Mr. Raouf Halim reports

SPECTRA7 ANNOUNCES FOURTH QUARTER AND ANNUAL FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2017

Spectra7 Microsystems Inc. has released its audited financial results for the year ended Dec. 31, 2017. A copy of the audited consolidated financial statements for the 12 months ended Dec. 31, 2017, prepared in accordance with international financial reporting standards and the corresponding management's discussion and analysis (MD&A) will be available under the company's profile on SEDAR. All amounts are in U.S. dollars unless otherwise noted.

2017 financial and operational summary:

• Revenue for the year ended Dec. 31, 2017, was $10.6-million as compared with $8.6-million in the previous year, representing a 23-per-cent increase.
• Gross margin as a percentage of revenue for the year ended Dec. 31, 2017, remained strong at 58 per cent, consistent with gross margin percentage of 58 per cent in the previous year.
• EBITDA (earnings before interest, taxes, depreciation and amortization) improved to a loss of approximately $6.0-million from a loss of approximately $8.1-million in 2016.
• The company added three new executive team members: Gerald Hamilton as senior vice-president of worldwide sales, Antony Ng Yukshing as vice-president of operations, and Darren Ma as chief financial officer.
• The company closed an aggregate $6.0-million (Canadian) bought-deal public offering and private placement equity financings in June/July, 2017.
• The company successfully expanded its corporate headquarters by moving from Palo Alto, Calif., to San Jose, Calif. The new facility provides upgraded engineering facilities and reduced operating costs.

Fourth quarter 2017 financial summary:

• Revenue for the fourth quarter of 2017 was approximately $2.9-million, representing a 45-per-cent increase over the prior quarter and 16 per cent over the same period in the prior year.
• Gross margin in the fourth quarter of 2017 was 55 per cent, approximately flat sequentially and down from 60 per cent over the same period in the prior year.
• Supply constraints experienced in the third quarter of 2017 were resolved in the fourth quarter.
• A $1.6-million non-cash impairment charge was taken for goodwill accrued in connection with the acquisition of RedMere Technology Ltd. in February, 2013. The company continues to see strong adoption of its active copper cable products within its core markets.

Update on data centre market traction:

• The company continues to experience strong traction with its data centre solutions and announced six new customer design-ins in the fourth quarter of 2017.
• The company showcased 100-, 200- and 400-gigabit-per-second data centre interconnects at DesignCon 2018.
• The company announced key partnerships with three major data centre interconnect suppliers including Foxconn Interconnect Technology Ltd., Luxshare-ICT Inc. and Amphenol ICC.
• With increased prototype revenue in the fourth quarter of 2017, the company remains on track for production revenue ramp in the second half of 2018.

Highlights subsequent to year-end:

• Closed a $15.3-million bought deal convertible debenture public offering in January, 2018.
• Paid off $6.5-million senior secured term loan.
• Announced new AR/VR/MR (augmented reality/virtual reality/mixed reality) products and reference designs for mobile tethered head-mounted displays at CES 2018.

Chief executive officer commentary

"I am pleased with Spectra7's performance in 2017 and the strong fourth quarter results to end the year," said Spectra7 chief executive officer Raouf Halim. "This year, we proved our technology leadership in the active copper cable market, announcing several Tier 1 customers in our core VR, AR and MR markets. Moving forward, we are very well positioned in the data centre market with the early acceptance and market traction of our innovative GaugeChanger Plus technology."

Outlook

Based upon the meetings and sampling requests the company had for its data centre solutions at the DesignCon 2018 industry show, management continues to believe that its data centre revenue will begin to ramp up in 2018.

Given revenue today is largely derived from consumer-focused markets, investors should expect some weakness in the first quarter of 2018 following the strong holiday season. The company anticipates stronger sales of MR and VR solutions in the second half of the year. In addition, third party estimates for the company's core markets suggest growth will continue over the long-term regardless of seasonality.

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 virtual reality, augmented reality, mixed reality, data centres and other 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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