Mr. Sean Peasgood reports

SPECTRA7 ANNOUNCES FIRST QUARTER 2018 FINANCIAL RESULTS

Spectra7 Microsystems Inc. has released its unaudited financial results for the three months ended March 31, 2018. All dollar amounts in this release are expressed in U.S. dollars unless otherwise stated.

Q1 2018 financial results:

• Revenue for the quarter ended March 31, 2018, was approximately $900,000, representing a decrease of approximately 69 per cent from the prior quarter. Spectra7 continues to have a strong position in the virtual reality (VR) and mixed reality (MR) markets, which experienced overall demand weakness in the first quarter of 2018.
• Gross margin (1) as a percentage of revenue was approximately 55 per cent, consistent with the prior quarter.
• Non-IFRS (international financial reporting standards) expenses (2) were approximately $3.2-million, representing a decrease of approximately 16 per cent from the prior quarter, while IFRS operating expenses were approximately $3.6-million, representing a decrease of approximately 12 per cent from the prior quarter. The significant sequential decline in expenses is due primarily to restructuring in response to weak demand in the first quarter. The company has strategically pivoted internal resources to better align with its strong traction of the data centre market.

Chief executive officer commentary

"As anticipated when we released our fiscal 2017 results, demand for our VR and MR solutions was particularly weak following the strong holiday season," said Spectra7 CEO Raouf Halim. "We continue to hold a dominant position in the tethered VR and MR markets, and expect a stronger second half of 2018. We are encouraged by the continued increase of prototype data centre revenues and believe the production ramp of our data centre solutions will contribute meaningful revenue during the second half of 2018."

Other quarterly highlights:

• Data centre prototype revenue more than tripled in the first quarter of 2018, as compared with the prior quarter, and remains on track for production revenue to increase in the second half of 2018.
• The company experienced continued strong customer engagement, including 10 new data centre design-ins, in the first quarter of 2018.
• Data centre equipment OEMs (original equipment manufacturers) and interconnect suppliers continue development and qualification of active copper cables for 100G and 400G applications with Spectra7 technology.

Outlook

The company has entered the second quarter of 2018 with increased VR backlog compared with the first quarter of 2018 and expects sequential revenue growth in the second quarter of 2018. Non-IFRS operating expenses are expected to remain stable or decrease in the second quarter as compared with the first quarter of 2018, as the company works to maintain operating expense discipline and identify opportunities to reduce costs. The company is also pursuing strategic financing options after the repayment of the $6.5-million term loan.

A copy of the unaudited interim consolidated financial statements for the three-month period ended March 31, 2018, and the corresponding management's discussion and analysis will be available under the company's profile on SEDAR.

About Spectra7 Microsystems Inc.

Spectra7 is a high performance analog semi-conductor 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.

(1) An additional GAAP (generally accepted accounting principles) measure, gross margin, is presented in this press release consistent with information presented in the company's financial statements. Gross margin has been calculated by deducting manufacturing cost of sales and provision for inventory writedowns from revenue. Management of the company believes that providing this information allows investors to better understand the company's historical and future financial performance.

(2) Non-IFRS expenses exclude stock-based compensation, restructuring expenses, impairment expenses and other one-time expenses.

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