Kraken Announces Private Placement and Provides Business Update

ST. JOHN'S, NF--(Marketwired - July 19, 2016) -

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Kraken Sonar Inc. (TSX VENTURE: PNG) ("Kraken" or the "Company") is pleased to announce that it is undertaking a non-brokered private placement offering for aggregate gross proceeds of up to CDN$1 million (the "Offering") and is also pleased to provide an update regarding the business and operations of the Company and its wholly-owned subsidiary, Kraken Sonar Systems Inc.

FINANCING

Pursuant to the Offering, the Company will issue an aggregate of up to 6,666,667 units (the "Units") at a price of $0.15 per Unit for aggregate gross proceeds of up to CDN$1 million. Each Unit will consist of one common share of the Company (each, a "Share") and one-half of one common share purchase warrant (each full warrant, a "Warrant"). Each Warrant shall entitle the holder thereof to acquire one Share at a price of CDN$0.30 for a period of two years from closing of the Offering. The securities issued in connection with the Offering will be subject to a statutory hold period in accordance with applicable securities legislation.

Greg Reid, CFO of Kraken stated, "This $1 million financing, along with announced contract revenue and recent grant funding, provides the Company with the required working capital to deliver our first KATFISH™ in Q4/2016 and advance a number of ongoing sales opportunities and strategic discussions in both the military and commercial end markets."

The Offering is being made available to accredited investors, and existing shareholders of the Company, who, at the close of business on July 18, 2016 (the "Record Date"), held common shares of the Company (and who continue to hold common shares of the Company at the time of closing of the offering), pursuant to the existing security holder exemption (the "Existing Security Holder Exemption"), as well as to other investors pursuant to other available exemptions. In accordance with the Existing Security Holder Exemption (currently not available in Newfoundland and Labrador), the Company confirms there is no material fact or material change related to the Company which has not been generally disclosed. Any existing shareholder interested in participating in the offering should contact the Company.

The closing of the Offering is expected to occur on or about August 4, 2016 and remains subject to certain closing conditions, including, but not limited to, the receipt of applicable regulatory approvals and the completion of required regulatory filings with the TSX Venture Exchange. The Offering is subject to a minimum subscription amount of $5,000. The Company intends to use the net proceeds of the Offering for general corporate and working capital purposes. Cash Finders' fees in the amount of 7.0% may be paid in connection with certain subscriptions under the private placement.

BUSINESS UPDATE

Karl Kenny, President and CEO of the Company stated, "During the first 6 months of 2016 the Kraken team continued to successfully build on our sensors-to-systems strategy with the objective of becoming a leader in the Unmanned Maritime Systems industry. As we enter Q3/2016, our resources are focused on delivering on our existing contract with Elbit Systems Ltd. for our KATFISH™ intelligent towed sonar system, as well as contracts for AquaPix® sonar sensors with leading customers such as Germany's Fraunhofer Institute, the Woods Hole Oceanographic Institution and others. Our recently announced relationship with Square Robot Inc. is moving forward as expected; and we are working towards signing a contract with a major defense contractor for the development of an advanced underwater robotic drone."

KATFISH™
In mid-June, Kraken completed a successful engineering design review of the production KATFISH-180 vehicle. This review highlights achievement of several key milestones, including:

• Hydrodynamic modeling and simulation of the KATFISH vehicle
• Integration of SQX-500 codebase with the KATFISH software stack.
• At-sea testing of the KATFISH sensor payloads

The hydrodynamic modeling and simulation of the KATFISH vehicle has been reviewed and accepted. This performance prediction model not only serves as an input into the KATFISH intelligent control system, but also serves as a valuable prediction tool in a full-range of sea states, reducing at-sea testing risk and saving valuable ship time.

Kraken has completed integration of the KATFISH sensor suite with the KATFISH software stack. Leveraging the underwater robotic intellectual property acquired from Marine Robotics, Kraken's KATFISH software stack is a modular architecture, scalable to a variety of vehicle platforms and configurations. Recent improvements to the core software has allowed for significantly faster response times and increased overall performance.

These milestones represent critical points in the KATFISH project and Kraken management is pleased that the KATFISH remains on schedule for delivery in 2016.

AQUAPIX® MINSAS
In July 2016, Kraken successfully completed sonar support trials in Germany for the Fraunhofer Institute's Autonomous Underwater Vehicle ("AUV") program. The Fraunhofer Institute is the leading organization for applied research in Europe. Under the terms of the contract, Kraken designed, engineered and delivered a 6,000m depth rated AquaPix® MINSAS sonar system that is integrated into Fraunhofer's AUV. CNN recently profiled the Fraunhofer AUV on CNN Money. The video can be viewed at:

http://money.cnn.com/video/technology/2016/06/20/mci---dedave.cnnmoney/

Additionally, Kraken recently completed a successful Critical Design Review with the Woods Hole Oceanographic Institution ("WHOI") after earlier this year being awarded a CDN$600,000 contract by WHOI for a 6,000m deep-sea rated AquaPix® MINSAS sonar, a Real Time Embedded SAS Signal Processor and related engineering services. Delivery of the system is scheduled for August 2016.

SQUARE ROBOT INC.
In June 2016, Kraken announced the signing of a strategic partnership agreement with Square Robot Inc. ("SRI") of Boston, Massachusetts. This agreement will see Kraken design, manufacture and support advanced sensors and robotic systems for confined area inspection applications used by the worldwide oil and gas industry. Kraken and SRI are working diligently on the design of innovative robotic devices that will use advanced acoustic, optical and laser sensors. Under this agreement and within the next 30 - 45 days, Kraken expects to be awarded an initial contract to play a significant role in delivering sensors and major software components as part of a US$2-$3 million development program. As part of a 5-year collaboration agreement, Kraken could see an additional US$5M in revenue for manufacturing support. Kraken will be the exclusive manufacturing and product support partner to SRI and expects to work with SRI on the development of additional robotic systems for other inspection applications. Kraken anticipates average selling prices to be in the range of US$400,000 - US$500,000 for the initial SRI application with a forecast of approximately 70 units over the first five years of SRI's service offering.

UNDERWATER ROBOTICS
The underwater robotics market is at an inflection point and the Company believes the industry is set for major growth. Military and commercial operators are now significantly investing in this technology as the cost utilization of drones is much less than conventional manned platforms. Kraken continues to invest in underwater robotics, sensor technology and handling systems. During the second half of 2016, the Company is aiming to enter into a contract with an international defence contractor for the development of an advanced underwater robotic drone that is code-named ThunderFish™. Depending on the sensor payload configuration, Kraken expects the ThunderFish™ drone to be priced in the range of US$3 million.

Kraken also expects to see significant growth in the deepwater oil and gas industry. As the early shallow-water fields are depleting, operating companies are moving to deeper water (>500m), where large discoveries can still be made. Deepwater production is forecast to rise from 10% of global oil production in 2013 to nearly 20% by 2025, as the development of deepwater reserves has become vital. There is also a trend towards exploration in ultra-deepwater (depths greater than 2000m).

A drive to maximize production from aging assets is also underway, involving large-scale modifications to boost end-of-life production. This trend has led to the emergence of a busy inspection and maintenance market, in which revenue opportunities have grown steadily. With non-productive time and delays prohibitively costly for operators, the outlook for high-quality subsea inspection, repair, and maintenance is very positive.

Subsea developments will continue to account for an increasing share of global offshore activity and the sector has become a sizable opportunity for underwater robotics technologies. Autonomous Underwater Vehicles ("AUV") are increasingly being used for deepwater surveys and are expected to be deployed for subsea inspection tasks. Technological advancements are being developed for riser, pipeline, sea line and life of field inspection. AUVs are commercially proven in pipeline inspection markets, while developments in other areas are progressing. With the growing infrastructure and subsea pipeline network, AUVs are expected to gain market share.

ABOUT KRAKEN SONAR INC.
Kraken Sonar Inc. (TSX VENTURE: PNG) is the parent of Kraken Sonar Systems Inc. ("KSSI"), an industrial technology company, founded in 2012, that is dedicated to the production and sale of Synthetic Aperture Sonar, sensors and underwater robotics. The Company's products are sold to leading defence contractors, commercial survey companies and research institutions for producing real-time, ultra-high resolution imagery and bathymetry of the seabed. For more information, please visit www.krakensonar.com.

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.

Neither the TSX Venture Exchange Inc. nor its Regulation Services Provide (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.