f10k2010_kraig.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________________________________________

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Fiscal Year Ended December 31, 2010

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

Commission File No. 333-146316

KRAIG BIOCRAFT LABORATORIES, INC.

(Exact name of issuer 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)

Registrant’s telephone number, including area code: (517) 336-0807

Securities registered under Section 12(b) of the Exchange Act:	None.

Securities registered under Section 12(g) of the Exchange Act:	None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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 x 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 o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference Part III of this Form 10-K or any amendment to this Form 10-K. x

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 (Do not check if a smaller reporting company)	o	Smaller reporting company	T

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on June 30, 2010 was approximately $5,235,837. The aggregate market value was computed by reference to the last sale price of such common equity as of that date.

As of April 12, 2011, the registrant had 558,918,624 shares issued and outstanding.

Documents Incorporated by Reference: None.

TABLE OF CONTENTS

		PAGE
PART I

ITEM 1.	DESCRIPTION OF BUSINESS	1
ITEM 2.	DESCRIPTION OF PROPERTY	5
ITEM 3.	LEGAL PROCEEDINGS	5
ITEM 4.	REMOVED AND RESERVED	5

PART II

ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY; RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	6
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	8
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	F-1
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	12
ITEM 9A.	CONTROLS AND PROCEDURES	12
ITEM 9B.	OTHER INFORMATION	13

PART III

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	13
ITEM 11.	EXECUTIVE COMPENSATION	14
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	16
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	17
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	18

PART IV

ITEM 15.	EXHIBITS	19

SIGNATURES

“Kraig”, “Kraig Biocraft” “KBLB”, “the Company”, “we”, “us” and “our” refer to Kraig Biocraft Laboratories, Inc., a Wyoming corporation, unless the context otherwise requires.

PART I

ITEM 1. DESCRIPTION OF BUSINESS.

Overview

Kraig Biocraft Laboratories, Inc. is a corporation organized under the laws of Wyoming on April 25, 2006. We were organized to develop high strength fibers using recombinant DNA technology, for commercial applications in both the specialty fiber and technical textile industries. Specialty fibers are engineered for specific uses that require exceptional strength, flexibility, heat resistance and/or chemical resistance. The specialty fiber market is exemplified by two synthetic fiber products: aramid fibers and ultra high molecular weight polyethylene fiber. The technical textile industry involves products for both industrial and consumer products, such as filtration fabrics, medical textiles (e.g., sutures and artificial ligaments), safety and protective clothing and fabrics used in military and aerospace applications (e.g., high-strength composite materials).

We are using genetic engineering technologies to develop fibers with greater strength, resiliency and flexibility for use in our target markets, namely the textile, specialty fiber and technical textile industries.

The Market

We are focusing our work on the creation of new fibers with unique properties including fibers with potential high performance and technical fiber applications. The performance fiber market is exemplified by two classes of product: aramid fibers, and ultra high molecular weight polyethylene fiber. These products service the need for materials with high strength, resilience, and flexibility. Because these synthetic performance fibers are stronger and tougher than steel, they are used in a wide variety of military, industrial, and consumer applications.

Among the users of performance fibers are the military and police, which employ them for ballistic protection. The materials are also used for industrial applications requiring superior strength and toughness, i.e. critical cables and abrasion/impact resistant components. Performance fibers are also employed in safety equipment, high strength composite materials for the aero-space industry and for ballistic protection by the defense industry.

The global market for technical textiles has been estimated at $92.88 billion. The demand for technical textiles is growing rapidly and is expected to reach $127 billion in 2011.

These are industrial materials which have become essential products for both industrial and consumer applications. The market for technical textiles can be defined as consisting of:

·	Medical textiles;

·	Geotextiles;

·	Textiles used in Defense and Military;

·	Safe and Protective Clothing;

·	Filtration Textiles;

·	Textiles used in Transportation;

·	Textiles used in Buildings;

·	Composites with Textile Structure;

·	Functional and Sportive Textiles.

We believe that the superior mechanical characteristics of the next generation of protein-based polymers (in other words, genetically engineered silk fibers), will open up new applications for the technology. The materials which we are working to produce are many times tougher and stronger than steel. These fibers are often referred to as “super fibers.”

The Product

Certain fibers produced in nature possess unique mechanical properties in terms of strength, resilience and flexibility.

Comparison of the Properties of Spider Silk and Steel

	Material Toughness1	Tensile Strength2	Weight3
Dragline spider silk	120,000-160,000	1,100-2,900	1.18-1.36

Steel	2,000-6,000	300-2,000	7.84

_______________

1 Measured by the energy required to break a continuous filament, expressed in joules per kilogram (J/kg). A .357 caliber bullet has approximately 925 joules of kinetic energy at impact.

2 Tensile strength refers to the greatest longitudinal stress the fiber can bear, measured by force over area in units of newtons per square meter. The measurement here is in millions of pascals.

3 In grams per cubic centimeter of material.

This comparison table was the result of research performed by Randolph Lewis, Ph.D. at the University of Wyoming. Such work was summarized in an article entitled “Spider Silk: Ancient Ideas for New Biomaterials” which was published in Chemicals Review, volume 106, issue 9, pages 3672 – 3774. The measurements in joules in the table above are a conversion from Dr. Lewis’ measurements in newtons/meter squared.

We believe that the genetically engineered protein-based fibers we seek to produce have properties that are in some ways superior to the materials currently available in the marketplace. For example, as noted above, the ability of spider silk to absorb in excess of 100,000 joules of kinetic energy, which makes it the potentially ideal material for structural blast protection.

Production of this material in commercial quantities holds the potential of a life saving ballistic resistant material, which is lighter, thinner, more flexible, and tougher than steel. Other applications for spider silk based recombinant fibers include use as structural material and for any application in which light weight and high strength are required. We believe that fibers made with recombinant protein-based polymers will make significant inroads into the specialty fiber and technical textile markets.

While the properties of spider silks are well known, there was no known way to produce these fibers in commercial quantity. The spiders are cannibalistic, and can not be raised in concentrated colonies.

Our Technology

While scientists have been able to replicate the proteins that are the building blocks of spider silk, the technological barrier that has stymied production until now has been the inability to form these proteins into a fiber with the desired mechanical characteristics and to do so in a cost effective manner.

We have licensed the exclusive right to use the patented genetic sequences and genetic engineering technology developed in university laboratories. The Company has been working collaboratively with university laboratories to develop fibers with the mechanical characteristics of spider silk. We are applying this proprietary genetic engineering technology to domesticated silkworms, which are already the most efficient commercial producers of silk.

Our technology builds upon the unique advantages of the domesticated silkworm for this application. The silkworm is ideally suited to produce recombinant protein fiber because it is already an efficient commercial and industrial producer of protein based polymers. Forty percent (40%) of the caterpillars’ weight is devoted to the silk glands. The silk glands produce large volumes of protein, called fibroin, which are then spun into a composite protein thread (silk).

We are working to use our genetic engineering technology to create recombinant silk polymers. On September 29, 2010 we jointly announced with the University of Notre Dame the success of our collaborative research with the University in creating approximately twenty different strains of transgenic silkworm which produce recombinant silk polymers. In April 2011 we entered into a licensing agreement with Sigma-Aldrich which provides us the use of Sigma-Aldrich’s zinc finger technology to accelerate and enhance our product development.

A part of our intellectual property portfolio is the exclusive right to use certain patented spider silk gene sequences in silkworm. Under the Exclusive License Agreement with The University of Wyoming, we have obtained certain exclusive rights to use numerous genetic sequences which are the subject of US patents.

The introduction of the gene sequence, in the manner employed by us, results in a germline transformation and is therefore self perpetuating. This technology is in essence a protein expression platform which has other potential applications including diagnostics and pharmaceutical production.

The Company

Kraig Biocraft Laboratories, Inc. (Kraig) is a Wyoming corporation. Our shares are traded on the OTCQB under the ticker symbol: KBLB.PK. There are 558,918,624 shares of common stock issued and outstanding as of April 12, 2011. Kim Thompson, our founder and CEO, owns approximately 56.2% of the issued and outstanding shares.

The inventor of our technology concept, Kim Thompson, is the founder of Kraig Biocraft Laboratories, Inc. Our protein expression system is, in concept, scalable, cost effective, and capable of producing a wide range of proteins including pharmaceuticals and materials.

On April 8, 2011, Kraig and Sigma-Aldrich Co., an Illinois corporation (“Sigma”) entered into a License and Option Agreement. Under the terms of the agreement, Sigma will provide Kraig with its proprietary genetic engineering tools and expertise in zinc finger nuclease to enable Kraig to significantly accelerate its product development. In addition to providing the customized tools and technological know-how, Sigma has granted Kraig an option for a commercial license to use the technology in the textile, technical textile and biomedical markets. Sigma will be creating customized zinc fingers for Kraig's use in its development of spider silk polymers and technical textiles.

In September 2010 the Company announced that it had succeed in introducing spider silk DNA in silkworm with the result that the transgenic silkworm were producing new recombinant silk fibers. These fibers are a combination of natural silkworm silk proteins and proteins that that the silkworms are making as a result of the introduction of the spider silk DNA. The Company announced that it had created approximately twenty different transgenic silkworm strains producing recombinant silk.

We entered into an intellectual property and collaborative research agreement with the University of Notre Dame in 2007. That agreement was subsequently extended and expanded to include research and development of certain platform technologies with potential applications for diagnostics and pharmaceutical production. On March 20, 2010, the Company extended its agreement with Notre Dame through February 28, 2011. Pursuant to these agreements the genetic work has been conducted primarily within Notre Dame’s laboratories. Our collaborative research agreement with the University expired on March 1, 2011. The Company is in discussions with the University on renewing the agreement for anther twelve months. Management anticipates that it will enter into a new research agreement with the University on substantially the same terms as the expired agreement. Management is also considering however the potential to establish an independent laboratory either in conjunction with or as an alternative to university collaboration.

We also entered into an intellectual property and sponsored research agreement with the University of Wyoming in 2006 .

Collaboration and Research Agreements/Intellectual Property

We have obtained certain exclusive rights to use a number of university created, and patented, spider silk proteins, gene sequences and methodologies. We have also acquired certain exclusive rights to patent pending protein based fibers and genetic technologies.

In 2010, the University of Notre Dame filed a provisional patent application pursuant to our intellectual property and collaborative research agreement. Under the terms of that agreement the Company has an option for the exclusive commercial rights to that technology. The Company has notified the University of its exercise of that option.

We do not own any patents. We have filed approximately seven notices of intent to use trademark applications for marks which the company intends to use in the future.

Intellectual Property/Collaborative Research Agreement with Notre Dame University

Our collaborative research agreement which recently expired with the University of Notre Dame required the Company to provide cost reimbursement for scientific research performed within Notre Dame relating to recombinant silk development. The reimbursable costs to the Company are capped at $35,000 per calendar quarter, unless the Company provides prior authorization for exceeding that cap. The agreement with Notre Dame provides us with a right to an exclusive license to intellectual property developed pursuant to the collaborative research on terms described in an attachment to the agreement. The University of Notre Dame retains a right to a commercially reasonable royalty on all such technology. On March 20, 2010, we renewed our agreement with the University of Notre Dame on substantially the same terms as the prior agreement. This renewed on agreement expired on March, 2011. Management anticipated that the Company will enter into a new agreement with the university for the next twelve months. At this stage in the Company’s development however, Management is considering the Company’s option to move substantially all of its research and development operations into a private laboratory.

Under the intellectual property/collaborative research agreement with The University of Notre Dame, the Company was a sponsor of research by the University of Notre Dame regarding genetic engineering techniques patented by Notre Dame, which are called Piggybac transposon, for applications on silk worms. Any patents or other intellectual property developed as a result of this sponsored research will be the property of Notre Dame, however, we have an option on a license agreement for the use of such intellectual property for the use of creating transgenic worms for the production of silk and fibers. Such license agreement would have terms consistent with a sample license agreement that is attached to the Notre Dame collaborative research agreement. Such license agreement would require us to make royalty payments to Notre Dame that would range from 1% to 6% of net sales of products using Notre Dame’s intellectual property. In addition, such license agreement would have a term of approximately 20 years.

Exclusive License Agreement with University of Wyoming

In May 2006, we entered into a license agreement with the University of Wyoming, pursuant to which we have licensed the right to commercialize the production by silkworms of certain synthetic and natural spider silk proteins and the genetic sequencing for such spider silk proteins. These spider silk proteins and genetic sequencing are covered by patents held by the University of Wyoming. Our license allows us only to use silkworms to produce the licensed proteins and genetic sequencing. We have the right to sublicense the intellectual property that we license from the University of Wyoming. Our license agreement with the University of Wyoming requires that we pay licensing and research fees to the university in exchange for an exclusive license in our field of use for certain university-developed intellectual property including patented spider silk gene sequences. Pursuant to the agreement, we issued 17,500,000 shares of our Class A common stock to the University Foundation. Of the shares of our Class A common stock we issued to the University Foundation, we have the right to call 7,000,000 of those shares at any time prior to May 8, 2011 at a purchase price of $150,000. Our license agreement with the University of Wyoming will continue until the later of (i) expiration of the last-to-expire patent we license from the University of Wyoming under this license agreement in such country or (ii) ten years from the date of first commercial sale of a licensed product in such country. There are no royalties payable to the University of Wyoming under the terms of our agreement with them.

We have not made any of the required payments pursuant to our license agreement with the University of Wyoming. We will continue to accrue required payments under the license agreement with the University of Wyoming, and we will pay such amounts as our finances allow. Our license agreement provides that the University of Wyoming must give us at least 90 days notice to cure the failure to make the required payments before the University can terminate the license agreement. If our license agreement with the University of Wyoming were terminated, however, it would result in a loss of three to six months of research time.

Research and Development

On September 29, 2010 we announced that we had achieved our longstanding goal of producing new silk fibers composed of recombinant proteins. The Company intends to turn our technology to the development and production of high performance polymers.

During the fiscal years ended December 31, 2010 and 2009, we have spent approximately 5,400 and 7,360 hours, respectively, on research and development activities, which consisted primarily of laboratory research on genetic engineering by our outside consultants pursuant to our collaborative research agreement with the University of Notre Dame.

Employees

We currently have no employees other than Kim Thompson, our sole officer and director. We plan to hire more persons on as-needed basis.

ITEM 2. DESCRIPTION OF PROPERTY.

We rent office space at 120 N. Washington Square, Suite 805, Lansing, Michigan 48950, which is our principal place of business. Our current lease is on a month to month basis. We pay an annual rent of $600 for conference facilities, mail, fax and reception services located at our principal place of business.

ITEM 3. LEGAL PROCEEDINGS.

To the best of our knowledge, there are no known or pending litigation proceedings against us.

ITEM 4. [REMOVED AND RESERVED].

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

Our common stock has traded on the OTCQB system under the symbol “KBLB.PK.”

The following table sets forth the high and low trade information for our Class A common stock for each quarter during the past two years. The prices reflect inter-dealer quotations, do not include retail mark-ups, markdowns or commissions and do not necessarily reflect actual transactions. The prices below reflect a nine-for-one stock split which was declared by our board of directors on March 23, 2009.

	Low Price		High Price
Fourth Quarter 2010	$	0.09	$	0.16
Third Quarter 2010	$	0.01	$	0.24
Second Quarter 2010	$	0.01	$	0.02
First Quarter 2010	$	0.01	$	0.01
Fourth Quarter 2009	$	0.009	$	0.025
Third Quarter 2009	$	0.011	$	0.025
Second Quarter 2009	$	0.017	$	0.06
First Quarter 2009	$	0.011	$	0.044

Holders

As of April 12, 2011 in accordance with our transfer agent records, we had 26 record holders of our Class A common stock.

Dividends

To date, we have not declared or paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors will have the discretion to declare and pay dividends in the future.

Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors, which our Board of Directors may deem relevant.

Stock Option Grants; Warrants and Convertible Securities

In 2006, our CEO, Kim Thompson, received substantial warrants on our stock pursuant to the employment agreement between Mr. Thompson and us. However, Mr. Thompson surrendered all such warrants and options to the corporation prior to the close of the 2006 calendar year. As of this date, we have no outstanding stock options.

Pursuant to the Letter Agreement, Calm Seas Capital made a Bridge Investment in the Company in the aggregate amount of $120,000, of which $100,000 was paid promptly after the Letter Agreement was signed in July 2009 and the remaining $20,000 was paid in late September 2009. In this Bridge Investment, Calm Seas Capital purchased (i) twelve convertible debentures, each in the principal amount of $10,000 (the “Bridge Debentures”) and (ii) twelve warrants each exercisable for the purchase of 500,000 shares (the “Bridge Warrants”). As of April 12, 2011, Calm Seas Capital has converted $115,000 of the principal amount of the debentures into shares of our Class A common stock.

The principal and interest of the Bridge Debentures, which mature on December 31, 2010, shall be convertible at the option of the holder at a fixed price of $.018 per share. After September 30, 2010, we may cause the Bridge Debentures to be converted into shares of our Class A common stock at the lower of (i) the conversion price then in effect and (ii) the average closing bid for the Company’s Class A common stock for the 20 trading days prior to the date the Company gives notice that it is converting the Bridge Debentures (but not less than $0.005 per share). As of December 31, 2010, the $5,000 of convertible debt remains outstanding.

The conversion price of the Bridge Debentures will be proportionately adjusted in the event of merger, sale of assets, reclassification of the Company’s capital stock, stock split, reverse stock split or stock dividend. Additionally, the conversion price of the Bridge Debentures will be proportionately reduced if the Company sells shares of its Class A common stock for a price per share less than the conversion price of the Bridge Debentures, excluding the issuance of shares pursuant to (a) Bridge Debentures or Bridge Warrants, (b) the Equity Line of Credit or other existing obligation of the Company to issue shares, (c) equity compensation plans or (d) the acquisition or another business.

The Bridge Warrants expire on December 31, 2011. The Bridge Warrants are exercisable at an exercise price of $.02 per share, subject to customary adjustments for stock splits, stock dividends, distribution of non-cash assets by the Company to its shareholders, capital reorganization, reclassification of the capital stock of the Company, consolidation or merger of the Company with another corporation in which the Company is not the survivor, or sale, transfer or other disposition of all or substantially all of the Company’s assets to another corporation. Additionally, Calm Seas Capital may exercise the Bridge Warrants using a cashless exercise provision.

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

ITEM 7. 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 obtain sufficient financing to continue and expand business operations; the ability to develop technology and products; changes in technology and the development of technology and intellectual property by competitors; the ability to protect technology and develop intellectual property; and other factors referenced in this and previous filings.

Given these uncertainties, readers of this filing and investors are cautioned not to place undue reliance on such forward-looking statements.

Recent Developments

On September 29, 2010 the Company jointly announced with the University of Notre Dame that it had succeeded in producing transgenic silkworms capable of spinning artificial spider silks. Approximately twenty different strains of transgenic silkworm were produced by incorporating spider silk DNA into the silkworm’s genome. The resulting transgenic silkworms produce a new recombinant silk fiber which is a composite silk consisting of both spider silk proteins and endogenous silkworm proteins.

On April 8, 2011the Company entered into a licensing agreement with Sigma-Aldrich. That agreement enables the Company to use Sigma-Aldrich’s proprietary zinc finger technology for the development of new recombinant silk fibers The agreement also contains an option which Kraig can exercise for the commercialization rights on products it develops with this technology. Management believes that this technology will greatly accelerate the Company’s development of new products and significantly streamline the research and development process. Management also believes that the precise gene targeting and high efficiency of this zinc finger technology will allow the Company to build on the research success it announced in September 2010 by enabling the Company to concomitantly target the insertion of spider silk genes into the silkworm genome while removing endogenous silkworm silk genes. The Company expects that the resulting transgenic silkworm will be capable of spinning pure spider silk at commercially viable production levels.

The Company’s Collaborative research agreement with the University of Notre Dame expired on March 1, 2011. The Company is in discussions with the University on renewing the agreement for anther twelve months. Management anticipates that it will enter into a new research agreement with the University on substantially the same terms as the expired agreement. Management is also considering however the potential to establish an independent laboratory either in conjunction with or as an alternative to University collaboration.

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 $35,000 per quarter through March 2012 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 in 2010 and for any new polymers that we create in 2011.

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 for the Year ended December 31, 2010.

Revenue for the twelve months ended December 31, 2010 was $0. This compares to $0 in revenue for the for the twelve month period which ended December 31, 2009. In the fourth quarter of 2010 the Company announced the laboratory development of new recombinant silks. No revenue projections for the next twelve months are being made as these products are new and are not yet on the market.

Operating expenses for the twelve months ended December 31, 2010 were $1,286,432. This compares to $497,307 in expenses during the twelve month period which ended December 31, 2009. The primary reasons for the increase in operating expense were the amortization of debt discount of the discounts incurred on the issuance of convertible notes and the public relations expense line items. Research and development expenses for the twelve months ended December 31, 2010 were $141,310. This compares to $69,799 spent on research and development during the twelve months ended December 31, 2009. The increase in research and development spending was the result of the reimbursement nature of our 2010 collaborative research agreement with the University of Notre Dame. Management anticipates that these costs may rise over the next twelve months. In addition, we had the following expenses during the twelve month period which ended December 31, 2010: general and administrative $591,020, professional fees $112,501, officer’s salary $233,558 and public relations $115,443. This compares to the same expenses during the twelve month period which ended December 31, 2009: general and administrative $64,264, professional fees $43,179, officer’s salary $220,338 and public relations $99,727.

Capital Resources and Liquidity

As of December 31, 2010 we had $92,240 in cash compared to $24,570 as of December 31, 2009

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 $750,000. 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.

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 stock dividend. The stock dividend was distributed to shareholders of record on 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.

Critical Accounting Policies

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, and revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

Our significant accounting policies are summarized in Note 1 of our financial statements. While all these significant accounting policies impact its financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our results of operations, financial position or liquidity for the periods presented in this report.

Recent Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standard Update (“ASU”) No. 2009-13, which addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services separately rather than as a combined unit and modifies the manner in which the transaction consideration is allocated across the separately identified deliverables. The ASU significantly expands the disclosure requirements for multiple-deliverable revenue arrangements. The ASU will be effective for the first annual reporting period beginning on or after June 15, 2010, and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or materially modified after the adoption date. Early adoption is permitted, provided that the guidance is retroactively applied to the beginning of the year of adoption. The Company does not expect the adoption of ASU No. 2009-13 to have any effect on its financial statements upon its required adoption on January 1, 2011.

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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Kraig Biocraft Laboratories, Inc.

(A DEVELOPMENT STAGE COMPANY)

CONTENTS

PAGE	F-1	REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

PAGE	F-2	BALANCE SHEETS AS OF DECEMBER 31, 2010 AND DECEMBER 31, 2009 (RESTATED).

PAGE	F-3	STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 (RESTATED) AND FOR THE PERIOD APRIL 25, 2006 (INCEPTION) TO DECEMBER 31, 2010.

PAGES	F-4	STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT FOR THE PERIOD FROM APRIL 25, 2006 (INCEPTION) TO DECEMBER 31, 2010.

PAGE	F-5	STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 (RESTATED) AND FOR THE PERIOD APRIL 25, 2006 (INCEPTION) TO DECEMBER 31, 2010 .

PAGES	F-6 - F-23	NOTES TO FINANCIAL STATEMENTS.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of

Kraig Biocraft Laboratories, Inc.

Houston, Texas

We have audited the accompanying balance sheet of Kraig Biocraft Laboratories, Inc. (a development stage company) as of December 31, 2010 and the related statements of income, cash flows and stockholders' equity for the year ended December 31, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of Kraig Biocraft Laboratories, Inc as of December 31, 2009, were audited by other auditors whose report dated April 5, 2010, on those statements included an explanatory paragraph describing conditions that raised substantial doubt about the Company’s ability to continue as a going concern.

We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kraig Biocraft Laboratories, Inc. as of December 31, 2010, and the results of its operations and its cash flows for the period then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered significant losses and will require additional capital to develop its business until the Company either (1) achieves a level of revenues adequate to generate sufficient cash flows from operations; or (2) obtains additional financing necessary to support its working capital requirements. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

PS STEPHENSON & CO, P.C.

Wharton, Texas

April 13, 2011

F-1

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





ASSETS

	December 31, 2010			December 31, 2009
				(Restated)
Current Assets
Cash	$	92,240		$	24,570
Prepaid Expenses		-			3,124
Total Current Assets		92,240			27,694

Property and Equipment, net		26,287			-

Total Assets	$	118,527		$	27,694


LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
Accounts payable	$	238,929		$	111,871
Royalty agreement payable - related party		67,000			85,000
Accrued expenses - related party		410,955			631,576
Derivative liability		-			2,346,624
Total Current Liabilities		716,884			3,175,071

Long Term Liabilities
Convertible note payable - net of debt discount		5,000			27,400
Loan payable		15,828			-


Total Liabilities		737,712			3,202,471

Commitments and Contingencies

Stockholders' Deficit
Preferred stock, no par value; unlimited shares authorized,
none issued and outstanding		-			-
Common stock Class A, no par value; unlimited shares authorized,
553,518,903 and 499,348,500 shares issued and outstanding, respectively		1,834,082			821,050
Common stock Class B, no par value; unlimited shares authorized,
no shares issued and outstanding		-			-
Common Stock Issuable, 1,122,311 and 11,122,311 shares, respectively		22,000			222,000
Additional paid-in capital		3,490,175			42,060
Deferred Compensation		(26,000	)		(103,333	)
Deficit accumulated during the development stage		(5,939,442	)		(4,156,554	)
		.
Total Stockholders' Deficit		(619,185	)		(3,174,777	)

Total Liabilities and Stockholders' Deficit	$	118,527		$	27,694

See accompanying notes to financial statements.

F-2

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



	For the Twelve Months Ended						For the Period from April 25, 2006
	December 31,			December 31,			(Inception) to
	2010			2009			December 31, 2010
				(Restated)

Revenue	$	-		$	-		$	-

Operating Expenses
General and Administrative		591,020			64264			773,267
Public Relations		115,443			99,727			219,890
Amrotization of Debt Discount		92,600			-			120,000
Professional Fees		112,501			43,179			236,505
Officer's Salary		233,558			220,338			1,126,394
Contract Settlement		-			-			107,143
Research and Development		141,310			69,799			586,118
Total Operating Expenses		1,286,432			497,307			3,169,317

Loss from Operations		(1,286,432	)		(497,307	)		(3,169,317	)

Other Income/(Expenses)
Other income		-			-			2,781
Amortization of Debt Discount		-			(27,400	)
Change in fair value of embedded derivative liability		(563,563	)		(4,343	)		(2,790,185	)
Change in fair value of embedded derivative liability-related party		119,485			(861,227	)		119,485
Interest expense		(52,378	)		(41,814	)		(102,206	)
Total Other Income/(Expenses)		(496,456	)		(934,784	)		(2,770,125	)

Net (Income) Loss before Provision for Income Taxes		(1,782,888	)		(1,432,091	)		(5,939,442	)

Provision for Income Taxes		-			-			-

Net Income (Loss)	$	(1,782,888	)	$	(1,432,091	)	$	(5,939,442	)

Net Income (Loss) Per Share - Basic and Diluted	$	(0.00	)	$	(0.00	)

Weighted average number of shares outstanding
during the period - Basic and Diluted		401,590,077			504,115,849

See accompanying notes to financial statements.

F-3

Kraig Biocraft Laboratories, Inc.
(A Development Stage Company)
Statement of Changes in Stockholders Deficit
Condensed For the period from April 25, 2006 (inception) to December 31, 2010

														Common Stock -
														Class A Shares										Deficit
	Preferred Stock				Common Stock - Class A					Common Stock - Class B				To be issued										Accumulated during
	Shares		Par		Shares			Par		Shares		Par		Shares		Par		APIC			Deferred Compensation			Development Stage			Total


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

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	)

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