-	-		-		32,000

Stock issued for services	-	-	-	-	-	-	10,000,000	200,000	-	(103,333	)	-		96,667

Net loss for the year ended December 31, 2009	-	-	-	-	-	-	-	-	-	-		(1,432,091	)	(1,432,091	)

Balance, December 31, 2009	-	-	502,495,099	821,050	-	-	11,122,311	222,000	42,060	(103,333	)	(4,156,554	)	(3,174,777	)

Stock issued for services ($.01/share)	-	-	540,000	5,400	-	-	-	-	-	(5,000	)	-		400

Stock issued for services ($.02/share)	-	-	17,885,915	334,000	-	-	-	-	-	-		-		334,000

Stock issued for services ($.08/share)	-	-	387,500	31,000	-	-	-	-	-	-		-		31,000

Stock issued for services ($.15/share)	-	-	200,000	30,000	-	-	-	-	-	-		-		30,000

Stock issued for services ($.05/share)	-	-	280,000	14,000	-	-	-	-	-	-		-		14,000

Warrants issued for services	-	-	-	-	-	-	-	-	168,000	(168,000	)	-		-

Stock issued in connection with convertible note conversion	-	-	5,694,451	100,000	-	-	-	-	-	-		-		100,000

F-5


Stock issued in connection with convertible note conversion	-	-	854,169	15,000	-	-	-		-		-	-		-		15,000

Stock issued for cash ($.02/share)	-	-	10,000,000	200,000	-	-	(10,000,000	)	(200,000	)	-	-		-		-

Stock issued for cash ($.01/share)	-	-	4,000,000	28,632	-	-	-		-		-	-		-		28,632

Stock issued for cash ($.02/share)	-	-	4,513,116	70,000	-	-	-		-		-	-		-		70,000

Stock issued for cash ($.08/share)	-	-	1,179,245	100,000	-	-	-		-		-	-		-		100,000

Stock issued for cash ($.06/share)	-	-	1,157,407	75,000	-	-	-		-		-	-		-		75,000

Exercise of 6,000,000 warrants in exchange for stock	-	-	5,177,801	10,000	-	-	-		-		677,908	-		-		687,908

Deferred compensation realized	-	-	-	-	-	-	-		-		-	250,333		-		250,333

Forgiveness of accrued payable to related party	-	-	-	-	-	-	-		-		499,412					499,412

Forgiveness of derivative liability to related party	-	-	-	-	-	-	-		-		2,102,795					2,102,795

Net loss for the year ended December 31, 2010	-	-	-	-	-	-	-		-		-	-		(1,782,888	)	(1,782,888	)

Balance, December 31, 2010	-	-	554,364,703	1,834,082	-	-	1,122,311		22,000		3,490,175	(26,000	)	(5,939,442	)	(619,185	)

F-6


Stock issued for cash ($.06/share)	-	-	1,470,588	100,000	-	-	-	-	-		-	-		100,000

Stock issued for cash ($.05/share)	-	-	2,083,333	100,000	-	-	-	-	-		-	-		100,000

Stock issued for services ($.07/share)	-	-	1,000,000	70,000	-	-	-	-	-		-	-		70,000

Stock issued for services ($.07/share)	-	-	1,029,412	70,000	-	-	-	-	-		-	-		70,000

Stock issued for cash ($.07/share)	-	-	1,420,455	100,000	-	-	-	-	-		-	-		100,000

Stock issued for cash ($0.07/share)	-	-	1,372,119	100,000	-	-	-	-	-		-	-		100,000

Stock issued for cash ($0.08/share)	-	-	1,314,406	100,000	-	-	-	-	-		-	-		100,000

Stock issued for cash ($0.06/share)	-	-	1,543,210	100,000	-	-	-	-	-		-	-		100,000

Stock issued for license ($0.11/share)	-	-	2,200,000	242,000	-	-	-	-	-		-	-		242,000

Exercise of 20,000,000 warrants in exchange for stock	-	-	19,767,985	2,569,838	-	-	-	-	(2,569,838	)	-	-		-

Deferred compensation realized	-	-	-	-	-	-	-	-	-		26,000	-		26,000

Net loss for the year ended December 31, 2011	-	-	-	-	-	-	-	-	-		-	(1,295,310	)	(1,295,310	)

Balance, December 31, 2011	-	-	587,566,211	5,385,920	-	-	1,122,311	22,000	920,337		-	(7,234,752	)	(906,495	)

F-7


Stock issued for cash ($0.06/share)	-	-	1,562,500	100,000	-	-	-	-	-	-	-		100,000

Stock issued for cash ($0.04/share)	-	-	2,403,846	100,000	-	-	-	-	-	-	-		100,000

Stock issued for cash ($0.05/share)	-	-	1,923,077	100,000	-	-	-	-	-	-	-		100,000

Stock issued for cash ($0.04/share)	-	-	2,155,172	100,000	-	-	-	-	-	-	-		100,000

Stock issued for cash ($0.02/share)	-	-	1,004,832	25,000	-	-	-	-	-	-	-		25,000

Shares issued for services ($0.10/share)	-	-	3,000,000	300,000	-	-	-	-	-	-	-		300,000

Shares issued for services ($0.06/share)	-	-	300,000	18,000	-	-	-	-	-	-	-		18,000

Shares issued for services ($0.06/share)	-	-	1,600,000	96,000	-	-	-	-	-	-	-		96,000

Shares issued for services ($0.06/share)	-	-	1,600,000	96,000	-	-	-	-	-	-	-		96,000

Shares issued for services ($0.04/Share)	-	-	1,000,000	40,000	-	-	-	-	-	-	-		40,000

Grant 100,000,000 warrants for services	-	-	-	-	-	-	-	-	400,000	-	-		400,000

Net loss for the year ended December 31, 2012 (Restated)	-	-	-	-	-	-	-	-	-	-	(1,602,921	)	(1,602,921	)

Balance, December 31, 2012	-	-	604,115,638	6,360,920	-	-	1,122,311	22,000	1,320,337	-	(8,837,673	)	(1,134,416	)

F-8


Stock issued for cash ($0.05/share)	-	-	961,538	50,000	-	-	-	-	-		-	-		50,000

Stock issued for cash ($0.05/share)	-	-	945,537	50,000	-	-	-	-	-		-	-		50,000

Stock issued for cash ($0.06/share)	-	-	822,368	50,000	-	-	-	-	-		-	-		50,000

Stock issued for cash ($0.08/share)	-	-	884,434	75,000	-	-	-	-	-		-	-		75,000

Stock issued for cash ($0.06/share)	-	-	3,521,126	200,000	-	-	-	-	-		-	-		200,000

Stock issued for cash ($0.05/share)	-	-	1,838,235	100,000	-	-	-	-	-		-	-		100,000

Stock issued for cash ($0.05/share)	-	-	1,923,077	100,000	-	-	-	-	-		-	-		100,000

Stock issued for cash ($0.05/share)	-	-	2,100,840	100,000	-	-	-	-	-		-	-		100,000

Stock issued for cash ($0.04/share)	-	-	5,208,334	200,000	-	-	-	-	-		-	-		200,000

Stock issued for cash ($0.04/share)	-	-	3,063,725	125,000	-	-	-	-	-		-	-		125,000

Exercise of 10,000,000 warrants in exchange for stock	-	-	9,857,142	400,000	-	-	-	-	(400,000	)	-	-		-

Preferred Stock issued	2	5,217,800	-	-	-	-	-	-	-		-	-		5,217,800

Grant 10,000,000 warrants for services	-	-	-	-	-	-	-	-	736,816		-	-		736,816

Grant 8,000,000 warrants for services, net of M2M adjustment for unvested warrants	-	-	-	-	-	-	-	-	396,083		-	-		396,083

Net loss for the year ended December 31, 2013	-	-	-	-	-	-	-	-	-		-	(7,467,685	)	(7,467,685	)

Balance, December 31, 2013	2	5,217,800	635,241,994	7,810,920	-	-	1,122,311	22,000	2,053,236		-	(16,305,358	)	(1,201,402	)

F-9


Stock issued for cash ($0.04/share)	-		-	27,051,006		1,150,000	-		-	-		-		-			-		-			1,150,000

Exercise of 10,000,000 warrants in exchange for stock	-		-	9,821,429		736,816	-		-	-		-		(736,816	)		-		-			-

Grant 10,200,000 warrants for services	-		-	-		-	-		-	-		-		574,642			-		-			574,642

Settlement of accounts payable with stock issuance ($0.065/share)	-		-	44,000		2,864	-		-	-		-		-			-		-			2,864

Shares issued for services ($0.062/share)	-		-	1,800,000		111,600	-		-	-		-		-			-		-			111,600

Net loss for the nine months ended September 30, 2014	-		-	-		-	-		-	-		-		-			-		(1,453,328	)		(1,453,328	)

Balance, September 30, 2014	2	$	5,217,800	673,958,429	$	9,812,200	-	$	-	1,122,311	$	22,000	$	1,891,062		$	-	$	(17,758,686	)	$	(815,624	)

F-10

Kraig Biocraft Laboratories, Inc.
(A Development Stage Company)
Condensed Statements of Cash Flows
(Unaudited)


	For the Nine Months Ended September 30,						For the Period from April 25, 2006
							(Inception) to
	2014			2013			September 30, 2014
Cash Flows From Operating Activities:
Net Loss	$	(1,453,328	)		(1,528,356	)	$	(17,758,686	)
Adjustments to reconcile net loss to net cash used in operations
Depreciation expense		4,696			4,306			21,990
Gain on forgiveness of debt		(19,136	)		(6,775	)		(25,911	)
Stock issuable for services		-			-			22,000
Loss on settlement		-			-			5,187,800
Change in Fair Value of Derivative Liability					-			2,790,703
Stock issued for services		111,600			-			1,569,780
Warrants issued to employees		-						126,435
Warrants issued to consultants		574,642			736,816			2,275,541
Deferred compensation realized		-			-			200,000
Bad debt expense		-			6,000			6,238
Write off of interest receivable		-			192			-
Changes in operating assets and liabilities:
(Increase) Decrease in prepaid expenses		(24,608	)		1,039			(26,351	)
(Decrease) in interest receivables		-			-			(46	)
(Decrease) in accrued expenses and other payables - related party		(17,016	)		116,687			1,576,333
Increase in accounts payable		107,525			77,785			554,002
Net Cash Used In Operating Activities		(715,625	)		(592,306	)		(3,480,172	)

Cash Flows From Investing Activities:
Loan receivable		-			-			(6,000	)
Interest receivable		-			-			(192	)
Write off of interest receivable		-			-			-
Purchase of Fixed Assets and Domain Name		-			(3,473	)		(31,387	)
Net Cash Provided by (Used In) Investing Activities		-			(3,473	)		(37,579	)

Cash Flows From Financing Activities:
Proceeds from Notes Payable - Stockholder		-			150,000			150,000
Repayments of Notes Payable - Stockholder		-			(150,000	)		(150,000	)
Proceeds from issuance of convertible note		-			-			120,000
Loan payable		(2,899	)		(3,329	)		1,081
Proceeds from issuance of common stock		1,150,000			725,000			4,123,527
Net Cash Provided by Financing Activities		1,147,101			721,671			4,244,608

Net Increase (Decrease) in Cash		431,476			125,892			726,857

Cash at Beginning of Period		295,381			53,782			-

Cash at End of Period	$	726,857		$	179,674		$	726,857

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	$	736,816		$	400,000		$	3,706,654
Shares issued for settlement of accrued payroll - related party	$	-		$	-		$	30,000
Shares issued in connection with convertible note payable	$	-		$	-		$	115,000
Beneficial conversion feature on convertible notes and related debt discount	$	-		$	-		$	120,000
Settlement of accounts payable with stock issuance	$	2,864		$	-		$	2,864

F-11

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

(A) Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in The United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information necessary for a comprehensive presentation of financial position and results of operations.

It is management's opinion, however that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statements presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year.

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 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.

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. There were no cash equivalents as of September 30, 2014 or December 31, 2013.

(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 FASB Accounting Standards Codification No. 260, “Earnings per Share.” As of September 30, 2014 and 2013, 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 at September 30, 2014 and 2013 excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive:

	September 30, 2014		September 30, 2013

Stock Warrants (Exercise price - $0.001/share)		18,200,000		10,000,000
Convertible Preferred Stock		2		-
Total		18,200,002		10,000,000

(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-12

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

(F) Income Taxes

The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 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 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.

Effective January 1, 2009, the Company adopted guidance regarding accounting for uncertainty in income taxes. This guidance clarifies the accounting for income taxes by prescribing the minimum recognition threshold an income tax position is required to meet before being recognized in the financial statements and applies to all federal or state income tax positions. Each income tax position is assessed using a two step process. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is expected to meet the more likely than not criteria, the benefit recorded in the financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement. As of September 30, 2014 and December 31, 2013 there were no amounts that had been accrued in respect to uncertain tax positions.

None of the Company’s federal or state income tax returns is currently under examination by the Internal Revenue Service (“IRS”) or state authorities. However, fiscal years 2009 and later remain subject to examination by the IRS and respective states.

(G) Derivative Financial Instruments

Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.

Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the Black-Scholes option-pricing model.

(H) Stock-Based Compensation

In December 2004, the FASB issued FASB Accounting Standards Codification No. 718, Compensation – Stock Compensation . Under FASB Accounting Standards Codification No. 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. 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. The Company applies this statement prospectively.

Equity instruments (“instruments”) issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB Accounting Standards Codification No. 718. FASB Accounting Standards Codification No. 505, Equity Based Payments to Non-Employees defines the measurement date and recognition period for such instruments. In general, the measurement date is when either a (a) performance commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the FASB Accounting Standards Codification.

(I) Business Segments

The Company operates in one segment and therefore segment information is not presented.

F-13

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

(J) Recent Accounting Pronouncements

In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The new guidance requires that share-based compensation that require a specific performance target to be achieved in order for employees to become eligible to vest in the awards and that could be achieved after an employee completes the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation costs should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The adoption of ASU 2014-12 is not expected to have a material impact on our financial position or results of operations.

In June 2014, the FASB issued ASU No. 2014-10: Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation , to improve financial reporting by reducing the cost and complexity associated with the incremental reporting requirements of development stage entities. The amendments in this update remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, thereby improving financial reporting by eliminating the cost and complexity associated with providing that information. The amendments in this Update also eliminate an exception provided to development stage entities in Topic 810, Consolidation, for determining whether an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. The amendments to eliminate that exception simplify U.S. GAAP by reducing avoidable complexity in existing accounting literature and improve the relevance of information provided to financial statement users by requiring the application of the same consolidation guidance by all reporting entities. The elimination of the exception may change the consolidation analysis, consolidation decision, and disclosure requirements for a reporting entity that has an interest in an entity in the development stage. The amendments related to the elimination of inception-to-date information and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to Topic 275, which shall be applied prospectively. For public companies, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The adoption of ASU 2014-10 is not expected to have a material impact on our financial position or results of operations.

In July 2013, FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." The provisions of ASU No. 2013-11 require an entity to present an unrecognized tax benefit, or portion thereof, in the statement of financial position as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward, with certain exceptions related to availability. ASU No. 2013-11 is effective for interim and annual reporting periods beginning after December 15, 2013. The adoption of ASU No. 2013-11 is not expected to have a material impact on the Company's Consolidated Financial Statements.

In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income , to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:

Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and

Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.

The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our financial position or results of operations.

F-14

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

(K) Reclassification

The 2013 financial statements have been reclassified to conform to the 2014 presentation.

(L) Equipment

The Company values property and equipment at cost and depreciates these assets using the straight-line method over their expected useful life. The Company uses a five year life for automobiles.

In accordance with FASB Accounting Standards Codification 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 during the nine months ended September 30, 2014 and 2013.

(M ) 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, 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.

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 September 30, 2014 and December 31, 2013.

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.

F-15

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

	September 30, 2014		December 31, 2013
Level 1	$	-	$	-
Level 2		-		-
Level 3		-		-
Total	$	-	$	-

NOTE 2 RESTATEMENT OF FINANCIAL STATEMENTS

The unaudited financial statements for the periods ended March 31, 2013 and June 30, 2013 have been restated as a result of management’s determination that the Company’s accounting treatment pertaining to the issuance of 10,000,000 warrants to consultant with a fair value of $400,000 should be recorded as a public relations expense (See Note 8(E)).

The effect of the restatement on our previously issued unaudited financial statements as of March 31, 2013 and June 30, 2013 is as follows:

	RESTATED STATEMENT OF OPERATIONS
	For the Period from April 25, 2006 (Inception) to March 31, 2013						For the Period from April 25, 2006 (Inception) to March 31, 2013
	As Reported			Adjustments			Restated

Revenue	$	-					$	-
								-
Operating Expenses								-
General and Administrative		1,967,043						1,967,043
Public Relations		219,890			400,000			619,890
Amortization of Debt Discount		120,000						120,000
Professional Fees		351,942						351,942
Officer's Salary		1,662,503						1,662,503
Contract Settlement		107,143						107,143
Research and Development		1,457,292						1,457,292
Total Operating Expenses		5,885,813			400,000			6,285,813
								-
Loss from Operations		(5,885,813	)		(400,000	)		(6,285,813	)
								-
Other Income/(Expenses)								-
Other income		7,881						7,881
Interest income		192						192
Change in fair value of embedded derivative liability		(2,790,185	)					(2,790,185	)
Change in fair value of embedded derivative liability-related party		119,485						119,485
Interest expense		(164,538	)					(164,538	)
Total Other Income/(Expenses)		(2,827,165	)		-			(2,827,165	)
								-
Net (Income) Loss before Provision for Income Taxes		(8,712,978	)		(400,000	)		(9,112,978	)
								-
Provision for Income Taxes		-			-			-
								-
Net Income (Loss)	$	(8,712,978	)	$	(400,000	)	$	(9,112,978	)

F-16

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

	RESTATED STATEMENT OF OPERATIONS
	For the Period from April 25, 2006 (Inception) to June 30, 2013						For the Period from April 25, 2006 (Inception) to June 30, 2013
	As Reported			Adjustments			Restated

Revenue	$	-					$	-
								-
Operating Expenses								-
General and Administrative		2,000,326						2,000,326
Public Relations		219,890			400,000			619,890
Amortization of Debt Discount		120,000						120,000
Professional Fees		380,547						380,547
Officer's Salary		1,721,402						1,721,402
Contract Settlement		107,143						107,143
Research and Development		1,622,059						1,622,059
Total Operating Expenses		6,171,367			400,000			6,571,367
								-
Loss from Operations		(6,171,367	)		(400,000	)		(6,571,367	)
								-
Other Income/(Expenses)								-
Other income		7,881						7,881
Interest income		239						239
Change in fair value of embedded derivative liability		(2,790,185	)					(2,790,185	)
Change in fair value of embedded derivative liability-related party		119,485						119,485
Interest expense		(181,974	)					(181,974	)
Total Other Income/(Expenses)		(2,844,554	)		-			(2,844,554	)
								-
Net (Income) Loss before Provision for Income Taxes		(9,015,921	)		(400,000	)		(9,415,921	)
								-
Provision for Income Taxes		-			-			-
								-
Net Income (Loss)	$	(9,015,921	)	$	(400,000	)	$	(9,415,921	)

F-17

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

	RESTATED STATEMENTS OF CASH FLOWS
	For the Period from April 25, 2006 (Inception) to March 31, 2013						For the Period from April 25, 2006 (Inception) to March 31, 2013
	As Reported			Adjustments			Restated
Cash Flows From Operating Activities:
Net Loss	$	(8,712,978	)	$	(400,000	)	$	(9,112,978	)
Adjustments to reconcile net loss to net cash used in operations
Depreciation expense		12,783						12,783
Stock issuable for services		22,000						22,000
Change in Fair Value of Derivative Liability		2,790,703						2,790,703
Stock issued for services		1,458,180						1,458,180
Warrants issued to employees		126,435						126,435
Warrants issued to consultants		168,000			400,000			568,000
Deferred compensation realized		200,000						200,000
Changes in operating assets and liabilities:								-
(Increase)Decrease in prepaid expenses		(4,485	)					(4,485	)
Increase in accrued expenses and other payables - related party		1,449,233						1,449,233
Increase in accounts payable		357,238						357,238
Net Cash Used In Operating Activities		(2,132,891	)		-			(2,132,891	)

F-18

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

	RESTATED STATEMENTS OF CASH FLOWS
	For the Period from April 25, 2006 (Inception) to June 30, 2013						For the Period from April 25, 2006 (Inception) to June 30, 2013
	As Reported			Adjustments			Restated
Cash Flows From Operating Activities:
Net Loss	$	(9,015,921	)	$	(400,000	)	$	(9,415,921	)
Adjustments to reconcile net loss to net cash used in operations
Depreciation expense		14,175						14,175
Stock issuable for services		22,000						22,000
Change in Fair Value of Derivative Liability		2,790,703						2,790,703
Stock issued for services		1,458,180						1,458,180
Warrants issued to employees		126,435						126,435
Warrants issued to consultants		168,000			400,000			568,000
Deferred compensation realized		200,000						200,000
Changes in operating assets and liabilities:								-
(Increase)Decrease in prepaid expenses		(1,577	)					(1,577	)
Increase in accrued expenses and other payables - related party		1,495,838						1,495,838
Increase in accounts payable		468,252						468,252
Net Cash Used In Operating Activities		(2,273,915	)		-			(2,273,915	)

Note:

1. Adjustment to recognize 10,000,000 warrants issued to consultant on November 21, 2012, with fair value of $400,000.

NOTE 3 GOING CONCERN

As reflected in the accompanying unaudited financial statements, the Company is in the development stage, has a working capital deficiency of $825,021 and stockholders’ deficiency of $815,624 and used $3,480,172 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 4 EQUIPMENT

At September 30, 2014 and December 31, 2013 equipment is as follows:

	As of September 30, 2014			As of December 31, 2013

Automobile	$	25,828		$	25,828
Office Equipment		5,560			5,560
Less Accumulated Depreciation		(21,991	)		(17,295	)

Total Property and Equipment	$	9,397		$	14,093

Depreciation and amortization expense for the three and nine months ended September 30, 2014 was $1,582 and $4,695, respectively.

Depreciation and amortization expense for the three and nine months ended September 30, 2013 was $1,537 and $4,306, respectively.

F-19

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

NOTE 5

CONVERTIBLE DEBT, DEBT DISCOUNT AND FAIR VALUE MEASUREMENT OF DERIVATIVE FINANCIAL INSTRUMENTS

On July 17, 2009, the Company entered into an agreement with an investor group where the Company will issue up to $120,000 in convertible units. The debentures will be in the face amount of $10,000 each, mature on December 31, 2010, bear interest at the rate of 5% simple interest per annum, payable at maturity or convertible with the principal, and the principal and interest shall be convertible at the option of the holder at a fixed price of $0.018 per share. Each debenture shall have a warrant attached exercisable for the purchase of 500,000 shares of common stock. The warrants shall expired on December 31, 2011, have a cashless exercise provision, and be exercisable at a fixed price of $0.02. The agreement also requires the investment group to purchase up to $1,000,000 of common stock monthly at the lesser of $75,000 or 200% of the average daily volume multiplied by the average of the daily closing prices for the ten days immediately preceding the exercise date. Each investment by the investment group is priced at the lowest closing “bid” price of the common stock during the five days immediately before the investment. The term of the funding shall be the earlier of (a) the drawing down of the entire $1,000,000 or (b) 24 months after the Effective Date, July 17, 2011. In addition, the Company is required to file and maintain an effective registration statement covering the convertible units, cannot issue more than 5% of its common stock outstanding without the investor group’s consent and must maintain a contractual relationship with a public relations firm, which is related to the investor group. The Company has issued $120,000 of convertible debt to date. On July 21, 2010, the issuance of 1,799,434 shares was approved by the board of directors in exchange for the $15,000 specified in the put notice.

The $120,000 convertible debt instrument was determined to have a separate derivative liability instrument requiring bifurcation and the computation of fair value. The conversion price per share equals to the lower of the conversion price and the average closing bid price of the common stock during the 20 trading days prior to and including the date on which the conversion notice is delivered to the holder, however, the mandatory Conversion price shall not be less than $0.005. The Company calculated the estimated fair values of the liabilities for warrant derivative instruments and embedded conversion option derivative instruments with the Black-Scholes option pricing model.

The fair value of the embedded conversion options at the commitment date was $251,919. Of the total, $120,000 was assigned to debt discount and $131,919 was recorded as a derivative expense.

On February 11, 2010 the Company authorized the issuance of 5,694,451 shares of Common Stock for the exercise price of $0.02/share in exchange for $100,000 in convertible note payable and on April 6, 2010 the Company authorized the issuance of 854,169 shares of Common Stock for the exercise price of $0.02/share in exchange for $15,000 in convertible note payable.

At December 31, 2010, pursuant to the agreement, all outstanding principal and accrued interest on the convertible debt was due, and the conversion rights of the holder terminated. Accordingly, at December 31, 2010, the Company determined that no derivative liability existed in connection to the outstanding remaining debt of $5,000. For the year ended December 31, 2013, the note holder forgave the remaining balance and the $5,000 convertible note balance along with accrued interest of $1,775 was recorded as a gain on forgiveness of debt. As of December 31, 2013 the remaining convertible note balance was $0.

In addition, on October 4, 2010, the Company issued 5,177,801 shares in connection with the cashless exercise of the 6,000,000 warrants.

At June 30, 2011 the Company recorded interest expense and related accrued interest payable of $2,466. The Company also recorded $92,600 for the amortization of debt discount in interest expense on the statement of operations. The debt discount is being amortized over the life of the convertible debt.

NOTE 6 LOAN PAYABLE

On December 8, 2010 the Company entered into a five year loan agreement with the principal loan amount of $15,828. The loan carries an interest rate of 6.94%, and is secured by an automobile. The remaining balance of $1,082 fully matures during the year ending December 31, 2014.

NOTE 7 LOAN PAYABLE – RELATED PARTY

On February 25, 2013 the Company received $150,000 from a principal stockholder. Pursuant to the terms of the loan, the advance bears interest at 3%, is unsecured and due on demand. At December 31, 2013 the loan balance was repaid. The Company recorded accrued interest payable of $2,001.

F-20

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

NOTE 8 STOCKHOLDERS’ DEFICIT

(A) Common Stock Issued for Cash

On April 28, 2006, the Company issued 8,000 shares of common stock for cash of $400 ($0.05 per share).

On January 8, 2007 the Company issued 1,750,000 shares of common stock for $15,000 ($0.01/share). This agreement was subsequently terminated effective May 23, 2007.

On January 22, 2007 the Company issued 12,000,000 shares of common stock for $103,000 ($0.01/share). In addition, 9,000,000 shares were issued for $3,000 ($0.0003/share).

On April 4, 2007, the Company issued 1,875,000 shares of common stock for cash of $15,000 ($0.01 per share).

On April 20, 2007, the Company issued 1,875,000 shares of common stock for cash of $15,000 ($0.01 per share).

On May 18, 2007, the Company issued 13,125,000 shares of common stock for cash of $105,000 ($0.01 per share).

On August 28, 2007 the Company entered into a stock purchase agreement to issue 80,495,000 shares common stock in the amount of $241,485 ($0.003/share).

On August 29, 2007 the Company entered into a stock purchase agreement to issue 200,000 shares common stock in the amount of $600 ($0.003/share).

On August 29, 2007 the Company entered into a stock purchase agreement to issue 8,300,000 shares common stock in the amount of $24,900 ($0.003/share).

On September 1, 2007 the Company entered into a stock purchase agreement to issue 25,000 shares common stock in the amount of $75 ($0.003/share).

On September 5, 2007 the Company entered into a stock purchase agreement to issue 120,000 shares common stock in the amount of $360 ($0.003/share).

On September 12, 2007 the Company entered into a stock purchase agreement to issue 1,025,000 shares common stock in the amount of $3,075 ($0.003/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 28,125,000 additional shares through May 2008 as a result of the subsequent stock issuances at $0.003/share.

On April 24, 2009 the Company issued 2,000,000 shares of common stock for $20,000 ($0.01/share).

On May 22, 2009, the Company issued 500,000 shares of common stock for $5,000 ($0.01/share).

On September 30, 2009, the Company issued 366,599 shares of common stock for $3,000 ($0.01/share).

On May 18, 2010, the Company issued 4,000,000 shares of common stock for cash of $21,642 and in exchange of $6,990 in note payables ($0.007158 per share).

On July 21, 2010, the Company issued 1,875,000 shares of common stock for $15,000 ($0.008/share).

On September 10, 2010, the Company issued 1,351,351 shares of common stock for $20,000 ($0.0148/share).

On September 22, 2010, the Company issued 1,286,765 shares of common stock for $35,000 ($0.0272/share).

On October 15, 2010, the Company issued 1,179,245 shares of common stock for $100,000 ($0.084/share).

On December 7, 2010, the Company issued 1,157,407 shares of common stock for $75,000 ($0.065/share).

F-21

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

During the year ended December 31, 2013, the Company had to issue an additional 845,800 make-up shares related to a transaction entered into during the year ended December 31, 2010.

On January 25, 2011 the Company issued 1,470,588 shares of common stock for $100,000 ($0.068/share).

On March 22, 2011 the Company issued 2,083,333 shares of common stock for $100,000 ($0.048/share).

On April 18, 2011 the Company issued 1,029,412 shares of common stock for $70,000 ($0.07/share).

On April 22, 2011 the Company issued 1,420,455 shares of common stock for $100,000 ($0.07/share).

On September 22, 2011, the Company issued 1,372,119 shares of common stock for $100,000 ($0.07/share).

On November 9, 2011, the Company issued 1,314,406 shares of common stock for $100,000 ($0.08/share).

On December 16, 2011, the Company issued 1,543,210 shares of common stock for $100,000 ($0.06/share).

On January 20, 2012, the Company issued 1,562,500 shares of common stock for $100,000 ($0.06/share).

On April 19, 2012, the Company issued 2,403,846 shares of common stock for $100,000 ($0.06/share).

On May 19, 2012, the Company issued 1,923,077 shares of common stock for $100,000 ($0.05/share).

On June 29, 2012, the Company issued 2,155,172 shares of common stock for $100,000 ($0.04/share).

On December 21, 2012, the Company issued 1,004,832 shares of common stock for $25,000 ($0.02/share).

On February 19, 2013, the Company issued 961,538 shares of common stock for $50,000 ($0.05/share).

On March 4, 2013, the Company issued 945,537 shares of common stock for $50,000 ($0.05/share).

On April 1, 2013, the Company issued 822,368 shares of common stock for $50,000 ($0.06/share).

On April 15, 2013, the Company issued 884,434 shares of common stock for $75,000 ($0.08/share).

On July 11, 2013 the Company issued 1,760,563 shares of common stock for $100,000 ($0.06/share).

On July 25, 2013 the Company issued 1,760,563 shares of common stock for $100,000 ($0.06/share).

On August 13, 2013 the Company issued 1,838,235 shares of common stock for $100,000 ($0.05/share).

On September 3, 2013 the Company issued 1,923,077 shares of common stock for $100,000 ($0.05/share).

On September 19, 2013 the Company issued 2,100,840 shares of common stock for $100,000 ($0.05/share).

On October 3, 2013 the Company issued 2,604,167 shares of common stock for $100,000 ($0.04/share).

On October 17, 2013 the Company issued 2,604,167 shares of common stock for $100,000 ($0.04/share).

On December 11, 2013 the Company issued 3,063,725 shares of common stock for $125,000 ($0.04/share).

On January 28, 2014 the Company issued 3,537,736 shares of common stock for $150,000 ($0.04/share).

On February 18, 2014 the Company issued 3,409,091 shares of common stock for $150,000 ($0.04/share).

On March 12, 2014 the Company issued 2,551,020 shares of common stock for $100,000 ($0.04/share).

On April 7, 2014 the Company issued 2,212,389 shares of common stock for $100,000 ($0.05/share).

On April 22, 2014 the Company issued 2,173,913 shares of common stock for $100,000 ($0.05/share).

F-22

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

On June 10, 2014 the Company issued 3,409,091 shares of common stock for $150,000 ($0.04/share).

On July 7, 2014, the Company issued 2,212,389 share of common stock for $100,000 ($0.05/share).

On August 6, 2014, the Company issued 2,272,727 share of common stock for $100,000 ($0.04/share).

On September 3, 2014, the Company issued 2,450,980 share of common stock for $100,000 ($0.04/share).

On September 22, 2014, the Company issued 2,821,670 share of common stock for $100,000 ($0.04/share).

(B) Common Stock Issued for Intellectual Property

On April 26, 2006, the Company issued 332,292,000 shares of common stock to its founder having a fair value of $180 ($0.000001/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.

Shares issued for services as mentioned below were valued at the closing price of the stock on the date of grant.

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 17,500,000 shares of common stock upon execution of the agreement. The Company also received a five-year call option from the license holder to repurchase 7,000,000 common shares at an exercise price of $150,000 or $.02 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 June 30, 2011 the value of the stock was $.07 per share. The Company does not have the obligation to repurchase the shares.

On July 1, 2006 the Company entered into a five year consulting agreement for research and development. Pursuant to the terms of the agreement, the Company paid 700,000 shares of common stock upon execution. These shares had a fair value of $5,600 ($0.01/share) based upon the recent cash offering price. Additionally, 2,000,000 shares of common stock were issued on May 18, 2007 with a fair value of $16,000 ($0.01/share). As of December 31, 2008, the Company issued 600,000 shares of common stock for consulting services rendered with a fair value of $6,000 ($0.01/share). On January 15, 2008 the Company authorized the issuance of 400,000 shares of common stock for consulting services rendered with a fair value of $4,000 ($0.01/share).

On July 1, 2009, the issuance of 280,000 shares was approved by the board of directors as repayment for services previously provided to the Company by a consultant having a fair value of $14,000 ($0.05/share) in accordance with a consulting agreement (See Note 9(C)).

On July 1, 2009, the issuance of 482,825 shares was approved by the board of directors as partial payment for services previously provided to the Company by a consultant in accordance with a consulting agreement. The total amount of issuable shares for the consultant is 1,122,311 shares, which includes 400,000 issuable shares previously approved by the board of directors and 239,486 shares were approved to be issued on November 19, 2009 for a fair value of $18,000 (See Note 9(C)).

On August 3, 2009, the Company entered into an agreement with a consultant to provide investor relations services. On October 5, 2009 the Company issued 10,000,000 shares with a fair value of $200,000 ($0.02/share) to a consultant for investor relations to be provided over a term of 180 days. The Company started receiving services beginning October 5, 2009. As of March 31, 2010 $200,000 was recorded (See Note 8(D)).

On January 15, 2010 the Company issued 500,000 shares with a fair value of $5,000 ($0.01/share) to a consultant for investor relations to be provided over a term of 12 months once certain conditions are met. As of March 31, 2010, $5,000 was recognized as deferred compensation (See Note 8).

On May 21, 2010 the Company issued 40,000 shares with a fair value of $400 ($0.01/share) to a consultant for research and development services (See Note 9(C )).

On July 30, 2010 the Company issued 2,400,000 shares with a fair value of $30,000 ($0.0125/share) to a consultant for legal services incurred in behalf of the Company.

F-23

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

On August 26, 2010 the Company issued 280,000 shares with a fair value of $14,000 ($0.05/share) to a consultant for research and development services provided in the past.

On August 26, 2010 the Company issued 985,915 shares with a fair value of $14,000 ($0.0142/share) to a consultant for research and development services provided in the past (See Note 9(C)).

On August 26, 2010 the Company issued 4,500,000 shares with a fair value of $90,000 ($0.02/share) to a consultant for research and development services (See Note 9(C)).

On August 26, 2010 the Company issued 10,000,000 shares with a fair value of $200,000 ($0.02/share) to a consultant for research and development services (See Note 9(C)).

On September 16, 2010, the Company entered into an agreement with a consultant to provide technical support. On September 16, 2010 the Company issued 100,000 shares, as a sign on bonus, with a fair value of $15,000 ($0.15/share) to the consultant for technical support to be provided over the next 3 years. In addition, the consultant shall receive 30,000 shares for three years commencing on or about September 10 of each of the next three years (See Note 9(C)).

On September 23, 2010 the Company issued 387,500 shares with a fair value of $31,000 ($0.08/share) to a consultant for legal services incurred on behalf of the Company.

On April 1, 2011 the Company issued 1,000,000 shares with a fair value of $70,000 ($0.07/share) to a consultant for research and development services.

On April 18, 2011, the Company issued 1,029,412 shares of stock with a fair value of $70,000 based on the average trading price over a 30 day period for a research and development consulting agreement.

On October 28, 2011, the Company issued 2,200,000 shares of stock with a fair value of $242,000 ($0.11/share) to obtain the use of a license.

On May 24, 2012 the Company issued 3,200,000 shares with a fair value of $192,000 ($0.06/share) to consultants for research and development services.

On May 24, 2012 the Company issued 300,000 shares with a fair value of $18,000 ($0.06/share) to a consultant for research and development services provided in the past.

On May 24, 2012 the Company issued 3,000,000 shares with a fair value of $300,000 ($0.10/share) to a consultant for research and development services provided in the past.

On December 18, 2012 the Company issued 1,000,000 shares with a fair value of $40,000 ($0.04/share) to a consultant for research and development services provided in the past.

On March 28, 2014, the Company issued 44,000 shares of common stock with a fair value of $2,864 ($0.065/share) to a consultant as consideration for consulting fees owed from June 1, 2012 through March 31, 2014 of $44,000. The issuance of shares resulted in gain on settlement of accounts payable of $19,136.

On April 23, 2014, the Company issued 1,800,000 shares of common stock with a fair value of $111,600 ($0.062/share) to a consultant as consideration for consulting services.

(D) Cancellation and Retirement of Common Stock

On December 29, 2006, the Company’s founder returned 11,666,500 shares of common stock to the Company. These shares were cancelled and retired. Accordingly, the net effect on equity is $0.

F-24

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

(E) Common Stock Warrants

During 2006, the Company issued 6,000,000 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 July 29, 2010, the Company issued a warrant for 20,000,000 common shares in connection to a consulting agreement. The warrant was value at $200,000, the fair value of the services to be provided pursuant to the agreement. The warrant has a term of 2 years.

On October 4, 2010, the Company issued 5,177,801 shares in connection with the cashless exercise of the 6,000,000 warrants.

On May 11, 2011, the Company issued 19,767,985 shares in connection with the cashless exercise of the 20,000,000 warrants.

On February 2, 2014, the Company issued 9,821,429 shares in connection with the cashless exercise of 10,000,000.

On November 21, 2012, the Company issued 10-year warrants for 10,000,000 shares with a consultant, with an exercise price of $0.001 per share. The warrants were granted for services rendered. The warrants had a fair value of $400,000, based upon the Black-Scholes option-pricing model. The Company used the following weighted average assumptions:

Expected dividends		0	%
Expected volatility		283.23	%
Expected term	10 years
Risk free interest rate		1.69	%
Expected forfeitures		0	%

On July 18, 2013, the Company issued 9,857,142 shares in connection with the cashless exercise of the 10,000,000 warrants.

On July 9, 2013, the Company issued 5-year warrants for 10,000,000 shares to a consultant, with an exercise price of $0.001 per share. The warrants were granted for services rendered. The warrants had a fair value of $736,816, based upon the Black-Scholes option-pricing model. The Company used the following weighted average assumptions:

Expected dividends		0	%
Expected volatility		183.35	%
Expected term	5 years
Risk free interest rate		1.50	%
Expected forfeitures		0	%

On October 15, 2013, the Company issued 1-year warrants for 8,000,000 shares to a consultant, with an exercise price of $0.001 per share. The warrants were granted for services to be rendered. The warrants had a fair value of $396,083, based upon the Black-Scholes option-pricing model on the date of grant and were fully vested upon and will be exercisable beginning October 15, 2015 for a period of 12 months.

	Grant Date
Expected dividends		0	%
Expected volatility		96.35	%

Expected term	3 years
Risk free interest rate		1.45	%
Expected forfeitures		0	%

F-25

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

On February 17, 2014, the Company issued 1-year warrants for 600,000 shares to a consultant, with an exercise price of $0.001 per share. The warrants were granted for services to be rendered. The warrants had a fair value of $33,620, based upon the Black-Scholes option-pricing model on the date of grant and were fully vested upon and will be exercisable beginning on the 14 th month anniversary of the agreement and for a period of twelve months thereafter.

	Grant Date
Expected dividends		0	%
Expected volatility		86.94	%

Expected term	2 years
Risk free interest rate		1.53	%
Expected forfeitures		0	%

On February 17, 2014, the Company issued 1-year warrants for 600,000 shares to a consultant, with an exercise price of $0.001 per share. The warrants were granted for services to be rendered. The warrants had a fair value of $33,620, based upon the Black-Scholes option-pricing model on the date of grant and were fully vested upon issuance and will be exercisable beginning on the 14 th month anniversary of the agreement and for a period of twelve months thereafter.

	Grant Date
Expected dividends		0	%
Expected volatility		86.94	%

Expected term		2 years
Risk free interest rate			1.53	%

On February 17, 2014, the Company issued 1-year warrants for 1,000,000 shares to a consultant, with an exercise price of $0.001 per share. The warrants were granted for services to be rendered. The warrants had a fair value of $56,040, based upon the Black-Scholes option-pricing model on the date of grant and were fully vested upon issuance and will be exercisable beginning on the 20 th month anniversary of the agreement and for a period of twelve months thereafter.

F-26

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

	Grant Date
Expected dividends		0	%
Expected volatility		86.23	%

Expected term	3 years
Risk free interest rate		1.53	%
Expected forfeitures		0	%

	Grant Date
Expected dividends		0	%
Expected volatility		86.23	%

Expected term	3 years
Risk free interest rate		1.53	%
Expected forfeitures		0	%

On February 17, 2014, the Company issued 1-year warrants for 2,000,000 shares to a consultant, with an exercise price of $0.001 per share. The warrants were granted for services to be rendered. The warrants had a fair value of $112,110, based upon the Black-Scholes option-pricing model on the date of grant and were fully vested upon issuance and will be exercisable beginning on the 32nd month anniversary of the agreement and for a period of twelve months thereafter.

	Grant Date
Expected dividends		0	%
Expected volatility		123.49	%

Expected term	3 years
Risk free interest rate		1.53	%
Expected forfeitures		0	%

	Grant Date
Expected dividends		0	%
Expected volatility		123.49	%

Expected term	3 years
Risk free interest rate		1.53	%
Expected forfeitures		0	%

F-27

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

On June 4, 2014, the Company issued 3-year warrant for 3,000,000 shares to a consultant, with an exercise price of $0.001 per share. The warrants were granted for services to be rendered. The warrants had a fair value of $171,102, based upon the Black-Scholes option-pricing model on the date of grant and were fully vested upon issuance and will be exercisable beginning on the 32nd month anniversary of the agreement and for a period of twelve months thereafter.

	Grant Date
Expected dividends		0	%
Expected volatility		86.69	%

Expected term	3 years
Risk free interest rate		0.85	%
Expected forfeitures		0	%

	Number of Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in Years )

Balance, December 31, 2011		-		$	-
Granted		10,000,000			0.001
Exercised
Cancelled/Forfeited		-			-
Balance, December 31, 2012		10,000,000			0.001		9.90
Granted		18,000,000		$	0.001
Exercised		(10,000,000	)	$	-
Cancelled/Forfeited		-
Balance, December 31, 2013		18,000,000		$	0.001		2.9
Granted		10,200,000		$	0.001
Exercised		(10,000,000	)	$	-
Cancelled/Forfeited		-
Balance, September 30, 2014		18,200,000		$	0.001		2.6

Intrinsic Value		718,180

F-28

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

For the nine months ended September 30, 2014, the following warrants were outstanding:

Exercise Price		Warrants Outstanding		Warrants Exercisable		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value

$	0.001		18,200,000		-		2.3		718,180

For the year ended December 31, 2013, the following warrants were outstanding:

Exercise Price		Warrants Outstanding		Warrants Exercisable		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value

$	0.001		28,000,000		18,000,000		2.9		918,000

(F) Amendment to Articles of Incorporation

On February 16, 2009, the Company amended its articles of incorporation to amend the number and class of shares the Company is authorized to issue as follows:

●	Common stock Class A, unlimited number of shares authorized, no par value
●	Common stock Class B, unlimited number of shares authorized, no par value

●	Preferred stock, unlimited number of shares authorized, no par value

Effective December 17 2013, the Company amended its articles of incorporation to designate a Series A no par value preferred stock. Two shares of Series A Preferred stock have been authorized.

(G) Stock Split Effected in the Form of a Stock Dividend

On March 23, 2009, the Company's Board of Directors declared a nine-for-one stock split to be effected in the form of a dividend. The stock dividend was distributed to shareholders of record as of April 27, 2009. A total of 449,773,650 shares of common stock were issued. All basic and diluted loss per share and average shares outstanding information has been adjusted to reflect the aforementioned stock dividend.

(H) Conversion of debt & Issuance of Convertible Preferred Stock – related party

During the year ended December 31, 2013, the Company's Chief Executive Officer converted accrued payroll of $30,000 in exchange for the issuance of Series A convertible Preferred Stock (“Series A PS”).

Each share of Series A PS is entitled to vote together with the holders of the Company’s common stock on all matters and is entitled to 200,000,000 votes on all such matters. Each Share of Series A PS is convertible into one share of the Company’s common stock at the holder’s option.

	Series A PS Valuation
Debt converted – related party	$	(30,000	)
Valuation of Series A PS issued as consideration		5,217,800
Loss on settlement of debt	$	5,187,800

The valuation of the Series A PS was performed by a third party valuation expert and was based on the voting control obtained and the Company's market cap at the time of the transaction.

F-29

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

NOTE 9 COMMITMENTS AND CONTINGENCIES

On March 18, 2010, the Company entered into an addendum to the employment agreement whereby the Company will reimburse the employee and his family for up to $20,000 of out of pocket medical and dental care costs, including prescription costs or co-pays.

On September 30, 2010, the Company entered into an addendum to the employment agreement whereby all but $250,000 of unpaid back salary will be forgiven by the principal stockholder. The addendum also eliminated the various milestone achievement awards from the prior employment agreements. In addition, the addendum reduced the interest rate to 3% per year. Further, the conversion rights for unpaid back salary were amended whereby the principal shareholder has the option to convert any accrued salary into Class “A” Common stock by dividing the dollar value of the debt to be converted to stock by the closing price of the stock on the date that the conversion notice is received by the Company. This amendment effectively eliminated any beneficial conversion features related to accrued salary of September 30, 2010. In exchange the Company agreed to issue 10,000,000 preferred shares to the principal stockholder no later than September 30, 2011, that date was extended by mutual agreement to December 31, 2012. The agreement was subsequently extended to October 30, 2013. By agreement with the principal share holder, this obligation to issue preferred shares was satisfied by the December 17, 2013 issuance of 2 shares of super voting preferred stock.

On November 10, 2010, the Company entered into an addendum to the employment agreement, effective January 1, 2011 through the December 31, 2015. The term of the agreement is a five year period at an annual salary of $210,000. There is a 6% annual increase. The employee is also to receive a 20% bonus based on the annual based salary. Any stock, stock options bonuses have to be approved by the board of directors (See Note 10).

(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.

On October 28, 2011, the Company entered into a license agreement with the University of Notre Dame. Under the agreement, the Company received exclusive and non-exclusive rights to certain spider silk technologies including commercial rights with the right to sublicense such intellectual property. In consideration of the licenses granted under the agreement, the Company agreed to issue to the University of Notre Dame 2,200,000 shares of its common stock and to pay a royalty of 2% of net sales. In addition, the Company is in negotiations with the University of Notre Dame for a research and development agreement. Upon successfully entering into such an agreement, the Company anticipates it could owe approximately $144,000.

The license agreement has a term of 20 years which can be extended on an annual basis after that. It can be terminated by the University of Notre Dame if the Company defaults on its obligations under the agreement and fails to cure such default within 90 days of a written notice by the university. The Company can terminate the agreement upon a 90 day written notice subject to payment of a termination fee of $5,000 if the termination takes place within 2 years after its effectiveness, $10,000 if the termination takes place within 4 years after its effectiveness and $20,000 if the Agreement is terminated after 4 years.

(C)Royalty and Research Agreements

On September 16, 2010, the Company entered into an agreement with a consultant for research and development. On September 16, 2010 the Company issued 100,000 shares as a sign on bonus with a fair value of $15,000 ($0.15/share) to the consultant for technical support to be provided over the next 3 years. In addition, the consultant shall receive 30,000 shares for three years commencing on or about September 10 of each of the next three years.

F-30

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

On May 21, 2010 the Company entered into a three year consulting agreement for research and development. Pursuant to the terms of the agreement, the Company is required to issue 40,000 shares upon the execution of the agreement and subsequently 10,000 shares per year during the three year term of the agreement. The annual payment of 10,000 shares for the three years begins on Janaury15 of each of the next three years following the execution of this agreement.

On May 1, 2008 the Company entered into a five year consulting agreement for research and development. Pursuant to the terms of the agreement, 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 $0.05 per share or the average of the closing price of the Company’s shares over the five days preceding such stock issuance. As of June 30, 2011 the Company had accrued $17,000 of accounts payable for the services provided of which was paid in common stock on July 1, 2009 (See Note 8(C)). As of June 30, 2011 the Company issued 280,000 shares of common stock in exchange for $14,000 of accounts payable for the services performed. On March 19, 2014, the Company entered into a five year consulting agreement for general advisor and consulting services. As consideration for the services performed, the Company agrees to pay the consultant a fee of $1,000 per month. At the Company’s option, said consulting fee may be paid to the consultant in the form of Company stock based upon the greater of $0.50/share or the average of the closing price of the Company’s common stock over the five days preceding such stock issuance. On March 28, 2014, the Company issued 44,000 shares of common stock as consideration for consulting fees owed from June 1, 2012 through March 31, 2014.

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 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 FASB Accounting Standards Codification No 480, Distinguishing Liabilities from Equity , 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 March 31, 2010, 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 May 30, 2008 the officer extended the due date to December 31, 2008. On October 10, 2008, the officer extended the due date to the earlier of (a) March 30, 2010 or (b) upon demand by the officer. The due date was extended to March 31, 2011. On September 8, 2009, a payment of $15,000 was paid to the officer. An additional payment of $10,000 was made on October 19, 2009 and December 1, 2009, respectfully. Additionally, the accrued expenses are accruing 7% interest per year. On January 15, 2010 an additional payment of $10,000 was made. During the quarter ending September 30, 2010 an additional payment of $8,000 was made. During the quarter ending September 30, 2012 an additional payment of $1,000 was made. During the year ended December 31, 2013, an additional payment of $1,280 was made. During the nine months ended September 30, 2014, an additional loan of $572 was made. As of September 30, 2014 the outstanding balance is $65,292. As of September 30, 2014 the Company recorded interest expense and related accrued interest payable of $1,470.

On February 1, 2007 the Company entered into a consulting agreement for research and development for period of one year at a cost of $150,000. In April 2008, this agreement was extended through March 31, 2009 on a cost reimbursement basis. Reimbursements are to be made quarterly and are not to exceed $35,000. On March 1, 2010 the Company entered into a one year consulting agreement for research and development. Pursuant to the terms of the agreement, the Company was required to pay up to $150,000 in research and development fees on a cost reimbursement basis. The agreement expired on February 28, 2011.

On June 6, 2012 the Company entered into a consulting agreement for intellectual property and collaborative research and development with an American university. The agreement covers ongoing research and development work performed by the university at the Company’s behest and with the Company’s assistance from May 1, 2011 and extending through April 30, 2013. Pursuant to the terms of the agreement the Company will be required to pay approximately $637,984 for research and development over the two year period. For the nine months ended September 30, 2014 and 2013, respectively, the company paid $339,606 and $330,407 in research and development fees.

On July 1, 2006 the Company entered into a five year consulting agreement for research and development. Pursuant to the terms of the agreement, the Company issued 700,000 shares of common stock upon execution. These shares had a fair value of $5,600 ($0.01/share) based upon the recent cash offering price. Additionally, 2,000,000 shares of common stock were issued on May 18, 2007 with a fair value of $16,000 ($0.01/share). As of December 31, 2008, the Company issued 600,000 shares of common stock for consulting services rendered with a fair value of $6,000 ($0.01/share). On January 15, 2008 the Company authorized the issuance of 400,000 shares of common stock for consulting services rendered with a fair value of $4,000 ($0.01/share). On July 1, 2009, the issuance of 482,825 shares was approved by the board of directors as partial payment for services previously provided to the Company by a consultant in accordance with a consulting agreement. The total amount of issuable shares for the consultant is 1,122,311 shares, which includes 400,000 issuable shares previously approved by the board of directors and 239,486 shares approved to be issued in November 2009. On August 26, 2010, the Company entered into an addendum to the employment agreement where the monthly fee to the consultant was increased to $10,000 per month starting on September 1, 2010. On August 26, 2010 the Company issued 985,915 shares with a fair value of $14,000 ($0.0142/share) to a consultant for research and development services provided in the past In addition, On August 26, 2010 the Company issued 4,500,000 bonus shares with a fair value of $90,000 ($0.02/share) to a consultant for research and development services and 10,000,000 shares with a fair value of $200,000 ($0.02/share) to a consultant for research and development services (See Note 8(C) ).

F-31

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

(D)Consulting Agreement

On August 3, 2009, the Company entered into an agreement with a consultant to provide investor relations services. On October 5, 2009 the Company issued 10,000,000 shares with a fair value of $200,000 ($0.02/share) to a consultant for investor relations to be provided over a term of 180 days. The Company started receiving services beginning October 5, 2009. As of September 30, 2011, $200,000 was recorded as a consulting expense (See Note 8(C)).

On January 15, 2010, the Company entered into an agreement with a consultant to provide investor relations services in exchange for 500,000 shares or $15,000. On January 15, 2010 the Company issued 500,000 shares with a fair value of $5,000 ($0.01/share) to a consultant for investor relations to be provided over a term of 12 months (See Note 9(C)).

On July 29, 2010, the Company entered into an agreement with a consultant to provide investor relations services in exchange for a warrant for 20,000,000 common shares. The value of the services was $200,000, which approximated fair value. The agreement remained in effect until January 29, 2011(See Note 9(E)).

On April 8, 2011 the Company entered into a five year consulting agreement for research and development. Pursuant to the terms of the agreement, the Company has to issue within 10 days following the effective date $70,000 worth of stock and pay a license fee of $30,000. The Company has a five year right to exercise the option for a commercial medical license or the commercial textile license. The fee for the first license is a $289,000 and shares equivalent in value to $675,000. The fee for a second commercial license is $75,000 and shares equivalent in value to $175,000. All payments are non-refundable. On April 18, 2011, the Company issued 1,029,412 shares of stock with a fair value of $70,000 based on the average trading price over a 30 day period.

On September 30, 2011 the Company entered into an addendum to an agreement with a consultant, superseding previous agreements, to provide research and development for a term of four years. Pursuant to the terms of the agreement, the Company will issue 3,000,000 shares of the Company’s common stock and replaces any stock currently owed to the consultant pursuant to consulting fee provisions of prior agreements. Additionally, the Company will issue one million shares of the Company’s common stock per year as a consulting fee on the annual anniversary of this agreement or at the Company’s option, pay an annual consulting fee of $100,000. As of September 30, 2011, the fair value of the Company’s shares of common stock was $0.10 per share and the Company owed the consultant $130,000. Accordingly, the Company has recorded an additional liability to the consultant of $170,000 as of September 30, 2011. For the year ended December 31, 2012 the Company issued 4,000,000 shares with a fair value of $340,000 to a consultant for research and development services provided in the past.

On November 9, 2012, the Company entered into an agreement with a consultant to provide investor relations services in exchange for a warrant for 10,000,000 common shares. The agreement remained in effect until May 27, 2013. On July 18, 2013, the Company issued 9,857,142 shares in connection with the cashless exercise of the 10,000,000 warrants.

On July 9, 2013, the Company entered into an agreement with a consultant to provide investor relations services in exchange for a warrant for 10,000,000 common shares at $.001 with a cashless provision and a five year term.

On September 30, 2013 the Company entered into a Collaborative Yarn and Textile Development Agreement with a technical textile manufacturing company. Pursuant to the terms of that agreement the Company has agreed to supply the technical textile manufacturing company with sample quantities of the Company’s recombinant spider silk for the purpose of developing and testing new textiles which are made from, or which incorporate recombinant spider silk. The agreement provides that the two companies will jointly share, on an equal basis, any intellectual property, including any utility patents, which are developed as a result of this collaboration. Such intellectual property potentially includes utility patents on textile designs. The Company has agreed that it will pay half of the cost associated with the filing and prosecution of utility patents relating to intellectual property which is developed through its collaboration with the technical textile manufacturing company.

F-32

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

On October 15, 2013 the Company entered into an intellectual property agreement with a scientific researcher relating to the development of new recombinant silk fibers. Under the terms of that agreement the scientific researcher will transfer to the Company his rights to intellectual property, inventions and trade secrets which the researcher develops relating to recombinant silk. The researcher will receive 8,000,000 warrants of the Company’s stock, exercisable 24 months from the date of the agreement. The researcher will also receive additional warrants when and if the researcher develops advanced recombinant silk fibers for the Company’s use. Under the terms of the agreement the researcher will receive 10,000,000 warrants in the event that he develops a new recombinant silk fiber with certain performance characteristics, and another 10,000,000 warrants if he develops a second recombinant silk fiber with certain characteristics. If the consultant performs the contract in good faith the consultant will be entitled to an additional 8,000 warrants. The warrants described in this note all contain a cashless exercise provision and are exercisable on the 24 month anniversary of the date on which they were issuable under the agreement.

On February 17, 2014, the Company entered into two consulting agreements with two consultants for independent technical expertise to further the Company’s business plans and scientific research and development. As consideration for the services performed, the Company agrees to issue the following to each of the consultants:

●	Within 30 days of the date of this agreement, a warrant for six hundred thousand shares of the Company’s common stock to be exercisable on the 14 month anniversary of this agreement for a period of 12 months with a cashless exercise provision.

●	Within 30 days of the date of this agreement, a warrant for one million shares of the Company’s common stock to be exercisable on the 20 month anniversary of this agreement for a period of 12 months with a cashless exercise provision.

●	Within 30 days of the date of this agreement, a warrant for two million shares of the Company’s common stock to be exercisable on the 32 month anniversary of this agreement for a period of 12 months with a cashless exercise provision.

●	Based on the consultants reaching two sets of benchmarks, two separate warrants for one million five hundred thousand shares of the Company’s common stock to be exercisable on the 28 month anniversary of this agreement for a period of 12 months with a cashless exercise provision.

●

On the three year anniversary, assuming the consultant acted in good faith and the Company’s board of directors approval, a warrant for one million five hundred thousand shares of the Company’s common stock to be exercisable on the 28 month anniversary of this agreement for a period of 12 months with a cashless exercise provision.

On April 23, 2014, the Company entered into a six months agreement with a consultant to provide investor relations services. As consideration for the services performed, the Company agreed to issue 1,800,000 shares of common stock. On May 5, 2014, the company issued 1,800,000 shares of common stock for $111,600 ($0.062/share).

On April 30, 2014 the Company entered into a one year agreement with a consultant for research and development. As consideration for services, the Company agreed to pay for Consultant’s air fare from the United States to Africa, for a trip scheduled in early May 2014.

On June 4, 2014 the Company entered into a one year agreement with a consultant to provide investor relations services. As consideration for the services performed, the Company agreed to issue a warrant for 3,000,000 shares of common stock $0.001 with a cashless exercise provision and a three year term. On June 24, 2014, the company issued a warrant for 3,000,000 shares of common stock with a fair value of $171,102 (See Note 8(E)).

(E)Operating Lease Agreement

On April 1, 2012 the Company executed a one-year non-cancelable operating lease for its Laboratory space. The lease was subsequently extended through March 31, 2014. In March of 2014, the Company once again extended the lease on a month to month basis.

On March 21, 2014, the Company renewed its lease of a Laboratory. The lease is on a month to month basis at an annual rate of $12,750.

Rent expense for the nine months ended September 30, 2014 and 2013 is $10,805 and $10,127, respectively.

F-33

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

NOTE 10 RELATED PARTY TRANSACTIONS

On October 6, 2006 the Company received $10,000 from a principal stockholder. Pursuant to the terms of the loan, the advance bears interest at 12%, is unsecured and matured on May 1, 2007. At June 30, 2011 the Company recorded interest expense and related accrued interest payable of $776. As of June 30, 2011, the loan principal was repaid in full.

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 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 In accordance with FASB Accounting Standards Codification No. 480, Distinguishing Liabilities from Equity , 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 March 31, 2010, the Company has recorded $120,000 in royalty agreement payable- related party. On December 21, 2007 the officer extended the due date to July 30, 2008. On May 30, 2008 the officer extended the due date to March 31, 2009. On October 10, 2008, the officer extended the due date to the earlier of (a) March 30, 2010 or (b) upon demand by the officer. On March 30, 2010, the officer extended the due date to the earlier of (a) March 30, 2010 or (b) upon demand by the officer. On September 8, 2009, a payment of $15,000 was paid to the officer. On October 19, 2009 and December 1, 2009, $10,000 was paid to the officer respectfully. An additional payment of $10,000 was made on January 15, 2010. During the quarter ending September 30, 2010 an additional payment of $8,000 was made. During the year ended December 31, 2012 an additional payment of $1,000 was made. During the year ended December 31, 2013 an additional payment of $1,280 was made. During the nine months ended September 30, 2014, an additional loan of $572 was made. As of September 30, 2014 the outstanding balance is $65,292. As of March 31, 2013, the Company recorded interest expense and related accrued interest payable of $980. As of September 30, 2014, the outstanding balance is $65,292. Additionally, the accrued expenses are accruing 7% interest per year. As of September 30, 2014 the Company recorded interest expense and related accrued interest payable of $1,470.

During the year ended December 31, 2013, the Company's Chief Executive Officer forgave accrued payroll of $30,000 and extended the term of existing debt in exchange for the issuance of Series A convertible Preferred Stock ("Series A PS"). In connection with this transaction, the Company incurred a loss on settlement of debt of $5,187,800. See note (8(H)).

As of September 30, 2014, the Company owes $711,772 in accrued salary to principal stockholder. On November 10, 2010, the Company entered into an addendum to the employment agreement, effective January 1, 2011 through the December 31, 2015. The term of the agreement is a five year period at an annual salary of $210,000. There is a 6% annual increase. For the year ending December 31, 2013 the annual salary is $250,113. The employee is also to receive a 20% bonus based on the annual based salary. Any stock, stock options bonuses have to be approved by the board of directors.

On February 25, 2013 the Company received $150,000 from a principal stockholder. Pursuant to the terms of the loan, the advance bears interest at 3%, is unsecured and due on demand. At December 31, 2013 the Company recorded interest expense and related accrued interest payable of $2,001 and the loan balance of $150,000 was repaid.

As of September 30, 2014 and December 31, 2013, there was $75,432 and $97,138, respectively, included in accounts payable and accrued expenses - related party, which is owed to the Company’s Chief Executive Officer.

NOTE 11 SUBSEQUENT EVENTS

On October 9, 2014 the Company issued 12,000 shares with a fair value of $484 ($0.0403/ share) to a consultant for research and development services performed from April 1, 2014 through September 30, 2014 and a bonus of 4,000 shares with a fair value of $161.

On October 2, 2014, the Company entered into a letter agreement for an equity line of financing up to $7,500,000 (the “Letter Agreement”) with Calm Seas Capital, LLC (“Calm Seas”).

Under the Letter Agreement, over a 24 month period from the effective date of a registration statement covering shares issuable to Calm Seas (the "Effective Date") we may put to Calm Seas up to an aggregate of $7,500,000 in shares of our Class A common stock for a purchase price equal to 80% of the lowest price of our Class A common stock during the five consecutive trading days immediately following the date we deliver notice to Calm Seas of our election to put shares pursuant to the Letter Agreement. We may put shares bi-monthly. The dollar value that will be permitted for each put pursuant to the Letter Agreement will be the lesser of: (A) the product of (i) 200% of the average daily volume in the US market of our Class A common stock for the ten trading days prior to the date we deliver our put notice to Calm Seas multiplied by (ii) the average of the daily closing prices for the ten (10) trading days immediately preceding the date we deliver our put notice to Calm Seas, or (B) $100,000. We will automatically withdraw our put notice to Calm Seas if the lowest closing bid price used to determine the purchase price of the put shares is not at least equal to seventy-five percent (75%) of the average closing “bid” price for our Class A common stock for the ten (10) trading days prior to the date we deliver our put notice to Calm Seas.Notwithstanding the $100,000 ceiling for each bi-monthly put, as described above, we may at any time request Calm Seas to purchase shares in excess of such ceiling, either as a part of bi-monthly puts or as an additional put(s) during such month. If Calm Seas, in its sole discretion, accepts such request to purchase additional shares, then we may include the put for additional shares in our monthly put request or submit an additional put for such additional shares in accordance with the procedure set forth above.

F-34

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)

The Letter Agreement will terminate when any of the following events occur:

●	Calm Seas has purchased an aggregate of $7,500,000 of our Class A common stock; or

●	The second anniversary from the Effective Date.

F-35

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Caution Regarding Forward-Looking Information

Certain statements contained herein, including, without limitation, statements containing the words “believes,” “anticipates,” “expects,” “plan” 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 develop technology and products; changes in technology and the development of technology and intellectual property by competitors; the ability to protect technology and develop intellectual property; and other factors referenced in this and previous filings.

Given these uncertainties, readers of this filing 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 $105,000 per quarter through October 2015 on collaborative research and development of high strength polymers at the University of Notre Dame. 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 $13,700 on collaborative research and development of high strength polymers and spider silk protein at the University of Wyoming over the next twelve months. 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 in a compatible business, in order to broaden our financial base and facilitate the commercialization of our products. We expect to use a combination of stock and cash for any such purchase.
	»		We will also actively consider pursuing collaborative research opportunities with both private and 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 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 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 2014.
	»		We plan to actively pursue the development of commercial scale production of our recombinant materials including Monster SilkTM.

Limited Operating History

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

If financing is not available on satisfactory terms, we may be unable to continue expanding our operations. Equity financing will result in a dilution to existing shareholders.

Results of Operations

Three and Nine Months ended September 30, 2014 and 2013.

Revenue for the three and nine months ended September 30, 2014 was $0. This compares to $0 in revenue for the three and nine month period which ended September 30, 2013. Operating expenses for the three and nine months ended September 30, 2014 were $221,970 and $1,420,061, respectively. This compares to operating expenses for the three and nine months ended September 30, 2013 of $940,881 and $1,485,164, respectively. The primary reason for the decrease was a decrease in general and administrative expenses. Research and development expenses for the three and nine months ended September 30, 2014 were $68,801 and $292,940, respectively, as compared to research and development expenses for the three and nine months ended September 30, 2013 of $96,368 and $416,418, respectively. In addition, we had the following expenses during the three and nine month periods which ended September 30, 2014: general and administrative $31,328 and $826,708, respectively, professional fees $59,313 and $112,828, respectively, officer’s salary $62,528 and $187,585, respectively, and public relations $0 and $0, respectively. This compares to the following expenses during the three and nine month periods which ended September 30, 2013: general and administrative $772,503 and $833,376, respectively, professional fees $13,111 and $58,583, respectively, officer’s salary $58,899 and $176,787, respectively, and public relations $0 and $0, respectively.

Capital Resources and Liquidity

As of September 30, 2014 we had $726,857 in cash compared to $295,381 as of December 31, 2013.

Net cash used in operating activities was $715,625 for the nine months ended September 30, 2014 as compared to $592,306 for the nine months ended September 30, 2013.

Net cash used in investing activities was $0 for the nine months ended September 30, 2014 as compared to $3,473 for the nine months ended September 30, 2013.

Net cash provided by financing activities was $1,147,101 for the nine months ended September 30, 2014 as compared to $721,671 for the nine months ended September 30, 2013.

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 $1,200,000. 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 commercialization of our products and further research and development of new 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.

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, 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.

Recent Accounting Pronouncements

In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities , which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material impact on our financial position or results of operations. In October 2012, the FASB issued Accounting Standards Update ASU 2012-04, “Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures.

The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms and that information required to be disclosed is accumulated and communicated to principal executive and principal financial officers to allow timely decisions regarding disclosure.

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are not effective.

Changes in Internal Control over Financial Reporting.

No change in our system of internal control over financial reporting occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On October 9, 2014, the Company issued 12,000 shares with a fair value of $484 ($0.0403/share) to a consultant for research and development services performed from April 1, 2014 through September 30, 2014 and a bonus of 4,000 shares with a fair value of$161.

On September 22, 2014, the Company issued 2,821,670 share of common stock for $100,000 ($0.04/share).

On September 3, 2014, the Company issued 2,450,980 share of common stock for $100,000 ($0.04/share).

The foregoing issuances of the shares were effectuated pursuant to the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), provided by Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.

ITEM 6. EXHIBITS

(a) Exhibits

Exhibit No.		Description

31.1		Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document.

101.SCH		XBRL Schema Document

101.CAL		XBRL Calculation Linkbase Document

101.DEF		XBRL Definition Linkbase Document

101.LAB		XBRL Label Linkbase Document

101.PRE		XBRL Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	KRAIG BIOCRAFT LABORATORIES, INC.

October 22, 2014	By:	/s/ Kim Thompson
		Kim Thompson
		Chief Executive Officer and Chief Financial Officer

TABLE OF CONTENTS

Part 1 - Financial Information Note 1 Summary Of Significant Accounting Policies and Organization Note 2 Restatement Of Financial Statements Note 3 Going Concern Note 4 Equipment Note 5 Convertible Debt, Debt Discount and Fair Value Measurement Of Derivative Financial Instruments Note 6 Loan Payable Note 7 Loan Payable Related Party Note 8 Stockholders Deficit Note 9 Commitments and Contingencies Note 10 Related Party Transactions Note 11 Subsequent Events Item 2. Management's Discussion and Analysis Of Financial Condition and Results Of Operations Item 4. Controls and Procedures Part II - Other Information Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 6. Exhibits

Exhibits

31.1 Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

KBLB 10-Q Quarter ended Sept. 30, 2014

Exhibits