Kraig Biocraft Laboratories Inc (OTCMKTS:KBLB) Just Validated Our Bias

On a couple of occasions over the last few months, we have highlighted Kraig Biocraft Laboratories Inc (OTCMKTS:KBLB) as being both a stock to keep an eye on from a near term momentum play perspective, and also a potential longer-term allocation. The company is essentially in pre-growth phase, and while there is plenty of risk associated with picking up an exposure at this stage, there's also a huge potential reward if it can execute on its pre-growth strategy. We have been keeping an eye on the company for indications that this execution is in place, and we just got an update that suggests things are on track, if not ahead of it.Before we get to that, here is a quick reminder of what the company does.Kraig is a specialty textiles manufacturer that focuses on the production of what it calls Dragon Silk – a proprietary form of spider silk designed for use across a wide range of textile applications. Right now, and possibly one of the primary bull thesis drivers for the company, the US military is testing the material for use in various military clothing and materials applications. Specifically, the US military paid the company just shy of $100,000 to produce a certain amount of what it calls shoot packs, which are basically small pieces of the Dragon Silk material designed for testing with various ballistic inputs. If the military is intrigued by the materials potential once it has completed testing, then it has an option to close on a $1 million contract that would see Kraig produce and supply materials required for advanced testing and application. By April 2017, Kraig will have supplied the government with the shoot packs, and so we expect to hear an update with regards to the testing outcome latest third-quarter or fourth quarter next year.This outcome announcement serves as a major upside catalyst if it runs in favor of Kraig, and advanced materials testing.What about the latest update? Well, the company has spent the last couple of months pushing to expand its output capacity, by way of a development and manufacturing facility in Indiana. This week, Kraig announced that the facility has hit maximum production capacity far sooner than expected, and this should serve to speed up the delivery of the military shoot packs, bringing the above-mentioned catalyst forward, with any luck. Once the first phase of this government contract is out of the way, Kraig intends to start delivery for its industry customers:

"The Company is now conducting a complete assessment of the production facility’s throughput to prepare for the delivery of Dragon SilkTM to industry customers following the Company’s completion of the first phase of its US Army contract."

Those who are not yet familiar with Kraig might not grasp just how big a deal this industry delivery is, or at least not yet. Those who have been following the company will know that it is a major milestone, and transforms Kraig from something of a junior in the science and healthcare space to a producer and seller. It's almost the equivalent of a company going from development stage biotech to commercial biotech on the approval of a drug. As such, we are looking for a quick completion of the military contract to open the door to announcements concerning industry customers, with any such announcements relating to supply contracts being our focus catalysts outside of the government activity. What we'd like to see is these announcements hit press before completion of the government production run, so as we have a demonstrated commercial market before the company presses the green button on its supply process. We don't doubt that it does, but we'd like to see something quantitative related to order size, as this would probably allow us to judge output capacity and – in turn– potential revenues, near term.As a final note on risk, don't expect to avoid dilution on any early-stage holdings in this one. The company is going to need to raise capital to both market its products and to fund expected production, and this capital raise will be dilutive. If the government contract comes into fruition, however, it will far outweigh any potential value loss through said dilution, so while it's a consideration, it's far from prohibitive as things stand.Subscribe below and we will bring you KBLB updates as and when they come in!Disclosure: We have no position in KBLB and have not been compensated for this article.