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Spectra7 Announces Second Quarter 2018 Financial Results

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Private Placement Strengthens Balance Sheet while Data Center
Prototype Activities Continue to Accelerate

(TSX:SEV) Spectra7 Microsystems Inc. ("Spectra7" or the "Company"), a
leading provider of high-performance analog semiconductor products for
broadband connectivity markets, today announced its unaudited financial
results for the three and six months ended June 30, 2018. All dollar
amounts in this release are expressed in US dollars unless otherwise
stated. A copy of the unaudited interim consolidated financial
statements for the three and six month periods ended June 30, 2018 and
corresponding management's discussion and analysis will be available
under the Company's profile on www.sedar.com.

Q2 2018 Financial Results

  • Revenue for the quarter ended June 30, 2018 was approximately $0.8 million,
    representing a slight decrease of approximately 11% from the prior
    quarter. Spectra7 continues to have a strong position in the
    virtual reality ("VR") and mixed reality ("MR") markets, which
    remained weak in the second quarter of 2018.
  • Gross margin1 as a percentage of revenue was approximately
    55%, consistent with the prior quarter.
  • Non-IFRS expenses2 were approximately $2.8 million,
    representing a decrease of approximately 15% from the prior quarter,
    while IFRS operating expenses were approximately $3.2 million,
    representing a decrease of approximately 11% from the prior quarter.
    The continued sequential decline in expenses is due primarily to
    continued expense discipline and lower one-time development expenses.

CEO Commentary

"As we enter the second half of 2018, I am encouraged by the business
trends in our core VR / MR business as well as the anticipated upcoming
production ramp of our Data Center solutions," said Spectra7 CEO Raouf
Halim. "Data Center Operators and OEMs in China as well as in the US are
increasingly coming under pressure to lower power and carbon emissions.
Even operators who used optics at lower speeds are now evaluating
Spectra7's low power active copper cables as data rates increase.
Interest in Spectra7's technology is increasing. The company's Data
Center initiative is on track with revenue ramp expected in the second
half of 2018, driven by early adoption in the Asia Pacific market."

Other Quarterly Highlights

  • On July 6, 2018, the Company closed an oversubscribed private
    placement consisting of 28,336,290 units at a price of CDN $0.105 per
    unit for gross proceeds of approximately $2.3 million.
  • Data Center prototype revenue increased by 50% in the second quarter
    of 2018 as compared to the prior quarter and remains on track for
    production in 2018.
  • The Company experienced continued strong customer engagement including
    7 new Data Center design-ins in the second quarter of 2018 for a total
    of 23 Data Center design-ins to date.
  • Data Center Equipment OEMs and interconnect suppliers continue
    development and qualification of Active Copper Cables (ACCs) for 100G
    and 400G deployments with Spectra7 technology.
  • Successful achievement of testing Spectra7's Active Copper Cable (ACC)
    technology with the industry leading K400 test system from Ixia, a
    Keysight business, demonstrating robust error-free 400Gbps Ethernet
    traffic.

Outlook

The Company has entered the third quarter of 2018 with significantly
increased backlog compared to the second quarter of 2018 and expects
sequential revenue growth in the third quarter of 2018 as it enters the
seasonally stronger second half of the year.

About Spectra7 Microsystems Inc.

Spectra7 Microsystems Inc. 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
centers and other connectivity markets. Spectra7 is based in San Jose,
California with design centers in Markham, Ontario, Cork, Ireland, and
Little Rock, Arkansas. For more information, please visit www.spectra7.com.

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, outlook, revenue growth in the third quarter of
2018, 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, 2017. 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.

1 Additional GAAP 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 write-downs
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 excludes stock-based compensation,
restructuring expenses, impairment expenses and other one-time expenses.

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