Mr. Doug Blakeway reports

NANOTECH ANNOUNCES STRONG THIRD QUARTER FISCAL 2017 RESULTS

Nanotech Security Corp. has released its financial results for the three and nine months ended June 30, 2017.

Highlights during the third quarter:

• Revenue increased 151 per cent to $2,906,649 compared with the same period last year. Optics' revenue increased by 417 per cent to $2,569,016, reflecting increased revenue from paid development contracts and optical thin film (OTF) deliveries from the company's Thurso facility. Tactical's revenue decreased 49 per cent to $337,633 due to lower van and equipment sales.
• Gross margins improved to 78 per cent, up from 47 per cent in the same period last year. Gross margins continue to reflect strong margins in the optics division.
• Cash from operating activities improved to $696,117. Strong revenues and gross margins resulted in Nanotech achieving its first-ever quarter delivering positive cash from operations, a notable milestone and improvement from the $1,137,647 use of cash in the same period last year.
• The cash balance was $13,235,906 at the end of the quarter. The company completed a bought deal private placement with a syndicate of underwriters pursuant to which the company issued 11,586,870 common shares at a price of $1.15, for gross proceeds to the company of $13,324,901.
• Paid development contracts are progressing well. The company currently derives a significant portion of its revenue from paid authentication development projects with major issuing authorities. During the year, the company announced a development contract for up to $30.0-million over a period of up to five years. These development activities incorporate both nano-optic and OTF technologies and are focused on developing authentication features for future banknotes. All projects are progressing well, and the company continues to see development revenue as a significant growth area for the business.
• OTF opportunities: The company continues to work with its European production partner Hueck Folien to become qualified to deliver volume OTF to a specific Asian customer. Over all, management remains optimistic that there is strong customer demand for OTF and that its production partner will fulfill these requirements. The company also continues to deliver OTF from its Thurso facility and sees significant new opportunities for both facilities as other countries have indicated their plans to incorporate colour-shifting OTF into their future banknotes.
• Tax stamps: The company's nano-optic images have now become qualified with a customer in India that is currently supplying several billion holographic tax stamps to the Indian government. Management is working with this customer to transition the government from traditional holographic images to licensing Nanotech nano-optic images.

Recent developments

Doug Blakeway, Nanotech's chairman and chief executive officer, commented: "Our strong revenue and gross margins have led to our first cash-flow-positive quarter. This positive cash flow enhances our recent $13.3-million bought deal financing and, even after using $1.4-million to repay the convertible debentures, we finished the quarter with a $13.2-million cash balance. With the recent strengthening of our balance sheet and advancing customer relationships, we are very well positioned to continue our growth."

Outlook

Nanotech is a leader in next-generation anti-counterfeiting products. These products have brand protection and enhancement applications across a wide range of markets, including banknotes, secure government documents, commercial branding and the pharmaceutical industry. Nanotech is initially focusing its efforts on the banknote market due to its high margins and established customer base. Management continues to believe that the company is well positioned to supply OTF; however, the additional time required for product acceptance and integration into production processes has taken longer than anticipated. With the recent signing of the $30-million paid development contract, the company is focusing on further developing business with its established customer base and, as a result, is well positioned to expand its authentication development contract revenue and other nano-optic and OTF opportunities in the years ahead.

In 2017, management established a goal to double its revenue and make significant progress toward becoming cash flow positive. During the most recent quarter, the company delivered its first-ever quarter generating positive cash flow from operations and is on track to more than double optics' revenue for the year. The company's legacy business segment, tactical, has had a negative impact with both a significant reduction in revenue and the generation of a loss of $473,002. Looking ahead to the fourth quarter, management expects to make strategic decisions on tactical and deliver strong financial results consistent with this past quarter. Looking ahead to 2018, the company is well positioned to continue to expand its development revenue, begin supplying high-volume OTF and begin receiving licensing revenue from tax stamps.

Achieving these results is not certain and involves known and unknown risks that may cause actual results to differ materially from this goal. These risks and uncertainties include, among other things, risks related to uncertainty of amount and timing of purchase orders, the ability of Hueck Folien to deliver volume production, its ability to expand its optics development revenue, and its ability to maintain sufficient liquidity through June 30, 2018, to facilitate any business ramp-up. These and other risk factors are further discussed under the business risks and uncertainties segment of the Sept. 30, 2016, management's discussion and analysis.

                                                                                  
                    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)
                                                                                          
                                                                 Three months ended               Nine months ended
                                                                       June 30                       June 30
                                                                 2017            2016            2017            2016

Revenue                                                   $ 2,906,649     $ 1,157,905     $ 5,577,262     $ 3,615,365
Cost of sales                                                 650,107         614,194       1,638,632       1,830,232
                                                           ----------      ----------      ----------      ----------
Gross profit                                                2,256,542         543,711       3,938,630       1,785,133
Expenses
Research and development                                      483,511         552,188       1,389,172       1,777,574
General and administration                                    790,761         651,851       2,207,257       1,977,933
Sales and marketing                                           573,330         597,831       1,624,139       1,799,712
Depreciation and amortization                                 666,766         766,096       2,087,159       2,307,334
                                                           ----------      ----------      ----------      ----------
                                                            2,514,368       2,567,966       7,307,727       7,862,553
(Loss) before other expenses                                 (257,826)     (2,024,255)     (3,369,097)     (6,077,420)
Other expenses
Foreign exchange loss                                          84,022          27,067          56,841         103,283
Finance expense                                               563,420          68,909       1,027,500         135,873
                                                           ----------      ----------      ----------      ----------
                                                              647,442          95,976       1,084,341         239,156
(Loss) before income taxes                                  (905,268)      (2,120,231)     (4,453,438)     (6,316,576)
Deferred income tax recovery                                        -         162,797               -         162,797
                                                           ----------      ----------      ----------      ----------
Net (loss)                                                   (905,268)     (1,957,434)     (4,453,438)     (6,153,779)
                                                           ----------      ----------      ----------      ----------
Other comprehensive (loss)
Items that may be subsequently reclassified to earnings
Unrealized foreign exchange gain
on translation of foreign operation                            37,817           5,665          23,715          38,912
                                                           ----------      ----------      ----------      ----------
Total comprehensive (loss) for the period                    (867,451)     (1,951,769)     (4,429,723)     (6,114,867)
                                                           ----------      ----------      ----------      ----------
(Loss) per share,
basic and diluted                                               (0.02)          (0.04)          (0.08)          (0.12)
                                                           ----------      ----------      ----------      ----------

Conference call details:

Date:  Aug. 3, 2017

Time:  5 p.m. Eastern Daylight Time

Dial-in number:  toll-free (Canada and the United States): 1-888-430-8678

Conference ID:  2291594

Alternative number:  1-719-457-2619

Taped replay:  toll-free (Canada and the U.S.): 1-844-512-2921 (replay available until Sept. 3, 2017)

Replay PIN:  2291594

Alternative number:  1-412-317-6671

Replay PIN:  2291594

About Nanotech Security Corp.

Nanotech designs, manufactures and markets nano-optic OVDs and OTF products. These products have brand protection and enhancement applications across a wide range of markets, including banknotes, secure government documents, commercial branding and the pharmaceutical industry. The company is initially focusing its efforts on the banknote market due to its high margins and its established customer base.

We seek Safe Harbor.