Kraig Biocraft Laboratories, Inc (Form: S-1/A, Received: 01/25/2010 17:25:11)

The report of the independent registered public accounting firm on our 2008 financial statements contains a going concern modification.

The report of the independent registered public accounting firm covering our consolidated financial statements for the years ended December 31, 2008 and December 31, 2007 stated that certain factors, including that we are a development stage company and we have a working capital and shareholder equity deficit, raise substantial doubt as to our ability to continue as a going concern.

We may be unable to maintain an effective system of internal controls and accurately report our financial results or prevent fraud, which may cause our current and potential stockholders to lose confidence in our financial reporting and adversely impact our business and our ability to raise additional funds in the future.

Effective internal controls are necessary for us to provide reliable financial statements and effectively prevent fraud. We have no internal accounting staff. As we noted in our annual report on Form 10-K for the year ended December 31, 2008, we reported that our internal control over financial reporting was not effective for the purposes for which it is intended because we had a material weaknesses: We did not have a system in place to ensure all of our consulting agreements are timely reconciled to the financial statements. Though we have taken some steps to we have taken steps to address our material weaknesses in our internal control over financial reporting, including education of management of disclosure requirements and financial reporting controls, we still have not eliminated the material weakness in our internal controls over financial reporting. If we cannot provide reliable financial statements or prevent fraud, our operating results and our reputation could be harmed as a result, causing stockholders and/or prospective investors to lose confidence in management and making it more difficult for us to raise additional capital in the future.

In our “Management's Annual Report on Internal Control Over Financial Reporting” that appeared in our annual report on Form 10-K for the year ended December 31, 2008, we reported that our internal control over financial reporting was not effective for the purposes for which it is intended based on the following material weaknesses:

-	We do not have a system in place to ensure all of our consulting agreements are timely reconciled to the financial statements.

We continue to have this material weakness, as evidenced by the fact that we did not properly account for derivative liability associated with our CEO’s accrued salary during 2009. As reported in our most recent Quarterly Report we had taken the following remediation steps to help address our material weaknesses in our internal control over financial reporting:

	1.	We will continue to educate our management personnel to comply with the disclosure requirements of Securities Exchange Act of 1934 and Regulation S-K; and
	2.	We will increase management oversight of accounting and reporting functions in the future.

We anticipate that our material weakness in our internal control over financial reporting will be remediated once we have sufficient capital to hire full time accounting personnel, which we expect may occur by the end of 2010.

We currently do not have any patent rights in the products we are seeking to develop and we currently license the genetic sequences and genetic engineering technology we need to develop our products. If any third party challenges our claim to intellectual property rights in the fiber products we are seeking to develop or the intellectual property rights that we license, our business may be materially harmed

We have no patents or design patents on any of the fiber products we are seeking to develop. It is possible that the fiber products we are seeking to develop could be imitated or directly manufactured and sold by a competitor. In addition, some or all of our research, development ideas and proposed products may be covered by patent rights held by some other entity. In that event, we could incur devastating liability and be forced to cease operations.

We have entered into an intellectual property licensing agreement with Notre Dame and the University of Wyoming. Pursuant to these licensing agreements, we have obtained certain exclusive rights to use intellectual property and genetic sequences owned by these universities. However, we have no guarantee of the viability of these intellectual property rights or the rights that we have licensed do not infringe on the legal rights of third parties. The intellectual property rights that we have licensed could be challenged or voided or that the licensed intellectual property is worthless and without utility. We may also need to license

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additional intellectual property from persons or entities in order to successfully complete our research and development, and we cannot be certain that we would be able to enter into a license agreement with such persons or entities. In which event our operations will be adversely affected and our prospects negatively affected. Our agreement with the University of Notre Dame has lapsed but we are in the process of renewing that agreement which we expect will be renewed by December 31, 2009 on substantially the same terms as the prior agreement.

Existing stockholders could experience substantial dilution upon the issuance of Class A common stock pursuant to an equity line we have with Calm Seas Capital.

Under our the equity line of credit set forth in the Letter Agreement with Calm Seas Capital, we may put up to $75,000 of our Class A common stock to Calm Seas per month. Notwithstanding the $75,000 ceiling for each monthly put, if both we and Calm Seas agree, we may submit one or more additional puts during any given month to the extent we need additional capital for our operations and/or our product development. When we exercise our put Calm Seas will purchase such shares at a price per share equal to 80% of the lowest closing bid price of our Class A common stock during the five consecutive trading days immediately following the put date (as defined on page 2 of this prospectus). Our equity line with Calm Seas Capital contemplates our future possible issuance of up to an aggregate 63,600,000 shares of our Class A common stock as a result of this registration statement, subject to certain restrictions. Currently, we believe it is likely we will need to draw the full amount available under this equity line prior to the expiration of the equity line. If the terms and conditions of the equity line are satisfied, and we choose to exercise our put rights to the fullest extent permitted and sell all of the 63,600,000 shares of our common stock to Calm Seas Capital, the ownership by our existing non-affiliate stockholders will be diluted by approximately 33% based on 192,752,424 shares of Class A common stock held by non-affiliates on November 16, 2009. Additionally, if we are unable to raise $1,000,000 in proceeds from the sale of the entire 63,600,000 shares to Calm Seas Capital under the equity line of credit, we will seek to extend or renew the equity line of credit with Calm Seas Capital to raise the short-fall additional revenue on substantially the same terms as under the September 14, 2009 letter agreement. If Calm Seas Capital is unwilling or unable to enter into such an arrangement, we will be forced to raise additional capital from other investors. In either such cases, we expect that we would have to issue a significant number of additional shares that would further dilute existing shareholders.

We may not successfully manage any growth that we may experience.

Our future success will depend upon not only product development but also on the expansion of our operations and the effective management of any such growth, which will place a significant strain on our management and on our administrative, operational, and financial resources. To manage any such growth, we must expand our facilities, augment our operational, financial and management systems, and hire and train additional qualified personnel. If we are unable to manage our growth effectively, our business would be harmed as our growth could be adversely affected by such mismanagement.

Our initial development of recombinant silk fiber from the transgenic silkworm and other product development programs depend upon third-party researchers who are outside our control.

We depend upon independent researchers and collaborators, such as universities and their staff, to conduct our development of a transgenic silkworm and recombinant silk polymers, such as spider silk. Such researchers and collaborators perform services under agreements with us. Such agreements are often standard-form agreements typically not subject to extensive negotiation. These researchers or collaborators are not our employees, and in general we cannot control the amount or timing of resources that they devote to our product development programs. These researchers and collaborators may not assign as great a priority to our programs or pursue them as diligently as we would if we were undertaking such programs ourselves. If outside collaborators fail to devote sufficient time and resources to our transgenic silkworm development and our product development programs, or if their performance is substandard, our introduction of protein based fiber products will be delayed or may not result at all. These researchers and collaborators may also have relationships with other commercial entities, some of whom may compete with us.

If conflicts arise with our collaborators, they may act in their self-interests, which may be adverse to our interests.

Conflicts may arise in our collaborations we have entered into or may enter into due to one or more of the following:

·	disputes with respect to payments that we believe are due under a collaboration agreement;

·	disagreements with respect to ownership of intellectual property rights;

·	unwillingness on the part of a collaborator to keep us informed regarding the progress of its development and commercialization activities, or to permit public disclosure of these activities;

·	delay of a collaborator’s development or commercialization efforts with respect to our product development; or

·	termination or non-renewal of the collaboration.

In addition, in our collaborations, we may be required to agree not to conduct independently, or with any third party, any research that is competitive with the research conducted under our collaborations. Our collaborations may have the effect of limiting the areas of research that we may pursue, either alone or with others. Our collaborators, however, may be able to develop, either alone or with others, products in related fields that are competitive with the products or potential products that are the subject of these collaborations.

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If we lose the services of key management personnel, we may not be able to execute our business strategy effectively.

Our future success depends in a large part upon the continued service of our founder and sole officer and director, Kim Thompson. Mr. Thompson is critical to our overall management as well as the development of our technology, our culture and our strategic direction. We do not maintain a key-person life insurance policy on Mr. Thompson. The loss of Mr. Thompson would materially harm our business.

As our business grows, we will need to hire highly skilled personnel and, if we are unable to retain or motivate hire additional qualified personnel, we may not be able to grow effectively.

Our performance will be largely dependent on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability to identify, hire, develop, motivate, and retain highly skilled personnel for all areas of our company. Despite the current economic conditions, competition in our industry for qualified employees remains intense as the skills we require in our employees are highly specialized. We compete with companies in the biotechnology and pharmaceutical industries that seek to retain scientists with genetic engineering experience and expertise. Competition for qualified individuals remains intense despite the current economic conditions, which have somewhat softened demand for qualified personnel. However, we expect that over the longer term we will continue to face stiff competition and may not be able to successfully recruit or retain such personnel. Attracting and retaining qualified personnel will be critical to our success.

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market any products we may develop, we may not be able to generate product revenue.

We do not currently have an organization for the sales, marketing and distribution of any fiber products that we expect to develop. In order to market any products that may be develop, we must build our sales, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. In addition, we have no experience in developing, training or managing a sales force and will incur substantial additional expenses in doing so. The cost of establishing and maintaining a sales force may exceed its cost effectiveness. Furthermore, we will compete with many companies that currently have extensive and well-funded marketing and sales operations. Our marketing and sales efforts may be unable to compete successfully against these companies. If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, we may not be able to generate product revenue and may not become profitable.

We are a development stage company, and we may be unable to generate significant revenues and may never become profitable.

We are a development stage company that has not generated any revenues to date. We expect to incur significant research and development costs for the foreseeable future. We may not be able to successfully achieve a transgenic silkworm and/or successfully market fiber products we produce in the future that will generate significant revenues. In addition, any revenues that we may generate may be insufficient for us to become profitable.

In particular, potential investors should be aware that we have not proven that we can:

·	raise sufficient additional capital in the public and/or private markets to continue the development of the transgenic silkworm, demonstrate the ability to produce commercial volumes of recombinant silk fibers or product effective polymer fibers using such recombinant silk fibers;

·	develop and manufacture specialty fibers achieve market acceptance;

·	develop and maintain relationships with key vendors that will be necessary to optimize the market value of the fibers we develop;

·	maintain relationships with strategic partners that will be necessary to manufacture the fibers we develop or develop relationships with potential strategic partners which may license or distribute fiber products that we develop;

·	respond effectively to competitive pressures; or

·	recruit and build a management team to accomplish our business plan.

If we are unable to accomplish these goals, our business is unlikely to succeed.

As a result of our limited operating history, we may not be able to correctly estimate our future operating expenses, which could lead to cash shortfalls.

We have a limited operating history from which to evaluate our business. We have not generated any revenues to date, and we have not produced a transgenic silkworm nor have we demonstrated the viability of our technology. Our failure to develop a transgenic silkworm would have a material adverse effect on our ability to continue operating. Accordingly, our prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies in an early stage of development. We may not be successful in addressing such risks, and the failure to do so could have a material adverse effect on our business, operating results and financial condition.

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Because of this limited operating history and because of the emerging nature of our fiber product we are seeking to develop, our historical financial data is of limited value in estimating future operating expenses. Our budgeted expense levels are based in part on our expectations concerning future revenues. However, our ability to generate any revenues depends largely on our ability to (i) develop a transgenic silkworm and (ii) create polymer fibers from the silk created by such transgenic silkworms. Moreover, even if we successfully develop a transgenic silkworm and polymer fibers from recombinant silk fibers, the size of any future revenues depends on the market acceptance of such fibers we develop, which is difficult to forecast accurately.

Our operating results may fluctuate as a result of a number of factors, many of which are outside of our control. For these reasons, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as any indication of our future performance. Our quarterly and annual expenses are likely to increase substantially over the next several years depending upon the level of fiber development activities. Our operating results in future quarters may fall below expectations. Any of these events could adversely impact our business prospects and make it more difficult to raise additional equity capital at an acceptable price per share.

We have limited intellectual property protection in overseas markets, which could affect our ability to grow our markets and increase our revenue.

The intellectual property that we licensed from Notre Dame and the University of Wyoming is covered by a series of US patents and US patent applications with limited or no international patent protection. Overseas competitors could be using the same technology that we have licensed, which would affect our ability to expand our markets beyond the United States. We are aware that laboratories and potential competitors overseas are using the “piggyback” gene splicing technology for the genetic modification of silkworm. Such limited overseas intellectual property could affect our ability to introduce fiber products in overseas markets or effectively compete in such markets.

The patents underlying our license agreements could expire prior to our commercializing our specialty fibers, which would result in the loss of our competitive edge and could negatively impact our revenues and results of operations.

The patent rights that we license could expire before we are ready to market or commercialize any fiber product, or while we are still in research and development of proposed products. In which event the patents would be worthless and would not protect us from potential competitors who would then have low barriers to entry and who would be in a position to compete more effectively with us.

Our license agreements restrict us from developing products for certain markets.

Some, but not all, of the gene sequences that we have licensed from Notre Dame and the University of Wyoming are covered by restrictions in the licensing agreement which preclude their use by us for sporting goods and medical applications.

We have not registered any trademark rights for products we are seeking to develop and we therefore have to rely on common law trademark protection until we register our trademark.

Our research, proposed products, product names, labels, signage and advertising material, are not protected by any registered trademark rights or may be subject to an expired trademark registration. We could be forced by litigation, or threat of litigation, to abandon our product names, labels, signage, advertising material, and even our research. In such event we could incur substantial material expense, and could lose the value of marketing and promotional work and our research performed up to that date. These losses would be in addition to the loss resulting from the payment of an award of damages to the party instituting or threatening litigation. Such additional expenses could have an adverse effect on the results of our operations, which could negatively affect our stock price.

Our management has no previous experience in developing, marketing or selling recombinant fiber which may have a negative effect on our ability to develop or sell our products.

We are recently formed corporation. Our current management has no previous experience in developing, marketing or selling recombinant fiber and the other products that we intend to develop and market. Additionally, our current management has no experience in the business of scientific research and development, which is critical to our success. The inexperience of our management may negatively affect our ability to succeed in developing, marketing and/or distributing our proposed products.

We are unprepared for technological changes in our industry, which could result in our products being obsolete or replaced by better technology .

The industry in which we participate is subject to rapid business and technological changes. The business, technology, marketing, legal and regulatory changes that could occur may have a material adverse impact on us. New inventions and product innovations may make our proposed products obsolete. Other researches may develop and patent technologies which make our line of research obsolete. We may not have the financial or technical ability to keep up with its competitors.

Our business is based on unproven scientific research and makes our business highly risky .

We are engaging in research and development of new recombinant silk fibers. Due to the speculative nature of this scientific research, our chances of success are speculative and we cannot be certain that we will succeed in developing new fibers or that our use of novel transgenic methods will be successful. An investment in us, therefore, is highly speculative and risky.

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The fibers we develop could expose us to product liability claims and government regulation, which could have a negative impact on our results of operations .

The fibers we are seeking to develop may subject us to product liability claims if widely used, including but not limited to design defect, environmental hazards, quality control, and durability of product. This potential liability is increased by virtue of the fact that our products in development may be used as protective and safety materials. There is tremendous potential liability to any person who is injured by, or while using, one of our products. As a manufacturer, we may be strictly liable for any damage caused by our products. This liability might not be covered by insurance, or may exceed any coverage that we may obtain.

Additionally, our products, if successfully developed, will be produced by means of genetic engineering. These transgenic methods may carry inherent environmental risks and the production of the products may therefore also be heavily regulated by the government. We may face changes in governmental regulation polices and practices which could have a significant adverse effect on us and our ability to develop, produce and market any products.

Our operations would be negatively affected by any dispute with our partner Universities or by labor unrest (such as disputes, strikes or lockouts) between such Universities and its academic staff .

We have signed intellectual property, sponsored research and collaborative research agreements with one or more universities. The continued cooperation of university(s), as well as the cooperation of other institutions and or universities is essential for our success of the Company. In the event of a material dispute with the university(s), such a dispute could create a cessation of operations for a period of time that could be detrimental to our operations and survival. Additionally, in the event of a material dispute between such universities and its employees could create a cessation of operations for period of time that could be detrimental to our product development.

Unforeseen circumstances may require us to use the proceeds from the Equity Line of Credit in a manner not set forth in the Use of Proceeds section of this prospectus .

We have disclosed an itemized Use of Proceeds, and thus, we have disclosed how our management intends to administer the proceeds from the equity line of credit. Management does intend to use the proceeds from this offering, in part, to pay off some of unpaid salary we owe to our Chief Executive Officer (which we have accounted for as an accrued expense and which amount bears interest at the rate of seven percent per annum and is due on demand by our Chief Executive Officer) and accounts payable, including contractual obligations associated with this offering. However, results of our research and development may not go as we hope and we may have to conduct further research and development that we currently do not expect that we will have to do. In such event,, the funds used for these purposes will require us to raise additional capital.

Our competitors are larger competitors with greater financial resources than we have and we may face increased competition due to the low barriers of entry to our industry .

We compete directly with numerous other companies with similar product lines and/or distribution that have extensive capital, resources, market share, and brand recognition. There are few barriers to entry on the industry in which we compete. This creates the strong possibility of new competitors emerging, and of others succeeding in developing the same or similar fibers that we are trying to develop. The effects of this increased competition may be materially adverse to us and our stockholders.

We may face various governmental regulation, which could increase our costs and lower our future profitability .

Governmental regulation regarding import/export, taxes, transgenic, scientific research and university based research, biological research; transgenic product manufacture and distribution, environmental regulation and packaging requirements may be adverse to our operations, research and development, revenues, and potential profit. We are especially at risk from governmental restriction and regulations related to the development of materials by use of transgenic organisms. Federal and state regulations impose strict regulation on the use, storage, and transportation of such transgenic organisms. Such rules impose severe penalties on us for any breach of regulations, for any spill, release, or contamination caused while the substances are under our direct or indirect ownership or control. We are not aware of any such breach of governmental regulation, or of any spill, release, or contamination. If such a release, or other regulatory breach does occur in the future, the resulting clean up costs, and/or fines and penalties, would cause a material negative effect on the Company and its financial future. In that event, investors could expect to lose their entire investment.

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Risks Related to Our Stock

We may need to raise additional capital by sales of our Class A common stock, which may adversely affect the market price of our Class A common stock and your rights in us may be reduced.

We expect to continue to incur product development and selling, general and administrative costs, and in order to satisfy our funding requirements, we will need to sell additional equity securities, in transactions similar in size and scope to our Equity Line of Credit covered by this prospectus. Such additional sales of equity securities may be subject to registration rights. The sale or the proposed sale of substantial amounts of our Class A common stock in the public markets may adversely affect the market price of our Class A common stock and our stock price may decline substantially. Our stockholders may experience substantial dilution and a reduction in the price that they are able to obtain upon sale of their shares. Also, new equity securities issued may have greater rights, preferences or privileges than our existing Class A common stock.

There is no assurance of an established public trading market.

A regular trading market for our Class A common stock may not be sustained in the future. FINRA has enacted changes that limit quotation on the OTCBB to securities of issuers that are current in their reports filed with the SEC. The OTCBB is an inter-dealer, over-the-counter market that provides significantly less liquidity than a listing on the Nasdaq Stock Markets or other national securities exchange. Quotes for stocks included on the OTCBB are not listed in the financial sections of newspapers as are those for the Nasdaq Stock Market. Therefore, prices for securities traded solely on the OTCBB may be difficult to obtain and holders of Class A common stock may be unable to resell their securities at or near their original offering price or at any price. Market prices for our Class A common stock will be influenced by a number of factors, including:

·	the issuance of new equity securities pursuant to a future offering;

·	competitive developments;

·	variations in quarterly operating results;

·	change in financial estimates by securities analysts;

·	the depth and liquidity of the market for our Class A common stock;

·	investor perceptions of our company and the technologies industries generally; and

·	general economic and other national conditions.

Our Class A common stock is considered “a penny stock” and, as a result, it may be difficult to trade a significant number of shares of our Class A common stock.

The Securities and Exchange Commission (“SEC”) has adopted regulations that generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. Since our Class A common stock has been eligible for quotation on the OTCBB, the market price of our Class A common stock has been less than $5.00 per share. As a result of our prior private placements, we will have increased the number of shares outstanding by almost ten-fold. Consequently, it is likely that the market price for our Class A common stock will remain less than $5.00 per share for the foreseeable future and therefore may be a “penny stock” according to SEC rules. This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our Class A common stock and may affect the ability of investors hereunder to sell their shares. In addition, because our Class A common stock is traded on the OTC Bulletin Board, investors may find it difficult to obtain accurate quotations of the stock and may experience a lack of buyers to purchase such stock or a lack of market makers to support the stock price.

We do not intend to pay dividends.

We have never declared or paid any dividends on our securities. We currently intend to retain our earnings for funding growth and, therefore, do not expect to pay any dividends in the foreseeable future.

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Risk Factors Related to the Equity Line of Credit and This Offering

We are registering an aggregate of 63,600,000 shares of Class A Common Stock to be issued under the Equity Line of Credit. The sale of such shares could depress the market price of our Class A common stock.

We are registering an aggregate of 63,600,000 shares of our Class A common stock under the registration statement of which this prospectus forms a part for issuance pursuant to the Equity Line of Credit. The sale of these shares into the public market by Calm Seas could depress the market price of our common stock. As of January 20, 2010, there were 513,377,924 shares of our common stock issued and outstanding.

We may not have access to the full amount under the Equity Line.

As of January 20, 2010 the closing market price of our common stock was $0.013. There is no assurance that the market price of our Class A common stock will increase substantially in the near future. The entire commitment under the Equity Line of Credit is $1,000,000. We would need to maintain the market price of our Class A common stock at approximately $0.0197 in order to have access to the full amount under the Equity Line of Credit. Since September 1, 2009, our Class A common stock has been trading at or below $0.018 per share. However, during such period we have not made any announcements regarding any developments in our business and we did not raise any capital to fund our research and development efforts. We expect that, initially, the resale by Calm Seas Capital of the shares of our Class A common stock that we will sell to them under our Equity Line of Credit. However, if we are able to report positive developments in our research and development efforts, we expect that such announcements will cause our stock price to increase sufficiently to a price per share above the price we need to allow us to obtain $1,000,000 gross proceeds under the Equity Line of Credit. The Equity Line of Credit is designed to raise $1,000,000 over a 24 month period. As described on page 26 of this prospectus, our goal is to have commercialization of a recombinant fiber by January 30, 2012 (approximately 24 months from the date of this prospectus). In the interim, we have other research and development goals – such as the laboratory production of recombinant fiber and high performance fiber. If we achieve such goals, we expect that the announcement of such achievements will have a significant positive impact on the price of our Class A common stock. Although we will be spending approximately $485,000 on our research and development efforts, technology research and development is very risky. We cannot be certain that we will achieve our research and development goals. Any set backs in our research and development activities may cause our stock price to drop, in which event we would probably not be able to raise $1,000,000 under our Equity Line of Credit. In the event that we raise substantially less than the maximum proceeds we expect to raise under the equity line of credit by the expiration of its 24 month term, we will seek to extend or renew the equity line of credit with Calm Seas Capital to raise the short-fall additional revenue on substantially the same terms as under the September 14, 2009 letter agreement. If Calm Seas Capital is unwilling or unable to enter into such an arrangement, we will be forced to raise additional capital from other investors. Alternatively, if our research yields some promising or positive results, we may seek a corporate partner in a joint venture or licensing arrangement in which we would seek to negotiation an upfront licensing fee and/or capital investment from such corporate partner. We have not yet identified any corporate partners for any such joint venture or licensing arrangement.

Calm Seas will pay less than the then-prevailing market price for our Class A common stock.

The Class A common stock to be issued to Calm Seas pursuant to the Letter Agreement will be purchased at a twenty percent discount to the lowest closing bid price of our Class A common stock during the five consecutive trading days immediately following the date we deliver to Calm Seas a notice of our election to put shares to it pursuant to the Letter Agreement. Calm Seas has a financial incentive to sell our Class A common stock immediately upon receiving the shares to realize the profit equal to the difference between the discounted price and the market price. If Calm Seas sells the shares, the price of our Class A common stock could decrease. If our stock price decreases, Calm Seas may have a further incentive to sell the shares of our Class A common stock that it holds. These sales may have a further impact on our stock price.

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There may not be sufficient trading volume in our Class A common stock to permit us to generate adequate funds from the exercise of our put.

The Letter Agreement provides that the dollar value that we will be permitted to put to Calm Seas will be the lesser of: (A) 200% of the average daily volume in the OTC Bulletin Board of the Class A common stock for the ten trading days prior to the date we deliver to Calm Seas a notice of our put, multiplied by the average of the ten daily closing prices immediately preceding the date we deliver a put notice to Calm Seas, or (B) $75,000 . 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 put date. If the average daily trading volume in our Class A common stock is too low, it is possible that we would exercise a put for less than $75, which may not provide adequate funding for our planned operations.

Our Class A common stock is thinly traded, so you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.

Our common stock has historically been sporadically or “thinly-traded” on the OTCBB, meaning that the number of persons interested in purchasing our common stock at or near ask prices at any given time may be relatively small or nonexistent. This situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable.

As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a mature issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. It is possible that a broader or more active public trading market for our common stock will not develop or be sustained, or that current trading levels will continue.

The selling shareholder may engage in hedging transactions, other than short sales, which may result in broker-dealers or other financial institutions engaging in short sales for their own account and not for the benefit of the selling security holder, which may cause a steep decline of our share price.

In connection with the distribution of the Class A common stock or otherwise, the selling shareholder may enter into hedging transactions, other than short sales, with broker-dealers or other financial institutions. In connection with such hedging transactions, broker-dealers or other financial institutions may, for their own account and not for the benefit of Calm Seas Capital, engage in short sales of shares in the course of hedging the positions they assume with the selling shareholder. If there are significant short sales of our stock by such broker-dealers or other financial institutions, the price decline that would result from this activity will cause our share price to decline which in turn may cause long holders of our stock to sell their shares thereby contributing to sales of stock in the market. If there is an imbalance on the sell side of the market our stock the price will decline. It is not possible to predict if the circumstances where by a short sales could materialize or to what our share price could drop. In some companies that have been subjected to short sales their stock price has dropped to near zero. We cannot provide any assurances that this situation will not happen to us.

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Shares eligible for future sale by our current shareholders may adversely affect our stock price.

To date, we have had a very limited trading volume in our Class A common stock. As long as this condition continues, the sale of a significant number of shares of Class A common stock at any particular time could be difficult to achieve at the market prices prevailing immediately before such shares are offered. In addition, sales of substantial amounts of Class A common stock, including shares issued upon the exercise of outstanding options and warrants, under Securities and Exchange Commission Rule 144 or otherwise could adversely affect the prevailing market price of our common stock and could impair our ability to raise capital at that time through the sale of our securities.

If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board, which would limit the ability of Broker-Dealers to sell our securities and the ability of shareholders to sell their securities in the secondary market.

Companies trading on the OTC Bulletin Board, such as Kraig Biocraft Laboratories, must be reporting issuers under Section 12 of the Exchange Act, and must be current in their reports under Section 13 of the Exchange Act, in order to maintain price quotation privileges on the OTC Bulletin Board. If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could be adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of shareholders to sell their securities in the secondary market.

USE OF PROCEEDS

We will not receive any proceeds from the sale of common stock offered by Calm Seas. However, we will receive proceeds from the sale of our common stock to Calm Seas pursuant to the put right under the Letter Agreement. The proceeds from our exercise of the put option pursuant to the Letter Agreement will be used as follows:

Month	Salaries (1)	Research & Development Expenses (2)	Professional Services (3)	Office Expense (4)	Reserve (5)
1	$13,217	$93,533	$19,667	$1,200	$2,500
2	13,217	93,533	2,000	$1,200	$2,500
3	13,217	58,833	2,000	$1,200	$2,500
4	13,217	2,433	2,000	$1,200	$2,500
5	13,217	2,433	11,668	$1,200	$2,500
6	13,217	2,433	2,667	$1,200	$2,500
7	13,217	2,433	2,667	$1,200	$2,500
8	13,217	2,433	8,667	$1,200	$2,500
9	13,217	2,433	2,667	$1,200	$2,500
10	13,217	2,433	2,667	$1,200	$2,500
11	13,217	2,433	2,667	$1,200	$2,500
12	13,217	2,433	7,663	$1,200	$2,500
13	13,217	48,133	2,000	$1,200	$2,500
14	13,217	48,133	2,000	$1,200	$2,000
15	13,217	48,133	2,000	$1,200	$2,000
16	13,217	48,133	2,000	$1,200	$2,000
17	13,217	3,133	7,000	$1,200	$2,000
18	13,217	3,133	2,667	$1,200	$2,500
19	13,217	3,133	2,667	$1,200	$2,500
20	13,217	3,133	7,000	$1,200	$1,500
21	13,217	3,133	10,600	$1,200	$1,250
22	13,217	3,133	2,000	$1,200	$1,250
23	13,217	3,133	2,000	$1,200	$1,250
24	13,217	3,133	7,666	$1,200	$1,250
TOTAL	$317,208	$485,392.00	$116,600.00	$28,800.00	$52,000.00

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(1) Consists of employee salaries, cost of benefits and payroll taxes. Also includes repayments of unpaid salary we owe to our Chief Executive Officer, which we have accounted for as an accrued expense and which amount bears interest at the rate of seven percent per annum and is due on demand by our Chief Executive Officer.

(2) Includes research and development expenses we are required to incur under our research collaboration agreement with the University of Notre Dame. Also includes (i) payments for a portion of the amount owed by the Company to its CEO for the transfer of intellectual property to the Company, which has been recorded in the financial statements as royalty payments due to a related party and (ii) auto and travel expenses (including the purchase of an automobile) that will be primarily related to investor relations matters.

(3) Includes legal, accounting, press release and EDGAR filing services and transfer agent expenses. Legal expenses will include not only SEC matters (such as periodic reporting and expenses related to this registration) but also intellectual property matters (such as patent filings).

(4) Office expenses include rent, telecommunications, postage/shipping, office equipment and office supplies.

(5) Approximately $2,500 will be set aside each month (up to 6% of gross proceeds) to cover expenses due to contingent events, such as equipment loss or replacement or increase in research and development expenses from unforeseen events.

Approximately 95% of the proceeds from the equity line of credit will be used for expenses that are non-discretionary, such as employee salaries, the costs of our research and development obligations under our soon-to-be renewed agreement with the University of Notre Dame, the costs related to our operation as a public company (primarily, legal and accounting fees) as well legal fees for securing our intellectual property, rent and telecommunications (phone, fax and Internet). Consequently, we believe that it is highly likely that we will use all $1,000,000 of the proceeds we expect to raise from the equity line of credit. We also expect to be able to raise the full $1,000,000 from the equity line of credit. We believe that positive results of our research and development efforts under our arrangement with the University of Notre Dame will help increase our stock price and, therefore, reduce the number of shares we will need to put to Calm Seas in order to raise the full $1,000,000 in gross proceeds we are seeking to raise under the equity line of credit.

In the event we are unable to raise the full $1,000,000 from the equity line of credit, we would use the proceeds in the following priority: (i) research and development expenses we are required to incur under our research collaboration agreement with the University of Notre Dame, (ii) employee salaries, cost of benefits and payroll taxes, (iii) rent and telecommunications, (iv) legal expenses (both SEC and intellectual property) and accounting expenses, press release and EDGAR filing services and transfer agent expenses, (v) postage/shipping, office equipment and office supplies, (vi) auto and travel expenses (including the purchase of an automobile) that will be primarily related to investor relations matters, (vii) payments for a portion of the amount owed by the Company to its CEO for the transfer of intellectual property to the Company, which has been recorded in the financial statements as royalty payments due to a related party and (viii) reserves to cover expenses due to contingent events.

In the event that we raise substantially less than the maximum proceeds we expect to raise under the equity line of credit by the expiration of its 24 month term, we will seek to extend or renew the equity line of credit with Calm Seas Capital to raise the short-fall additional revenue on substantially the same terms as under the September 14, 2009 letter agreement. If Calm Seas Capital is unwilling or unable to enter into such an arrangement, we will be forced to raise additional capital from other investors. Alternatively, if our research yields some promising or positive results, we may seek a corporate partner in a joint venture or licensing arrangement in which we would seek to negotiation an upfront licensing fee and/or capital investment from such corporate partner. We have not yet identified any corporate partners for any such joint venture or licensing arrangement.

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SELLING SHAREHOLDER

The following table sets forth the name of the selling shareholder, the number of shares of common stock owned, the number of shares of common stock registered by this prospectus and the number and percent of outstanding shares that the selling shareholder will own after the sale of the registered shares, assuming all of the shares are sold. The information provided in the table and discussions below has been obtained from the selling shareholder. As used in this prospectus, “selling shareholder” includes donees, pledges, transferees or other successors in interest selling shares of our common stock received from the named selling shareholder as a gift, pledge, distribution or other non sale-related transfer.

Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated by the Securities and Exchange Commission under the Exchange Act. Unless otherwise noted, each person or group identified possesses sole voting and investment power with respect to the shares, subject to community property laws where applicable. As of January 20, 2010, there were 513,377,924 shares of our common stock issued and outstanding.

On September 14, 2009, we entered into the Amended Letter Agreement with Calm Seas to raise up to $1,000,000 through an equity line of credit. Except as described above, to our knowledge Calm Seas has not had a material relationship with us during the last three years, other than as an owner of our common stock or other securities.

Beneficial Ownership of Class A Common Shares Prior to this Offering			Number of Shares to be Sold	Beneficial Ownership of Class A Common Shares after this Offering
Selling Shareholder	Number of Shares	Percent of Class	Under this Prospectus (1)	Number of Shares (2)	Percent of Class (3)
Calm Seas Capital, Ltd. (4) 377 S. Nevada St. Carson City, NV 89703	63,600,000	14.7%-	63,600,000	0	--

Total	63,600,000	14.7%	63,600,000	0	--

(1)

The number of shares set forth in the table represents an estimate of the number of common shares to be offered by the selling shareholder. We have assumed the sale of all of the common shares offered under this prospectus will be sold. However, as the selling shareholder can offer all, some or none of its common stock, no definitive estimate can be given as to the number of shares that the selling shareholder will offer or sell under this prospectus.

(2)	These numbers assume the selling shareholder sells all of its shares after the completion of the offering.

(3)	Based on 576,977,934 shares of Class A common stock outstanding after the completion of the offering.

(4)	Calm Seas Capital, LLC is a Nevada limited liability company. Michael Andrew McCarthy is the managing member of Calm Seas with voting and investment power over the shares.

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Equity Line of Credit

The selling security holder is reselling shares of our Class A common stock sold to it by our exercise of the put right under the Letter Agreement. Each month we may put up to $75,000 of our Class A common stock to Calm Seas, which will purchase such shares at a price per share equal to 80% of the lowest closing bid price of our Class A common stock during the five consecutive trading days immediately following the date the notice of our election to put shares pursuant to the Letter Agreement is delivered to Clam Seas (the date of delivery of such notice is referred to as the “put date”). Notwithstanding the $75,000 ceiling for each monthly put, if both we and Calm Seas agree, we may submit one or more additional puts during any given month to the extent we need additional capital for our operations and/or our product development. We can only submit such additional put(s) if Calm Seas Capital agrees to it. Furthermore, the additional put is subject to the $1,000,000 limitation of this offering. The additional put allows us to obtain additional capital in the event that our product development proceeds quicker than we expect.

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 put date.

The selling shareholder will not receive any compensation, fees or commissions under the Equity Line Agreement.

We expect to be able to raise the full $1,000,000 from the equity line of credit. We believe that positive results of our research and development efforts under our arrangement with the University of Notre Dame will help increase our stock price and, therefore, reduce the number of shares we will need to put to Calm Seas in order to raise the full $1,000,000 in gross proceeds we are seeking to raise under the equity line of credit.

Our equity line with Calm Seas Capital contemplates our future possible issuance of up to an aggregate 63,600,000 shares of our Class A common stock as a result of this registration statement, subject to certain restrictions. Currently, we believe it is likely we will need to draw the full amount available under this equity line prior to the expiration of the equity line. If the terms and conditions of the equity line are satisfied, and we choose to exercise our put rights to the fullest extent permitted and sell all of the 63,600,000 shares of our common stock to Calm Seas Capital, the ownership by our existing non-affiliate stockholders will be diluted by approximately 33% based on 192,752,424 shares of Class A common stock held by non-affiliates on November 16, 2009. If we issue all of the shares under the equity line, we would have 576,977,924 shares issued and outstanding, of which 256,352,424 shares will be held by non-affiliates, resulting in a 33% increase in the public float. We expect that the initial issuance of the shares under the equity line and subsequent resale by Calm Seas Capital will probably cause our share price to decrease. However, we also expect that with a substantial amount of the proceeds form the equity line being spent on research and development activities we may be able to offset such downward pressure on our stock price with announcements of our ongoing research and development. If our research and development efforts are positive, we expect would expect the announcement of such result would cause our share price to increase. Conversely, if we announce any negative results of our research and development efforts, we would expect the announcement of such result would cause a significant decrease in our stock price.

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Bridge Investment

Pursuant to the Letter Agreement, Calm Seas Capital made a Bridge Investment in us 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”).

The Bridge Debentures, which 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 $.018 per share. The Company cannot use any of the proceeds of the Equity Line Agreement to repay the Bridge Debentures or any interest thereon. During any event of default, the Bridge Debentures will bear interest at the rate of 18% per annum or such lesser interest to the extent required under applicable usury law.

There will be an event of default under the Bridge Debentures if the Company

(i)	fails to pay the principal and interest when due and payable and such failure is not cured within 10 days of the due date,

(ii)	breaches any material term of the Bridge Debenture or Bridge and fails to cure such breach within 10 days of the Company’s receipt of notice of such breach from the holder,

(iii)

makes an assignment for the benefit of its creditors or has a receiver or trustee appointed,

(iv)	has a money judgment entered against it for more than $10,000 and such judgment is not vacated, bonded or stayed for 90 days,

(v)	enters bankruptcy.

After September 30, 2010, the Company may cause the Bridge Debentures to be converted into shares of its 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).

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.

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PLAN OF DISTRIBUTION

The purpose of this prospectus is to permit the selling shareholder to offer and sell up to an aggregate of 63,600,000 shares at such times and at such places as it chooses. The decision to sell any shares is within the sole discretion of the holder thereof.

The distribution of the Class A common stock by the selling shareholder may be effected from time to time in one or more transactions. Any of the Class A common stock may be offered for sale, from time to time, by the selling shareholder, or by permitted transferees or successors of the selling shareholder, or otherwise, at prices and on terms then obtainable, at fixed prices, at prices then prevailing at the time of sale, at prices related to such prevailing prices, or in negotiated transactions at negotiated prices or otherwise. The Class A common stock may be sold by one or more of the following:

·	On the OTCBB or any other national common stock exchange or automated quotation system on which our Class A common stock is traded, which may involve transactions solely between a broker-dealer and its customers which are not traded across an open market and block trades.

·	Through one or more dealers or agents (which may include one or more underwriters), including, but not limited to:

·	Block trades in which the broker or dealer as principal and resale by such broker or dealer for its account pursuant to this prospectus.

·	Purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this prospectus.

·	Ordinary brokerage transactions.

·	Directly to one or more purchasers.

·	A combination of these methods.

Calm Seas and any broker-dealers who act in connection with the sale of its shares are “underwriters” within the meaning of the Securities Act, and any discounts, concessions or commissions received by them and profit on any resale of the shares as principal may be deemed to be underwriting discounts, concessions and commissions under the Securities Act.

In connection with the distribution of the Class A common stock or otherwise, the selling shareholder may enter into hedging transactions with broker-dealers or other financial institutions. In connection with such transactions, broker-dealers or other financial institutions may, for their own account and not for the benefit of the selling shareholder, engage in short sales of shares in the course of hedging the positions they assume with the selling shareholder. Under the September 14 Amended Letter Agreement, the selling shareholder cannot sell shares short. The selling shareholder may enter into options or other transactions with broker-dealers or other financial institutions which require the delivery to such broker-dealers or other financial institutions of the Class A common stock, which shares such broker-dealers or financial institutions may resell pursuant to this prospectus, as supplemented or amended to reflect that transaction. The selling shareholder may also pledge the common stock registered hereunder to a broker-dealer or other financial institution and, upon a default, such broker-dealer or other financial institution may affect sales of the pledged shares pursuant to this prospectus, as supplemented or amended to reflect such transaction. In addition, any Class A common stock covered by this prospectus that qualifies for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than pursuant to this prospectus.

The selling shareholder or its underwriters, dealers or agents may sell the Class A common stock to or through underwriters, dealers or agents, and such underwriters, dealers or agents may receive compensation in the form of discounts or concessions allowed or reallowed. Underwriters, dealers, brokers or other agents engaged by the selling shareholder may arrange for other such persons to participate. Any fixed public offering price and any discounts and concessions may be changed from time to time. Underwriters, dealers and agents who participate in the distribution of the common stock may be deemed to be underwriters within the meaning of the Securities Act, and any discounts or commissions received by them or any profit on the resale of shares by them may be deemed to be underwriting discounts and commissions thereunder. The proposed amounts of the Class A common stock, if any, to be purchased by underwriters and the compensation, if any, of underwriters, dealers or agents will be set forth in a prospectus supplement.

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Unless granted an exemption by the Commission from Regulation M under the Exchange Act, or unless otherwise permitted under Regulation M, the selling shareholder will not engage in any stabilization activity in connection with our Class A common stock, will furnish each broker or dealer engaged by the selling shareholder and each other participating broker or dealer the number of copies of this prospectus required by such broker or dealer, and will not bid for or purchase any Class A common stock of our or attempt to induce any person to purchase any of the Class A common stock other than as permitted under the Exchange Act.

We will not receive any proceeds from the sale of these shares of Class A common stock offered by the selling shareholder. We shall use our best efforts to prepare and file with the Commission such amendments and supplements to the registration statement and this prospectus as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of the common stock covered by the registration statement for the period required to effect the distribution of such common stock.

We are paying certain expenses (other than commissions and discounts of underwriters, dealers or agents) incidental to the offering and sale of the common stock to the public, which are estimated to be approximately $17,081. If we are required to update this prospectus during such period, we may incur additional expenses in excess of the amount estimated above.

In order to comply with certain state securities laws, if applicable, the common stock will be sold in such jurisdictions only through registered or licensed brokers or dealers. In certain states the shares of common stock may not be sold unless they have been registered or qualify for sale in such state or an exemption from registration or qualification is available and is complied with.

DESCRIPTION OF SECURITIES

General

Our original articles of incorporation authorized 60,000,000 shares of Class A common stock, 25,000,000 shares of Class B common stock with no par value per share and 10,000,000 shares of preferred stock with no par value per share. On February 16, 2009, we amended our articles of incorporation to provide for unlimited authorized shares, no par value, of Class A common stock and Class B common stock. There are no provisions in our charter or by-laws that would delay, defer or prevent a change in our control.

Common Stock

As of December 10, 2009, 513,377,924 shares of common stock Class A are issued and outstanding and held by 28 shareholders of record, and we had no shares of Class B common issued and outstanding. Holders of our common stock are entitled to one vote for each share on all matters submitted to a stockholder vote.

Holders of Class A common stock and Class B common stock do not have cumulative voting rights .

Therefore, holders of a majority of the shares of both classes of common stock voting for the election of directors can elect all of the directors. Holders of both classes of our common stock representing a majority of the voting power of our capital stock issued and outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our Articles of Incorporation.

Although there are no provisions in our charter or by-laws that may delay, defer or prevent a change in control, we are authorized, without shareholder approval, to issue shares of preferred stock that may contain rights or restrictions that could have this effect.

Holders of both classes of common stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds. In the event of liquidation, dissolution or winding up, each outstanding share entitles its holder to participate pro rata in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock. Holders of both classes of our common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.

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Preferred Stock

Our articles of incorporation also provide that we are authorized to issue up to 10,000,000 shares of preferred stock with no par value per share. As of the date of this prospectus, there are no shares of preferred stock issued and outstanding. Our Board of Directors has the authority, without further action by the shareholders, to issue from time to time the preferred stock in one or more series for such consideration and with such relative rights, privileges, preferences and restrictions that the Board may determine. The preferences, powers, rights and restrictions of different series of preferred stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions and purchase funds and other matters. The issuance of preferred stock could adversely affect the voting power or other rights of the holders of common stock.

As further described in our financial statements, the company anticipates that it will issue 200,000 preferred shares to Kim Thompson pursuant an agreement between the company and Mr. Thompson. Such preferred shares will have no right to dividends or other distributions, but will have super voting rights such that each preferred share will have the voting power equivalent to one hundred common class “A” shares. We have not filed a certificate of designation to set the rights and preferences for these preferred shares to be issued to Mr. Thompson. The selling shareholder has not consented to such issuance of preferred stock to Mr. Thompson. We shall not be seeking to obtain the consent of the selling shareholder for such issuance as we are not required to do so under Wyoming corporate law.

Dividends

Since inception we have not paid any dividends on our Class A common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock, when issued pursuant to this offering. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors will have the discretion to declare and pay dividends in the future. Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors, which our Board of Directors may deem relevant.

INTERESTS OF NAMED EXPERTS AND COUNSEL

No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.

The consolidated financial statements for the years ended December 31, 2008 and 2007 included in this prospectus and the registration statement have been audited by Webb & Company, P.A. to the extent and for the periods set forth in their report appearing elsewhere herein and in the registration statement, and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.

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DESCRIPTION OF BUSINESS

Overview

We are Kraig Biocraft Laboratories, Inc., a corporation organized under the laws of Wyoming on April 25, 2006. We were organized to develop high strength, protein-based 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, heat resistance and/or chemical resistance. The specialty fiber market is dominated by two synthetic fiber products: aramid fibers and ultra high molecular weight polyethylene fiber. Examples of these synthetic fibers include Kevlar® and Spectra®. 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 have collaboration agreements with University of Notre Dame and the University of Wyoming that give us the exclusive use of certain intellectual property for fibers in commercially viable quantities. We will then use these technologies to develop fibers with greater strength, resiliency and flexibility for use in our target markets, namely the specialty fiber and technical textile industries.

We are currently in the first stage of our development, which is to develop a transgenic silkworm that can produce a natural spider silk fiber by inserting patented genetic sequences into ordinary silkworms using patented genetic engineering technology under our license and collaboration agreements with the University of Norte Dame and the University of Wyoming. The proceeds from the offering, as described below, will be used to fund this first stage, which we expect to complete by October 1, 2011.

The Market

We are focusing our work on the creation of high performance and technical fiber. The performance fiber market is currently dominated by two classes of product: aramid fibers, exemplified by Kevlar® (E.I. du Pont de Nemours and Company), and ultra high molecular weight polyethylene fiber, exemplified by Dyneema® (DSM NV) and Spectra® (Honeywell International Inc.). 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 these materials are the military and police departments, which employ them for ballistic protection. The materials are also used for industrial applications requiring superior strength and toughness, i.e. critical cables and abrasion/impact resistant components. These fibers are also employed in safety equipment, high strength composite materials for the aero-space industry and for ballistic protection by the defense industry.

The global market for technical textiles is currently estimated at $92.88 billion. The demand for technical textiles is growing rapidly and is expected to reach $127 billion in 2010.

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.

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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 and result in a significant increase in demand. 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. These protein based fibers, exemplified by spider silk, have been the subject of much interest to the U.S. military. The military’s interest in spider silks stems from the incredible toughness of the material, as illustrated in the table below.

Comparison of the Properties of Spider Silk, Kevlar® and Steel

	Material Toughness 1	Tensile Strength 2	Weight 3
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 so superior to the materials currently available in the marketplace. For example, as noted above, the ability of spider fiber 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 promise of a life saving ballistic resistant material, which is lighter, thinner, more flexible, and tougher than steel. Other applications for spider silk based fibers include use as structural material and for any application in which light weight and high strength are required. We believe that polymer fibers made with recombinant protein-based fiber will make significant inroads into the specialty fiber and technical textile markets.

While the superior properties of spider silks are well known, there is presently no known way to produce these fibers in commercial quantity. The spiders are cannibalistic, and can not be raised in concentrated colonies. However, we envision that recombinant fiber, with its superior mechanical characteristics, will supplant the current generation of high performance fiber.

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.

We have licensed the exclusive right to use the patented genetic sequences and genetic engineering technology developed at Notre Dame and the University of Wyoming, and in working collaboratively with those laboratories, we are developing fibers with the mechanical characteristics of spider silk. We are applying our proprietary genetic engineering technology to domesticated silkworms, which are already one of 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.

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A part of our intellectual property portfolio is the exclusive right to use the 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 five US patents and two pending patent applications held by The University of Wyoming.

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. Kraig is a reporting company under the Securities Exchange Act of 1934 which occurred as a result of its original SB 2 filing in late 2007. The Company is up to date with all necessary filings with the SEC.

Our shares are traded OTCBB under the ticker symbol: KBLB. There are 513,377,924 shares of common stock issued and outstanding. Kim Thompson, our founder and CEO, owns approximately 62.5% of the issued and outstanding shares.

The inventor of our technology, 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.

In order to reduce the technology to practice, we have entered into intellectual property and collaborative research agreements with two leading universities which are at the forefront in this field: the University of Wyoming and the University of Notre Dame. One of our major shareholders, the University of Wyoming Foundation, is a public university which has contributed significant intellectual property to the enterprise.

Certain patented genetic tools, methods, and proprietary gene sequences invented and discovered by researchers at these universities are pivotal in our work. We have negotiated and obtained certain exclusive proprietary rights to use Notre Dame’s and the University of Wyoming’s intellectual property for the product development and commercialization of our fiber products.

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. While the extenchion has expired, the Company anticipates that the agreement will be further extended. Pursuant to these agreements the genetic work is being conducted primarily within Notre Dame’s laboratories.

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

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 held by the University of Wyoming and the University of Notre Dame. We have also acquired certain exclusive rights to patent pending protein based fibers and genetic technologies.

In 2008, the University of Notre Dame filed two provisional patent applications pursuant to our intellectual property and collaborative research agreement. In addition, we have filed a separate U.S. provisional patent application regarding certain methodologies, genetic sequences, organic polymers and composite silk fibers. We anticipate that our intellectual property portfolio will continue to grow in 2010.

We do not own any patents or trademarks.

Intellectual Property/Collaborative Research Agreement with Notre Dame University

Our collaborative research agreement with the University of Notre Dame requires 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 caped at $35,000 per calendar quarter, unless the Company provides prior authorization for exceeding that cap. Subject to the renewal of our research agreement with Norte Dame, our agreement with Notre Dame provides us with a right to an exclusive license to intellectual property developed pursuant to the collaborative research on terms to be negotiated on a case by case basis. The University of Notre Dame retains a right to a commercially reasonable royalty on all such technology. Our agreement with the University of Notre Dame has lapsed but we are in the process of renewing that agreement which we expect will be renewed by the end of fiscal 2009 on substantially the same terms as the prior agreement. Our intellectual property/collaborative research agreement with The University of Notre Dame pursuant to which we sponsored 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 a six-month period, commencing on the date that we notify Notre Dame, to negotiate 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.

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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 exclusive, worldwide right to develop and commercialize the production by silkworms of 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 to in our field of use for certain university-developed intellectual property including patented spider silk gene sequences. Pursuant to the agreement, we issued 1,050,000 shares of our Class A common stock to the University Foundation. We also issued to the University Foundation 700,000 shares of our Class A common stock which is subject to our right to call such 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 in each country 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 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 six months of research time and it would cost us an additional $120,000 to create an alternative gene sequence.

Research and Development

Our current research and development is being conducted sequentially in two stages.

First stage: Reduction to practice

1) We will reduce to practice our technology for spider silk protein expression in the silk glands of the silkworm. The focus at this stage is spider silk analogs and the production of new silk fibers composed of recombinant proteins. We are hopeful that we can achieve this goal by December 31, 2010. We believe that our transgenic system is essentially “plug and play”, in that once the system is established the gene sequence for any compatible protein can be inserted for expression by the system.

Second stage: Commercialization

2) High Performance Fibers : Once we have achieved the production of recombinant fiber, we will turn the technology to the production of high performance polymers. We intend to will follow the accepted market structure in the industry: vertical integration for certain applications, and bulk sale of spun fiber directly to intermediate and end product manufacturers. There is also the possibility of licensing our product and technology.

Our goal is to reach the following achievements within the indicated time frame:

Achievement		Time horizon
Laboratory production of recombinant fiber.		December 31, 2010
Laboratory production of recombinant high performance fiber.		April 30, 2011
Commercialization of recombinant fiber.		January 30, 2012

During the fiscal years ended December 31, 2008 and 2007, we have spent approximately 1,820 hours and 3,420 hours, respectively, on research and development activities, which consisted of 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.

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 office space, conference facilities, mail, fax and reception services located at our principal place of business.

LEGAL PROCEEDINGS

There are no legal proceedings pending or threatened against us or our officers and directors.

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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

Our common stock has traded on the OTC Bulletin Board system under the symbol “KBLB” since February 20, 2008.

The following table sets forth the high and low trade information for our Class A common stock for each quarter since we began trading on February 20, 2008. 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, the Company's Board of Directors declared a nine-for-one stock dividend which was declared by our board of directors on March 23, 2009. The stock split was distributed to shareholders of record as of April 27, 2009.

Quarter ended	Low Price		High Price
March 31, 2008	$	0.00	$	0.50
June 30, 2008	$	0.022	$	0.047
September 30, 2008	$	0.011	$	0.039
December 31, 2008	$	0.011	$	0.04
March 31, 2009	$	0.011	$	0.044
June 30, 2009	$	0.017	$	0.06
September 30, 2009	$	0.025	$	0.011

Holders

As of January 20, 2010 in accordance with our transfer agent records, we had 28 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, when issued pursuant to this offering. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors will have the discretion to declare and pay dividends in the future.

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

Stock Option Grants; Warrants and Convertible Securities

To date, we have not granted any stock options. 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.

The principal and interest of the Bridge Debentures, which mature on December 31, 2010, are principal and interest 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).

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Transfer Agent and Registrar

Our transfer agent is Registrar and Transfer Company, 10 Commerce Drive, Cranford, N.J. 07016 and its phone number is (908) 497-2300.

AVAILABLE INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the Class A common stock offered hereby. This prospectus, which constitutes part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits and schedule thereto, certain parts of which are omitted in accordance with the rules and regulations of the SEC. For further information regarding our Class A common stock and our company, please review the registration statement, including exhibits, schedules and reports filed as a part thereof. Statements in this prospectus as to the contents of any contract or other document filed as an exhibit to the registration statement, set forth the material terms of such contract or other document but are not necessarily complete, and in each instance reference is made to the copy of such document filed as an exhibit to the registration statement, each such statement being qualified in all respects by such reference.

We are also subject to the informational requirements of the Exchange Act which requires us to file reports, proxy statements and other information with the SEC. Such reports, proxy statements and other information along with the registration statement, including the exhibits and schedules thereto, may be inspected at public reference facilities of the SEC at 100 F Street N.E., Washington D.C. 20549. Copies of such material can be obtained from the Public Reference Section of the SEC at prescribed rates. You may call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room. Because we file documents electronically with the SEC, you may also obtain this information by visiting the SEC’s Internet website at http://www.sec.gov.

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FI NANCIAL STATEMENTS

Kraig Biocraft Laboratories, Inc.

(A DEVELOPMENT STAGE COMPANY)

PAGE	CONTENTS
F-1	REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

F-2	BALANCE SHEETS AS OF DECEMBER 31, 2008 and 2007.

F-3	STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 AND FOR THE PERIOD APRIL 25, 2006 (INCEPTION) TO DECEMBER 31, 2008.

F-4 - F-5	STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT FOR THE PERIOD FROM APRIL 25, 2006 (INCEPTION) TO DECEMBER 31, 2008.

F-6	STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 AND FOR THE PERIOD APRIL 25, 2006 (INCEPTION) TO DECEMBER 31, 2008.

F-7 - F-18	NOTES TO FINANCIAL STATEMENTS.

F-19	CONDENSED BALANCE SHEETS AS OF SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008.

F-20	CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 AND FOR THE PERIOD APRIL 25, 2006 (INCEPTION) TO SEPTEMBER 30, 2009 (UNAUDITED).

F-21 - F-22	CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT FOR THE PERIOD FROM APRIL 25, 2006 (INCEPTION) TO SEPTEMBER 30, 2009 (UNAUDITED).

F-23	CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 AND FOR THE PERIOD APRIL 25, 2006 (INCEPTION) TO SEPTEMBER 30, 2009 (UNAUDITED).

F-24 - F-37	NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of:

Kraig Biocraft Laboratories, Inc.

We have audited the accompanying balance sheets of Kraig Biocraft Laboratories, Inc., (a development stage company), as of December 31, 2008 and 2007 and the related statements of operations, changes in stockholders’ deficit and cash flows for the years ended December 31, 2008 and 2007 and the period April 25, 2006 (Inception) to December 31, 2008. The financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly in all material respects, the financial position of Kraig Biocraft Laboratories, Inc. as of December 31, 2008 and 2007 and the results of its operations and its cash flows for the years ended December 31, 2008 and 2007 and the period April 25, 2006 (Inception) to December 31, 2008 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements. The Company is in the development stage with a working capital and stockholders’ deficit of $538,301 and used $517,358 of cash in operations from inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

WEBB & COMPANY, P.A.

Certified Public Accountants

Boynton Beach, Florida

April 13, 2009

F-1

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


ASSETS

	December 31, 2008			December 31, 2007

Current Assets
Cash	$	9,537		$	105,818
Prepaid Expenses		3,123			12,500
Total Assets	$	12,660		$	118,318

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
Accounts payable	$	65,750		$	22,121
Payroll Tax Payable – related party		16,933			18,414
Royality agreement payable - related party		120,000			120,000
Accrued Expenses - related party		348,278			139,980
Total Current Liabilities		550,961			300,515

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,
49,934,850 and 49,934,850 shares issued and outstanding during		779,050			779,050
2008 and 2007, respectively
Common stock Class B, no par value; unlimited shares authorized,
no shares issued and outstanding		-			-
Common Stock Issuable, 40,000 shares		4,000			-
Additional paid-in capital		42,060			42,060
Deficit accumulated during the development stage		(1,363,411	)		(1,003,307	)

Total Stockholders' Deficit		(538,301	)		(182,197	)

Total Liabilities and Stockholders' Deficit	$	12,660		$	118,318

See accompanying notes to financial statements.

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



	For the Years Ended						For the Period from April 25, 2006
	December 31,			December 31,			(Inception) to
	2008			2007			December 31, 2008

Revenue	$	-		$	-		$	-

Operating Expenses
General and Administrative		74,062			40,798			122,703
Professional Fees		31,066			49,759			80,825
Officer's Salary		207,866			196,100			653,734
Contract Settlement		-			-			107,143
Payroll Taxes		9,576			9,188			18,764
Research and Development		33,077			177,019			375,009
Total Operating Expenses		355,647			472,864			1,358,178

Loss from Operations		(355,647	)		(472,864	)		(1,358,178	)

Other Income/(Expenses)
Other income		2,781			-			2,781
Interest expense		(7,238	)		(122	)		(8,014	)
Total Other Income/(Expenses)		(4,457	)		(122	)		(5,233	)

Net Loss before Provision for Income Taxes		(360,104	)		(472,986	)		(1,363,411	)

Provision for Income Taxes		-			-			-

Net Loss	$	(360,104	)	$	(472,986	)	$	(1,363,411	)

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

Weighted average number of shares outstanding
during the year/period - Basic and Diluted		499,733,160			411,625,320

See accompanying notes to financial statements.

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Kraig Biocraft Laboratories, Inc.
(A Development Stage Company)
Statement of Changes in Stockholders Deficit
For the period from April 25, 2006 (inception) to December 31, 2008



	Preferred Stock				Common Stock - Class A					Common Stock - Class B				Common Stock – Class A Shares To Be Issued						Deficit Accumulated during
	Shares		Par		Shares			Par		Shares		Par		Shares		Par		APIC		Development Stage			Total


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

Stock issued to founder		-		-		33,229,200			180		-		-		-		-		-		-			180

Stock issued for services ($.08/share)		-		-		1,750,000			140,000		-		-		-		-		-		-			140,000

Stock issued for services ($.08/share)		-		-		70,000			5,600		-		-		-		-		-		-			5,600

Stock contributed by shareholder		-		-		(1,166,650	)		-		-		-		-		-		-		-			-

Stock issued for cash ($2.00/share)		-		-		400			200		-		-		-		-		-		-			200

Stock issued for cash ($2.00/share)		-		-		400			200		-		-		-		-		-		-			200

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

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

Balance, December 31, 2006		-		-		33,883,350			146,180		-		-		-		-		126,435		(530,321	)		(257,706	)

Stock issued for cash ($.09/share)		-		-		175,000			15,000		-		-		-		-		-		-			15,000

Stock issued for cash ($.09/share)		-		-		1,200,000			103,000		-		-		-		-		-		-			103,000

Stock issued for cash ($.003/share)		-		-		900,000			3,000		-		-		-		-		-		-			3,000

F-4

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Stock issued for cash ($.08/share)	-		-	187,500		15,000	-		-	-		-		-			-			15,000

Stock issued for cash ($.08/share)	-		-	187,500		15,000	-		-	-		-		-			-			15,000
																				-
Stock issued for services ($.08/share)	-		-	200,000		16,000	-		-	-		-		-			-			16,000

Stock issued for cash ($.08/share)	-		-	1,312,500		105,000	-		-	-		-		-			-			105,000

Stock issued for cash ($.03/share)	-		-	8,049,500		241,485	-		-	-		-		-			-			241,485

Stock issued for cash ($.03/share)	-		-	20,000		600	-		-	-		-		-			-			600

Stock issued for cash ($.03/share)	-		-	830,000		24,900	-		-	-		-		-			-			24,900

Stock issued for cash ($.03/share)	-		-	2,500		75	-		-	-		-		-			-			75

Stock issued for cash ($.03/share)	-		-	12,000		360	-		-	-		-		-			-			360

Stock issued for cash ($.03/share)	-		-	102,500		3,075			-			-		-			-			3,075

Stock issued in connection to cash offering	-		-	2,812,500		84,375	-		-	-		-		(84,375	)		-			-

Stock issued for services ($.10/share)	-		-	60,000		6,000	-		-	-		-		-			-			6,000

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

Balance, December 31, 2007	-		-	49,934,850		779,050	-		-	-		-		42,060			(1,003,307	)		(182,197	)

Stock issuable for services ($.10/share)	-		-	-		-	-		-	40,000		4,000		-			-			4,000

Net loss, for the year ended December 31, 2008	-		-	-		-	-		-	-		-		-			(360,104	)		(360,104	)

Balance, December 31, 2008	-	$	-	49,934,850	$	779,050	-	$	-	40,000	$	4,000	$	42,060		$	(1,363,411	)	$	(538,301	)

See accompanying notes to financial statements.

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


	For the Years Ended December 31,						For the Period from April 25, 2006
							(Inception) to
	2008			2007			December 31, 2008
Cash Flows From Operating Activities:
Net Loss	$	(360,104	)	$	(472,986	)	$	(1,363,411	)
Adjustments to reconcile net loss to net cash used in operations
Stock issuable for services		4,000			22,000			171,780
Warrants issued to employees		-			-			126,435
Changes in operating assets and liabilities:
(Increase)Decrease in prepaid expenses		9,377			(12,500	)		(3,123	)
Increase in accrued expenses and other payables		86,817			26,574			365,211
Increase in royality agreement payable - related party		120,000			12,857			120,000
Increase in accounts payable		43,629			12,988			65,750
Net Cash Used In Operating Activities		(96,281	)		(411,067	)		(517,358	)

Cash Flows From Investing Activities:		-			-			-

Cash Flows From Financing Activities:
Proceeds from Notes Payable - Stockholder		-			-			10,000
Repayments of Notes Payable - Stockholder		-			(10,000	)		(10,000	)
Proceeds from issuance of common stock		-			526,495			526,895
Net Cash Provided by Financing Activities		-			516,495			526,895

Net Increase (Decrease) in Cash		(96,281	)		105,428			9,537

Cash at Beginning of Period/Year		105,818			390			-

Cash at End of Period/Year	$	9,537		$	105,818		$	9,537

Supplemental disclosure of cash flow information:

Cash paid for interest	$	-		$	-		$	-
Cash paid for taxes	$	-		$	-		$	-

SUPPLEMENTAL DISCLOSURE OF NON CASH ITEMS

During the period ended December 31, 2006, the principal stockholder contributed 1,166,650 shares of common stock to the Company as an in kind contribution of stock. The shares were retired by the Company.

In accordance with the May 2007 stock purchase agreement which contains an anti-dilution clause which requires the Company to issue additional common shares under the stock purchase agreement for any subsequent issuance at a price below $.08 per share for a period of 12 months. The Company has issued 2,812,500 additional shares through September 2007 as a result of the subsequent stock issuances in the amount of $84,375 ($0.03/share).

See accompanying notes to financial statements.

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KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2008 AND 2007

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

(A) Organization

Kraig Biocraft Laboratories, Inc. (a development stage company) (the "Company") was incorporated under the laws of the State of Wyoming on April 25, 2006. The Company was organized to develop high strength, protein based fiber, using recombinant DNA technology, for commercial applications in the textile and specialty fiber industries.

Activities during the development stage include developing the business plan, negotiating intellectual property agreements and raising capital.

(B) Use of Estimates

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.

For purposes of the cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.

(D) Loss Per Share

Basic and diluted net loss per common share is computed based upon the weighted average common shares outstanding as defined by Financial Accounting Standards No. 128, “Earnings per Share.” As of December 31, 2007, the Company does not have any dilutive securities outstanding. As of December 31, 2008, $362,494 of debt is convertible to 18,124,680 shares as per agreement with CEO. The effect of these shares is anti-dilutive and not included in dilutive earnings per share.

(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.

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KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2008 AND 2007

(F) Income Taxes

The Company accounts for income taxes under the Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“Statement 109”). Under Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

	2008			2007

Expected income tax recovery (expense) at the statutory rate of 34%	$	(122,435	)	$	(160,815	)
Tax effect of expenses that are not deductible for income tax purposes (net of other amounts deductible for tax purposes)		10			955
Change in valuation allowance		122,425			159,860

Provision for income taxes	$	-		$	-

The components of deferred income taxes are as follows:
		2008			2007


Deferred income tax asset:
Net operating loss carry forwards	$	419,606		$	297,181
Valuation allowance		(419,606	)		(297,181	)
Deferred income taxes	$	-		$	-

As of December 31, 2008, and 2007 the Company has a net operating loss carry forward of approximately $1,234,136 and $874,061, respectively, available to offset future taxable income through 2028. This results in deferred tax assets of $419,606 and $297,181 as of December 31, 2008 and 2007, respectively . The valuation allowance at December 31, 2008 was $419,606. The change in the valuation allowance for the year ended December 31, 2008 and 2007 was an increase of $122,425 and $159,860, respectively.

(G) Stock-Based Compensation

The Company has adopted the provisions of SFAS No. 123R and related interpretations as provided by SAB 107. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant.

Common stock, stock options and common stock warrants issued to other than employees or directors are recorded on the basis of their fair value, as required by SFAS No. 123(R), which is measured as of the date required by EITF Issue 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” In accordance with EITF 96-18, the stock options or common stock warrants are valued using the Black-Scholes option pricing model on the basis of the market price of the underlying common stock on the “valuation date,” which for options and warrants related to contracts that have substantial disincentives to non-performance is the date of the contract, and for all other contracts is the vesting date. Expense related to the options and warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the vesting period. Where expense must be recognized prior to a valuation date, the expense is computed under the Black-Scholes option pricing model on the basis of the market price of the underlying common stock at the end of the period, and any subsequent changes in the market price of the underlying common stock up through the valuation date is reflected in the expense recorded in the subsequent period in which that change occurs.

(H) Business Segments

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

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Table of Contents

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2008 AND 2007

(I) Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 160, “ Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51 ”. This statement improves the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards that require; the ownership interests in subsidiaries held by parties other than the parent and the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income, changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently, when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value, entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 affects those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Early adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company's financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (SFAS 161). This statement is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity’s derivative instruments and hedging activities and their effects on the entity’s financial position, financial performance, and cash flows. SFAS 161 applies to all derivative instruments within the scope of SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133) as well as related hedged items, bifurcated derivatives, and nonderivative instruments that are designated and qualify as hedging instruments. Entities with instruments subject to SFAS 161 must provide more robust qualitative disclosures and expanded quantitative disclosures. SFAS 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application permitted. We are currently evaluating the disclosure implications of this statement.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and provides entities with a framework for selecting the principles used in preparation of financial statements that are presented in conformity with GAAP. The current GAAP hierarchy has been criticized because it is directed to the auditor rather than the entity, it is complex, and it ranks FASB Statements of Financial Accounting Concepts, which are subject to the same level of due process as FASB Statements of Financial Accounting Standards, below industry practices that are widely recognized as generally accepted but that are not subject to due process. The Board believes the GAAP hierarchy should be directed to entities because it is the entity (not its auditors) that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP. The adoption of FASB 162 is not expected to have a material impact on the Company’s financial position.

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Table of Contents

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2008 AND 2007

In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts-an interpretation of FASB Statement No. 60.” Diversity exists in practice in accounting for financial guarantee insurance contracts by insurance enterprises under FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises. This results in inconsistencies in the recognition and measurement of claim liabilities. This Statement requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. This Statement requires expanded disclosures about financial guarantee insurance contracts. The accounting and disclosure requirements of the Statement will improve the quality of information provided to users of financial statements. The adoption of FASB 163 is not expected to have a material impact on the Company’s financial position.

(J) Reclassification

The 2007 financial statements have been reclassified to conform to the 2008 presentation.

NOTE 2 GOING CONCERN

As reflected in the accompanying unaudited financial statements, the Company is in the development stage, has a working capital deficiency and stockholders deficiency of $538,301 and used $517,358 of cash in operations from inception. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.

NOTE 3 STOCKHOLDERS’ DEFCIT

(A) Common Stock Issued for Cash

On January 8, 2007 the Company issued 175,000 shares of common stock for $15,000 ($0.09/share). This agreement was subsequently terminated effective May 23, 2007.

On January 22, 2007 the Company issued 1,200,000 shares of common stock for $103,000 ($0.09/share). In addition, 900,000 shares were issued for $3,000 ($0.0033/share).

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Table of Contents

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2008 AND 2007

On April 4, 2007, the Company issued 187,500 shares of common stock for cash of $15,000 ($0.08 per share).

On April 20, 2007, the Company issued 187,500 shares of common stock for cash of $15,000 ($0.08 per share).

On April 28, 2006, the Company issued 800 shares of common stock for cash of $400 ($0.50 per share).

On May 18, 2007, the Company issued 1,312,500 shares of common stock for cash of $105,000 ($0.08 per share).

On August 28, 2007 the Company entered into a stock purchase agreement to issue 8,049,500 shares common stock in the amount of $241,485 ($0.03/share).

On August 29, 2007 the Company entered into a stock purchase agreement to issue 20,000 shares common stock in the amount of $600 ($0.03/share).

On August 29, 2007 the Company entered into a stock purchase agreement to issue 830,000 shares common stock in the amount of $24,900 ($0.03/share).

On September 1, 2007 the Company entered into a stock purchase agreement to issue 2,500 shares common stock in the amount of $75 ($0.03/share).

On September 5, 2007 the Company entered into a stock purchase agreement to issue 12,000 shares common stock in the amount of $360 ($0.03/share

On September 12, 2007 the Company entered into a stock purchase agreement to issue 102,500 shares common stock in the amount of $3,075($0.03/share).

In accordance with the May 2007 stock purchase agreement which contains an anti-dilution clause which requires the Company to issue additional common shares under the stock purchase agreement for any subsequent issuance at a price below $.08 per share for a period of 12 months. The Company has issued 2,812,500 additional shares through May 2008 as a result of the subsequent stock issuances $0.03/share.

(B) Common Stock Issued for Intellectual Property

On April 26, 2006, the Company issued 33,229,200 shares of common stock to its founder having a fair value of $180 ($0.000005/share) in exchange for intellectual property. The fair value of the patent was determined based upon the historical cost of the intellectual property contributed by the founder.

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Table of Contents

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2008 AND 2007

On January 15, 2008 the Company issued 40,000 shares of common stock for consulting services rendered with a fair value of $4,000 ($0.10/share).

On May 8, 2006, the Company entered into a license agreement for research and development. Pursuant to the terms of the agreement, the Company issued 1,750,000 of common stock upon execution of the agreement. The Company also received a five-year call option from the license holder to repurchase 700,000 common shares at an exercise price of $150,000 or $.21 per share. The option gives the Company the right, but not the obligation to repurchase the shares of common stock. The call option expires May 4, 2011. As of December 31, 2008 the value of the stock was greater then $.10 per share. However, the Company does not have the obligation to repurchase the shares. Accordingly, the net effect on the balance sheet is $0(See Note 4).

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 70,000 shares of common stock upon execution. These shares had a fair value of $5,600 ($0.08/share) based upon the recent cash offering price. Additionally, 200,000 shares of common stock were issued on May 18, 2007 with a fair value of $16,000 ($0.08/share). As of December 31, 2008 the Company issued 100,000 shares of common stock for consulting services rendered with a fair value of $10,000 ($0.10/share).

(D) Cancellation and Retirement of Common Stock

On December 29, 2006, the Company’s founder returned 1,166,650 shares of common stock to the Company. These shares were cancelled and retired. Accordingly, the net effect on equity is $0.

(E) Common Stock Warrants

During 2006, the Company issued 4,200,000 warrants to an officer under his employment agreement. The Company recognized an expense of $126,435 for the period from inception to December 31, 2006. The Company recorded the fair value of the warrants based on the fair value of each warrant grant estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2006, dividend yield of zero, expected volatility of 183%; risk-free interest rates of 4.98%, expected life of one year. The warrants vested immediately. The options expire between 5 and 9 years from the date of issuance and have an exercise price of between $.21 and $.40 per share. During November 2006, the Company and the officer entered into an amendment to the employment agreement whereby all the warrants were retired.

F-12

Table of Contents

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2008 AND 2007

(F) Amendment to Articles of Incorporation

On February 16, 2009, the Company amended its articles of incorporation to amend the number of shares the Company is authorized to issue as follows (See Note 6(A)):

·	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

(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 dividend to be distributed to shareholders of record on April 27, 2009. The financial statements were not retroactively restated to reflect the stock dividend.

NOTE 4 COMMITMENTS AND CONTINGENCIES

(A) Employment Agreement

On April 26, 2006, the Company entered into a five-year employment agreement with the Company’s Chairman and Chief Executive Officer. The agreement renews annually so that at all times, the term of the agreement is five years. Pursuant to this agreement, the Company will pay an annual base salary of $185,000 for the period May 1, 2006 through December 31, 2006. Base pay will be increased each January 1 st , for the subsequent twelve month periods by six percent. The officer will also be entitled to life, disability, health and dental insurance. In addition, the officer received 700,000 five year warrants at an exercise price of $.21 per share, 1,500,000 eight year warrants at an exercise price of $ .33 per share and 2,000,000 nine year warrants at an exercise price of $ .40 per share (See Note 3(E)). The warrants fully vested on the date of grant. The agreement also calls for the issuance of warrants and increase in the officer’s base compensation upon the Company reaching certain milestones:

1.	Upon the Company’s successful laboratory development of a new silk fiber composed of one or more proteins that are exogenous to a host, the Company will issue 500,000 eight year warrants at an exercise price of $.20 per share and raise executive’s base salary by 14%.

2.	Upon the Company’s successful laboratory development of a new silk fiber composed of two or more proteins that are exogenous to a host, the Company will issue 600,000 eight year warrants at an exercise price of $.18 per share and raise executive’s base salary by 15%.

3.	Upon the Company’s successful laboratory development of a new silk fiber composed of at least in part of one or more synthetic proteins, the Company will issue 900,000 eight year warrants at an exercise price of $.18 per share and raise executive’s base salary by 18%.

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Table of Contents

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2008 AND 2007

4.	Upon the Company’s successful laboratory development of a new silk fiber composed of at least in part of one or more proteins that are genetic modifications or induced mutations of a host silk protein, the Company will raise the executive’s base salary by 8%.

5.	Upon the Company becoming either a registered company or upon its stock trading and the company achieving a market capitalization in excess of $35 million for over 120 calendar day period, the executive’s base salary will increase to $225,000.

6.	Upon the Company becoming either a registered company or upon its stock trading and the company achieving a market capitalization in excess of $65 million for over 91 calendar day period, the executive’s base salary will increase to $260,000.

7.	Upon the Company becoming either a registered company or upon its stock trading and the company achieving a market capitalization in excess of $100 million for over 91 calendar day period, the executive’s base salary will increase to $290,000.

8.	Upon the Company becoming either a registered company or upon its stock trading and the company achieving a market capitalization in excess of $200 million for over 120 calendar day period, the executive’s base salary will increase to $365,000.

9.	Upon the Company becoming either a registered company or upon its stock trading and the company achieving a market capitalization in excess of $350 million for over 150 calendar day period, the executive’s base salary will increase to $420,000.

On November 6, 2006, the Company entered into an addendum to the employment agreement whereby the officer agreed to retire all stock warrants issued or to be issued under his employment agreement in return for an increase in his severance allowance to $600,000 or seventy five percent of total salary due under the remaining term of the employment agreement, which ever is greater and a death benefit of $300,000 or thirty five percent of the total salary due under the remaining term of the employment agreement.

In addition, upon expiration or termination of the employment agreement, the Company agrees to keep the officer employed as a consultant for a period of six years at a rate of $4,000 per month with annual increases of 3%. The agreement also calls for certain increases based on milestones reached by the company, including:

1. If the company achieves gross sales exceeding $10 million or net income exceeding $1 million for any two years within the ten year period after the date of this agreement or a market capitalization in excess of $45 million for over 180 calendar days within six years from the date of this agreement, the term of the consulting agreement will be extended to 10 years.

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Table of Contents

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2008 AND 2007

2. If the company achieves gross sales exceeding $19 million or net income exceeding $3 million for any two years within the twelve year period after the date of this agreement or a market capitalization in excess of $65 million for over 180 calendar days within six years from the date of this agreement, the term of the consulting agreement will be extended to 20 years or the life of the officer and his spouse at a rate of $6,500 per month with a 3% annual increase.

3. If the company achieves gross sales exceeding $38 million or net income exceeding $6 million for any two years within the twelve year period after the date of this agreement or a market capitalization in excess of $120 million for over 180 calendar days within six years from the date of this agreement, the term of the consulting agreement will be extended to 20 years or the life of the officer and his spouse at a rate of $10,000 per month with a 3% annual increase.

4. If the company achieves gross sales exceeding $59 million or net income exceeding $9 million for any year within the twelve year period after the date of this agreement or a market capitalization in excess of $210 million for over 180 calendar days within six years from the date of this agreement, the term of the consulting agreement will be extended to 20 years or the life of the officer and his spouse at a rate of $15,000 per month with a 3% annual increase.

5. If the company achieves gross sales exceeding $78 million or net income exceeding $12 million for any year within the twelve year period after the date of this agreement or a market capitalization in excess of $320 million for over 180 calendar days within six years from the date of this agreement, the term of the consulting agreement will be extended to 20 years or the life of the officer and his spouse at a rate of $20,000 per month with a 3% annual increase.

On October 10, 2008, the Company entered into an addendum to the employment agreement whereby all unpaid back salary will accrue interest at 7% per year. At December 31, 2008, the Company recorded interest expense and related accrued interest payable of $5,351. In addition, the Company granted the CEO the right to convert any accrued salary into Class “A” Common Stock at either 1) The lowest price at which the Company’s Class “A” Common Stock has traded over the preceding twelve month period, 2) At the lowest bid price for the preceding thirty days, 3) The lowest price paid in cash for the Class “A” Common Stock during the twelve months preceding the conversion. The conversion price is the lesser of options 1-3 or $0.02. As of December 31, 2008, there was no derivative liability associated with the conversion option. As of December 31, 2008, no accrued salary has been converted to Class “A” Common Stock. The Company accounts for the conversion option under EITF 00-27 and classifies it in accordance with SFAS 150. As of December 31, 2008 the Company owes $340,263 in accrued salary (See Note 5).

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Table of Contents

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2008 AND 2007

(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. As of December 31, 2008, the Company has not made the required payments and has accrued $28,752 under the agreement. The Company will continue to accrue the required payments under this license agreement and the Company will pay such amounts as its finances allow. This license agreement provides that licensor must give the Company at least 90 days notice to cure the failure to make the required payments before the licensor can terminate the license agreement. If this license agreement were terminated, it would result in a loss of six months of research time and it would cost the Company an additional $120,000 to create an alternative gene sequence. (See Note 3(C))

(C)Royalty and Research Agreements

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 $0.50 per share or the average of the closing price of the Company’s shares over the five days preceding such stock issuance. As of December 31, 2008 the Company accrued $8,000 of accounts payable for the services provided.

On December 26, 2006, the Company entered into an addendum to the intellectual property transfer agreement with an officer. In consideration of the Company issuing either 200,000 preferred shares with the following preferences; no dividends and voting rights equal to 100 common shares per share of preferred stock or the payment of $120,000, the officer agreed to terminate the royalty payments due under the agreement and give title to the exclusive license for the non protective apparel use of the intellectual property to the Company. On the date of the agreement, the Company did not have any preferred stock authorized with the required preferences. In accordance with SFAS 150, the Company determined that the present value of the payment of $120,000 that was due on December 26, 2007, the one year anniversary of the addendum, should be recorded as an accrued expense until such time as the Company has the ability to assert that it has preferred shares authorized. As of December 31, 2008, 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. Additionally, the accrued expenses are accruing 7% interest per year. At December 31, 2008, the Company recorded interest expense and related accrued interest payable of $1,887.

On February 1, 2007 the Company entered into a consulting agreement for research and development for a period of one year. As of December 31, 2008, all payments under the consulting agreement totaling $150,000 were fully paid and expensed. 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.

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Table of Contents

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2008 AND 2007

On February 26, 2007 the Company entered into a five year consulting agreement for research and development. Pursuant to the terms of the agreement, the Company paid 200,000 shares of common stock upon execution. These shares had a fair value of $16,000 ($0.08/share) based upon the recent cash offering price. Additionally, the Company will be required to pay $1,000 per month, or at the Company’s option, the consulting fee may be paid in the form of Company common stock based upon the greater of $0.10 per share or the average of the closing price of the Company’s shares over the five days preceding such stock issuance. As of December 31, 2008 the Company issued 100,000 shares of common stock for consulting services rendered with a fair value of $10,000 ($0.10/share). The agreement also requires the Company to issue up to 450,000 additional shares to the consultant upon the consultant reaching certain milestone events. As of December 31, 2008, the consultant has not reached the milestone events and no additional shares are earned.

NOTE 5 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 matures on May 1, 2007. At December 31, 2008, the Company recorded accrued interest payable of $776. As of December 31, 2008, the loan principle was repaid.

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Table of Contents

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2008 AND 2007

On December 26, 2006, the Company entered into an addendum to the intellectual property transfer agreement with an officer. In consideration of the Company issuing either 200,000 preferred shares with the following preferences; no dividends and voting rights equal to 100 common shares per share of preferred stock or the payment of $120,000, the officer agreed to terminate the royalty payments due under the agreement and give title to the exclusive license for the non protective apparel use of the intellectual property to the Company. On the date of the agreement, the Company did not have any preferred stock authorized with the required preferences. In accordance with SFAS 150, the Company determined that the present value of the payment of $120,000 that was due on December 26, 2007, the one year anniversary of the addendum, should be recorded as an accrued expense until such time as the Company has the ability to assert that it has preferred shares authorized. As of December 31, 2008, 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 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. Additionally, the accrued expenses are accruing 7% interest per year. At December 31, 2008, the Company recorded interest expense and related accrued interest payable of $1,887 (See Note 4 (C).

As of December 31, 2008 the Company owes $340,263 in accrued salary to principal stockholder. On October 10, 2008, the Company entered into an addendum to the employment agreement whereby all unpaid back salary will accrue interest at 7% per year. At December 31, 2008, the Company recorded interest expense and related accrued interest payable of $5,351. In addition, the Company granted the CEO the right to convert any accrued salary into Class “A” Common Stock at either 1) The lowest price at which the Company’s Class “A” Common Stock has traded over the preceding twelve month period, 2) At the lowest bid price for the preceding thirty days, 3) The lowest price paid in cash for the Class “A” Common Stock during the twelve months preceding the conversion. The conversion price is the lesser of options 1-3 or $0.02. As of December 31, 2008, no accrued salary has been converted to Class “A” Common Stock (See Note 4(A)).

On January 1, 2007, the company entered into a one year lease agreement with an officer for office space. The agreement calls for monthly rent of $100 plus the reimbursement to officer for internet services at $50 per month. The terms of this agreement became month-to-month on January 1, 2008. Payments under the agreement totaled $1,800 for the year ended December 31, 2008.

NOTE 6 SUBSEQUENT EVENT

(A) 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 (See Note 3 (F)):

·	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

(B) Stock Dividend

On March 23, 2009, the Company's Board of Directors declared a nine-for-one stock dividend to be distributed to shareholders of record on April 27, 2009. The financial statements were retroactively restated to reflect the stock dividend. (See Note 3 (G)).

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Table of Contents

Kraig Biocraft Laboratories, Inc.

(A Development Stage Company)

Condensed Balance Sheets

ASSETS

	September 30, 2009			December 31, 2008
	(Unaudited)
Current Assets
Cash	$	34,119		$	9,537
Other receivables		23,900			-
Prepaid Expenses		5,644			3,123
Total Assets	$	63,663		$	12,660

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
Accounts payable	$	76,650		$	65,750
Royalty agreement payable - related party		105,000			120,000
Accrued Expenses - related party		568,252			365,211
Derivative Liability		3,029,291			-
Total Current Liabilities		3,779,193			550,961

Long Term Liabilities
Convertible note payable - net of debt discount		4,059			-

Total Liabilities		3,783,252			550,961

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,
502,495,099 and 499,348,500 shares issued and outstanding, respectively		9,066,900			779,050
Common stock Class B, no par value; unlimited shares authorized,
no shares issued and outstanding		-			-
Common Stock Issuable, 1,122,311 and 400,000 shares, respectively		22,000			4,000
Additional paid-in capital		162,060			42,060
Deficit accumulated during the development stage		(12,970,549	)		(1,363,411	)

Total Stockholders' Deficit		(3,719,589	)		(538,301	)

Total Liabilities and Stockholders' Deficit	$	63,663		$	12,660

See accompanying notes to condensed unaudited financial statements

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Table of Contents

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
	September 30,			September 30,			September 30,			September 30,			(Inception) to
	2009			2008			2009			2008			September 30, 2009

Revenue	$	-		$	-		$	-		$	-		$	-

Operating Expenses
General and Administrative		16,846			8,383			42,294			57,831			164,997
Professional Fees		6,785			4,765			22,824			27,211			103,649
Officer's Salary		55,154			52,905			173,935			164,669			846,433
Contract Settlement		-			-			-			-			107,143
Research and Development		5,946			5,945			63,854			27,131			438,863
Total Operating Expenses		84,731			71,998			302,907			276,842			1,661,085

Loss from Operations		(84,731	)		(71,998	)		(302,907	)		(276,842	)		(1,661,085	)

Other Income/(Expenses)
Other income		-			-			-			2,781			2,781
Derivative Income/(Expense)		543,456			-			(3,029,291	)					(3,029,291	)
Interest expense		(10,898	)		-			(29,090	)		-			(37,104	)
Total Other Income/(Expenses)		532,558			-			(3,058,381	)		2,781			(3,063,614	)

Net (Income) Loss before Provision for Income Taxes		447,827			(71,998	)		(3,361,288	)		(274,061	)		(4,724,699	)

Provision for Income Taxes		-			-			-			-			-

Net Income (Loss)	$	447,827		$	(71,998	)	$	(3,361,288	)	$	(274,061	)	$	(4,724,699	)

Net Income (Loss) Per Share - Basic and Diluted	$	0.00		$	(0.00	)	$	(0.01	)	$	(0.00	)

Weighted average number of shares outstanding
during the period - Basic and Diluted		502,998,686			499,748,500			500,837,646			499,727,990

See accompanying notes to condensed unaudited financial statements

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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, 2009
(Unaudited)
																				Deficit
					Common									Common Stock -						Accumulated
					Stock -					Common Stock -				Class A Shares						during
	Preferred Stock				Class A					Class B				To be issued						Development
	Shares		Par		Shares			Par		Shares		Par		Shares		Par		APIC		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

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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	-		-	-	-	-		-	-		-		-			(360,104	)		(360,104	)

Balance, December 31, 2008	-		-	499,348,500	779,050	-		-	400,000		4,000		42,060			(1,363,411	)		(538,301	)

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 in connection with stock dividend	-		-	-	8,245,850	-		-	-		-		-			(8,245,850	)		-

Beneficial conversion feature - conventional debt	-		-	-	-	-		-	-		-		120,000			-			120,000

Net loss for the period ended September 30, 2009	-		-	-	-	-		-	-		-		-			(3,361,288	)		(3,361,288	)

Balance, September 30, 2009	-	$	-	502,495,099	9,066,900	-	$	-	1,122,311	$	22,000	$	162,060		$	(12,970,549	)	$	(3,719,589	)

See accompanying notes to condensed unaudited financial statements

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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
	2009			2008			September 30, 2009
Cash Flows From Operating Activities:
Net Loss	$	(3,361,288	)	$	(274,061	)	$	(4,724,699	)
Adjustments to reconcile net loss to net cash used in operations
Stock issuable for services		18,000			4,000			22,000
Change in Fair Value of Derivative Liability		3,029,291			-			3,029,291
Stock issued for services		14,000			-			181,780
Amortization of debt discount		4,059			-			4,059
Warrants issued to employees		-			-			126,435
Changes in operating assets and liabilities:
(Increase)Decrease in prepaid expenses		(2,521	)		6,706			(5,644	)
(Increase)Decrease in other receivables		(23,900	)		-			(23,900	)
Increase in accrued expenses and other payables - related party		203,041			26,805			568,252
(Decrease) Increase in royalty agreement payable - related party		(15,000	)		120,000			105,000
Increase in accounts payable		10,900			32,238			76,650
Net Cash Used In Operating Activities		(123,418	)		(84,312	)		(640,776	)

Cash Flows From Financing Activities:
Proceeds from Notes Payable - Stockholder		-			-			10,000
Repayments of Notes Payable - Stockholder		-			-			(10,000	)
Proceeds from issuance of convertible note		120,000			-			120,000
Proceeds from issuance of common stock		28,000			-			554,895
Net Cash Provided by Financing Activities		148,000			-			674,895

Net Increase (Decrease) in Cash		24,582			(84,312	)		34,119

Cash at Beginning of Period		9,537			105,818			-

Cash at End of Period	$	34,119		$	21,506		$	34,119

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 stock dividend	$	8,245,850		$	-		$	8,245,850
Beneficial conversion feature on convertible notes and related debt discount	$	120,000		$	-		$	120,000

SUPPLEMENTAL DISCLOSURE OF NON CASH ITEMS

During the period ended December 31, 2006, the principal stockholder contributed 11,666,500 shares of common stock to the Company as an in kind contribution of stock. The shares were retired by the Company.

In accordance with the May 2007 stock purchase agreement which contains an anti-dilution clause which requires the Company to issue additional common shares under the stock purchase agreement for any subsequent issuance at a price below $.08 per share for a period of 12 months. The Company has issued 28,125,000 additional shares through September 2007 as a result of the subsequent stock issuances in the amount of $84,375 ($0.003/share).

See accompanying notes to condensed unaudited financial statements

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KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2009

(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.

Activities during the development stage include developing the business plan and raising capital.

(B) Use of 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.

(D) Income/(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, 2009 and 2008, 6,000,000 and 0 warrants were not included in the computation of income/(loss) per share and 211,720,079 and 0 shares issuable upon conversion of notes payable were not included in the computation of income/(loss) per share because their inclusion is anti-dilutive.

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KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2009

(UNAUDITED)

(E) Research and Development Costs

(F) Income Taxes

The Company accounts for income taxes under the FASB Accounting Standards Codification No. 740, Income Taxes . Under FASB Accounting Standards Codification No. 740, 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 FASB Accounting Standards Codification No. 740, 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.

(G) 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.

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Table of Contents

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2009

(UNAUDITED)

(H) Business Segments

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

(I) Recent Accounting Pronouncements

In May 2009, the FASB issued FASB Accounting Standards Codification No. 855, Subsequent Events . FASB Accounting Standards Codification No. 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. FASB Accounting Standards Codification No. 855 sets forth (1) The period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (2) The circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (3) The disclosures that an entity should make about events or transactions that occurred after the balance sheet date. FASB Accounting Standards Codification No. 855 is effective for interim or annual financial periods ending after September 15, 2009. The adoption of this FASB Accounting Standards Codification No. did not have a material effect on the Company’s financial statements.

In June 2009, the FASB issued FASB Accounting Standards Codification No. 860, Transfers and Servicing . FASB Accounting Standards Codification No. 860 improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. FASB Accounting Standards Codification No. 860 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. The Company is evaluating the impact the adoption that FASB Accounting Standards Codification No. 860 will have on its financial statements.

In June 2009, the FASB issued FASB Accounting Standards Codification No. 810, Consolidation . FASB Accounting Standards Codification No. 810 improves financial reporting by enterprises involved with variable interest entities. FASB Accounting Standards Codification No. 810 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The Company is evaluating the impact the adoption of FASB Accounting Standards Codification No. 810 will have on its financial statements.

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KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2009

(UNAUDITED)

In June 2009, the FASB issued FASB Accounting Standards Codification No. 105, GAAP The FASB Accounting Standards Codification (“Codification”) will be the single source of authoritative nongovernmental U.S. generally accepted accounting principles. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. FASB Accounting Standards Codification No. 105 is effective for interim and annual periods ending after September 15, 2009. All existing accounting standards are superseded as described in FASB Accounting Standards Codification No. 105. All other accounting literature not included in the Codification is nonauthoritative. The adoption of the Codification did not have a significant impact on the Company’s financial statements.

(J) Reclassification

The 2008 financial statements have been reclassified to conform to the 2009 presentation.

NOTE 2

GOING CONCERN

As reflected in the accompanying unaudited financial statements, the Company is in the development stage, has a working capital deficiency of $3,715,530 and stockholders deficiency of $3,719,589 and used $640,776 of cash in operations from inception. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.

NOTE 3

OTHER RECEIVABLE

As of September 30, 2009 the Company is owed $23,900 for the overpayment of research and development fees. The refund was received on November 3, 2009 (See Note 6(B) and 8).

NOTE 4

CONVERTIBLE DEBT

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 expire on December 31,

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KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2009

(UNAUDITED)

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. In addition, the notes contained a standard anti-dilution clause. There is no effect on the derivative liability as a result of the anti-dilution clause. The Company has issued $120,000 of convertible debt to date.

In connection with convertible debt issued, the Company has determined that an allocation of fair value associated with these warrants is applicable for these conventional convertible debt instruments. The Company first determined the fair value of the warrants based upon the following management assumptions:

Expected dividends	0%
Expected volatility	448.66%
Expected term	2.3 years
Risk free interest rate	1.49%

After computing the fair value of the warrants, the Company determined the relative fair value of the convertible debt and the related effective conversion price. The Company’s effective conversion price for these issuances of convertible debt equals to the market price.

The Company recorded a beneficial conversion feature in connection with the issuance of certain of these notes in the amount of $120,000. The un amortized discount for the three and nine months ended September 30, 2009 is $115,941.

Following table summarizes convertible note payable outstanding as of September 30, 2009:

	Conventional Debt
Conventional debt	$	120,000
Less: debt discount	$	115,941
Conventional debt, net of debt discount	$	4,059

At September 30, 2009, the Company recorded interest expense and related accrued interest payable of $263.

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Table of Contents

KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2009

(UNAUDITED)

NOTE 5

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 September 2007 as a result of the subsequent stock issuances at $0.003/share.

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KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2009

(UNAUDITED)

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 ($0.008/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.

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 September 30, 2009 the value of the stock was $.02 per share. However, the Company does not have the obligation to repurchase the shares.

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 6(C)).

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KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2009

(UNAUDITED)

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 will be issued in November 2009 (See Note 6(C) and 8).

(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.

(E) Common Stock Warrants

The following table summarizes information about warrants for the Company as of September 30, 2009.

2009 Warrants Outstanding								Options Exercisable
Range of Exercise Price		Number Outstanding at September 30, 2009		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable at September 30, 2009		Weighted Average Exercise Price
$	0.02		6,000,000		2.25	$	0.02		6,000,000	$	0.02

(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 :

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KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2009

(UNAUDITED)

·	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

(G) Stock Dividend

On March 23, 2009, the Company's Board of Directors declared a nine-for-one stock 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.

NOTE 6

COMMITMENTS AND CONTINGENCIES

(A) Employment Agreement

On April 26, 2006, the Company entered into a five-year employment agreement with the Company’s Chairman and Chief Executive Officer. The agreement renews annually so that at all times, the term of the agreement is five years. Pursuant to this agreement, the Company will pay an annual base salary of $185,000 for the period May 1, 2006 through December 31, 2006. Base pay will be increased each January 1 st , for the subsequent twelve month periods by nine percent. The officer will also be entitled to life, disability, health and dental insurance. In addition, the officer received 700,000 five year warrants at an exercise price of $.21 per share, 1,500,000 eight year warrants at an exercise price of $ .33 per share and 2,000,000 nine year warrants at an exercise price of $ .40 per share (See Note 4(E)). The warrants fully vested on the date of grant. The agreement also calls for the issuance of warrants and increase in the officer’s base compensation upon the Company reaching certain milestones:

1.	Upon the Company’s successful laboratory development of a new silk fiber composed of one or more proteins that are exogenous to a host, the Company will issue 500,000 eight year warrants at an exercise price of $.20 per share and raise executive’s base salary by 14%.

2.	Upon the Company’s successful laboratory development of a new silk fiber composed of two or more proteins that are exogenous to a host, the Company will issue 600,000 eight year warrants at an exercise price of $.18 per share and raise executive’s base salary by 15%.

3.	Upon the Company’s successful laboratory development of a new silk fiber composed of at least in part of one or more synthetic proteins, the Company will issue 900,000 eight year warrants at an exercise price of $.18 per share and raise executive’s base salary by 18%.

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KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2009

(UNAUDITED)

4.	Upon the Company’s successful laboratory development of a new silk fiber composed of at least in part of one or more proteins that are genetic modifications or induced mutations of a host silk protein, the Company will raise the executive’s base salary by 8%.

5.	Upon the Company becoming either a registered company or upon its stock trading and the company achieving a market capitalization in excess of $35 million for over 120 calendar day period, the executive’s base salary will increase to $225,000.

6.	Upon the Company becoming either a registered company or upon its stock trading and the company achieving a market capitalization in excess of $65 million for over 91 calendar day period, the executive’s base salary will increase to $260,000.

7.	Upon the Company becoming either a registered company or upon its stock trading and the company achieving a market capitalization in excess of $100 million for over 91 calendar day period, the executive’s base salary will increase to $290,000.

8.	Upon the Company becoming either a registered company or upon its stock trading and the company achieving a market capitalization in excess of $200 million for over 120 calendar day period, the executive’s base salary will increase to $365,000.

9.	Upon the Company becoming either a registered company or upon its stock trading and the company achieving a market capitalization in excess of $350 million for over 150 calendar day period, the executive’s base salary will increase to $420,000.

In addition, upon expiration or termination of the employment agreement, the Company agrees to keep the officer employed as a consultant for a period of nine years at a rate of $4,000 per month with annual increases of 3%. The agreement also calls for certain increases based on milestones reached by the company, including:

1. If the company achieves gross sales exceeding $10 million or net income exceeding $1 million for any two years within the ten year period after the date of this agreement or a market capitalization in excess of $45 million for over 180 calendar days within nine years from the date of this agreement, the term of the consulting agreement will be extended to 10 years.

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KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2009

(UNAUDITED)

2. If the company achieves gross sales exceeding $19 million or net income exceeding $3 million for any two years within the twelve year period after the date of this agreement or a market capitalization in excess of $65 million for over 180 calendar days within nine years from the date of this agreement, the term of the consulting agreement will be extended to 20 years or the life of the officer and his spouse at a rate of $6,500 per month with a 3% annual increase.

3. If the company achieves gross sales exceeding $38 million or net income exceeding $6 million for any two years within the twelve year period after the date of this agreement or a market capitalization in excess of $120 million for over 180 calendar days within nine years from the date of this agreement, the term of the consulting agreement will be extended to 20 years or the life of the officer and his spouse at a rate of $10,000 per month with a 3% annual increase.

4. If the company achieves gross sales exceeding $59 million or net income exceeding $9 million for any year within the twelve year period after the date of this agreement or a market capitalization in excess of $210 million for over 180 calendar days within nine years from the date of this agreement, the term of the consulting agreement will be extended to 20 years or the life of the officer and his spouse at a rate of $15,000 per month with a 3% annual increase.

5. If the company achieves gross sales exceeding $78 million or net income exceeding $12 million for any year within the twelve year period after the date of this agreement or a market capitalization in excess of $320 million for over 180 calendar days within nine years from the date of this agreement, the term of the consulting agreement will be extended to 20 years or the life of the officer and his spouse at a rate of $20,000 per month with a 3% annual increase.

On October 10, 2008, the Company entered into an addendum to the employment agreement whereby all unpaid back salary will accrue interest at 7% per year. At September 30, 2009, the Company recorded interest expense and related accrued interest payable of $28,897. In addition, the Company granted the CEO the right to convert any accrued salary into Class “A” Common Stock at either 1) The lowest price at which the Company’s Class “A” Common Stock has traded over the preceding twelve month period, 2) At the lowest bid price for the preceding thirty days, 3) The lowest price paid in cash for the Class “A” Common Stock during the twelve months preceding the conversion. The conversion price for all salary accrued through March 1, 2009 is the lesser of options 1-3 or $0.002. The conversion price for all salary accrued from March 1, 2009 through September 30, 2009 is the lesser of options 1-3. The Company determined the fair value of the derivative liability by taking the lowest conversion option as of September 30, 2009 and calculating the difference between the conversion price and the fair value of the Company’s stock. Prior to June 30, 2009 the fair value of the Company’s stock was equal to the lowest conversion price and no derivative liability was recorded. During the three months ended September 30, 2009, the derivative liability decreased by $543,456 as a result of a decrease in the fair value of the Company’s common stock. As of September 30, 2009, no accrued salary has been converted to Class “A” Common Stock. As of September 30, 2009 the Company owes $498,709 in accrued salary (See Note 7) and has accrued a derivative liability of $3,029,291 for the potential benefit of the convertible accrued salary as per FASB Accounting Standards Codification No. 480, Distinguishing Liabilities from Equity .

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KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2009

(UNAUDITED)

(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. As of September 30, 2009, the Company has made a payment of $70,000 for the required payments of $45,602 under the agreement and has received a refund of $23,900 for the overpayment on November 3, 2009, which was recorded as other receivable as of September 30, 2009 (See Note 3 and 8).

(C)Royalty and Research Agreements

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, 2009 the Company accrued $14,000 of accounts payable for the services provided of which was paid in common stock on July 1, 2009 (See Note 5(C)). As of September 30, 2009, $3,000 was accrued for services provided during the quarter.

On December 26, 2006, the Company entered into an addendum to the intellectual property transfer agreement with an officer. In consideration of the Company issuing either 200,000 preferred shares with the following preferences; no dividends and voting rights equal to 100 common shares per share of preferred stock or the payment of $120,000, the officer agreed to terminate the royalty payments due under the agreement and give title to the exclusive license for the non protective apparel use of the intellectual property to the Company. On the date of the agreement, the Company did not have any preferred stock authorized with the required preferences. In accordance with 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 September 30, 2009, 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. On September 8, 2009, a payment of $15,000 was paid to the officer. As of September 30, 2009, the outstanding balance is $105,000. Additionally, the accrued expenses are accruing 7% interest per year. At September 30, 2009, the Company recorded interest expense and related accrued interest payable of $8,107. An additional a payment of $10,000 was made on October 19, 2009 (See Note 7 and 8 ).

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KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2009

(UNAUDITED)

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. As of today, the Company is negotiating a new consulting agreement.

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 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 which will be issued in November 2009 (See Note 5(C) and 8).

(D) Consulting Agreement

On August 3, 2009, the Company entered into an agreement with a consultant to provide investor relations services. The Company is to issue 10,000,000 shares with a fair value of $100,000 ($0.01/share) to a consultant for investor relations to be provided over a term of 180 days. As of September 30, 2009, the Company and the consultant have agreed to delay the start date of the agreement to a future period. As of September 30, 2009 no shares has been issued and no services have been provided.

NOTE 7

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 matures on May 1, 2007. At September 30, 2009, the Company recorded interest expense and related accrued interest payable of $776. As of September 30, 2009, the loan principle was repaid.

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KRAIG BIOCRAFT LABORATORIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2009

(UNAUDITED)

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 September 30, 2009, 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 September 8, 2009, a payment of $15,000 was paid to the officer. As of September 30, 2009, the outstanding balance is $105,000. Additionally, the accrued expenses are accruing 7% interest per year. At September 30, 2009, the Company recorded interest expense and related accrued interest payable of $8,107 (See Note 6 (C)). An additional a payment of $10,000 was made on October 19, 2009 (See Note 8).

As of September 30, 2009 the Company owes $498,709 in accrued salary to principal stockholder. On October 10, 2008, the Company entered into an addendum to the employment agreement whereby all unpaid back salary will accrue interest at 7% per year. At September 30, 2009, the Company recorded interest expense and related accrued interest payable of $28,897. In addition, the Company granted the CEO the right to convert any accrued salary into Class “A” Common Stock at either 1) The lowest price at which the Company’s Class “A” Common Stock has traded over the preceding twelve month period, 2) At the lowest bid price for the preceding thirty days, 3) The lowest price paid in cash for the Class “A” Common Stock during the twelve months preceding the conversion. The conversion price is the lesser of options 1-3 or $0.002. As of September 30, 2009, no accrued salary has been converted to Class “A” Common Stock (See Note 6(A)).

NOTE 8

SUBSEQUENT EVENTS

In preparing these financial statements, the Company has evaluated the events and transactions for potential recognition or disclosure through November 18, 2009, the date the financial statements were issued.

On October 19, 2009, the amount of $10,000 was repaid by the Company to the officer for the related party accrued expenses (See Note 6 (C) and 7).

On November 19, 2009, the issuance of 239,486 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 (See Note 5 (C) and 6 (C)).

On November 3, 2009, under the license agreement dated May 8, 2006, the company received a refund of $23,900 for the overpayment of research fees (See Note 3 and 6(B)).

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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” and words of similar import, constitute forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Such factors include, among others, the following: international, national and local general economic and market conditions: demographic changes; the ability of the Company to sustain, manage or forecast its growth; the ability of the Company to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other factors referenced in this and previous filings.

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

YEAR ENDED DECEMBER 31, 2008

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 up to $35,000 per quarter through March 2009 on collaborative research and development of high strength polymers at the University of Notre Dame. We believe that this research is essential to our product development. If our financing will allow, management will give strong consideration to accelerating the pace of spending on research and development within the University of Notre Dame’s laboratories. No fees have been accrued under these terms to date.

»	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. We believe that this research is important to our product development. This level of research spending at the university is also a requirement of our licensing agreement with the university. If our financing will allow, management will give strong consideration to accelerating the pace of spending on research and development within the University of Wyoming’s laboratories.

»	We will actively consider pursuing collaborative research opportunities with other university laboratories in the area of high strength polymers. If our financing will allow, management will give strong consideration to increasing the depth of our research to include polymer production technologies that are closely related to our core research

»	We will consider buying an established revenue producing company which is operating in the biotechnology arena, in order to broaden our financial base and increase our research and development capability. We expect to use a combination of stock and cash for any such purchase.

»	We will also actively consider pursuing collaborative research opportunities with university laboratories in areas of research which overlap the company’s existing research and development. One such potential area for collaborative research which the company is considering is protein expression platforms. If our financing will allow, management will give strong consideration to increasing the breadth of our research to include protein expression platform technologies.

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 Registration Statement will be successful. Our business is subject to risks inherent in growing an enterprise, including limited capital resources, risks inherent in the research and development process and possible rejection of our products in development.

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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, 2008.

Revenue for the year ended December 31, 2008 was $0. This compares to $0 in revenue for the preceding year ended December 31, 2007. No sales are anticipated during the next twelve months as the company will remain in the development stage.

Operating expenses for the year ended December 31, 2008 were $355,647. This compares to $472,864 in expenses during the year ended December 31, 2007. Research and development expenses for the year ended December 31, 2008 were $33,077. This compares to $177,019 spent on research and development during the year ended December 31, 2007. In addition, we had the following expenses during the year ended December 31, 2008: general and administrative-$74,062, professional fees-$31,066, officer’s salary-$207,866 and payroll taxes-$9,576. This compares to the same expenses during the year ended December 31, 2007: general and administrative-$40,798, professional fees-$49,759, officer’s salary-$196,100 and payroll taxes-$9,188.

Capital Resources and Liquidity

As of December 31, 2008 we had $9,537 in cash compared to $105,818 as of December 31, 2007.

We believe we can not satisfy our cash requirements for the next twelve months with our current cash. Completion of our plan of operation is subject to attaining adequate financing. We cannot assure investors that adequate financing will be available. In the absence of such financing, we may be unable to proceed with our plan of operations.

We anticipate that our operational, and general & administrative expenses for the next 12 months will total approximately $400,000. We do not anticipate the purchase or sale of any significant equipment. We also do not expect any significant additions to the number of employees. The foregoing represents our best estimate of our cash needs based on current planning and business conditions. The exact allocation, purposes and timing of any monies raised in subsequent private financings may vary significantly depending upon the exact amount of funds raised and our progress with the execution of our business plan.

In the event we are not successful in obtaining financing, we may not be able to proceed with our business plan for the research and development of our products. We anticipate that we will incur operating losses in the foreseeable future. Therefore, our auditors have raised substantial doubt about our ability to continue as a going concern.

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 if 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.

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Recent Accounting Pronouncements

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).

QUARTER ENDED SEPTEMBER 30, 2009

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 up to $35,000 per quarter through March 2010 on collaborative research and development of high strength polymers at the University of Notre Dame. We believe that this research is essential to our product development. If our financing will allow, management will give strong consideration to accelerating the pace of spending on research and development within the University of Notre Dame’s laboratories.

»	We expect to spend approximately $13,700 on collaborative research and development of high strength polymers and spider silk protein at the University of Wyoming over the next twelve months. We believe that this research is important to our product development. This level of research spending at the university is also a requirement of our licensing agreement with the university. If our financing will allow, management will give strong consideration to accelerating the pace of spending on research and development within the University of Wyoming’s laboratories.

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»	We will actively consider pursuing collaborative research opportunities with other university laboratories in the area of high strength polymers. If our financing will allow, management will give strong consideration to increasing the depth of our research to include polymer production technologies that are closely related to our core research

»	We will consider buying an established revenue producing company which is operating in the biotechnology arena, in order to broaden our financial base and increase our research and development capability. We expect to use a combination of stock and cash for any such purchase.

»	We will also actively consider pursuing collaborative research opportunities with university laboratories in areas of research which overlap the company’s existing research and development. One such potential area for collaborative research which the company is considering is protein expression platforms. If our financing will allow, management will give strong consideration to increasing the breadth of our research to include protein expression platform technologies.

Limited Operating History

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 Three Months ended September 30, 2009.

Revenue for the three months ended September 30, 2009 was $0. This compares to $0 in revenue for the three months ended September 30, 2008. No sales are anticipated during the next twelve months as we will remain in the development stage.

Operating expenses for the three months ended September 30, 2009 were $84,731. This compares to $71,998 in expenses during the three months ended September 30, 2008. Research and development expenses for the three months ended September 30, 2009 were $5,946. This compares to $5,945 spent on research and development during the three months ended September 30, 2008. In addition, we had the following expenses during the three months ended September 30, 2009: general and administrative $16,846, professional fees $6,785 and officer’s salary $55,154. This compares to the same expenses during the three months ended September 30, 2008: general and administrative $8,383, professional fees $4,765 and officer’s salary $52,905.

Other Income/(expense) increased from $0 for the three months ending September 30, 2008 to $532,558. 102% of this increase is solely due to the recognition of derivative income for the three months ending September 30, 2009 for the convertible accrued salary owed to the CEO.

Results of Operations for the Nine Months ended September 30, 2009.

Revenue for the nine months ended September 30, 2009 was $0. This compares to $0 in revenue for the nine months ended September 30, 2008. No sales are anticipated during the next twelve months as we will remain in the development stage.

Operating expenses for the nine months ended September 30, 2009 were $302,907. This compares to $276,842 in expenses during the nine months ended September 30, 2008. Research and development expenses for the nine months ended September 30, 2009 were $63,854. This compares to $27,131 spent on research and development during the nine months ended September 30, 2008. In addition, we had the following expenses during the nine months ended September 30, 2009: general and administrative $42,294, professional fees $22,824 and officer’s salary $173,935. This compares to the same expenses during the nine months ended September 30, 2008: general and administrative $57,831, professional fees $27,211 and officer’s salary $164,669.

Other Income/(Expenses) increased from $2,781 of other income for the nine months ending September 30, 2008 to other expenses of $3,058,381. This increase in other expense is due to the recognition of derivative income for the nine months ending September 30, 2009 for the convertible accrued salary owed to the CEO.

Capital Resources and Liquidity

As of September 30, 2009 we had $34,119 in cash compared to $9,537 as of December 31, 2008.

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On March 23, 2009, the Company's Board of Directors declared a nine-for-one 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

Recent Accounting Pronouncements

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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).

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE

Our accountant is Webb & Company, P.A. Independent Registered Public Accounting Firm. We do not presently intend to change accountants. At no time have there been any disagreements with such accountants regarding any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

Our sole executive officer and director as of September 28, 2009 is as follows:

NAME	AGE	POSITION	DATE APPOINTED
Kim Thompson	48	President, Chief Executive Officer, Director	April 25, 2006

The following summarizes the occupation and business experience during the past five years for our sole officer and director.

KIM THOMPSON.

Mr. Thompson was a founder of the California law firm of Ching & Thompson which was founded in 1997 where he specialized in commercial litigation. He has been a partner in the Illinois law firm of McJessy, Ching & Thompson since 2004 where he also specializes in commercial litigation. Mr. Thompson received his bachelor’s degree in applied economics from James Madison College, Michigan State University, and his Juris Doctorate from the University of Michigan.

Term of Office

Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board. Mr. Thompson is employed as the CEO of the company pursuant to a five year employment contract.

Our officer and director has not filed any bankruptcy petition, been convicted of or been the subject of any criminal proceedings or the subject of any order, judgment or decree involving the violation of any state or federal securities laws within the past five (5) years.

Family relationships

None.

Term of Office

Our sole director was appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our sole officer was appointed by our board of directors and holds office until removed by the board

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Current Issues and Future Management Expectations

No board audit committee, compensation committee, corporate governance committee or nomination committee has been formed as of the date of this prospectus. Because we only have one director, the functions and duties of all such committees will be performed by our sole director until such time as we expand our board.

EXECUTIVE COMPENSATION

The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officer during the years ended December 31, 2008, and 2007 in all capacities for the accounts of our executive, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO):

SUMMARY COMPENSATION TABLE

Name and principal position	Year	Salary ($)		Bonus ($)	Stock Awards ($)	Option Awards ($)		Non-Equity Incentive Plan Compensation ($)	Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)	Total ($)
Kim Thompson,	2008	$	207,866			$			$		7,230(1)	$	215,096
President,	2007	$	196,100	0	0	$	0	0	$	0	8,204(2)	$	204,304
Chief Executive Officer and Director

	1)	For the calendar year 2008, Kim Thompson is to receive $7,229 in medical and dental insurance pursuant to an employment agreement entered into with us.
	2)	For the calendar year 2007, Kim Thompson is to receive $7,229 in medical and dental insurance as well as $950 for automobile expenses pursuant to an employment agreement entered into with us.

Employment Agreements

On April 26, 2006, the Company entered into a five-year employment agreement with the Company’s Chairman and Chief Executive Officer. The agreement renews annually so that at all times, the term of the agreement is five years. Pursuant to this agreement, the Company will pay an annual base salary of $185,000 for the period May 1, 2006 through December 31, 2006. Base pay will be increased each January 1, for the subsequent twelve month periods by six percent. The officer will also be entitled to life, disability, health and dental insurance. In addition, the officer received 700,000 five year warrants at an exercise price of $.21 per share, 1,500,000 eight year warrants at an exercise price of $ .33 per share and 2,000,000 nine year warrants at an exercise price of $ .40 per share (See Note 3(E)). The warrants fully vested on the date of grant. The agreement also calls for the issuance of warrants and increase in the officer’s base compensation upon the Company reaching certain milestones:

1.	Upon the Company’s successful laboratory development of a new silk fiber composed of one or more proteins that are exogenous to a host, the Company will issue 500,000 eight year warrants at an exercise price of $.20 per share and raise executive’s base salary by 14%.

2.	Upon the Company’s successful laboratory development of a new silk fiber composed of two or more proteins that are exogenous to a host, the Company will issue 600,000 eight year warrants at an exercise price of $.18 per share and raise executive’s base salary by 15%.

3.	Upon the Company’s successful laboratory development of a new silk fiber composed of at least in part of one or more synthetic proteins, the Company will issue 900,000 eight year warrants at an exercise price of $.18 per share and raise executive’s base salary by 18%.

4.	Upon the Company’s successful laboratory development of a new silk fiber composed of at least in part of one or more proteins that are genetic modifications or induced mutations of a host silk protein, the Company will raise the executive’s base salary by 8%.

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5.	Upon the Company becoming either a registered company or upon its stock trading and the company achieving a market capitalization in excess of $35 million for over 120 calendar day period, the executive’s base salary will increase to $225,000.

6.	Upon the Company becoming either a registered company or upon its stock trading and the company achieving a market capitalization in excess of $65 million for over 91 calendar day period, the executive’s base salary will increase to $260,000.

7.	Upon the Company becoming either a registered company or upon its stock trading and the company achieving a market capitalization in excess of $100 million for over 91 calendar day period, the executive’s base salary will increase to $290,000.

8.	Upon the Company becoming either a registered company or upon its stock trading and the company achieving a market capitalization in excess of $200 million for over 120 calendar day period, the executive’s base salary will increase to $365,000.

9.	Upon the Company becoming either a registered company or upon its stock trading and the company achieving a market capitalization in excess of $350 million for over 150 calendar day period, the executive’s base salary will increase to $420,000.

Outstanding Equity Awards

None.

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Long-Term Incentive Plan (“LTIP”) Awards Table .

There were no awards made to a named executive officer in the last completed fiscal year under any LTIP

Compensation of Directors

Directors are permitted to receive fixed fees and other compensation for their services as directors. The Board of Directors has the authority to fix the compensation of directors. No amounts have been paid to, or accrued to, directors in such capacity.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table provides the names and addresses of each person known to us to own more than 5% of our outstanding shares of common stock as of January 20, 2010 and by the officers and directors, individually and as a group. Except as otherwise indicated, all shares are owned directly.

Title of Class	Name and Address of Beneficial Owner	Amount and Nature of Beneficial Owner	Percent of Class (1)

Common Stock	Kim Thompson 120 N. Washington Square, Suite 805 Lansing, MI 48933	320,625,500	62.5%

Common Stock	Lion Equity 1001 Brickell Bay Dr, Suite 1812 Miami, FL 33131	45,000,000	8.8%

Common Stock	Sean March 8901 South Ocean Dr. #14 W. Hollywood, FL 33019	40,000,000	7.8%

Common Stock	All executive officers and directors as a group	320,625,500	62.5%

(1)The percent of class is based on 513,377,924 shares of our Class A common stock issued and outstanding as of January 20, 2010 .

TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS, AND DIRECTOR INDEPENDENCE

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 matures on May 1, 2007. At December 31, 2007, the Company recorded interest expense and related accrued interest payable of $776. As of December 31, 2007, the loan principle was repaid.

In April 2006, the Company entered into a Founder’s Stock Purchase and Intellectual Property Transfer Agreement (the “Intellectual Property Agreement”) with its CEO. Pursuant to the Intellectual Property Agreement, the CEO contributed to the Company a provisional patent application pertaining to transgenic expression system for commercial production of certain silk proteins, in exchange for which the Company agreed to (i) issue to the CEO 33,229,200 shares of Class A common stock, (ii) certain royalty payments (which were subsequently waived pursuant to the Addendum), (iii) an exclusive license to use such intellectual property for non-protective apparel (which was subsequently waived pursuant to the Addendum).

On December 26, 2006, the Company entered into an Addendum to the Intellectual Property Agreement (the “Addendum”), pursuant to which the CEO agreed to give up his right to royalty payments for the intellectual property he transferred to the Company as well as an exclusive license to use such intellectual property for non-protective apparel. In exchange for giving up these rights in the Addendum, the Company agreed to use its best reasonable efforts to issue the CEO 200,000 preferred shares within 12 months of the date of the Addendum. The preferred shares would not have any priority to payments of dividends and would not have to have the right to receive dividend payments. However, such preferred shares would have 100 votes per share (20,000,000 votes). If the Company is unable, through the use of its best reasonable efforts, to issue such preferred shares, then the Company will provide its CEO with an alternative cash payment of $120,000 payable on the one year anniversary of the Addendum (Also see Note 6 (C) to the audited financial statements for the quarter ended September 30, 2009).

On January 1, 2007, the company entered into a one year lease agreement with an officer for office space. The agreement calls for monthly rent of $100 plus the reimbursement to officer for internet services at $50 per month. Payments under the agreement totaled $1,800 for the year ended December 31, 2007. The terms of this agreement became month-to-month on January 1, 2008. Payments under the agreement totaled $1,800 for the period ended December 31, 2008.

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As of December 31, 2008, the Company o wed $340,263 in accrued salary to principal stockholder. On October 10, 2008, the Company entered into an addendum to the employment agreement whereby all unpaid back salary will accrue interest at 7% per year. At December 31, 2008, the Company recorded interest expense and related accrued interest payable of $5,351. In addition, the Company granted the CEO the right to convert any accrued salary into Class “A” Common Stock at either 1) The lowest price at which the Company’s Class “A” Common Stock has traded over the preceding twelve month period, 2) At the lowest bid price for the preceding thirty days, 3) The lowest price paid in cash for the Class “A” Common Stock during the twelve months preceding the conversion. The conversion price is the lesser of options 1-3 or $0.02. As of December 31, 2009, no accrued salary has been converted to Class “A” Common Stock.

DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

The General Corporation Law of Wyoming provides that directors, officers, employees or agents of Wyoming corporations are entitled, under certain circumstances, to be indemnified against expenses (including attorneys' fees) and other liabilities actually and reasonably incurred by them in connection with any suit brought against them in their capacity as a director, officer, employee or agent, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, if they had no reasonable cause to believe their conduct was unlawful. This statute provides that directors, officers, employees and agents may also be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by them in connection with a derivative suit brought against them in their capacity as a director, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made without court approval if such person was adjudged liable to the corporation.

Our Certificate of Incorporation provides that we shall indemnify any and all persons whom we shall have power to indemnify to the fullest extent permitted by the Wyoming Corporate Law. Article VII of our by-laws provides that we shall indemnify our authorized representatives to the fullest extent permitted by the Wyoming Law. Our by-laws also permit us to purchase insurance on behalf of any such person against any liability asserted against such person and incurred by such person in any capacity, or out of such person's status as such, whether or not we would have the power to indemnify such person against such liability under the foregoing provision of the by-laws.

We have been advised that in the opinion of the Securities and Exchange Commission indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our legal counsel the matter has been settled by controlling precedent, submit the question of whether such indemnification is against public policy to a court of appropriate jurisdiction. We will then be governed by the court’s decision.

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KRAIG BIOCRAFT LABORATORIES, INC.

63,600,000 SHARES OF CLASS ACOMMON STOCK

PROSPECTUS

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS IS NOT AN OFFER TO SELL COMMON STOCK AND IS NOT SOLICITING AN OFFER TO BUY COMMON STOCK IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

The Date of This Prospectus Is: January __, 2010

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PART II – INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item. 13 Other Expenses Of Issuance And Distribution.

Securities and Exchange Commission registration fee	$	81.48
Transfer Agent Fees	$	0
Accounting fees and expenses	$	1,000
Legal fees and expenses	$	15,000
Blue Sky fees and expenses	$	0
Miscellaneous	$	1,000
Total	$	17,081.48

All amounts are estimates other than the Commission’s registration fee. We are paying all expenses of the offering listed above. No portion of these expenses will be borne by the selling shareholders. The selling shareholders, however, will pay any other expenses incurred in selling their common stock, including any brokerage commissions or costs of sale.

Item. 14 Indemnification of Directors and Officers.

Item. 15 Recent Sales of Unregistered Securities.

We were incorporated in the State of Wyoming in April 2006 and on April 26, 2006 33,229,200 shares of our Class “A” common stock, were issued to Kim Thompson in exchange for intellectual property. These shares were issued in reliance on the exemption under Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) and were issued as founder’s shares. These shares of our common stock qualified for exemption under Section 4(2) of the Securities Act since the issuance shares by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of shares offered. We did not undertake an offering in which we sold a high number of shares to a high number of investors. In addition, Mr. Thompson had the necessary investment intent as required by Section 4(2) since he agreed to and received share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these shares would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction.

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On April 28, 2006 we issued 400 shares of our Class “A” common stock to Samuel Ching at a price per share of $.50, for an aggregate of $400 cash. On January 26, 2007 we also issued 2,100,000 shares of our Class “A” common stock to Samuel Ching at a price per share of $.0505 for an aggregate of $106,000.00. These shares were issued in reliance on the exemption under Section 4(2) of the Securities Act. These shares of our Class A common stock qualified for exemption under Section 4(2) of the Securities Act since the issuance shares by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of shares offered. We did not undertake an offering in which we sold a high number of shares to a high number of investors. In addition, Mr. Ching had the necessary investment intent as required by Section 4(2) since he agreed to and received share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these shares would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction.

On April 28, 2006 we issued 400 shares of our Class “A” common stock to Richard Duzenbury at a price per share of $.50 for an aggregate of $400 cash. These shares were issued in reliance on the exemption under Section 4(2) of the Securities Act. These shares of our Class A common stock qualified for exemption under Section 4(2) of the Securities Act since the issuance shares by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of shares offered. We did not undertake an offering in which we sold a high number of shares to a high number of investors. In addition, Mr. Duzenbury had the necessary investment intent as required by Section 4(2) since he agreed to and received share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these shares would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction.

On July 5, 2006, pursuant to an Intellectual Property Agreement, we issued 1,750,000 shares of our Class “A” common stock to the University of Wyoming Foundation in exchange for intellectual property. The Company holds a five year call, dated from May 8, 2006, 700,000 shares held by the University of Wyoming Foundation. These shares were issued in reliance on the exemption under Section 4(2) of the Securities Act. These shares of our Class A common stock qualified for exemption under Section 4(2) of the Securities Act since the issuance shares by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of shares offered. We did not undertake an offering in which we sold a high number of shares to a high number of investors. In addition, Mr. Duzenbury had the necessary investment intent as required by Section 4(2) since he agreed to and received share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these shares would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction.

On September 12, 2006, March 21, 2007 and August 1, 2007 pursuant to a Consulting Agreement, we issued an aggregate of 330,000 shares of our Class “A” common stock to Malcolm Fraser for consulting services performed. Pursuant to the Consulting Agreement, Mr. Fraser is contractually restricted from reselling 175,000 shares for a period of 26 months from February 26, 2007. In addition, the Consulting Agreement restricts Mr. Fraser from resale of 60,000 shares for a period of 24 following the commencement of public trade of the Company’s stock. These shares were issued in reliance on the exemption under Section 4(2) of the Securities Act. These shares of our Class A common stock qualified for exemption under Section 4(2) of the Securities Act since the issuance shares by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of shares offered. We did not undertake an offering in which we sold a high number of shares to a high number of investors. In addition, Mr. Fraser had the necessary investment intent as required by Section 4(2) since he agreed to and received share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these shares would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction.

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On January 9, 2007, we issued an aggregate of 175,000 shares of our Class “A” common stock to Worth Equity Fund, L.P., at a price per share of $0.0857, for an aggregate of $15,000 cash. These shares were issued in reliance on the exemption under Section 4(2) of the Securities Act. These shares of our Class A common stock qualified for exemption under Section 4(2) of the Securities Act since the issuance shares by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of shares offered. We did not undertake an offering in which we sold a high number of shares to a high number of investors. In addition, Worth Equity Fund, L.P. had the necessary investment intent as required by Section 4(2) since he agreed to and received share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these shares would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction.

On May 31, 2007 we issued an aggregate of 1,687,500 shares of our Class “A” common stock to Lion Equity, at a price per share of $0.08, for an aggregate of $135,000 cash. In addition, on September 12, 2007 we issued an aggregate of 2,812,500 shares of our Class “A” common stock to Lion Equity pursuant to the Securities Purchase Agreement. These shares were issued in reliance on the exemption under Section 4(2) of the Securities Act. These shares of our Class A common stock qualified for exemption under Section 4(2) of the Securities Act since the issuance shares by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of shares offered. We did not undertake an offering in which we sold a high number of shares to a high number of investors. In addition, Lion Equity had the necessary investment intent as required by Section 4(2) since he agreed to and received share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these shares would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction.

On September 12, 2007, we completed a Regulation D Rule 506 offering in which we sold 9,016,500 shares of our Class A common stock to 32 investors, at a price per share of $.03 for an aggregate offering price $270,195. The following sets forth the identity of the class of persons to whom we sold these shares and the amount of shares for each shareholder:

Sean March	4,000,000
Nicholas G. Kontos	2,250,000
Edward M. Defeudis	830,000
Woodland Hills Fund, SA	600,000
Coral Springs Fund, SA	300,000
Kristin Lee Sirota	10,000
Ann Harvey	10,000
Barry S. Wattenberg	10,000
Lucie Rousse	10,000
Karen E. Gallagher	6,000
Kyan W. Kraus	6,000
Carlos E. Gauch	5,000
Sarah Ferreira	5,000
Caroline Sirota	5,000
Priscila Ferreira	2,500
Gene Defeudis	830,000
Heidi Thompson	5,000
Frank Thompson	5,000
Jonathan Sweet	10,000
Gary Lam	2,500
Frank Dantimo	6,000
Denise M Demarco Dantimo	6,000
Sirota & Associates PA	54,000
JR Acquisitions & Consultants	28,000
Marcos A. Lopez, Jr.	2,500
Olga C. Lopez	2,500
Camila Camargo	2,500
Bizmar Martinez	2,500
Michelle Y. Galletto	2,500
Inversiones G & G Corp.	2,500
Douglas Nicaragua	2,500
Michael L. Price	3,000

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There will be an event of default under the Bridge Debentures if the Company

(i)	fails to pay the principal and interest when due and payable and such failure is not cured within 10 days of the due date,

(ii)	breaches any material term of the Bridge Debenture or Bridge and fails to cure such breach within 10 days of the Company’s receipt of notice of such breach from the holder,

(iii)

makes an assignment for the benefit of its creditors or has a receiver or trustee appointed,

(iv)	has a money judgment entered against it for more than $10,000 and such judgment is not vacated, bonded or stayed for 90 days,

(v)	enters bankruptcy.

On July 1, 2009, the Company issued 280,000 shares of Class A common stock to Dr. Jarvis 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.

On July 1, 2009, the Company issued 482,825 shares of Class A common stock to Dr. Fraser as partial payment for services previously provided to the Company by a consultant in accordance with a consulting agreement.

On September 30, 2009, the Company issued 366,599 shares of Class A common stock for $3,000 ($.008/share) to Sam Ching.

On January 15, 2011, the Company issued 500,000 shares of Class A common stock to a consultant in payment for public relations and web site development services.

These shares of our Class A common stock that we issued in July and September 2009 and January 2010 qualified for exemption under Section 4(2) of the Securities Act since the issuance shares by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of shares offered.

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The Common Stock issued in our Regulation D, Rule 506 Offering was issued in a transaction not involving a public offering in reliance upon an exemption from registration provided by Rule 506 of Regulation D of the Securities Act. In accordance with Section 230.506 (b)(1) of the Securities Act, these shares qualified for exemption under the Rule 506 exemption for this offerings since it met the following requirements set forth in Reg. ss.230.506:

(A)	No general solicitation or advertising was conducted by us in connection with the offering of any of the Shares.

(B)	At the time of the offering we were not: (1) subject to the reporting requirements of Section 13 or 15 (d) of the Exchange Act; or (2) an “investment company” within the meaning of the federal securities laws.

(C)	Neither we, nor any of our predecessors, nor any of our directors, nor any beneficial owner of 10% or more of any class of our equity securities, nor any promoter currently connected with us in any capacity has been convicted within the past ten years of any felony in connection with the purchase or sale of any security.

(D)	The offers and sales of securities by us pursuant to the offerings were not attempts to evade any registration or resale requirements of the securities laws of the United States or any of its states.

(E)	None of the investors are affiliated with any of our directors, officers or promoters or any beneficial owner of 10% or more of our securities.

Please note that pursuant to Rule 506, all shares purchased in the Regulation D Rule 506 offering completed on September 12, 2007 were restricted in accordance with Rule 144 of the Securities Act. In addition, each of these shareholders were either accredited as defined in Rule 501 (a) of Regulation D promulgated under the Securities Act or sophisticated as defined in Rule 506(b)(2)(ii) of Regulation D promulgated under the Securities Act.

On August 31, 2009, we sold 366,599 shares of our Class A common stock to an existing shareholder for $3,000. These shares were issued in reliance on the exemption under Section 4(2) of the Securities Act. These shares of our Class A common stock qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance shares by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of shares offered. We did not undertake an offering in which we sold a high number of shares to a high number of investors. In addition, the existing shareholder had the necessary investment intent as required by Section 4(2) since he agreed to and received share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these shares would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act.

We have never utilized an underwriter for an offering of our securities. Other than the securities mentioned above, we have not issued or sold any securities.

Item. 16 Exhibits and Financial Statement Schedules.

EXHIBIT NUMBER	DESCRIPTION
3.1*	Articles of Incorporation.
3.2***	Articles of Amendment
3.3*	By-Laws.
5.1 ***	Opinion of Fox Law Offices, P.A.
10.1*	Addendum to the Employment Contract, dated November 6, 2006, by and between Kraig Biocraft Laboratories, Inc. and Kim Thompson and Employment Contract, dated as of April 26, 2006, by and between Kraig Biocraft Laboratories, Inc. and Kim Thompson
10.2*	Securities Purchase Agreement between Kraig Biocraft Laboratories and Worth Equity Fund, L.P. and Mutual Release.
10.3*	Securities Purchase Agreement between Kraig Biocraft Laboratories and Lion Equity.
10.4***	Amended Letter Agreement, dated September 14, 2009, by and between Kraig Biocraft Laboratories and Calm Seas Capital, LLC.
10.5 ***	Exclusive License Agreement, effective as of May 8, 2006, by and between The University of Wyoming and Kraig Biocraft Laboratories, Inc. (Portions of this exhibit have been omitted pursuant to a request for confidential treatment.)
10.6#	Addendum to the Founder’s Stock Purchase and Intellectual Property Transfer Agreement, dated December 26, 2006, and the Founder’s Stock Purchase and Intellectual Property Transfer Agreement dated April 26,2006.
14.1**	Code of Business Conduct and Ethics.
23.1#	Consent of Webb & Company, P.A.
23.2 ***	Consent of Counsel, contained in Exhibit 5.1.

* Filed as an exhibit to the registration statement on Form SB-2 filed with the SEC on September 26, 2007 and incorporated by reference herein.

** Filed as Exhibit 14.1 to the annual report on Form 10-KSB for the year ended December 31, 2007 filed with the SEC on March 26, 2008 and incorporated by reference herein.

***Previously filed with this registration statement.

# Filed herewith.

@ To be filed by amendment.

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Item 17. Undertakings.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

i. To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

ii. To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement.

iii. To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

(5) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:

i. Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

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SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and authorized this registration statement to be signed on its behalf by the undersigned on January 25, 2010.

	KRAIG BIOCRAFT LABORATORIES, INC.

	By:	/s/ Kim Thompson
		Kim Thompson
		President, Chief Executive Officer, Principal Financial and Accounting Officer and Chairman of the Board of Directors

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:

January 25, 2010		/s/ Kim Thompson
		Kim Thompson
		President, Chief Executive Officer, Principal Financial and Accounting Officer and Chairman of the Board of Directors

Wyoming	2820	83-0459707
(State of Incorporation)	(Primary Standard Classification Code)	(IRS Employer ID No.)


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

Title of Each Class Of Securities to be Registered	Amount to be Registered (1)		Proposed Maximum Aggregate Offering Price per share (2)		Proposed Maximum Aggregate Offering Price (3)		Amount of Registration fee

Class A Common Stock, no par value		63,600,000	$	0.0165	$	1,049,400	$	81.48(4)

Class A common stock offered:	Up to 63,600,000 shares of Class A common stock, no par value, to be offered for resale by Calm Seas.

Class A common stock to be outstanding before this offering:	513,377,924 shares

Common stock to be outstanding after this offering:	576,977,924 shares

Use of proceeds:	We will not receive any proceeds from the sale of the shares of Class A common stock. However, we will receive proceeds from the Equity Line of Credit. See “Use of Proceeds”.

Risk factors:	An investment in our Class A common stock involves a high degree of risk. See “Risk Factors” beginning on page 5 of this prospectus.

OTC Bulletin Board symbol:	“KBLB”

Executive			Company

/s/ Kim Kraig Thompson			/s/ Kim Kraig Thompson
Kim Kraig Thompson			Kim Kraig Thompson
			C.E.O
			On behalf of Kraig Biocraft Laboratories, Inc,

	PAGE
Prospectus Summary	2
Summary Financial Data	3
Risk Factors	6
Use of Proceeds	14
Selling Shareholders	16
Plan of Distribution	19
Description of Securities	20
Interests of Named Experts and Counsel	21
Description of Business	22
Description of Property	25
Legal Proceedings	25
Market For Common Equity and Related Stockholder Matters	26
Available Information	27
Financial Statements	F-
Management Discussion and Analysis of Financial Condition and Results of Operations	28
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	33
Directors, Executive Officers, Promoters and Control Persons	33
Executive Compensation	34
Security Ownership of Certain Beneficial Owners and Management	36
Certain Relationships and Related Transactions	36
Disclosure of Commission Position of Indemnification for Securities Act Liabilities	37

	For the Nine Months Ended September 30, 2009			For the Year Ended December 31, 2008			From Inception through September 30, 2009
	(Unaudited)			(Audited)			(Unaudited)

Net Sales	$	--		$	--		$	--

Total Operating Expenses	$	302,907		$	355,647		$	1,661,085

Loss from Operations	$	(302,907	)		(355,647	)	$	(1,661,085)

Net loss	$	(3,361,288	)	$	(306,104	)	$	(4,724,699	)

Loss Per Share – Basic and Diluted	$	(0.00)		$	(0.01)

	As of September 30, 2009			As of December31, 2008
BALANCE SHEET DATA:	(Unaudited)			(Audited)

Cash	$	34,119		$	9,537

Total assets	$	63,663		$	12,660

Total liabilities – related party	$	673,252		$	485,211

Total Current Liabilities	$	3,779,193		$	550,961

Total Liability	$	3,783,252		$	550,561

Stockholders’ equity (deficit)	$	(3,719,589	)	$	(538,301	)

If to Company:	Kraig Biocraft Laboratories, Inc.
	Attention: CORP 95
	109 E. 17 4h Street, Suite 7
	Cheyenne, WY 82001

If to Mr. Thompson:	Mr. Kim K. Thompson
	1400 Dennison Road
	East Lansing, Michigan 48823

Mr. Thompson			Company

/s/ Kim Kraig Thompson			/s/ Kim Kraig Thompson
Kim Kraig Thompson			Kim Kraig Thompson
			C.E.O
			On behalf of Kraig Biocraft Laboratories, Inc,