Kraken Reports Q1 2017 Financial Results

ST. JOHN'S, NL--(Marketwired - May 31, 2017) - Kraken Sonar Inc. (TSX VENTURE: PNG) announced it has filed its financial results for the first quarter ended March 31, 2017. Additional information concerning the Company, including its audited consolidated financial statements and related management's discussion and analysis ("MD&A") for the quarter ended March 31, 2017, can be found at www.sedar.com. Unless otherwise stated, all dollar amounts are Canadian dollar denominated.

CEO Comments

"With the recent closing of a $2.1 million equity financing and the upcoming delivery of our first KATFISH, we are excited about our prospects going forward. Over the last 24 months Kraken has continued to execute on our Sensors to Systems strategy," stated Karl Kenny, President and CEO of Kraken. "We have made significant but prudent investments in the hiring of new personnel, expanding engineering design and manufacturing operations, acquisition and licensing of underwater robotics IP, continued product innovation and development of international distribution channels. Over the past year, our business development efforts have been primarily focused on establishing strategic alliance partners in both the underwater defence and offshore energy sectors. We expect to start announcing these partnerships soon and believe that they will lead to long-term relationships with significant recurring revenues. We are very well positioned to meet the emerging opportunities in the marine robotics industry -- particularly for Robots as a Service."

Q1 2017 Overview

• Revenues for the 3 months ended March 31, 2017 were $0.3 million as compared to $0.7 million in the comparable year ago period.
• Net loss for the quarter was $0.7 million versus a net loss of $0.1 million in the year ago quarter. The increased loss year-over-year reflects investments in new product development, people, marketing and business development.
• While Kraken ended Q1 2017 with approximately $50,000 in cash, subsequent to quarter end Kraken strengthened its balance sheet through the $2.1 million equity financing and recently collected a further US$300,000 from the second installment on its sale of a non-core asset.
• Kraken ended Q1 2017 with 78.9 shares outstanding. Basic and diluted weighted average shares outstanding increased to 78.5 million versus 71.1 million in Q1 2016.
• At the beginning of January 2017, Kraken's new German subsidiary started operations in Bremen. The first employees were previously scientists with DFKI (the German Center for Artificial Intelligence). This team has been working with our Canadian engineering team to develop and launch our SeaVision™ 3D underwater laser system and will continue to work in areas of artificial intelligence and machine learning.
• Signed an exclusive licensing agreement for underwater robotics technology with Germany's Fraunhofer Institute for Optronics, System Technologies, and Image Exploitation (IOSB).
• Was awarded a non-dilutive financial contribution, which will be used to support development of the Company's underwater robotics program, of up to $1,470,000 from the National Research Council of Canada Industrial Research Assistance Program (NRC-IRAP).
• Announced SeaVision™, the world's first RGB underwater laser imaging system that offers the resolution, range and scan rate to deliver dense full colour 3D point cloud images of subsea infrastructure with millimetre accuracy in real time. The initial system is designed for deployment on underwater robotic platforms such as Remotely Operated Vehicles (ROVs) and Autonomous Underwater Vehicles (AUVs). SeaVision™ creates an ultra-high 3D reconstruction of submerged objects in real-time. These models are of photorealistic quality, offering full color and millimetre resolution, essential for monitoring structural issues such as progressive degradation or developing intervention solutions for damaged assets. The combination of SeaVision™ with our sonar and underwater robotics technology will become a valuable tool for subsea asset management.
• KRG was awarded a contract to design and build a 6,000-metre rated 3D laser/optical imaging system for the Alfred Wegener Institute, Helmholtz Centre for Polar and Marine Research (AWI).
• Announced it has teamed with Boston-based Riptide Autonomous Solutions to supply AquaPix MINSAS for integration onboard Riptide's new 2-Man Portable UUV platform.

Notable Events Subsequent to the end of Q1

• Completed a non-brokered private placement of 11,806,660 units at a price of $0.18 raising gross proceeds of $2,125,199. Each unit consists of one common share and one half of one common share purchase warrant. Each full warrant is exercisable at a price of $0.30 for a period of two years.
• Was awarded a non‐refundable financial contribution of $745,950 by the Research & Development Corporation (RDC) of Newfoundland and Labrador to support development of the Company's ThunderFish® Autonomous Underwater Vehicle (AUV) program;
• Has acquired a minority interest in ENITECH Subsea GmbH of Rostock, Germany and that company has been renamed Kraken Power GmbH. Under the agreement, Kraken has taken a 19.9% equity interest and provided a EUR110,000 convertible loan. The loan pays interest at 5% per annum and has a term of three years. Through the conversion of the loan to equity and a further investment capped at EUR200,000, Kraken can choose to increase its ownership stake to 75% of the common shares of Kraken Power GmbH;
• Completed the sale of its investment in Square Robot Inc., a non-core asset. This investment was made in mid-2016 for US$120,000. The first sale installment of US$350,000 was received in Q1 while the balance of US$300,000 was received subsequent to quarter end, in May 2017.

Outlook for the Balance of 2017

Kraken will continue to evolve our Sensors to Systems strategy:

• Kraken recently completed successful Factory Acceptance Tests of its KATFISH™ intelligent towfish system. The Company is now scheduled to ship the unit to its customer at the end of June. Kraken believes that KATFISH™ will disrupt current industry solutions based on market feedback to-date. The Company is seeing considerable interest from both military and commercial market sectors and is building a second KATFISH for trials with several potential customers. These include a major proposal that Kraken has submitted to an Asian naval customer as well as contract opportunities with several European navies. In addition, there are emerging opportunities in the oil and gas sector.
• In June, Kraken will take delivery of the DEDAVE Autonomous Underwater Vehicle (AUV) from Fraunhofer. DEDAVE is a fully equipped 6000-metre rated AUV that carries advanced sensors including Kraken's AquaPix® Synthetic Aperture Sonar. DEDAVE will be used as a technology development platform as part of Kraken's ongoing ThunderFish® AUV program. In addition to supporting engineering efforts, the Company expects that the DEDAVE platform will be contracted for a variety of underwater military, commercial and scientific surveys.
• Kraken continues with strategic partnering discussions with both military and oil and gas industry leaders. With the growing concern for national security, governments of developed and emerging economies have increased their spending on defense, which is reflecting significantly on the uptake of underwater robots. The extensive investments in military robotics is likely to propel the underwater defence market over the coming years.
• Kraken recently passed technical evaluation and has been qualified for participation in a major underwater defence program. The Company is awaiting further feedback from the government agency regarding budget allocation for the program.
• Kraken has been requested and submitted contract proposals to several military, offshore energy and ocean science customers for AquaPix® and SeaVision™ sensors as well as Robots as a Service (RaaS) using both the DEDAVE and KATFISH platforms. Kraken believes that RaaS will become a dominant business model in maritime robotics. RaaS firms will build, operate, maintain and innovate their platforms. They will "own their own fleet" of robots and sell clients the value of their services -- as an operating expense, not as a capital procurement. Customers will gain flexibility and seamless upgrades without major costs for implementation overhauls. In turn, RaaS firms will benefit from recurring revenue streams, faster product iteration and a closer connection with their product-market fit.

ABOUT KRAKEN SONAR INC.

Kraken Sonar Inc. (TSX VENTURE: PNG) is a marine technology company, founded in 2012, that is dedicated to the production and sale of software-centric sensors and underwater robotic systems. The company is headquartered in St. John's, Newfoundland with offices in Dartmouth, Nova Scotia; Bremen, Germany; and Fairfax, Virginia. For more information, please visit www.krakensonar.com, www.krakenrobotik.de, www.krakenpower.de.

Certain information in this news release constitutes forward-looking statements. When used in this news release, the words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "seek", "propose", "estimate", "expect", and similar expressions, as they relate to the Company, are intended to identify forward-looking statements. In particular, this news release contains forward-looking statements with respect to, among other things, business objectives, expected growth, results of operations, performance, business projects and opportunities and financial results. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Such statements reflect the Company's current views with respect to future events based on certain material factors and assumptions and are subject to certain risks and uncertainties, including without limitation, changes in market, competition, governmental or regulatory developments, general economic conditions and other factors set out in the Company's public disclosure documents. Many factors could cause the Company's actual results, performance or achievements to vary from those described in this news release, including without limitation those listed above. These factors should not be construed as exhaustive. Should one or more of these risks or uncertainties materialize, or should assumptions underlying forward-looking statements prove incorrect, actual results may vary materially from those described in this news release and such forward-looking statements included in, or incorporated by reference in this news release, should not be unduly relied upon. Such statements speak only as of the date of this news release. The Company does not intend, and does not assume any obligation, to update these forward-looking statements. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

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