UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


_______________





FORM
10-Q


_______________





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





For
the quarterly period ended September 30, 2009





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





For the transition period from
______to______.





KRAIG
BIOCRAFT LABORATORIES, INC.


(Exact
name of registrant as specified in Charter)





Wyoming
            
            333-146316
            
            83-0459707(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (Commission
      File No.)
            
            (IRS
      Employee Identification No.)





120
N. Washington Square, Suite 805,


Lansing,
Michigan 48933


(Address
of Principal Executive Offices)


_______________





(517)
336-0807


(Issuer
Telephone number)


_______________





(Former
Name or Former Address if Changed Since Last Report)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter period that the issuer was required to file such reports),
and (2)has been subject to such filing requirements for the past 90
days.


Yes x No  ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes  ̈ No  ̈





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





Large
Accelerated Filer  ̈    Accelerated
Filer  ̈    Non-Accelerated
Filer  ̈     Smaller
Reporting Company x





Indicate
by check mark whether the registrant is a shell company as defined in Rule 12b-2
of the Exchange Act.


Yes oNo x


State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of November 20, 2009:  513,617,410 shares of Common
Stock.











KRAIG
BIOCRAFT LABORATORIES, INC.





FORM
10-Q


September
30, 2009


INDEX





PART
I-- FINANCIAL INFORMATION





Item
      1.
            Financial
      Statements
            1Item
      2.
            Management’s
      Discussion and Analysis of Financial Condition
            20Item
      3
            Quantitative
      and Qualitative Disclosures About Market Risk
            23Item
      4T.
            Control
      and Procedures
            23





PART
II-- OTHER INFORMATION





Item
      1
            Legal
      Proceedings
            24Item
      1A
            Risk
      Factors
            24Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            24Item
      3.
            Defaults
      Upon Senior Securities
            24Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            24Item
      5.
            Other
      Information
            24Item
      6.
            Exhibits
      and Reports on Form 8-K
            24





SIGNATURE





i





Item
1. Financial Information







Kraig
Biocraft Laboratories, Inc.
 (A
DEVELOPMENT STAGE COMPANY)
 
 
 
 CONTENTS
 
 
 PAGE
              1
              CONDENSED
      BALANCE SHEETS AS OF SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31,
      2008.PAGE
              2
              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).PAGES
              3 -
      4
              CONDENSED
      STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT FOR THE PERIOD FROM APRIL
      25, 2006 (INCEPTION) TO SEPTEMBER 30, 2009 (UNAUDITED).PAGE
              5
              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).PAGES
              6 -
      19
              NOTES
      TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
   ii
  Kraig
      Biocraft Laboratories, Inc.(A
      Development Stage Company)Condensed
      Balance SheetsASSETSSeptember 30, 2009
                
                
                December 31, 2008(Unaudited)Current
      AssetsCash
                
                $
                34,119
                
                
                $
                9,537Other
      receivables
                
                
                23,900
                
                
                
                -Prepaid
      Expenses
                
                
                5,644
                
                
                
                3,123Total
      Assets
                
                $
                63,663
                
                
                $
                12,660LIABILITIES AND STOCKHOLDERS'
      DEFICITCurrent
      LiabilitiesAccounts
      payable
                
                $
                76,650
                
                
                $
                65,750Royalty
      agreement payable - related party
                
                
                105,000
                
                
                
                120,000Accrued
      Expenses  - related party
                
                
                568,252
                
                
                
                365,211Derivative
      Liability
                
                
                3,029,291
                
                
                
                -Total
      Current Liabilities
                
                
                3,779,193
                
                
                
                550,961Long
      Term LiabilitiesConvertible
      note payable - net of debt discount
                
                
                4,059
                
                
                
                -Total
      Liabilities
                
                
                3,783,252
                
                
                
                550,961Commitments
      and ContingenciesStockholders'
      DeficitPreferred
      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
                
                
                
                779,050Common
      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
                
                
                
                4,000Additional
      paid-in capital
                
                
                162,060
                
                
                
                42,060Deficit
      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
    1
  Kraig Biocraft Laboratories, Inc.(A
      Development Stage Company)Condensed
      Statements of Operations(Unaudited)For
      the Three Months Ended
                
                
                For
      the Nine Months Ended
                
                
                For
      the Period from April 25, 2006September
      30,
                
                
                September
      30,
                
                
                September
      30,
                
                
                September
      30,
                
                
                (Inception)
      to2009
                
                
                2008
                
                
                2009
                
                
                2008
                
                
                September
      30, 2009Revenue
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Operating
      ExpensesGeneral
      and Administrative
                
                
                16,846
                
                
                
                8,383
                
                
                
                42,294
                
                
                
                57,831
                
                
                
                164,997Professional
      Fees
                
                
                6,785
                
                
                
                4,765
                
                
                
                22,824
                
                
                
                27,211
                
                
                
                103,649Officer's
      Salary
                
                
                55,154
                
                
                
                52,905
                
                
                
                173,935
                
                
                
                164,669
                
                
                
                846,433Contract
      Settlement
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                107,143Research
      and Development
                
                
                5,946
                
                
                
                5,945
                
                
                
                63,854
                
                
                
                27,131
                
                
                
                438,863Total
      Operating Expenses
                
                
                84,731
                
                
                
                71,998
                
                
                
                302,907
                
                
                
                276,842
                
                
                
                1,661,085Loss
      from Operations
                
                
                (84,731
                )
                
                
                (71,998
                )
                
                
                (302,907
                )
                
                
                (276,842
                )
                
                
                (1,661,085
                )Other
      Income/(Expenses)Other
      income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,781
                
                
                
                2,781Derivative
      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 outstandingduring
      the period - Basic and Diluted
                
                
                502,998,686
                
                
                
                499,748,500
                
                
                
                500,837,646
                
                
                
                499,727,990
    2
  Kraig Biocraft Laboratories, Inc.(A
      Development Stage Company)Condensed
      Statement of Changes in Stockholders DeficitFor the period from April 25, 2006 (inception) to
      September 30, 2009(Unaudited)DeficitCommon
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  Common
      Stock -
                  
                  
                  
                  
                  
                  AccumulatedStock -
                  
                  
                  
                  
                  
                  Common Stock -
                  
                  
                  Class
      A Shares
                  
                  
                  
                  
                  
                  duringPreferred
      Stock
                  
                  
                  Class
      A
                  
                  
                  
                  
                  
                  Class
      B
                  
                  
                  To
      be issued
                  
                  
                  
                  
                  
                  DevelopmentShares
                  
                  
                  Par
                  
                  
                  Shares
                  
                  
                  Par
                  
                  
                  Shares
                  
                  
                  Par
                  
                  
                  Shares
                  
                  
                  Par
                  
                  
                  APIC
                  
                  
                  Stage
                  
                  
                  TotalBalance,
                    April
      25, 2006
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Stock
      issued to founder
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  332,292,000
                  
                  
                  
                  180
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  180Stock
      issued for services ($.01/share)
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  17,500,000
                  
                  
                  
                  140,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  140,000Stock
      issued for services ($.01/share)
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  700,000
                  
                  
                  
                  5,600
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,600Stock
      contributed by shareholder
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (11,666,500
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Stock
      issued for cash ($.05/share)
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  4,000
                  
                  
                  
                  200
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  200Stock
      issued for cash ($.05/share)
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  4,000
                  
                  
                  
                  200
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  200Fair
      value of warrants issued
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  126,435
                  
                  
                  
                  -
                  
                  
                  
                  126,435Net
      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
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  15,000Stock
      issued for cash ($.01/share)
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  12,000,000
                  
                  
                  
                  103,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  103,000Stock
      issued for cash ($.0003/share)
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  9,000,000
                  
                  
                  
                  3,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,000Stock
      issued for cash ($.01/share)
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,875,000
                  
                  
                  
                  15,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  15,000Stock
      issued for cash ($.01/share)
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,875,000
                  
                  
                  
                  15,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  15,000-Stock
      issued for services ($.01/share)
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,000,000
                  
                  
                  
                  16,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  16,000Stock
      issued for cash ($.01/share)
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  13,125,000
                  
                  
                  
                  105,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  105,000Stock
      issued for cash ($.003/share)
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  80,495,000
                  
                  
                  
                  241,485
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  241,485Stock
      issued for cash ($.003/share)
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  200,000
                  
                  
                  
                  600
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  600Stock
      issued for cash ($.003/share)
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  8,300,000
                  
                  
                  
                  24,900
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  24,900
   3
  Stock
      issued for cash ($.003/share)
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  25,000
                  
                  
                  
                  75
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  75Stock
      issued for cash ($.003/share)
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  120,000
                  
                  
                  
                  360
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  360Stock
      issued for cash ($.003/share)
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,025,000
                  
                  
                  
                  3,075
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,075Stock
      issued in connection to cash offering
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  28,125,000
                  
                  
                  
                  84,375
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (84,375
                  )
                  
                  
                  -
                  
                  
                  
                  -Stock
      issued for services ($.01/share)
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  600,000
                  
                  
                  
                  6,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  6,000Net
      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
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  4,000Net
      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
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  25,000Stock
      issued for cash ($.008/share)
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  366,599
                  
                  
                  
                  3,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,000Stock
      issued for services
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  280,000
                  
                  
                  
                  14,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  722,311
                  
                  
                  
                  18,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  32,000Stock
      issued in connection with stock dividend
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  8,245,850
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (8,245,850
                  )
                  
                  
                  -Beneficial
      conversion feature - conventional debt
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  120,000
                  
                  
                  
                  -
                  
                  
                  
                  120,000Net
      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
                  )
  
  4
  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)
      to2009
                
                
                2008
                
                
                September
      30, 2009Cash
      Flows From Operating Activities:Net
      Loss
                
                $
                (3,361,288
                )
                
                $
                (274,061
                )
                
                $
                (4,724,699
                )Adjustments
      to reconcile net loss to net cash used in operationsStock
      issuable for services
                
                
                18,000
                
                
                
                4,000
                
                
                
                22,000Change
      in Fair Value of Derivative Liability
                
                
                3,029,291
                
                
                
                -
                
                
                
                3,029,291Stock
      issued for services
                
                
                14,000
                
                
                
                -
                
                
                
                181,780Amortization
      of debt discount
                
                
                4,059
                
                
                
                -
                
                
                
                4,059Warrants
      issued to employees
                
                
                -
                
                
                
                -
                
                
                
                126,435Changes
      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
                
                
                
                105,000Increase
      in accounts payable
                
                
                10,900
                
                
                
                32,238
                
                
                
                76,650Net
      Cash Used In Operating Activities
                
                
                (123,418
                )
                
                
                (84,312
                )
                
                
                (640,776
                )Cash
      Flows From Financing Activities:Proceeds
      from Notes Payable - Stockholder
                
                
                -
                
                
                
                -
                
                
                
                10,000Repayments
      of Notes Payable - Stockholder
                
                
                -
                
                
                
                -
                
                
                
                (10,000
                )Proceeds
      from issuance of convertible note
                
                
                120,000
                
                
                
                -
                
                
                
                120,000Proceeds
      from issuance of common stock
                
                
                28,000
                
                
                
                -
                
                
                
                554,895Net
      Cash Provided by Financing Activities
                
                
                148,000
                
                
                
                -
                
                
                
                674,895Net
      Increase (Decrease) in Cash
                
                
                24,582
                
                
                
                (84,312
                )
                
                
                34,119Cash
      at Beginning of Period
                
                
                9,537
                
                
                
                105,818
                
                
                
                -Cash
      at End of Period
                
                $
                34,119
                
                
                $
                21,506
                
                
                $
                34,119Supplemental 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
                
                
                $
                -
                
                
                $
                8,245,850Beneficial
      conversion feature on convertible notes and related debt
      discount
                
                $
                120,000
                
                
                $
                -
                
                
                $
                120,000
  SUPPLEMENTAL
      DISCLOSURE OF NON CASH ITEMSDuring
      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).
  
  5
 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
 
 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.
 
 (C) Cash
 
 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.
 
 
 6
 KRAIG
BIOCRAFT LABORATORIES, INC.
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO FINANCIAL STATEMENTS
 AS OF SEPTEMBER 30,
2009
 (UNAUDITED)
 
 (E) Research and Development
Costs
 
 The
Company expenses all research and development costs as incurred for which there
is no alternative future use. These costs also include the expensing of employee
compensation and employee stock based compensation.
 
 (F) 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-Employeesdefines 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.
  7
 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.
  8
  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,
 
 9
  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. 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
      yearsRisk
      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
      DebtConventional
      debt
              
              $
              120,000Less:
      debt discount
              
              $
              115,941Conventional
      debt, net of debt discount
              
              $
              4,059
 
 At
September 30, 2009, the Company recorded interest expense and related accrued
interest payable of $263.
   10
  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.
   11
 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.
 
 (C) Common Stock Issued for
Services
 
 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, 2006 the Company entered into a five year consulting agreement for research
and development. Pursuant to the terms of the agreement, the Company paid
700,000 shares of common stock upon execution.  These shares had a
fair value of $5,600 ($0.01/share) based upon the recent cash offering
price.  Additionally, 2,000,000 shares of common stock were issued on
May 18, 2007 with a fair value of $16,000 ($0.01/share).   As of
December 31, 2008, the Company issued 600,000 shares of common stock for
consulting services rendered with a fair value of $6,000
($0.01/share).  On January 15, 2008 the Company authorized the
issuance of 400,000 shares of common stock for consulting services rendered with
a fair value of $4,000 ($0.01/share).
 
 On July
1, 2009, the issuance of 280,000 shares was approved by the board of directors
as repayment for services previously provided to the Company by a consultant
having a fair value of $14,000 ($0.05/share) in accordance with a consulting
agreement (See Note 6(C)).
  12
  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
 
 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.
 
 The
following table summarizes information about warrants for the Company as of
September 30, 2009.
 
 2009 Warrants
      Outstanding
              
              
              Options
      ExercisableRange
      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:
  13
  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 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.  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 1st, 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%.
   14
  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.
 
 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 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.
  15
  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.  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.
 16
 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).
   17
  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.
 
 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
 
 18
  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)).





19





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





Caution Regarding
Forward-Looking Information





Certain
statements contained herein, including, without limitation, statements
containing the words “believes”, “anticipates”, “expects” 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.





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 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.»
            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.





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.





20





Results
of Operations for the Three Months ended September 30, 2009 as Compared to the
Three Months ended September 30, 2008.





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 increased from $0 for the three months ending September 30, 2008 to
$532,558.  This 100% 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 as Compared to the
Nine Months ended September 30, 2008.





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.





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.





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





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.





21





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





Recent
Accounting Pronouncements





In 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.




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.








22








Off-Balance Sheet
Arrangements





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





Item
3. Quantitative and Qualitative Disclosures About Market Risk





Not
required for Smaller Reporting Companies.





Item
4T.  Controls and Procedures





a) Evaluation of Disclosure
Controls. Our Chief Executive Officer and Chief Financial and
Accounting Officer evaluated the effectiveness of our disclosure controls and
procedures as of the end of our three months ended September 30, 2009 pursuant
to Rule 13a-15(b) of the Securities and Exchange Act. Disclosure controls and
procedures are controls and other procedures that are designed to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we
file under the Exchange Act is accumulated and communicated to our management,
as appropriate to allow timely decisions regarding required disclosure. Based on
his evaluation, the CEO and CFO concluded that our disclosure controls and
procedures were not effective to ensure that information required to be
disclosed by us in the reports we file or submit under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified
in the Securities and Exchange Commission’s rules based on the material weakness
described below.  Specifically the Company did not properly account
for derivative liability associated with our CEO’s accrued salary.
  It should
be noted that any system of controls, however well designed and operated, can
provide only reasonable, and not absolute, assurance that the objectives of the
system are met. In addition, the design of any control system is based in part
upon certain assumptions about the likelihood of future events. Because of these
and other inherent limitations of control systems, there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions.
 
 (b)
  Changes in internal
control over financial reporting.  In order to rectify our
ineffective disclosure controls and procedures, we are developing a plan to
ensure that all information will be recorded, processed, summarized and reported
accurately, and as of the date of this report, we have taken the following steps
to address the above-referenced 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; and2.
              We
      will increase management oversight of accounting and reporting functions
      in the future.







23





PART
II - OTHER INFORMATION





Item
1. Legal Proceedings.





We are
currently not involved in any litigation that we believe could have a material
adverse effect on our financial condition or results of operations. There is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
or, to the knowledge of the executive officers of our company or any of our
subsidiaries, threatened against or affecting our company, our common stock, any
of our subsidiaries or of our companies or our subsidiaries’ officers or
directors in their capacities as such, in which an adverse decision could have a
material adverse effect.





Item
1A. Risk Factors.





None.





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





On July
1, 2009, the Company issued 280,000 shares 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 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 common stock for $3,000
($.008/share) to Sam Ching.
 
 The
issuance of these securities were exempt from registration pursuant to Section
4(2) of the Securities Act of 1933, as amended, and Regulation D promulgated
under the Securities Act of 1933, as amended.





Item
3. Defaults Upon Senior Securities.





None.





Item
4. Submission of Matters to a Vote of Security Holders.





None.





Item
5. Other Information.





None.





Item
6. Exhibits.





(a)         Exhibits





31.1 Certifications pursuant to Section 302 of Sarbanes Oxley Act of
2002





32.1 Certifications pursuant to Section 906 of Sarbanes Oxley Act of
2002








24








SIGNATURES





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





KRAIG
      BIOCRAFT LABORATORIES, INC.Date:
      November 20, 2009
            By:
            /s/ Kim
      ThompsonKim
      Thompson
              Chief
      Executive Officer

















25