Kraig Biocraft Laboratories Quarterly Newsletter - Q3 2016 Message From The CEO & COO We knew the third quarter was staging to be a very busy month for the Company and it didn’t disappoint. This quarter marked a significant pivot for the Company as we’ve directed our primary focus and investments into the creation of our new domestic factory for the production of our record setting Dragon SilkTM. Over the last several months, since the announcement of our first contract with the U.S. government, Kraig Labs has seen an unprecedented increase in interest in our materials from civilian industry. Moving into the fourth quarter, we are taking great strides to expand production operations domestically and to lay the groundwork for expansion abroad in effort to meet this growing market interest. As we close out the third quarter, we are on track to deliver our first production lot of Dragon Silk to the U.S. government on schedule and on budget. We are already preparing to shift domestic Dragon Silk production to numerous commercial applications and we are diligently working to open two international factories. Domestic Production and Expansion The second half of the year kicked off with the Company taking possession of a production space in Indiana and, just a few weeks following that announcement, we shared the completion of our buildout ahead of schedule. This facility, which we refer to as “the factory”, is fully operational and continues to produce a steady supply of Dragon Silk to support our contract with the U.S. Government. Once that contract is fulfilled, the factory output will be directed to commercial customers. Kraig Labs was founded on the idea of breaking new ground in biotechnologies and manufacturing. Since opening our new Indiana factory we have begun the process of transitioning that vision into a sizeable and scalable business model. This Quarter we began to build out a comprehensive internal training program, detailed fixed and variable costs for U.S. based silk production, and trained several new hires to keep up with the expanding workload. As announced in last quarter’s Spider Sense newsletter, we have been developing a strategy to expand domestic production of our silk. On August 16th we gave additional details on that plan, with the announcement of our purchase of the first 2,000 mulberry trees. Mulberry leaves are an important dietary requirement for the Company's silkworms which spin the world's best performing recombinant spider silk. These trees will serve to feed ever larger colonies of silkworms in our expanding domestic factory while, simultaneously, cutting a significant portion of our productions costs. From the Laboratory With the establishment of our new factory in Indiana, our production team has been going above and beyond, to ensure the successful ramping up of silkworm production. This has meant that over the last two months their efforts have not just been focused upon new breakthroughs, but in helping us hatch tens of thousands of new silkworm caterpillars each week. This has been no small task and those of us outside of the lab and factory have been tremendously impressed with their dedication and perseverance. This is not to say technical developments have taken a backseat, however. Work is still being done to perfect our new gene splicing and editing technology and its use with new lines of silkworms. This quarter brought some very exciting preliminary results which we will share with you once the test results have been confirmed. International Expansion While domestic facilities are vital to our technology roadmap and strategy for production, the Company continues to invest significant time and resources into securing an international production presence. Combining both domestic and overseas operations will allow us to best manage risk, schedule, technology development, and production costs. Domestic operations offer flexibility and quick turnaround times, while international facilities provide us with the scale and infrastructure to ramp capacity quickly. At the end of August, we announced the next step for our international expansion – partnering with biotechnology experts in a new promising international location. This group is well versed in the legal process of introducing new genetically modified organisms into their country. We believe they will be excellent partners in making our long-term production plans a reality. As we reach targeted milestones with this effort we will include them in future issues of Spider Sense. This quarter brought more positive news from Vietnam. The risk assessment, which was prepared and submitted last quarter, has been reviewed and accepted by two of the reviewing agencies. Based on the positive response to the submitted documents and the pace of our domestic silk production, we have begun discussions and are in the process of establishing a signing a formal agreement with a key international supply chain partner. Summary As expected, this quarter was one of the busiest in Kraig Labs history, as we make the bold transition from R&D to commercial scale production and the fulfilment of our first US. Army contract. These are exciting times for the Company and all of our shareholders. The promise of commercialized recombinant spider silk is now here with the opening of our first factory in Indiana. We expect to exceed our target production for our US Government contract and plan to begin supplying ever more product for civilian industries that are clamoring for it. With plans to expand domestically and even further internationally, we know that this is just the beginning for sustainable, cost effective, environmentally friendly recombinant spider silk. As always, we thank you for your faith in the potential of our Company and this revolutionary technology. 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