Mr. Douglas Dyment reports

GATEKEEPER SYSTEMS NEWS RELEASES Q3 FINANCIALS

Gatekeeper Systems Inc. has filed its financial statements and management's discussion and analysis for the three and nine months ended May 31, 2017, available for viewing on SEDAR.

Financial highlights

• Revenue during the three months ended May 31, 2017, decreased 27 per cent to $2,274,528 compared with $3,103,333 during the three months ended May 31, 2016.
• Revenue during the nine months ended May 31, 2017, decreased by 14 per cent to $4,953,564 compared with $5,784,915 during the nine months ended May 31, 2016.
• Gross profit during the three months ended May 31, 2017, decreased 23 per cent to $1,183,068 from $1,541,440 during the three months ended May 31, 2016.
• Gross margin as a percentage of revenue during the nine months ended May 31, 2017, decreased to 49 per cent, compared with 50 per cent during the nine months ended May 31, 2016, representing a 1-per-cent decrease.
• Net income for the three months ended May 31, 2017, was $139,508 compared with a net income of $322,078 during the three months ended May 31, 2016.
• As of May 31, 2017, the company had cash and cash equivalents of $6,049,705 and working capital of $7,698,374.
• EBITDA (earnings before interest, taxes, depreciation and amortization) for the three months ended May 31, 2017, was $161,951 and for the nine months ended May 31, 2017, was negative $383,372.

Business update

During the third quarter, the following notable events occurred:

• Closed the non-brokered private placement as announced on April 3, April 6 and April 10, through the issuance of 21.28 million units for gross proceeds of $4,256,000, increasing working capital to over $7-million;
• Decreased total number of cameras shipped by 4 per cent compared with same period in 2016 and an 8-per-cent decrease year to date in 2017 compared with 2016;
• An equivalent total number of digital video records (DVRs) shipped compared with the same period in 2016 and a 5-per-cent decrease year to date in 2017 compared with 2016;
• The number of stop-arm camera evaluation sites remains at 24, involving 1,862 buses owned by various school districts.

The company's base business continued to support sales in the third fiscal quarter reaching over $2.27-million for the quarter. The sales decrease was primarily due to the timing of certain sales contracts expected to land in the third quarter, but that have been delayed for various reasons.

The current number of stop-arm camera evaluation sites remains at 24, involving 1,862 buses owned by various school districts. Gatekeeper is working with school districts, law enforcement and judicial systems to complete the evaluation phase on these sites and progress to commercial implementation, ideally in the form of revenue-sharing arrangements.

The company expects to secure purchase orders for up to three more revenue-sharing contracts in the stop-arm camera business prior to the end of the 2017 fiscal year.

Sales and business development activity for the third quarter was robust resulting in the sales funnel tripling at May 31, 2017, compared with May 31, 2016.

Product news

During the third quarter, the company accomplished the following:

• Completed development of an additional two new digital video recorders (DVRs) with the latest analog high-definition (AHD) standard. The new AHD standard allows customers to upgrade their existing analog camera and DVRs using the existing analog wiring infrastructure. The two new DVRs are expected to ship in the fourth quarter of fiscal 2017;
• Added capability to its Traffic Infraction Management System (TIMS) to support additional stop-arm camera projects expected to land by the end of fiscal 2017;
• Finalized development of high-definition video for multilane licence plate reading technology for its stop-arm camera systems. Shipment of this new camera is expected in the first quarter of fiscal 2018;
• Initiated development of a unique cloud-based software application that automates certain communication protocols of its recording devices.

Moving ahead

The company's increased working capital of over $7-million will be used to finance operations in its base business, including the transit market, and accelerate the stop-arm camera business.

The company is in the process of increasing its staff by up to 30 per cent in the areas of senior management, sales, engineering and administration. The timing of some new hires will be directly related to the company's revenue and profitability performance. A specific focus will be to add sales people in geographic regions where brand saturation is required.

The company continues to explore and add new partners by way of business development and sales arrangements, third party software integrations, and new product technology partners to drive more revenue. The company is also looking at strategic acquisitions to increase revenue and expand distribution to existing and new markets. In addition, the company is exploring expansion of its operations to the United States.

Doug Dyment, president and chief executive officer of Gatekeeper, commented: "I am happy that the third quarter was profitable and operating expenses were in line with expectations. The revenues were lower than expected due to the timing of certain projects landing. The company's revenue continues to be lumpy quarter to quarter given that we are still in a development mode. What is encouraging is that the sales funnel has increased over last year given our limit sales resources. The closing of the $4,256,000 financing provides the necessary working capital for the company moving forward. This new working capital allows us to expand our sales force while ensuring that the company's cash position remains healthy until the revenue from that new sales force is realized. In order to ensure our plan is executed, the company is actively looking to add key senior management positions and appoint strategic board members."

  
   
               SUMMARY OF FINANCIAL RESULTS AND INFORMATION

                                       Three months ended         Nine months ended         
                                May 31, 2017 May 31, 2016 May 31, 2017 May 31, 2016
                                                                                    
Revenue                           $2,274,528  $ 3,103,333  $ 4,953,564  $ 5,784,915  
Cost of sales                     $1,091,460  $ 1,561,893  $ 2,522,804  $ 2,903,812  
Gross profit                      $1,183,068  $ 1,541,440  $ 2,430,760  $ 2,881,103  
Gross margin                             52%          50%          49%          50%          
Expenses                          $1,050,846  $ 1,035,642  $ 2,865,036  $ 2,951,357  
Operating income (loss)           $  132,222  $   505,798  $  (434,276) $   (70,254)   
Net income (loss) for the period  $  139,508  $   322,078  $  (445,835) $  (189,145)  
Earnings (loss) per share                                                           
Basic                             $     0.00  $      0.01  $     (0.01) $      0.00       
Diluted                           $     0.00  $      0.01  $     (0.01) $      0.00       

Financial reports

Full details of the financial reports and operating results for the three and nine months ended May 31, 2017, are described in the company's condensed interim consolidated financial statements with accompanying notes and related management's discussion and analysis. These documents and additional information on Gatekeeper are available on SEDAR.

About Gatekeeper Systems Inc.

A TSX Venture Exchange company since 2013, Gatekeeper Systems has provided total mobile video security solutions to over 3,500 customers and has installations in every state and province in North America. Customers include school districts, public transit, law enforcement and military.

We seek Safe Harbor.