Today marks an important milestone for Kraig Labs and, with it, the opportunity to share an update across all aspects of our operations. This letter format allows us to share a more broad-reaching update on multiple aspects of our operations, ranging from finance and next-generation technologies to commercialization.
On November 21st, we announced that we had eliminated all convertible debt to our financing partner. I am happy to announce that as of December 9th, 2022, they no longer hold any shares or selling interest in the Company’s stock, which eliminates selling pressure from that source. Just over two years ago, we began the journey to strengthen the Company’s balance sheet with the injection of $8 million in growth capital. This capital has played a critical role in the growth of our production operations and the evolution from technology creation to product development.
Over the last 24 months, Kraig Labs deployed just under half of this capital to build out the commercial-scale production operations needed to transition our spider silk technology from pilot operations to our current multipronged production system with the capacity for metric tons of silk production. We made critical investments in infrastructure, personnel, equipment, and training to build, what we believe, is the most advanced silkworm-rearing facility in Vietnam. Over the summer, we shared a two-part video series bringing viewers inside this facility.
We leveraged a portion of this growth capital to invest in a partnership with a third-party contract manufacturer. This funding has also allowed us to sign a long-term, multi-ton contract manufacturing agreement with this third-party producer. We first announced this partnership in July 2022 and shared with you that they required 90 days to ramp up before they could start delivering silk. We received the first batch of silk from this supplier right on schedule. While it was our largest single-month production batch to date, it did not meet the target we had for their first production batch. The shortage in production output for the first shipment is tied to the acclimation and conditioning of our silkworm line to the local production environment.
Kraig’s US and Vietnam teams are working closely together with the third-party producer to address the hurdles they are facing in an effort to rapidly grow production capacity. In addition to the ongoing efforts to boost production through the acclimation of our silkworm lines to the local climate, we are also accelerating the introduction of a multiple-strain hybrid silkworm model used in conventional silk production to increase robustness. We remain confident that implementing these processes and technologies is the best path to successfully grow our production output to match the targeted metric ton per month levels we have contracted with them to produce by late 2023.
While the current focus remains on the rapid commercialization of existing spider silk technologies, the Company’s R&D efforts remain focused on extensive opportunities for our spider silk technologies, fibers, and proteins. Work with our third-party contract manufacturer has identified opportunities and incentives to accelerate our multi-line hybrid production models. Ramp-up of this work is already underway in the Company’s US facilities, and we expect this will be ready for the transition to production in Q1 2023.
The first phase of this program will be the transition to single-line cross-hybrids, which we developed in our labs over the last six months to boost resilience and environmental tolerance. Upon successful deployment, we will transition into the second phase of this program with the introduction of a multi-strain cross-mating program for all production operations. Our target is single strain hybrid rollout in Q1 and dual strains for the utilization of first-generation hybrids as early as Q2. This system will closely mirror the processes used for mundane silk egg production and should result in both larger cocoons and more resilient silkworms. This technology has been validated in our R&D labs and is now being scaled up for the transition to large-volume operations with our third-party production partner.
Market demand for our silks still outpaces our in-house production capacity. The spider silk we have in inventory is dedicated to the first apparel launch from SpydaSilk, our joint venture brand with Kings Group in Singapore. The Kraig and Kings Group teams are working together closely to create SpydaSilk and our collective vision for the brand. Starting from this conceptual brand identity and ethos, we have created product concepts that we are now working to bring to life.
This summer, we announced hiring a leading textile expert to help us develop custom yarns and fabrics based on our unique spider silk materials. Over the last few months, this work has sent us on a global search for the best yarn spinners and mills. Our team has reached out to well over 100 of the top spinners of high-end yarns as part of our search to identify the best long-term partner. Guided by the counsel of our textile consultant, we developed what we believe to be the first of many new concept yarns and we are now in the process of having these vendors complete sample trials.
Outside of SpydaSilk, the Company continues to develop additional markets and opportunities for our materials. Opportunities in the protective and defensive textiles markets are at the top of the Company’s list for collaborative developments.
The opportunities and investments made possible over the last 24 months due to the $8 million in growth capital cannot be understated. With the careful deployment of a portion of this funding, we have built out a state-of-the-art breeding facility in Vietnam, advanced the state of our transgenic spider silk technologies in the labs, invested in the creation of the SpydaSilk apparel brand, worked to develop the first custom yarns and fabrics, and most critically invested into commercial scale spider silk production in partnership with our third-party contract manufacturer.
Over the last two-plus years, our world and our Company have faced unprecedented challenges. While times have been tough for many of us, Kraig had the good fortune and forethought to access capital ahead of many of these challenges. We have now paid off the cost of that capital both in terms of the elimination of conversable debt and the liquidation of the financer’s equity position.
As we turn our eyes toward 2023, we will enter the new year with a strengthened balance sheet, capital reserves, a strengthened R&D program, and significant production infrastructure. The biggest immediate hurdle to large-scale production is the robustness of our silkworms within the large-scale production environment. Our hybridization program, which is explicitly designed to increase robustness and cocoon size, is in an advanced state and will be rolled out in stages in early and mid-2023.
At Kraig, our plan is to make 2023 the year when spider silk production hits truly commercial scale, with robust hybrids and spider silk-based products beginning to make inroads into end product markets.
Season’s Greetings, Happy New year, and Merry Christmas to all of our shareholders and to the world.
Kim Thompson, CEO
Kraig Biocraft Laboratories, Inc.
