Letter to Shareholders from Kraig Labs’ CEO Kim Thompson

Last month Kraig Labs submitted its response to the U.S. Air Force Research Laboratories (AFRL) Request For Information (RFI) solicitation. This RFI sought out U.S. industrial supply base members that could help strengthen the country’s bio-engineering and bio-manufacturing sectors. This request was intended to ensure that the United States remains at the forefront of bio-manufacturing capabilities and to ensure a domestic supply base for future defense-related production capacity. 

In addition to the renewed interest from the U.S. Department of Defense for the domestic production of bio-engineered materials and manufacturing technologies, Kraig Labs has also been approached by the Ministry of Defense from one of our ally nations. They requested samples of our recombinant spider silk materials for evaluation in protective textile applications. 

The last few weeks have been a busy and exciting time for Kraig Labs and our research and development team. We welcomed several new staff members to our research and development team who are filling many diverse roles, from silkworm colony management to research and creation of the next generation of transgenics. We are still in the hiring process and anticipate adding one or two more qualified R&D team members over the next sixty days.

Our team is bustling as we continue to strengthen our operations through the introduction of more robust commercial silkworm background genetics. The work that we started in late 2022 with the first cross-hybrids, blending our spider silk technology with commercial silkworm strains, has now expanded to nearly a dozen strains of robust production silkworm lines. These strains were sourced from around the world and selected for their strong genetic background and cocoon performance. With these additional strains in-house, we are now starting to cross-breed our spider silk transgenes into these various commercial lines.

Over the next several months, we expect to create enough unique strains of spider silk transgenics to implement a multi-line “double hybrid” production system. We have already begun this process of breeding spider silk-producing variants of the first of these commercial strains that, when crossed with each other, should produce the largest and most robust production silkworms in the Company’s history. 

The program to increase robustness in our spider silk transgenics remains on track and is proceeding as scheduled. We expect to be able to announce the creation of several new lines of production spider silk strains as early as the third quarter.

Beyond the creation of additional robust production strains of our spider silk transgenics, our research team has been quietly working over the last months on multiple projects that we hope to begin sharing more details on soon.

As the research team works to advance the genetics and robustness of our silkworms for the production environment, the Company has also been working in collaboration with its textile consultant and yarn spinners to develop the first materials and applications for spider silk in textiles. The first of these yarns, designed in late 2022, has now been spun. After consultation with several mills, the Company successfully created the first composite silk, pima cotton yarns, with one of the world’s premier cotton spinners. This initial trial proved to be a great success, giving us great insight into aspects of blending silk and cotton that we have used to further refine our silk processing steps. 

Based on the technical analysis of the first silk and cotton composite yarn, the Company partnered with leading U.S. textile engineers to improve several aspects of the silk cutting, washing, and opening processes. The results are a set of processing steps and protocols that have proven to improve the silk staple fiber separation and alignment, which will increase the overall quality and uniformity of the composite yarns. To ensure the quality of these processes as we scale up production, we have invested in the production equipment necessary for the in-house manufacturing of silk staple fibers. These are essential processing steps done after the cocoons have been reeled into raw silk and before the silk can be blended and spun with other fibers. 

We have taken the detailed technical analysis from the spinning of the first yarn and revamped our staple fiber processing with the guidance and advice of top experts here in the U.S. We believe that perfecting the processing of the fibers and yarns which will, in turn, create fabrics and garments of the highest quality is critical for the launch of our joint venture apparel brand, SpydaSilkTM.  Kraig Labs and our partner Kings Group have intentionally slowed down the marketing and launch of the SpydaSilk, the website, and its social media presence, to align with the future release of the brand’s first products.  

Many of you have asked, in recent months, about the near-term potential for an up-listing to a national exchange. Our focus is on building the Company and its fundamentals, most particularly larger scale production. The robustness of our silkworms in the production environment is now the largest bottleneck to large-scale production, and that is the reason for our emphasis on Mendelian genetics and hybridization. Management believes that it would be a miscalculation to attempt an up-list while experiencing a production bottleneck. The sooner we can create new strains and achieve large-scale production, the better for our fundamentals and for the prospect of moving to a larger exchange. 

Our focus remains on developing and improving the robustness of our silkworm strains that can sustain large-scale spider silk production and leveraging that to build a sustainable market presence for Kraig Labs, SpydaSilk, and other future partnerships.

A few shareholders raised questions about the high temperatures that Vietnam recently experienced. First, those record temperatures were set in Thanh Hoa province, more than 700km north of our facilities in Quang Nam. Prodigy Textiles has not experienced any record-setting local temperatures, and even if such climate abnormalities occur in the future, it is equipped to handle them. Prodigy Textiles operates from a historical silk breeding facility constructed with double-insulating brick and concrete walls to regulate temperatures inside. When we renovated the facility, we added air processing and conditioning equipment to all of our rearing facilities to ensure tight control of climate conditions in our egg breeding center, allowing year-round operation. This heat wave also hit the country while our third-party contractor has paused their operations as they await the delivery of more robust silkworms from our teams here at Kraig and Prodigy. The increased robustness that we are building into our transgenics through the global sourcing of commercial silkworm genetics should strengthen their operations for climate variances and disease resistance.

As our team works to eliminate the current production bottleneck by improving background genetics through cross-breeding and hybridization, another emphasis is on creating new transgenics for the production of more advanced materials.   Those two main thrusts of our operation are the reason behind the expansion of our R&D staff. We are excited about the progress we have made internally over the last quarter, and we are very excited to see the continuing progress we are making on enhancing background genetics. 

I want to thank our R&D team for their dedication to this work and I also want to thank our team at Prodigy as well as our contractors for their insights on production. Production is our goal; production is our focus. Production is the key to our fundamentals and all the opportunities that lay ahead. 

   – – –

Kim Thompson, Founder and CEO

Kraig Biocraft Laboratories, Inc.

Kraig Biocraft Laboratories, Inc.

2723 South State Street Suite 150
Ann Arbor, Michigan 48104

Phone: (734) 619-8066

Corporate Website: www.KraigLabs.com

Email: corporate@KraigLabs.com