Kraig Biocraft Laboratories Quarterly Newsletter - Q1 2017 Message From The CEO & COO It seems that each quarter we find ourselves reflecting back on just how much further we’ve come, this last quarter was no exception. While we take just a moment to enjoy those successes, we remain focused on delivering the capabilities of our technologies, affordable and sustainable spider silk. Our meeting with officials in Vietnam in early January has turned into a flurry of activity at both the local and central government levels there. Committees have been formed, awards have been presented, locations have been identified, and we are quickly working through the last few approval processes for the beginning of operations for our Vietnamese subsidiary. The plan to create a mulberry plantation and raise silkworms domestically took a huge step forward this quarter. What began with the purchase of 2,000 trees in August of 2016 has now become a 15 acre facility in southern Texas where those trees are now flourishing. In August of this year we plan to harvest our first batch of leafs to feed to our growing US silkworm colony. Moving forward we expect this property will become the heart of our US production with both mulberry growing and silkworm rearing operations onsite. International Expansion This has been one of the busiest quarters in the Company’s history when it comes to international expansion. At the request of officials in Vietnam, the Company’s management attended a meeting in January with leaders of Quang Nam province. This meeting was designed to outline a path for near term large scale production of the Company’s high performance silks. This visit included tours of the regions mulberry production, silkworm rearing, and textile weaving facilities to assess the region’s available capacity. Following that successful trip the Company was requested back again to conduct extensive site surveys in Quang Nam. After reviewing numerous locations, Company management met with the leader of Quang Nam province and selected two key locations. The first was a 50 hectare parcel of land which has been outlined as the future location for an operations center to include mulberry growing, silkworm breed, hatching, rearing, cocoon storage, and potentially silk thread reeling. This location offers significant future potential, but will require development. As such, the Company also selected an existing facility nearby that can be very quickly put into operation. This facility was originally constructed for silk production and was later adapted into a garment factory. This combination of a Greenfield location and existing infrastructure will allow us to rapidly move from the introduction of our silkworms to the Vietnamese climate to metric ton scaled operations. The Company has set aggressive, yet attainable, goals for the first year’s production volume from these facilities and we are actively working to achieve those results. Land in Quang Nam for future Kraig Labs factory Activity in Vietnam this quarter ended with the Company being formally invited back for a third trip where we were honored with an investment award from the province of Quang Nam at its Investment Conference. The Company, along with several other major International corporations, was celebrated for its planned investments. The ceremony was attended by the Prime Minister of Vietnam and several other key leaders of the central government ministries whom pledged support for our project and efforts to revitalize the sericulture industry in Vietnam. Kraig Labs receiving Investment Award As we begin the second quarter, the Company is working directly with a government appointed task force in Vietnam to speed through the remaining steps required to secure the land and factory, as well as establishing the legal entity in Vietnam and gain final sign off from central government ministries. The Vietnamese company will be a wholly owned subsidiary of Kraig Biocraft Laboratories, Inc. In addition to the work of establishing legal entities and gaining approvals for operation, the Company is actively working to secure the capital necessary for this significant growth moment. While it is premature to go into detail in this area at this time, the Company continues to engage with potential capital partners to support our plans to grow in capacity and aspiration to move the Company to a higher trading exchange. Some of you have asked about our first undisclosed international production efforts and if we plan to continue to raise silkworms there. At this time we do not plan to return to that location and no silkworms are currently held there. While it played a very important role in our first scale up testing, the region’s infrastructure proved that it was not viable for expansion. While our work this quarter in Vietnam was extensive, it is not the only international location we are actively pursuing. Over the last few months, the Company has been solicited by another country, with a significant silk industry, that has expressed a strong desire for Kraig Labs to bring our silk technology to their country. While in the early stages of discussions, this country has expressed interest in making a considerable investment in resources to support our establishment there. If and when those discussions generate reportable news we will be sure to update you. Contract Deliverables This quarter saw a delay in our production timeline of sample ballistic shoot packs for the US Army. Between kicking off our Indiana operations, in August and December, we produced what we expected to be all of the cocoons required to complete the woven and knit shoot pack samples for the Army. The reeling facility we contracted to do this work quoted us 20 days to process all of these cocoons into thread. We had experience with this company in 2015, when they refined Monster Silk™ thread for us, but this was the first time they worked directly with our cocoons. On Thursday April 13th Company management met with the US Army sponsors to provide them with an update of the projects progress and delay at the silk reeling company. Our project sponsors were very understanding and agreed to an extension of the delivery timeline to later in the year. The company is now working to produce additional materials which will be used to complete this order. We expect to make partial deliveries as sample shoot packs are complete and to have all materials delivered to the Army before the end of Q4. Progress on fulfilling the US Army contract is continuing on the new timeline. The Company has been in communication with Warwick Mills, who will be producing the shoot packs and we have notified them of the delay. The first thread which is finished and expected back shortly will be sent to Warwick Mills immediately. It will be used to create the knit shoot pack samples while we wait on the balance of material to be produced and reeled for the woven designs. We expect the first ballistic shoot pack samples to be complete within two to three months of thread delivery to Warwick Mills. Following the single fiber testing results presented at the meeting with our Army sponsors in early April the Company has been requested, and has agreed, to supply individual Dragon Silk™ filaments for independent third party testing. The Army sponsor will ship these samples to two laboratories for static and dynamic testing. These results, when confirmed, will further lend proof to the impressive performance and potential of our recombinant spider silk capability. The Company is preparing these samples now and expects to deliver them to the Army in May. Collaboration and end markets While much focus this quarter has been given to fulfilling our contract with the US Army and the explosion of activity in Vietnam directed at large scale production, we continue to receive a flood of requests for material. Material requests come from a multiplicity of industries, from sportswear manufacturers, to medical companies, university researchers, and more. With the multiple avenues of potential application opening to us, we continue to dedicate considerable time to assess each of these and in establishing working relationships with the most promising. This quarter Company management established several new relationships with exciting end markets and companies. One particular application of interest is in the medical field, where the Company’s fibers were identified as having the potential to offer significant advantages. As we complete the material delivery to the US Army we look forward to supplying more opportunities, such as this one, with materials to evaluate and explore the applications for a practically produced and affordable spider silk. New silk deflossing machine installed in Indiana factory 2,000 trees planted and thriving at Texas facility Domestic Production and Expansion This quarter, we took a major step forward in our domestic production operations. In January, we announced the signing of a lease on 15 acres of land in Texas. The Company plans to use the property to grow fresh mulberry and to eventually establish a much larger silkworm rearing facility than our current Indiana based location can support. In early March, we reported the successful planting of the first 2,000 mulberry trees at this location. We’re pleased to report that those trees have taken root and are growing rapidly. The high level of precipitation over the last 60 days and the warm climate have turned our field of twigs into a miniature forest, faster than we expected. We anticipate the first harvest of fresh mulberry could happen as soon as this August. Feeding this fresh mulberry should increase both the size of our silkworms and improve the already amazing performance of their silk. Our Indiana facility has also seen significant advancements this quarter. When first established, this facility received all of its silkworms directly from the research labs at Notre Dame. These silkworms would arrive in the 2nd or 3rd instar and our production team would care for them until cocoon formation. In January we began to incorporate silkmoth mating, egg hatching, and 1st instar silkworm care into our production process. These elements of production are the most delicate and require the most skill, we are happy to report that our progress this quarter leaves us confident that we can successfully transition our silkworms to our other US location and international facilities without issue. We continue to monitor and track several key metrics on all of our silkworm production batches, including those silkworms delivered from Notre Dame laboratory and our own in house hatchings. This quarter, we also ordered our first piece of commercial scale equipment for processing cocoons. This machine, which was installed in early April, is designed to defloss the silk cocoon. Deflossing the cocoons is an important step in the process of extracting the finished silk thread from the cocoon. Before the cocoons can be dried and reeled, this outer floss material must be removed to gain access to the cocoons’ continuous silk thread. This new machine replaces a small laboratory scale machine that we have been using since September of last year. Based on initial testing, we expect this new equipment will drastically cut down on our labor requirements in cocoon processing. Despite the challenges we faced this quarter with our silk reeling vendor meeting our timelines and material needs, we do not plan to incorporate silk reeling into our US operations at this time. The vendor we have been working with did not meet our quality expectations, or agreed upon timetables, for our fulfillment of the Army contract. Accordingly, we are currently reviewing additional facilities and contractors, and plan to send small samples of cocoons for assessment before any future shipment of larger quantities of cocoons will be sent. The capital equipment investment, user training requirement, and timing to set up local silk reeling, at a scale necessary to meet our US throughput, is not practical. This is not to say that in the future we may not revisit this decision, regarding our Texas operations, and come to a different conclusion, however, at this time, bringing silk reeling to our Indiana operation is not economical. Summary We are working to accelerate our production of spider silk, fulfill our Army contract, and initiate large scale production overseas. We have ambitious plans for the growth of this Company over the next twelve months and the road ahead is unpaved. There will be bumps and thumps along the way. That is to be expected, as we move our disruptive technology into commercialization. We believe that the rewards are worth the hard work and effort we are putting in. Thank you for your continued interest and support as we grow this company and technology together. 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