Mr. David Mier reports

SPECTRA7 ANNOUNCES FINANCIAL RESULTS FOR THE QUARTER ENDED MARCH 31, 2017

Spectra7 Microsystems Inc. has released its unaudited financial results for the three-month period ended March 31, 2017. A copy of the unaudited interim consolidated financial statements for the three-month period ended March 31, 2017, prepared in accordance with international financial reporting standards and the corresponding management discussion and analysis will be available under the company's profile on SEDAR. All amounts are in U.S. dollars unless otherwise stated.

Quarter ended March 31, 2017, financial highlights

• Revenue for the quarter ended March 31, 2017, was $2.7-million as compared with $2.5-million in the same period in the prior year, representing an increase in revenue of 8 per cent, and an all-time high quarterly revenue for the company.
• Gross margin as a percentage of revenue for the quarter ended March 31, 2017, remained strong at 60 per cent and consistent with gross margin percentage of 60 per cent in the previous quarter.
• Operating expenditures for the company decreased by over $600,000 from the prior quarter, primarily due to lower general and administrative expenses, which are expected to continue through 2017.
• The company entered the second quarter with sequentially higher backlog than the first quarter, driven by continued demand growth within its augmented reality/virtual reality portfolio.

Other quarterly highlights

• The company secured three Tier 1 design wins in the first quarter that management believes could be the three most important wins in the augmented reality/virtual reality/mixed reality industry. One of the three design wins is expected to contribute material revenue growth in the second half of 2017.
• The company began to sample its GaugeChanger Plus to leading cable and OEM (original equipment manufacturing) partners in the data centre market, with early testing under way.
• The company significantly expanded its technical and sales support organization in the Asia Pacific region in support of its expanding augmented reality/virtual reality/mixed reality and data centre customer base.

Subsequent events in the second quarter of 2017

• The company received an expression of interest in connection with the proposed sale of its non-core television tuner/demodulator and radio frequency patents for $4-million plus potential future royalties, subject to due diligence, the execution of definitive documentation and other conditions.
• The company entered into an amendment to its senior secured term loan facility with MidCap Financial Services LLC, which shall become effective upon satisfaction of certain conditions precedent, to defer monthly principal payments originally scheduled to commence on June 1, 2017, by one year to June 1, 2018. Once the amendment is effective, this deferral of principal payments would eliminate $3.2-million of principal payments over the next 12 months. In consideration of the amendment, the company has agreed to issue to an affiliate of Midcap 750,000 common share purchase warrants, with each warrant being exercisable for a period of five years into one common share at an exercise price equal to the volume-weighted average trading price of the common shares on the facilities of the Toronto Stock Exchange for the five days preceding the issuance of the warrants.
• On May 2, 2017, the company reported the appointment of Gerald J. Hamilton to the position of senior vice-president, worldwide sales, reporting directly to chief executive officer Raouf Halim.
• On May 1, 2017, the company relocated its headquarters to San Jose. This new site is a significantly larger space, allowing for future growth, and is centrally located for its employee base. It also represents a significant cost decrease from its prior headquarters in Palo Alto.

Chief executive officer commentary

"I am delighted with the trajectory of our business, both in terms of Tier 1 design wins and revenue growth in what is seasonally a soft quarter," stated Mr. Halim. "As we scale the business, we continue to strengthen our balance sheet by undertaking several key actions, such as restructuring our debt, coupled with the planned sale of non-core patents."

About Spectra7 Microsystems Inc.

Spectra7 is a high performance analog semiconductor company delivering unprecedented bandwidth, speed and resolution to enable disruptive industrial design for leading electronics manufacturers in broadband connectivity markets. Spectra7 is based in San Jose, Calif., with design centres in Markham, Ont.; Cork, Ireland; and Little Rock, Ark.

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