Kraig Biocraft Laboratories Quarterly Newsletter - Q2 2017 Message From The CEO & COO With the close of the second quarter, we are half way through the year and well on our way to achieving our 2017 milestones. The recently announced contract option exercise by the U.S. Army, and their funding, to continue to develop disruptive fiber technologies is a proud moment to be celebrated by all of us. We are well underway to laying the groundwork to make that project a great success and we have several exciting announcements on this to report in the third and fourth quarters. This first half of 2017 saw us also make major strides towards opening up production operations in Vietnam. In the first quarter, we announced the investment award we received from Quang Nam province. We also reported the results of a site survey trip, in which the Company and provincial officials selected land and facilities to support the Company’s plans to open rearing operations in Vietnam. Just last month, we reported selecting a location for our Company’s Vietnamese headquarter and the submission of our silkworm importation documents. Looking to the second half of this year, we expect to have more exciting news to share regarding production scale up. As we move forward with the growth of our production operations, additional capital will be required. While our previous equity line financing has ended, we are actively investigating a number of possible funding options to provide the capital for significant expansion. While there is no shortage of firms offering capital in various forms, we are committed to ensuring the best possible terms for our Shareholders. With most of our current production capacity dedicated to the Army contract, we now have the time and flexibly to be selective in choosing financing strategies and partners that match our growth and expansion plans. Those options include a mix of domestic sources and international financing. This third quarter is already shaping up to be another of the Company’s busiest: Kick off of the next phase of the U.S. Army contract, our first mulberry harvest, expansion and process improvements for our domestic silk production, working to secure import approval for our silkworms to Vietnam, and preparations to deliver the final sample shoot packs to the U.S. Army, just to name a few of the major events already on our calendar. International Expansion The first quarter of this year was a breakthrough for our planned overseas expansion. Through a series of meetings and site survey trips, the Company identified locations to begin expanding our global silk production capacity. We ended that quarter with recognition and an award from the provincial government of Quang Nam regarding those investment plans. This quarter, a Vietnamese government task force has been created to both implement those plans and to see them realized. Working closely with our representative in Vietnam, we have identified the key staff personal necessary to open our subsidiary, we have begun developing land use plans, and we’re working with a local architecture firm to begin design plans for our future factory. We remain in close contact with both our Vietnamese representatives as well as provincial leadership. As we start the third quarter, the Company has finished and submitted the importation documents for our silkworm eggs, as well as dried cocoons. We are now working through our representatives to have those documents accepted and approved by Vietnamese officials. When we receive notification of acceptance of the import documents, the Company should be approved to begin shipping our silkworms to Vietnam for trial rearing and acclimatization. In preparation for the opening of our subsidiary in Vietnam we continue to maintain our US factory at similar temperature and humidity conditions, to those in Vietnam, to promote a quick and efficient transition. We are also looking at cross breeding our silkworms with Vietnamese silkworm lines ahead of the transfer. Entering the third quarter, we have also selected a location to host our Vietnamese subsidiaries corporate headquarters, house or key office staff, and serve as the location for the first shipment of silkworms to Vietnam. This location will provide us with excellent access to international shipping facilities, an abundance of skilled workers, proximity to our planned production facilities, and regional tax incentives. Contract Deliverables As we start the third quarter, we are pleased to report that the U.S. Army has exercised our contract option, and has funded the Company to continue to develop and produce high performance fibers to support the Warfighter. Over the next two quarters, we expect to share several exciting new efforts already underway to meet this challenge. In May, we reported delivering the first samples of Dragon Silk™ to the U.S. Army for Independent testing. These samples included individual silk cocoon filaments and fully finished Dragon Silk thread. These samples mark the starting point for what we hope will be a long lasting and profound impact on protective equipment for our fighting forces. We continue to produce Dragon Silk™ at our Indiana facility and expect to make final delivery of the shoot packs for ballistic testing later this year. Contract Deliverables...cont We reported, in the first quarter, that an issue at the overseas reeling facility, with our first batch of Dragon Silk cocoons, resulted in less finished thread than we expected. We are now pleased to report that we have completed a replacement batch of silk cocoons, which are expected to ship out in early third quarter, to a new silk reeling company we have identified. Ahead of shipping the cocoons to this new vendor, we have provided a small sample to ensure that their equipment is capable of working with our cocoons. Based on their positive feedback, regarding our cocoons and their reported processing timeline, for reeling and weaving by Warwick Mills, we remain on track for the final delivery of shoot packs to the U.S. Army in the fourth quarter. This quarter, we delivered the first finished batch of Dragon Silk thread to Warwick Mills along with a purchase order, for weaving and knitting services to create the finished shoot packs. Over the coming quarter, we hope to be able to share the progress of that work, as we get ready for the final delivery to the U.S. Army. First 15 spools of Dragon Silk headed to Warwick Mills New food prep equipment being installed in factory Domestic Production and Expansion As a Company, we recognize that our employees are one of our most valuable assets. Working, day in and day out, to care for our silkworms they have helped us to identify a number of process efficiencies and changes that we have been able to adapt into our operations since opening our US factory last fall. This quarter, we incorporated several of those suggestions resulting in a massive improvement in our operations and throughput capacity. In the first quarter of the year, we reported the purchase and installation of a new piece of commercial scale equipment, a cocoon deflossing machine. That machine allowed us to quickly prepare our raw cocoons for finish drying and shipment to silk reelers. Last quarter, we continued that effort introducing industrial scale equipment for the production and processing of the mulberry diet we feed our silkworm colony. Our newly purchased cooking equipment will be able to process as much as a week’s worth of food in a single batch. We expect to have this equipment fully online in the third quarter. This quarter, we also purchased and installed semi-automated equipment to prepare the finished silkworm diet for feeding. This equipment has eliminated roughly 20% of our total labor requirements at the Indiana Factory and allows our existing team to support higher material throughput. Combined, the equipment and process changes we have implemented over the last two quarters have increased our efficiency and capacity to produce spider silk domestically. Perhaps one of the most anticipated events, for us here, is the first harvest of fresh mulberry from our Texas facility. As we reported in the first quarter, we expect to have our first leaf harvest in August. Our team is preparing, now, to collect, process, and deliver those leaves to the Indiana production facility for feeding to our silkworms. Since founding the Company, we have relied almost exclusively on a dried processed mulberry leaf powder which we import from overseas. By feeding fresh mulberry we expect to see an improvement in both the size and strength of our cocoons, not to mention happier and healthier silkworms. These first 2,000 trees which we planted will serve as a test case and we will evaluate the planting of additional trees, based on the results of this first year’s harvest. Look for additional updates from us, as we introduce our silkworms to their preferred food source. Our domestic expansion efforts are not solely focused on silk production. The Company continues to look for, and evaluate, opportunities to partner with, or to acquire, complementary companies. We continue to be in talks with a range of potential collaboration partners spanning a wide range of applications. This quarter, we had a series of productive discussions with a medical supply company looking to incorporate our silk thread into their product line. We also remain in regular talks with the performance apparel manufacturer, as we look for solution to match our capacity to their production requirements. We remain highly optimistic that this relationship will turn into a fruitful partnership, as we continue to increase our silk production volumes. Most recently we’ve sparked a conversation with an athletic apparel firm focus on a niche segment where they feel our materials could result in a standout product offering. Summary We couldn’t imagine a better way to wrap up the first half of the year, than with our next major contract from the U.S. Army, our Texas facility on the verge of providing our first crop of fresh mulberry, and our Indiana factory running more efficiently than ever. 2017 has kicked off with a number of major advancements for the company and our business plan, we expect the second half of this year to be even better. As always, we thank you for your continued support and interest. Kraig's Latest News & Events About Spider Silk Have you wondered, "what is spider silk?" Well, you're not alone. To learn more about what spider silk is, and why we at Kraig are excited about our progress towards the commercialization of our genetically engineered spider silk click here . Kraig Biocraft Laboratories, Inc. (OTCQB: KBLB) is a fully reporting biotechnology company focused on the commercialization of new textiles and high performance fibers including spider silks. As the leading developer of genetically engineered spider silk based fiber technologies, Kraig Biocraft has been able to achieve a series of scientific breakthroughs in the area of spider silk technology. To learn more about Kraig Biocraft and this exciting field click here. Cautionary Statement Regarding Forward Looking Information Statements in this newsletter about the Company’s future and expectations other than historical facts are “forward-looking statements.” These statements are made on the basis of management’s current views and assumptions. As a result, there can be no assurance that management’s expectations will necessarily come to pass. These forward-looking statements generally can be identified by phrases such as “believes,” “plans,” “expects,” “anticipates,” “foresees,” “estimated,” “hopes,” “if,” “develops,” “researching,” “research,” “pilot,” “potential,” “could” or other words or phrases of similar import. Forward looking statements include descriptions of the Company’s business strategy, outlook, objectives, plans, intentions and goals. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those in forward-looking statements. This newsletter does not constitute an offer to sell or the solicitation of an offer to buy any security. Ben Hansel, Hansel Capital, LLC. (720) 288-8495 ir@KraigLabs.com