Revenue increases 48% over Q1 – Revenue for Wearable/Virtual Reality products on the rise

AUGUST 24, 2015 – Toronto, ON and Palo Alto, CA – (TSX:SEV) Spectra7 Microsystems Inc. (“Spectra7” or the “Company”), today announced its unaudited financial results for the three and six month periods ended June 30, 2015. A copy of the unaudited condensed interim consolidated financial statements for the three and six month periods ended June 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.“Spectra7’s record bookings reflect the unique value of the Company’s products, technology and business model across a growing range of high growth market segments including virtual reality, augmented reality, wearable computing and consumer electronics,” said Tony Stelliga, CEO of Spectra7.

Q2 2015 Highlights

• Revenue for the three months ended June 30, 2015 was $1.0 million, an increase of 48% compare to the three months ended March 31, 2015;
• Revenue from new Virtual Reality (“VR”) products for the three months ended June 30, 2015 represents a significant portion of the revenue and increased over 500% from the previous three month period;
• Continued design win momentum in the AR/VR market segments by adding five new customers and design-in programs during the quarter and four new customer design-in programs since the end of the quarter
• Received $1.4 million of orders for the three months ended June 30, 2015, up 150% from the prior quarter, with the majority for new VR and Augmented Reality (“AR”) products;
• Gross margins, although lower for the three and six months ended June 30, 2015 as compared to the same periods the previous year, remain strong at 73% for the six months ended June 30, 2015;
• Received aggregate gross proceeds of $7.222 million ($6.431 million net of proceeds) as a result of a bought deal private placement of 12,322,250 special warrants and a nonbrokered private placement of 172,515 special warrants; and
• Granted Patents increased to 44 as technology development extends into new applications and vertical markets.

Subsequent Events

• Graduated from the TSX Venture Exchange to the Toronto Stock Exchange on July 23, 2015.

“We are very pleased with the increasing demand for the Company’s new wearable VR/AR products indicating strong acceptance of our technology in the market place ahead of commercial product launches expected later this year and through 2016. The recently completed financing further strengthens our balance sheet as we expand our existing patented technology into additional vertical markets” commented Tony Stelliga, CEO of the Company.

Revenue

Revenue for the three months ended June 30, 2015 increased 48% over the three months ended March 31, 2015 to $1.0 million and decreased 9% over the same period the previous year. Revenue for the six months ended June 30, 2015 was $1.7 million, 13% lower than the same period the previous year.

Interconnect revenue for the three months ended June 30, 2015 increased 61% over the three months ended March 31 2015 due mainly to demand for the new VR and AR products. Interconnect revenue for the six months ended June 30, 2015 decreased slightly by 5% compared to the same period the previous year due to our customers transitioning to our new technology products. Wireless revenue for the three and six month periods ended June 30, 2015 decreased 81% and 61% respectively as a result of lower royalty payments as per a long-term contract.

Gross Margins

Gross margins for the three and six month periods ending June 30, 2015 were 69% and 73% respectively. Gross margins decreased mainly due to the lower proportion of wireless revenue, which is close to 100% gross margin, and higher initial production costs for VR products.

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 and six months ended June 30, 2015 were $3.072 million and $5.683 million respectively, a reduction of $0.243 and $0.008 million (-7% and 0%) respectively compared to the same periods the previous year.

Operating expenses for the three months ended June 30, 2015 were lower than the same period the previous year due to lower headcount and contracted support costs and lower expenses in most other categories including travel, listing expenses advertising and promotion and legal and audit costs.

Operating expenses for the six months ended June 30, 2015 were basically unchanged ($-0.008 million) compared to the same period the previous year. Lower headcount and contracted support service costs were lower as were other categories including travel, listing expenses advertising and promotion and legal and audit costs offset by higher costs for consumable materials such as test boards, and tape-out costs for the production of prototypes due to the high level of product development and support to advance and produce design-ins.

Other expenses for the three and six months ended June 30, 2015 were $0.868 million and $2.181 million an increase of $0.061 and $0.320 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 due to higher share price, offset by a gain on sale of older electronic capital test equipment.

During the three month period ended June 30, 2015, the Company received $7.222 million ($6.206 million net of transaction costs) and issued 12,494,765 special warrants (“Special Warrants”) pursuant to a bought deal private placement led by Mackie Research Capital Corporation and including Global Maxfin Capital Inc. and PI Financial Corp. Each Special Warrant was deemed exercised on June 5, 2015, for no additional consideration into one (1) unit consisting of one common share in the capital of the Company and one-half (1/2) of one common share purchase warrant.

Product and Customer Development

The Company continued its push on research and development to accelerate product development of the Company’s VR, AR, Home TheaterTM and DisplayDirectTM products. The focus during the three months ended June 30, 2015 was to move the customer product design-ins to mass production. The Company added five new customers and design-in programs in the three months ended June 30, 2015 to its over 20 design-ins with leading original equipment manufacturers for active, ultra-thin interconnects utilizing the Company's recently announced products. Another four new customers and design-in programs were added after the end of the quarter. These design wins span multiple market segments including VR, wearable computing, home entertainment and mobile, ultra-thin notebook and tablet devices.

On June 4, 2015, the Company announced AR-Connect™, its new AR interconnect product line powered by the Company's patented wearable network signal processing technology. The Company believes its patented AR-Connect™ is the industry's first integrated cable, connector and embedded chipset product line for AR vision systems and wearable computing 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.