New Products in High Growth Market Segments Drive Record Bookings as Revenue Transitions to New Products

November 16, 2015 – TORONTO, ON and PALO ALTO, CA--(Marketwired - November 16, 2015) - (TSX: SEV) Spectra7 Microsystems Inc. ("Spectra7" or the "Company") today announced its unaudited financial results for the three and nine month periods ended September 30, 2015. A copy of the unaudited condensed interim consolidated financial statements for the three and nine month periods ended September 30, 2015 prepared in accordance with International Financial Reporting Standards (the "Financial Statements") and the corresponding management's discussion and analysis ("MD&A") will be available under the Company's profile on www.sedar.com. All amounts are in US dollars unless otherwise noted.

Q3 2015 Highlights

• Revenue for the three months ended September 30, 2015 was $0.938 million, representing a decrease of 10% from the previous quarter and a decrease of 43% from the same period the previous year. Revenue for the nine months ended September 30, 2015 was $2.678 million, representing a decrease of 27% from the previous year. The reductions are due to the transition from the traditional consumer/HT products revenue and licensing of Company IP to the Company's new virtual reality ("VR") and augmented reality ("AR") products and higher speed consumer interconnects. For the nine months ended September 30, 2015, VR/AR products represented 52% of revenue compared to 10% the same period the previous year and grew 179% year over year. Traditional consumer/HT decreased 39% and licensing revenues decreased 77% from the same period the previous year.
• Gross margins as a percentage of revenue for the three and nine months ended September 30, 2015 were 61% and 68% respectively, representing a decrease of 8% from the prior quarter and 10% from the nine months ended September 30, 2014. These reductions are due in large part to significant pre-production costs in connection with several of the Company's new products.The Company expects that these costs will reduce as the new product volumes ramp-up in the coming two quarters. In addition, the transition away from licensing revenue, which had margins of 100%, had a significant impact on gross margins.
• The Company received customer orders valued at approximately $2.5 million during the three months ended September 30, 2015, representing a quarterly record for the Company and an increase of 85% from the prior quarter, with the majority of this growth driven by demand for the Company's new VR/AR products. The Company believes that the record bookings achieved will begin translating into increased revenues in Q1 of 2016.
• On July 23, 2015, the Company's common shares commenced trading on the facilities of the Toronto Stock Exchange and were voluntarily delisted from the TSX Venture Exchange
• The Company had $5.625 million in cash as at September 30, 2015, representing a decrease of $3.385 million from the end of the previous quarter.

"We are very pleased with the increase in bookings reflecting the growing acceptance in the marketplace for the Company's new products based on its leading edge technology. The Company continues to execute on its strategy of engaging in multiple high growth markets. Further, the appointment of Ebrahim Abunasrah as Vice President of Data Center Products will accelerate our entrance into the data center market where the Company sees multiple opportunities," commented Tony Stelliga, CEO of Spectra7.

Revenue

Revenue from the Company's VR products increased by over 75% from the previous quarter and revenue from new higher speed HomeTheater products increased by over 65%. Wearable computing revenues continued to be variable, with the surge in demand for such products in the prior quarter not continuing at the same pace into the current quarter.

Revenue for the three months ended September 30, 2015 decreased 43% from the same period the previous year. This reduction was largely due to the decline in royalties from a legacy product licensing and royalty agreement for the Company's intellectual property and the remaining resulting from lower sales of the Company's traditional HomeTheater™/consumer interconnects. The Company's new products, however, have started to make up for the decrease in legacy revenues.

Expenses

Operating expenses are incurred by the Company in its pursuit of developing products and growing revenue. Most operating expenses are incurred in cash. Other expenses relate to financing costs and accounting and reporting requirements many of which are non-cash. Operating expenses for the three months ended September 30, 2015 were $3.896 million, an increase of $1.599 million or 70% compared to the same period the previous year. This increase was due mainly to higher consumable materials such as experimental wafers for new products increasing expenses by $0.493 million, and non-production tape-outs for four new products, the VR7050, the V7400RX and 7400TX and the VR8050, for a cost of $0.639 million. Other expense increases of $0.467 million included higher employee costs due to higher headcount, listing costs and depreciation.

Operating expenses for the nine months ended September 30, 2015 were $9.579 million, representing an increase of $1.593 million or 20% compared to the same period the previous year. This increase was due mainly to the tape-outs for four new products for a cost of $0.639 million and other research and development consumable materials such as experimental wafers for new products and contracted technical services related to the development of new products, increasing expenses by $0.885 million. Other increases of $0.456 million were due to other expenses including employee costs due to higher headcount, listing costs and depreciation. These increases were offset by lower contractor, travel, legal, audit and advertising/promotion expenses totaling $0.388 million.

Other expenses for the three and nine months ended September 30, 2015 were $0.963 million and $3.083 million, respectively, an increase of $0.028 and $0.287 million compared to the same periods the previous year. A large portion of the increase was due to currency exchange devaluation of the Canadian dollar in 2015 and higher share-based compensation. 

Product and Customer Development

The Company continued its push on research and development to accelerate product delivery of the Company's VR, AR, Home Theater™ and DisplayDirect™ products. The focus during the three months ended September 30, 2015 was to move the customer product design-ins towards mass production. The Company ended the quarter with 30 design-in programs with leading original equipment manufacturers for active, ultra-thin interconnects utilizing the Company's recently announced products. These design wins span multiple market segments including VR, wearable computing, home entertainment and mobile, ultra-thin notebook and tablet devices.

ABOUT SPECTRA7 MICROSYSTEMS INC.

Spectra7 Microsystems Inc. is a high performance analog semiconductor company delivering unprecedented speed, resolution and signal fidelity that enables ultra-light, high-speed, micro-thin interconnects which enable new classes of industrial design for market-leading consumer electronic products including Virtual Reality, Wearable Computing Ultra-HD 4K/8K Displays and Tablets. Spectra7 is headquartered in Markham, Ontario with development centers in Silicon Valley, California and Cork, Ireland.

CAUTIONARY NOTES

Certain statements contained in this press release constitute "forward-looking statements". All statements other than statements of historical fact contained in this press release, including, without limitation, those regarding the Company's future financial position and results of operations, strategy, proposed acquisitions, plans, objectives, goals and targets, and any statements preceded by, followed by or that include the words "believe", "expect", "aim", "intend", "plan", "continue", "will", "may", "would", "anticipate", "estimate", "forecast", "predict", "project", "seek", "should" or similar expressions or the negative thereof, are forward-looking statements. These statements are not historical facts but instead represent only the Company's expectations, estimates and projections regarding future events. These statements are not guarantees of future performance and involve assumptions, risks and uncertainties that are difficult to predict. Therefore, actual results may differ materially from what is expressed, implied or forecasted in such forward-looking statements. Additional factors that could cause actual results, performance or achievements to differ materially include, but are not limited to the risk factors discussed in the Company's annual MD&A for the year ended December 31, 2014 and the interim MD&A for the nine months ended September 30, 2015. Management provides forward-looking statements because it believes they provide useful information to investors when considering their investment objectives and cautions investors not to place undue reliance on forward-looking information. Consequently, all of the forward-looking statements made in this press release are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company. These forward-looking statements are made as of the date of this press release and the Company assumes no obligation to update or revise them to reflect subsequent information, events or circumstances or otherwise, except as required by law.

For more information, please contact:

Spectra7 Microsystems Inc.
Sean Peasgood Investor Relations
416-565-2805
ir@spectra7.com

Spectra7 Microsystems Inc.
Rob Chalmers
Capital Markets
647-402-7552