Mr. Doug Blakeway reports

NANOTECH ANNOUNCES SECOND QUARTER FISCAL 2018 RESULTS

Nanotech Security Corp. has released its financial results for the three and six months ended March 31, 2018.

Highlights during the second quarter:

• Revenue of $1.9-million was 37 per cent higher than the same period last year. Paid development contracts continue to drive period-over-period revenue growth.
• Gross margins were 74 per cent, up from 66 per cent in the same period last year. Gross margins continue to reflect strong margins from development contracts.
• Adjusted EBITDA (net income (loss) excluding the impact of interest and financing costs (net of interest income), foreign exchange gain (loss), income taxes, depreciation and amortization, share-based compensation, and net income (loss) from discontinued operations) (1) reached $133,000. The company recorded its fourth consecutive quarter of positive adjusted EBITDA, a notable improvement from the negative $268,000 adjusted EBITDA reported for the same period last year.
• Cash balance was $10.3-million at quarter-end. The company finished the quarter with a strong cash position and no debt outstanding.

Recent developments:

• Paid development contracts are progressing: The company currently derives a significant portion of its revenue from paid authentication development projects with major issuing authorities. During 2017, 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 optical thin film (OTF) technologies and are focused on developing authentication features for future banknotes. All projects are progressing well, and the company continues to pursue additional development contract revenue as a growth area for the business.
• Tax stamps and commercial markets: During the second quarter of 2018, the company announced a distribution agreement appointing Holostik India Ltd. and Kumbhat Holographics Co. Ltd. as Nanotech's authorized distributors and converters for the non-banknote market in India, with an initial focus on the tax stamp and pharmaceutical markets. Outside of India, the company is pursuing opportunities in the luxury brand, cosmetics and pharmaceutical markets.
• Thurso OTF opportunities: The company invested in a research and development casting line for its Thurso facility during the second quarter of 2018. Management expects this equipment to expand development opportunities and product offerings available from this facility. The company continues to pursue opportunities to deliver OTF for new denominations within its existing customer base and with new customers. The Thurso operation also participates in researching OTF and production applications for development contracts.
• Volume OTF opportunities: The company continues to work with its European production partner, Hueck Folien, to help it become a qualified volume OTF supplier. Over all, management believes volume colour-shifting OTF is a growth opportunity; however, at this point in time, management cannot specify when or if Hueck Folien will be successful.
• Expansion of Nanotech team and facility: During the second quarter of 2018, Nanotech added two key members to its leadership team, with Joe Vosburgh and Monika Russell joining as vice-president, marketing, and vice-president, finance, respectively. The company also added additional support staff, expanded its head office lab space and invested in an electron beam lithography system. These expansion initiatives support Nanotech's growth strategy and enhance the company's development and marketing capabilities.
• Divestiture of non-core business: The company is actively pursuing strategic options with respect to its subsidiary, Tactical Technologies Inc., including potential purchasers or closing the operation. The company has restructured Tactical's operations, and it currently operates with four employees and a limited cash burn. Management expects that Tactical will either be sold or wound down over the next few months.

Doug Blakeway, Nanotech's chairman and chief executive officer, commented: "Our continued revenue growth and consistently strong margins have led to our fourth consecutive quarter of positive adjusted EBITDA. This strong financial performance has enabled us to invest in equipment, staff and facilities that will be required to implement our growth strategy. With our solid balance sheet, increased development contract revenue and advancing customer relationships, we are very well positioned to deliver on our 2018 revenue and adjusted EBITDA goals, and pursue further growth in markets outside of banknotes."

Select financial information

All results are prepared in accordance with international financial reporting standards as issued by the International Accounting Standards Board.

                                                         Three months ended              Six months ended  
                                                              March 31,                      March 31,
                                                        2018           2017           2018           2017

Revenue                                           $1,943,095     $1,418,644     $4,176,322     $2,113,115
Gross margin                                       1,445,391        935,800      3,114,767      1,513,802
Gross margin %                                            74%            66%            75%            72%
Adjusted EBITDA (1)                                  132,955       (267,640)       592,600       (823,221)
Net (loss)                                          (284,710)    (1,694,890)      (188,890)    (3,548,170)
Earnings (loss) per share, basic and diluted            0.00          (0.03)          0.00          (0.07)

(1) Adjusted EBITDA (net income (loss) excluding the impact of interest and financing costs 
(net of interest income), foreign exchange gain (loss), income taxes, depreciation and 
amortization, share-based compensation, and net income (loss) from discontinued operations)
is a non-international financial reporting standard measure.

Outlook

With a strong balance sheet, including $10,286,702 in cash and no debt, management continues to be on track to deliver strong annual revenue growth between 20 per cent and 40 per cent, and 15-per-cent to 20-per-cent adjusted EBITDA margins. A further update on the goals that management established for the 2018 fiscal year is as follows:

1. Increase revenues by 20 per cent to 40 per cent (which excludes any potential volume OTF order): Revenues have grown 98 per cent in the first half of fiscal 2018 compared with the same period last year.
2. Begin to collect licensing revenue from the tax stamp and commercial markets: The company has entered into distribution agreements in India and is pursuing both tax stamp and commercial market revenue from this geographic market.
3. Maintain a strong focus on earnings with a target of 15-per-cent to 20-per-cent adjusted EBITDA margin: Adjusted EBITDA margin for the first six months of fiscal 2018 was 14 per cent.
4. Continue to pursue a volume OTF partnering opportunity with Hueck Folien for banknotes: Management continues to support manufacturing partner Hueck Folien in a continuing effort to improve the quality of its production.
5. Invest in several key marketing hires to ensure internal resources are in place to develop the products, sales channels and marketing materials necessary to penetrate commercial markets: Joe Vosburgh joined the company as vice-president, marketing, bringing over 20 years experience in the successful development and commercialization of breakthrough technologies. Monika Russell, who has 15 years public company experience, also joined as vice-president, finance, which will allow Troy Bullock, its president and chief financial officer, to expand his responsibilities.
6. Continue to open new corporate development opportunities by partnering with established companies to enable Nanotech to enter new markets: The company announced a distribution agreement appointing Holostik India Ltd. and Kumbhat Holographics Co. Ltd. as Nanotech's authorized distributors and converters for the non-banknote market in India.

Nanotech is well positioned financially to pursue opportunities in the banknote, tax stamp and commercial markets in the years ahead. In addition to developing further business with its established customer base, including the expansion of its authentication development contract revenue, the company continues to develop new nano-optic and OTF opportunities.

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, the loss of a key customer, risks related to uncertainty of amount and timing of purchase orders, the ability of Hueck Folien to become a qualified volume OTF supplier, the company's ability to expand its development revenue, and its ability to maintain sufficient liquidity through March 31, 2019, 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, 2017, management's discussion and analysis.

                                                                                
              CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)
                                           (in dollars)        
                                                               Three months ended               Six months ended      
                                                                   March 31,                        March 31,           
                                                            2018             2017             2018             2017

Revenue                                               $1,943,095       $1,418,644       $4,176,322       $2,113,115
Cost of sales                                            497,704          482,844        1,061,555          599,313
                                                       1,445,391          935,800        3,114,767        1,513,802
Expenses
Research and development                                 392,489          388,803          738,676          763,799
General and administration                               690,494          642,835        1,232,113        1,185,536
Sales and marketing                                      489,767          519,632          946,517          945,136
Depreciation and amortization                            408,655          693,189          718,698        1,414,026
                                                       1,981,405        2,244,459        3,636,004        4,308,497
(Loss) from continuing operations
before other expenses                                   (536,014)      (1,308,659)        (521,237)      (2,794,695)
Other (income) expenses
Foreign exchange (gain) loss                            (176,858)          17,213         (223,859)         (27,181)
Finance (income) expense                                 (26,226)         233,008          (60,268)         464,127
                                                        (203,084)         250,221         (284,127)         436,946
Net (loss) from continuing operations                   (332,930)      (1,558,880)        (237,110)      (3,231,641)
Net income (loss) from discontinued operations            48,220         (136,010)          48,220         (316,529)
Net (loss)                                              (284,710)      (1,694,890)        (188,890)      (3,548,170)
Other comprehensive (loss)
Items that may be subsequently reclassified
to earnings
Unrealized foreign exchange gain (loss)
on translation of foreign operation                      (45,766)          10,867          (70,768)         (14,102)
Total comprehensive (loss)                             $(330,476)     $(1,684,023)       $(259,658)     $(3,562,272)
Basic and diluted earnings (loss) per share
Continuing operations                                      $0.00           $(0.03)           $0.00           $(0.06)
Discontinued operations                                    $0.00            $0.00            $0.00           $(0.01)
Net (loss)                                                 $0.00           $(0.03)           $0.00           $(0.07)

Conference call details

Date:  May 10, 2018

Time:  5 p.m. Eastern Time

Dial-in number:  toll-free (Canada and the United States): 1-800-263-0877

Conference ID:  1697009

Alternative number:  1-323-794-2094

Taped replay:  toll-free (Canada and the United States): 1-844-512-2921 (replay available until June 10, 2018)

Replay PIN:  1697009

Alternative number:  1-412-317-6671

Replay PIN:  1697009

About Nanotech Security Corp.

Nanotech researches, creates and produces nano-optic structures and colour-shifting materials used in authentication and brand enhancement applications across a wide range of markets, including banknotes, tax stamps, secure government documents, commercial branding and the pharmaceutical industry.

The company's nano-optic technology employs arrays of billions of nano-indentations that are impressed or embossed onto a substrate material, such as polymer, paper, metal or fabric. By using sophisticated algorithms to direct an electron beam lithography system, the company creates visual images with colour-shifting effects, such as 3-D and perceived movement, and can also display high-definition colours, including skin tones, and whites and blacks, which are not possible using holographic technology.

We seek Safe Harbor.