KRAIG BIOCRAFT LABORATORIES, INC. DISCUSSION AND ANALYSIS OF THE FINANCIAL STATEMENT AND RESULTS OF THE ACTIVITIES (Form 10-Q)

FORWARD-LOOKING INFORMATION

The following information should be read in conjunction with Kraig Biocraft
Laboratories, Inc. and its subsidiaries ("we", "us", "our", or the "Company")
condensed unaudited financial statements and the notes thereto contained
elsewhere in this report. Information in this Item 2, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and elsewhere in
this Form 10-Q that does not consist of historical facts, are "forward-looking
statements." Statements accompanied or qualified by, or containing words such as
"may," "will," "should," "believes," "expects," "intends," "plans," "projects,"
"estimates," "predicts," "potential," "outlook," "forecast," "anticipates,"
"presume," and "assume" constitute forward-looking statements, and as such, are
not a guarantee of future performance.



Forward-looking statements are subject to risks and uncertainties, certain of
which are beyond our control. Actual results could differ materially from those
anticipated as a result of the factors described in the "Risk Factors" and
detailed in our other Securities and Exchange Commission ("SEC") filings. Risks
and uncertainties can include, among others, international, national and local
general economic and market conditions: demographic changes; the ability of the
Company to sustain, manage or forecast its growth; the ability of the Company to
successfully make and integrate acquisitions; raw material costs and
availability; new product development and introduction; existing government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; competition; the loss of significant customers
or suppliers; fluctuations and difficulty in forecasting operating results;
changes in business strategy or development plans; business disruptions; the
ability to attract and retain qualified personnel; the ability to obtain
sufficient financing to continue and expand business operations; the ability to
develop technology and products; changes in technology and the development of
technology and intellectual property by competitors; the ability to protect
technology and develop intellectual property; and other factors referenced in
this and previous filings. Consequently, investors should not place undue
reliance on forward-looking statements as predictive of future results.



25






Because of these risks and uncertainties, the forward-looking events and
circumstances discussed in this report or incorporated by reference might not
transpire. Factors that cause actual results or conditions to differ from those
anticipated by these and other forward-looking statements include those more
fully described elsewhere in this report and in the "Risk Factors" section of
our registration statement on Form S-1.

The company disclaims any obligation to update the forward-looking statements contained in this report.

Overview

Kraig Biocraft Laboratories, Inc. is a corporation organized under the laws of
Wyoming on April 25, 2006. Kraig Labs was organized to develop high strength
fibers using recombinant DNA technology for commercial applications in technical
textile. We use genetically engineered silkworms that produce spider silk
proteins to create our recombinant spider silk. Applications include performance
apparel, workwear, filtration, luxury fashion, flexible composites, medical
implants, cosmetics and more. We believe that we have been a leader in the
research and development of commercially scalable and cost effective spider silk
for technical textile and non-fibrous applications. Our primary proprietary
fiber technology includes natural and engineered variants of spider silk
produced in domesticated mulberry silkworms. Our business brings twenty-first
century biotechnology to the historical silk industry, permitting us to
introduce materials with innovative properties and claims into an established
commercial ecosystem of silkworm rearing, silk spinning and weaving, and
manufacture of garments and other products that can include our specialty fibers
and textiles. Specialty fibers are engineered for specific uses that require
exceptional strength, flexibility, heat resistance and/or chemical resistance.
The specialty fiber market is exemplified by two synthetic fiber products that
come from petroleum derivatives: (1) aramid fibers; and (2) ultra-high molecular
weight polyethylene fibers. The technical textile industry involves products for
both industrial and consumer products, such as filtration fabrics, medical
textiles (e.g., sutures and artificial ligaments), safety and protective
clothing and fabrics used in military and aerospace applications (e.g.,
high-strength composite materials).



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



In 2020, we developed a new technology platform, based on a non-CRISPR Cas9 gene
editing knock-in knock-out technology. This is our first knock-in knock-out
technology which we are now using for the development of advanced materials.
This system is built on our eco-friendly and cost-effective silkworm production
system, which we believe is more advanced than current competing methods.
Knock-in knock-out technology allows for the targeting of specific locations and
genetic traits for modification, addition, and removal. This capability should
allow us to accelerate new product developments and bring products to market
more quickly. This capability also allows for genetic trait modifications that
were previously impractical, creating opportunities for products outside of silk
fibers and increased flexibility in production location.



Based on our internal analysis, management believes that this new platform
technology will allow us to outpace and surpass Dragon Silk, a fiber that we
developed with our previous tools. Samples of Dragon Silk have already
demonstrated to be tougher than many fibers used in bullet proof vests. We
expect that this new approach will yield materials beyond those capabilities
based upon its potential for significantly improved purity.



In August 2019, we received authorization from governmental authorities to begin
rearing genetically enhanced silkworms at our production facility in Vietnam. In
October 2019, the Company delivered the first batch of these silkworms and began
operations. These silkworms served as the basis for the commercial expansion of
our proprietary silk technology. On November 4, 2019, we reported that we had
successfully completed rearing the first batch of its transgenic silkworms at
the Quang Nam production factory. Seasonal challenges in late December 2019
slowed production operations and governmental restrictions imposed due to the
global COVID pandemic further delayed our operations in 2020. In January of 2021
we received the first shipment of silk from our factory in Vietnam. We believe
that we will be able to target metric tons of capacity of our recombinant spider
silk fiber per annum from this factory once it reaches maximum utilization. This
capacity will allow us to address initial demand for our products and materials
for various applications in the protective, performance, and luxury textile
markets.



On November 23, 2020, we entered into a Strategic Partnership Agreement (the
"SPA") with Mthemovement Kings Pte Ltd ("Kings"). Kings is an eco-friendly
luxury streetwear apparel line, part of the Kings Group of Companies and its
affiliated companies. On January 25, 2021, the parties exchanged signatures for
an amendment to the Agreement, which amended the procedures for termination of
the SPA to only allow for the termination of the SPA by mutual agreement of the
Company and Kings following a consultation period of 120 (one hundred and
twenty) calendar days or such period as agreed otherwise between the parties
(the "Amendment," together with the SPA, the "Agreement").



26






Pursuant to the Agreement, the parties formed a joint venture, Spydasilk
Enterprises Pte. Ltd., to develop and sell the Company's spider silk fibers
under the new innovative apparel and fashion brand, trade named SpydaSilk™ and
potential other trademarks to be announced. All intellectual property related to
SpydaSilk™ will be jointly owned by the Company and Kings.



Under the terms of the Agreement, the Company granted the joint venture and the
SpydaSilk brand an exclusive geographic license to all the Company's
technologies for the Association of Southeast Asian Nations, in exchange for a
4-year firm commitment to purchase up to $32 million of the Company's raw
recombinant spider silk over the 4-year period, with an initial payment of
$250,000 to the Company. Kings is projected to purchase an additional $8 million
of material in the fourth year, but there is no guarantee that such additional
purchase will be made.



In consideration for its ownership position in the joint venture, the Company
shall issue 1,000,000 shares of its common stock to Kings. The Agreement has a
60-month term, which can be terminated at any time by mutual agreement following
a consultation period of 120 days, or such other period as agreed by the
parties. If applicable, the parties will honor their share of committed
expenditures of the joint venture and King will repay the Company any unused
brand funds.

We are experiencing our strongest cash position to date and plan to expand production, expand product offerings and accelerate R&D for products in the near term.

The Report of Independent Registered Public Accounting Firm to our financial
statements as of December 31, 2021 includes an explanatory paragraph stating
that our net loss from operations and net capital deficiency at December 31,
2021 raise substantial doubt about our ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.



Plan of Operations

Over the next twelve months, we expect to take the following steps to further develop our business and implement our action plan:

? We plan to develop a fabric and clothing line in a joint venture with:

Kings to create a clothing line under Spydasilk Enterprises Pte. Ltd.,

with trade names including SpydasilkTM, SpydraTM and others.

? We plan to continue developing and signing agreements with a third party contract

manufactures to expand production of our recombinant materials, including:

Monster Silk®, Dragon Silk™, Spydasilk™ and Spydra™.

? We plan to continue expanding our manufacturing operations on our

facilities in Qung Nam, Vietnam in line with our investment and

company registration certificates, including the planting of additional

mulberry fields in collaboration with local agricultural cooperatives and the rental

of additional direct staff for our factory, if necessary.

? We plan to accelerate both our microbiological and selective breeding programs, as well as:

and provide more resources for our material testing protocols. we spent

about $177,000 in the past 6 months on research and development of

high strength polymers. In the first half of 2022, we focused our research and

development efforts to increase our internal capabilities; we plan to continue

to dedicate our efforts to growing our internal in the second half of 2022

research and development programs.

? We will consider acquiring an established, revenue-producing business in a

compatible business, to broaden our financial base and

commercialization of our products; on the date of this we have not had one

formal consultations or final agreements about this have been made;

purchase.

? We will also actively consider possibilities for joint research

with private labs in research areas that

existing research and development. One such potential area for collaboration

research the company is considering is protein expression platforms. if

our funding allows, management will strongly consider increasing breadth

  of our research to include protein expression platform technologies.




27

? We intend to actively pursue joint research and product testing

opportunities with companies in biotechnology, materials, textiles and others

industries.

? We intend to actively pursue additional commercial commercialization,

marketing and production opportunities at companies in the textile and

material sectors for the fibers we have developed and for all the new polymers we

create in 2022 and move forward.

? We intend to actively pursue the development of commercial scale production of:

our recombinant materials, including Monster Silk®, Dragon SilkTM, SpydasilkTM,

and SpydraTM

? We have started and plan to accelerate our efforts at large scale U.S

production. This work includes the research and possible production of a

  new transgenic tailored specifically domestic production.




Limited Operating History



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

If funding is not available on satisfactory terms, we may not be able to continue our research and development and other activities. Equity financing will lead to dilution of existing shareholders.

Impact of COVID-19 Outbreak

On January 30, 2020, the World Health Organization declared the coronavirus
outbreak a "Public Health Emergency of International Concern" and on March 10,
2020, declared it to be a pandemic. Actions taken around the world relating to
coronavirus include restrictions on travel, quarantines in certain areas, and
forced closures for certain types of public places and businesses. Governmental
actions taken relating to coronavirus are expected to continue to have an
adverse impact on the economies and financial markets of many countries,
including the geographical area in which the Company operates. While the
closures and limitations on movement, domestically and internationally, are
expected to be temporary, if these actions continue, the duration of the supply
chain disruption could reduce the availability or result in delays, of materials
or supplies to and from the Company, which in turn could materially interrupt
the Company's business operations. Given the speed and frequency of the
continuously evolving developments with respect to this pandemic, the Company
cannot reasonably estimate the magnitude of the impact to its consolidated
results of operations. We have taken every known and reasonable precaution
possible to ensure the safety of our employees.



On March 19, 2020, we furloughed non-essential staff in response to governmental
regulations relating to COVID. This decision primarily impacted staff at our
fully owned subsidiary, Prodigy Textiles, in Vietnam and resulted in the
temporary closing of silk rearing operations at that facility. As of the date
hereof, we have resumed silk production operations at the factory in Vietnam.
The Company supported its furloughed staff and paid their salaries during all
mandatory closures. During the duration of the furlough, the Company's CEO
voluntarily waved the payment or accrual of his salary. The Company leveraged
this forced closure time to improve its production infrastructure based on the
lessons learned from its operations. After the mandated closure, the Company has
enhanced its production operations with process automation, moved its production
headquarters to a facility designed for silk production, created a more
self-reliant supply chain, and established a microbiology laboratory in its
factory for enhanced quality control. On October 24, 2020, silk production
operations at the factory resumed.



The global COVID pandemic and government regulations associated with the
pandemic continue to evolve. We will continue to monitor the situation closely,
including its potential effect on our plans and timelines. The actions of
governments in response to COVID, both domestic and foreign, have impacted our
ability to transport goods, people, essential equipment, and other items
essential to our production. In turn, these restrictions are impacting our
ability to produce intermediate and end products and are delaying our timelines
for commercialization and revenue.



28






Additionally, it is reasonably possible that estimates made in the financial
statements have been, or will be, materially and adversely impacted in the near
term as a result of these conditions, including losses on inventory; impairment
losses related to goodwill and other long-lived assets and current obligations.



Note financings



January 2022



On January 18, 2022, we entered into a securities purchase agreement with YA II
PN, LTD., a Cayman Islands exempt company ("Yorkville"), pursuant to which
Yorkville purchased secured convertible debentures (the "Securities Purchase
Agreement") in the aggregate principal amount of USD$3,000,000 (the "Convertible
Debentures"), which are convertible into shares of Common Stock (as converted,
the "Conversion Shares"), of which a secured convertible debenture (the "First
Convertible Debenture") in the principal amount of $1,500,000 (the "First
Convertible Debenture Purchase Price") shall be issued upon signing the
Securities Purchase Agreement and a secured convertible debenture (the "Second
Convertible Debenture," together with the First Convertible Debenture, each a
"Convertible Debenture" and collectively, the "Convertible Debentures") in the
principal amount of $1,500,000 (the "Second Convertible Debenture Purchase
Price") shall be issued on or about the date that the Securities and Exchange
Commission declares the registration statement registering the shares of common
stock underlying the notes effective (collectively, the First Convertible
Debenture Purchase Price and the Second Convertible Debenture Purchase Price
shall collectively be referred to as the "Purchase Price") (the "Yorkville
Transaction"). These additional funds, together with those from the previously
completed transactions we conducted with Yorkville between December 2020 and
March 2021, account for an $8 million total Yorkville investment; as of the date
hereof, $250,000 remains under the debentures previously issued to Yorkville
pursuant thereto. The Company also issued Yorkville a warrant to purchase
12,500,000 shares of the Company's Common Stock, at an initial exercise price of
$0.12 per share and a warrant to purchase 4,285,714 shares of the Company's
Common Stock, at an initial exercise price of $0.14 per share. The warrants have
a term of five (5) years and can be exercised via cashless exercise. If the
Company issues or sells securities at a price less than the applicable warrant
exercise price, the exercise price of the applicable warrant shall be reduced to
such lower price. The warrants also have the same ownership cap as set forth in
the Convertible Debentures, as described below. The Company is also required to
reserve no less than 300% of the maximum number of shares of Common Stock
issuable upon conversion of all the outstanding Convertible Debentures. Pursuant
to the Securities Purchase Agreement, the Company is prohibited from incurring
specified indebtedness, liens, except with the prior written consent from the
holders of at least 75% of the then outstanding principal amount of Convertible
Debentures.

Each Convertible Debenture shall mature thirteen (13) months after the date of
issuance, unless extended by the Yorkville, and accrues interest at the rate of
10% per annum. Principal, interest and any other payments due under the
Convertible Debentures shall be paid in cash. The debenture holder may convert
all or part of the Convertible Debentures into shares of common stock at any
time after issuance at a conversion rate equal to 85% of the lowest daily volume
weighted average price of the Common Stock during the 10 consecutive trading
days immediately preceding the conversion date or other date of determination.
The debenture holder may not convert the Convertible Debenture if such
conversion would result in such holder holding in excess of in excess of 4.99%
of the number of shares of Common Stock outstanding immediately after giving
effect to such conversion or receipt of shares as payment of interest, unless
waived by the holder with at least 65 days prior notice to the Company (the
"Ownership Cap"). The Company also has the option to redeem, in part or in
whole, the outstanding principal and interest under a Convertible Debenture
prior to the maturity date. The Company shall pay an amount equal to the
principal and interest amount being redeemed plus a redemption premium equal to
15% of the outstanding principal amount. Standard events of default are included
in the Convertible Debenture, pursuant to which the holder may declare it
immediately due and payable. During an event of default, the interest rate shall
increase to 15% per annum until the event of default is cured; the holder also
has the right to convert the Convertible Debenture into shares of common stock
during an event of default.



29

The Convertible Debentures are secured by all assets of the Company and its
subsidiaries subject to (i) that certain amended and restated security agreement
by and between Yorkville, the Company and the Company's subsidiaries (all such
security agreements shall be referred to as the "Security Agreement") pursuant
to which the Company and its wholly owned subsidiaries agree to provide
Yorkville a security interest in all personal property of the Prodigy Textiles,
the Company's subsidiary organized under the laws of Vietnam ("Prodigy"), (ii)
the amended and restated intellectual property security agreement by and between
Yorkville, the Company and the Company's subsidiaries referenced therein dated
January 18, 2022 (all such security agreements shall be referred to as the "IP
Security Agreement"), pursuant to which the Company and its wholly owned
subsidiaries agree to provide Yorkville a security interest in the intellectual
property collateral (as this term is defined in the IP Security Agreement), and
(iii) the amended and restated global guaranty by and between Prodigy, in favor
of Yorkville, with respect to all of the Company's obligations to Yorkville
dated as of January 18, 2022 (the "Guaranty" and collectively with the Security
Agreement and the IP Security Agreement shall be referred to as the "Security
Documents"). Pursuant to the Guaranty, Prodigy guarantees the payment and
performance of all of the Company's obligations under the Convertible
Debentures, Warrants and related transaction documents.



In connection with the Securities Purchase Agreement, the Company also entered
into a Registration Rights Agreement with Yorkville, pursuant to which the
Company agreed to register all of the shares of Common Stock underlying the
Convertible Debentures and warrants and with respect to subsequent registration
statements, if any, such number of shares of Common Stock as requested by
Yorkville not to exceed 300% of the maximum number of shares of Common Stock
issuable upon conversion of all Convertible Debentures then outstanding
(assuming for purposes hereof that (x) such Convertible Debentures are
convertible at the then current conversion price and (y) any such conversion
shall not take into account any limitations on the conversion of the Convertible
Debentures set forth therein, in each case subject to any cutbacks set forth in
the Registration Rights Agreement.

After signing the letter of intent for the Yorkville transaction, the Company paid: $10,000 to a Yorkville branch for due diligence and structuring.

The Securities Purchase Agreement also contains customary representation and
warranties of the Company and the Investor, indemnification obligations of the
Company, termination provisions, and other obligations and rights of the
parties.



The foregoing description of the Securities Purchase Agreement, Convertible
Debentures, Warrant, Security Agreement, IP Security Agreement, Registration
Rights Agreement and Guaranty Agreement is qualified by reference to the full
text of the forms of Securities Purchase Agreement, Convertible Debenture and
Warrant, which are filed as Exhibits hereto and incorporated herein by
reference.

Maxim Group LLC received a brokerage fee of $345,000.

30

Three months ended June 30, 2022 compared to the three months ended June 30, 2021

Our revenue, operating expenses, and net loss from operations for the three
month period ended June 30, 2022 as compared to the three month period ended
June 30, 2021, were as follows - some balances on the prior period's combined
financial statements have been reclassified to conform to the current period
presentation:



                                           Three Months Ended                             % Change
                                                June 30,                                  Increase
                                          2022             2021           Change         (Decrease)
NET REVENUES                          $          -     $          -               -                -
OPERATING EXPENSES:
General and Administrative                 212,419          369,312        (156,893 )         -42.48 %
Professional Fees                          109,534          119,038          (9,504 )          -7.98 %
Officer's Salary                           164,845          171,694          (6,849 )          -3.99 %
Rent - Related Party                             -              410            (410 )        -100.00 %
Research and Development                    49,869           44,726           5,143            11.50 %
Total operating expenses                   536,667          705,180        (168,513 )         -23.90 %
Loss from operations                      (536,667 )       (705,180 )       168,513           -23.90 %
Interest expense                          (298,444 )       (199,619 )      

(98,825) 49.51 % Amortization of debt issuance costs (174,669) (1,848,976) 1,674,307

           -90.55 %
Net change in unrealized
appreciation on investment in gold
bullion                                    (28,352 )              -         (28,352 )        -100.00 %
Net Loss                              $ (1,038,132 )   $ (2,753,775 )     1,715,643           -62.30 %




Net Revenues: During the three months ended June 30, 2022, we realized $0 of
revenues from our business. During the three months ended June 30, 2021, we
realized $0 of revenues from our business. The change in revenues between the
quarter ended June 30, 2022 and 2021 was $0 or 0%.



Cost of Revenues: Costs of revenues for the three months ended June 30, 2022
were $0, as compared to $0 for the three months ended June 30, 2021, a change of
$0 or 0%.

Gross profit: during the three months that ended June 30, 2022we realized a gross profit of $0in comparison with $0 for the three months ended June 30, 2021a change of $0 or 0%.

Research and development expenses: During the three months ended June 30, 2022,
we incurred $49,869 of research and development expenses. During the three
months ended June 30, 2021, we incurred $44,726 of research and development
expenses. This was an increase of $5,143 or 11.50% in 2022 compared with the
same period in 2021. This increase was due to an increase in research spending.

Professional Fees: During the three months ended June 30, 2022we have incurred
$109,534 of professional expenses, which decreased by $9,504 or 7.98% from
$119,038 for the three months ended June 30, 2021. This decrease was mainly the result of an increase in professional fees and in investor services.

Officers Salary: During the three months ended June 30, 2022, officers' salary
expenses decreased to $164,845 or 3.99% from $171,694 for the three months ended
June 30, 2021. This decrease was primarily due to a 6% annual increase for the
Company's CEO and offset by a reinstatement of salary for the CEO, which he
voluntarily suspended during the forced shutdown of the Company's Vietnam
operations due to COVID in 2020.



31






General and Administrative Expense: General and administrative expenses
decreased by $156,893 or 42.48% to $212,419 for the three months ended June 30,
2022 from $369,312 for the three months ended June 30, 2021. Our general and
administrative expenses for the three months ended June 30, 2022 consisted of
other general and administrative expenses (which includes expenses such as auto,
business development, SEC filings, investor relations, general office, warrants
and shares issued for services) of $23,797, travel of $12,388, consulting
$30,000 and office salary of $146,234 for a total of $212,419. Our general and
administrative expenses for the three months ended June 30, 2021 consisted of
other general and administrative expenses (which includes expenses such as auto,
business development, SEC filings, investor relations, general office, warrants
issued for services) of $344,743, travel of $3,420, and office salary of $21,149
for a total of $369,312.



Rent - Related Party: During the three months ended June 30, 2022, rent- related
party expense decreased to $0 or 100% from $410 for the three months ended June
30, 2021. The rent-related party expense was attributable to the Company signing
an eight-year property lease with the Company's President on January 23, 2017.
On April 5, 2021, the Company ended this lease agreement with its President.



Net Change in Unrealized Depreciation on Investment in Gold Bullion: Net change
in unrealized appreciation on investment in gold bullion decreased by $28,352 to
$28,352 for the three-month period ended June 30, 2022 from $0 for the three
month period ended June 30, 2021. The decrease was primarily due to a net change
in unrealized appreciation on investment in gold bullion.

Interest charges: interest charges increased by $98,825 until $298,444 for the three-month period ended June 30, 2022 from $199,619 for the three-month period ended June 30, 2021. The increase was mainly due to interest on certain loans of the company.

Amortization of original issue and debt discounts: Amortization of original
issue and debt discount decreased to $174,669, or 90.55% for the three months
ended June 30, 2022 compared to $1,848,976 for the three months ended June 30,
2021. The decrease was primarily due to amortization of original issue and debt
discounts on convertible loans.



Net Loss: Net loss decreased by $1,715,643, or 62.30%, to a net loss of
$1,038,132 for the three-month period ended June 30, 2022 from a net loss of
$2,753,775 for the three month period ended June 30, 2021. This decrease in net
loss was primarily attributable to decreases in amortization of original issue
debt discount, warrant expense and professional fees, general and administrative
expenses and offset by an increase in research and development fees.

Six months ended June 30, 2022 compared to the six months ended June 30, 2021

Our revenue, operating expenses, and net loss from operations for the six month
period ended June 30, 2022 as compared to the six month period ended June 30,
2021, were as follows - some balances on the prior period's combined financial
statements have been reclassified to conform to the current period presentation:



                                            Six Months Ended                              % Change
                                                June 30,                                  Increase
                                          2022             2021           Change         (Decrease)
NET REVENUES                          $          -     $          -               -                -
OPERATING EXPENSES:
General and Administrative                 425,438          675,899        (250,461 )         -37.06 %
Professional Fees                          229,914          226,523           3,391             1.50 %
Officer's Salary                           349,653          331,592          18,061             5.45 %
Rent - Related Party                             -            3,683          (3,683 )        -100.00 %
Research and Development                    77,373          132,494         (55,121 )         -41.60 %
Total operating expenses                 1,082,378        1,370,191        (287,813 )         -21.01 %
Loss from operations                    (1,082,378 )     (1,370,191 )       287,813           -21.01 %
Interest expense                          (460,331 )       (329,878 )     

(130,453 ) 39.55 % Amortization of debt issuance costs (536,701 ) (2,084,468) 1,547,767

           -74.25 %
Net change in unrealized
appreciation on investment in gold
bullion                                     (5,401 )              -          (5,401 )        -100.00 %
Gain on debt extinguishment (PPP)                -           90,100        

(90,100 )        -100.00 %
Net Loss                              $ (2,084,811 )   $ (3,694,437 )     1,609,626           -43.57 %

Net income: during the six months that ended June 30, 2022we realized $0 of our company’s income. During the six months ended June 30, 2021we realized $0 of our company’s income. The change in earnings between the end of the quarter June 30, 2022 and 2021 was $0 or 0%.

Cost of Revenues: Costs of revenues for the six months ended June 30, 2022 were
$0, as compared to $0 for the six months ended June 30, 2021, a change of $0 or
0%.



Gross Profit: During the six months ended June 30, 2022, we realized a gross
profit of $0, as compared to $0 for the six months ended June 30, 2021, a change
of $0 or 0%.



Research and development expenses: During the six months ended June 30, 2022, we
incurred $77,373 of research and development expenses. During the six months
ended June 30, 2021, we incurred $132,494 of research and development expenses.
This was a decrease of $55,121 or 41.60% in 2022 compared with the same period
in 2021. This decrease was due to an increase in research spending.

Professional Fees: During the Six Months Ended June 30, 2022we have incurred
$229,914 of professional expenses, which increased by $3,391 or 1.50% from
$226,523 for the six months ended June 30, 2021. This increase was mainly the result of an increase in fees and in the services provided to investors.

Officers Salary: During the six months ended June 30, 2022, officers' salary
expenses increased to $349,653 or 5.45% from $331,592 for the six months ended
June 30, 2021. This increase was primarily due to a 6% annual increase for the
Company's CEO and a reinstatement of salary for the CEO, which he voluntarily
suspended during the forced shutdown of the Company's Vietnam operations due to
COVID in 2020.



32






General and Administrative Expense: General and administrative expenses
decreased by $250,461 or 37.06% to $425,438 for the six months ended June 30,
2022 from $675,899 for the six months ended June 30, 2021. Our general and
administrative expenses for the six months ended June 30, 2022 consisted of
other general and administrative expenses (which includes expenses such as auto,
business development, SEC filings, investor relations, general office, warrants
and shares issued for services) of $139,687, travel of $15,389, consulting
$60,000 and office salary of $210,362 for a total of $425,438. Our general and
administrative expenses for the six months ended June 30, 2021 consisted of
other general and administrative expenses (which includes expenses such as auto,
business development, SEC filings, investor relations, general office, warrants
issued for services) of $99,198, travel of $6,515, and office salary of $120,810
for a total of $675,899.



Rent - Related Party: During the six months ended June 30, 2022, rent- related
party expense decreased to $0 or 100% from $3,683 for the six months ended June
30, 2021. The rent-related party expense was attributable to the Company signing
an eight-year property lease with the Company's President on January 23, 2017.
On April 5, 2021, the Company ended this lease agreement with its President.



Net Change in Unrealized Depreciation on Investment in Gold Bullion: Net change
in unrealized appreciation on investment in gold bullion decreased by $5,401 to
$5,401 for the six-month period ended June 30, 2022 from $0 for the six month
period ended June 30, 2021. The decrease was primarily due to a net change in
unrealized appreciation on investment in gold bullion.

Interest charges: interest charges increased by $130,453 until $460,331 for the six-month period ended June 30, 2022 from $329,878 for the six-month period ended June 30, 2021. The increase was mainly due to interest on certain loans of the company.

Amortization of original issue and debt discounts: Amortization of original
issue and debt discount decreased to $1,547,767, or 74.25% for the six months
ended June 30, 2022 compared to $536,701 for the six months ended June 30, 2021.
The decrease was primarily due to amortization of original issue and debt
discounts on convertible loans.



Net Loss: Net loss increased by $1,609,626, or 43.57%, to a net loss of
$2,084,811 for the six-month period ended June 30, 2022 from a net loss of
$3,694,437 for the six month period ended June 30, 2021. This increase in net
loss was primarily attributable to increases in amortization of original issue
debt discount, warrant expense and professional fees and offset by a decrease in
general and administrative expenses and research and development fees.

Sources of capital and liquidity

Our financial statements have been presented on the basis that are a going
concern, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. As presented in the unaudited
condensed financial statements, we incurred a net loss of $2,084,811 during the
six months ended June 30, 2022, and losses are expected to continue in the near
term. The accumulated deficit is $44,899,797 at June 30, 2022. Refer to Note 2
for our discussion of stockholder deficit. We have been funding our operations
through private loans and the sale of common stock in private placement
transactions. Refer to Note 6 and Note 7 in the financial statements for our
discussion of notes payable and shares issued, respectively. Our cash resources
are insufficient to meet our planned business objectives without additional
financing. These and other factors raise substantial doubt about our ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the possible inability of our company to
continue as a going concern.



Management anticipates that significant additional expenditures will be
necessary to develop and expand our business before significant positive
operating cash flows can be achieved. Our ability to continue as a going concern
is dependent upon our ability to raise additional capital and to ultimately
achieve sustainable revenues and profitable operations. At June 30, 2022, we had
$4,824,787 of cash on hand. These funds are insufficient to complete our
business plan and as a consequence, we will need to seek additional funds,
primarily through the issuance of debt or equity securities for cash to operate
our business. No assurance can be given that any future financing will be
available or, if available, that it will be on terms that are satisfactory to
us. Even if we are able to obtain additional financing, it may contain undue
restrictions on our operations, in the case of debt financing or cause
substantial dilution for our stockholders, in the case of equity financing.

33






Management has undertaken steps as part of a plan to improve operations with the
goal of sustaining our operations for the next twelve months and beyond. These
steps include (a) raising additional capital and/or obtaining financing; (b)
controlling overhead and expenses; and (c) executing material sales or research
contracts. There can be no assurance that the Company can successfully
accomplish these steps and it is uncertain that the Company will achieve a
profitable level of operations and obtain additional financing. There can be no
assurance that any additional financing will be available to the Company on
satisfactory terms and conditions, if at all. As of the date of this Report, we
have not entered into any formal agreements regarding the above.



In the event the Company is unable to continue as a going concern, the Company
may elect or be required to seek protection from its creditors by filing a
voluntary petition in bankruptcy or may be subject to an involuntary petition in
bankruptcy. To date, management has not considered this alternative, nor does
management view it as a likely occurrence.



Cash, total current assets, total assets, total current liabilities and total
liabilities as of June 30, 2022 as compared to December 31, 2021, were as
follows:



                             June 30,        December 31,
                               2022              2021
Cash                        $ 4,824,787     $    2,355,060
Prepaid expenses            $     1,603     $       11,055
Total current assets        $ 4,826,390     $    2,366,115
Total assets                $ 5,439,867     $    3,021,912

Total current liabilities $9,119,555 $8,162,646
Total liabilities

           $ 9,214,671     $    8,317,787




At June 30, 2022, we had a working capital deficit of $4,293,165 compared to a
working capital deficit of $5,796,531 at December 31, 2021. Current liabilities
increased to $9,119,555 at June 30, 2022 from $8,162,646 at December 31, 2021,
primarily as a result of accounts payable, note payable, convertible note
payable, and accrued compensation.



For the six months ended June 30, 2022, net cash used in operations of $960,137
was the result of a net loss of $2,084,811 offset by depreciation expense of
$14,721, net change in unrealized depreciation in gold bullions of $5,4011,
amortization of debt discount of $436,704, warrants issuance of $118,840,
imputed interest on related party loans of $40,093, decrease in prepaid expenses
of $9,453 and a decrease in operating lease right of use of $22,198, an increase
of accrued expenses and other payables-related party of $182,706, increase in
accounts payable of $216,057 and a decrease in operating lease liabilities

of
$21,499.



For the six months ended June 30, 2021, net cash used in operations of $966,805
was the result of a net loss of $3,694,437 offset by depreciation expense of
$13,446, gain on debt extinguishment of PPP loan of $90,100, amortization of
debt discount of $2,084,468, warrants issuance of $319,911, imputed interest on
related party loans of $41,085, decrease in prepaid expenses of $890 and a
decrease in operating lease right of use of $112,673, an increase of accrued
expenses and other payables-related party of $224,653, increase in accounts
payable of $135,503 and a decrease in operating lease liabilities of $114,89



34

The net cash flow used in our investing activities was: $0 and $5,120 for the six months ended June 30, 2022 and June 30, 2021respectively.

Our financing activities resulted in a cash inflow of $3,429,864 for the six
months ended June 30, 2022 is represented by proceeds from convertible notes
payable, net of $2,990,000, repayment of notes payable - related party of
$40,000, $30,000 loan repayment, payment of debt offering costs of $230,000, and
proceeds from a warrant exercise for $739,864.



Our financing activities resulted in a cash inflow of $3,822,558 for the six
months ended June 30, 2021, which is represented by proceeds from convertible
notes payable, net of $3,670,000, $25,000 loan repayment and proceeds from a
warrant exercise for $177,558.

Critical Accounting Policy

Please refer to "Management's Discussion and Analysis of Financial Condition and
Results of Operations," in our Annual Report on Form 10-K for the year ended
December 31, 2021, for disclosures regarding the Company's critical accounting
policies and estimates, as well as updates further disclosed in our interim
financial statements as described in this Form 10-Q.

Recent accounting statements

Changes to accounting principles are established by the FASB in the form of
ASU's to the FASB's Codification. We consider the applicability and impact of
all ASU's on our financial position, results of operations, stockholders'
deficit, cash flows, or presentation thereof. Management has evaluated all
recent accounting pronouncements as issued by the FASB in the form of Accounting
Standards Updates ("ASU") through the date these financial statements were
available to be issued and found no recent accounting pronouncements issued, but
not yet effective accounting pronouncements, when adopted, will have a material
impact on the financial statements of the Company.



In September 2016, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") No. 2016-13, Measurement of Credit Losses on
Financial Instruments, which supersedes current guidance by requiring
recognition of credit losses when it is probable that a loss has been incurred.
The new standard requires the establishment of an allowance for estimated credit
losses on financial assets including trade and other receivables at each
reporting date. The new standard will result in earlier recognition of
allowances for losses on trade and other receivables and other contractual
rights to receive cash. In November 2019, the FASB issued ASU No. 2019-10,
Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging
(Topic 815) and Leases (Topic 842), which extends the effective date of Topic
326 for certain companies until fiscal years beginning after December 15, 2022.
The new standard will be effective for the Company in the first quarter of
fiscal year beginning January 1, 2023, and early adoption is permitted. We
adopted this pronouncement on January 1, 2021; however, the adoption of this
standard did not have a material effect on the Company's financial statements.



In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for
Income Taxes." This guidance, among other provisions, eliminates certain
exceptions to existing guidance related to the approach for intraperiod tax
allocation, the methodology for calculating income taxes in an interim period
and the recognition of deferred tax liabilities for outside basis differences.
This guidance also requires an entity to reflect the effect of an enacted change
in tax laws or rates in its effective income tax rate in the first interim
period that includes the enactment date of the new legislation, aligning the
timing of recognition of the effects from enacted tax law changes on the
effective income tax rate with the effects on deferred income tax assets and
liabilities. Under existing guidance, an entity recognizes the effects of the
enacted tax law change on the effective income tax rate in the period that
includes the effective date of the tax law. ASU 2019-12 is effective for interim
and annual periods beginning after December 15, 2020, with early adoption
permitted. We adopted this pronouncement on January 1, 2021; however, the
adoption of this standard did not have a material effect on the Company's
financial statements. However, based on the Company's history of immaterial
credit losses from trade receivables, management does not expect that the
adoption of this standard will have a material effect on the Company's financial
statements.



35






In August 2020, FASB issued ASU 2020-06, Accounting for Convertible Instruments
and Contracts in an Entity; Own Equity ("ASU 2020-06"), as part of its overall
simplification initiative to reduce costs and complexity of applying accounting
standards while maintaining or improving the usefulness of the information
provided to users of financial statements. Among other changes, the new guidance
removes from GAAP separation models for convertible debt that require the
convertible debt to be separated into a debt and equity component, unless the
conversion feature is required to be bifurcated and accounted for as a
derivative or the debt is issued at a substantial premium. As a result, after
adopting the guidance, entities will no longer separately present such embedded
conversion features in equity and will instead account for the convertible debt
wholly as debt. The new guidance also requires use of the "if-converted" method
when calculating the dilutive impact of convertible debt on earnings per share,
which is consistent with the Company's current accounting treatment under the
current guidance. The guidance is effective for financial statements issued for
fiscal years beginning after December 15, 2021, and interim periods within those
fiscal years, with early adoption permitted, but only at the beginning of the
fiscal year. The Company adopted the guidance under ASU 2020-06 on January 1,
2022. The adoption of this guidance and had no material impact on the Company's
financial statements.

© Edgar Online, source A glimpse