Spectra7 Microsystems Inc.
TSX VENTURE : SEV

Spectra7 Microsystems Inc.

November 20, 2014 08:00 ET

Spectra7 Reports Record Revenue Growth and Gross Margins for Second Consecutive Quarter

Third Quarter Revenue Grows 171% Year-over-Year and Gross Margins Exceed 80%

PALO ALTO, CALIFORNIA and TORONTO, ONTARIO--(Marketwired - Nov. 20, 2014) - Spectra7 Microsystems Inc. ("Spectra7" or the "Company") (TSX VENTURE:SEV) today announced its unaudited financial results for the three and nine months ended September 30, 2014. A copy of the unaudited condensed interim consolidated financial statements for the three and nine month periods ended September 30, 2014 prepared in accordance with International Financial Reporting Standards and the corresponding Management's Discussion and Analysis will be available under the Company's profile on www.sedar.com. All amounts are in US dollars unless otherwise noted.

Q3 Highlights

  • Achieved record revenue for the second consecutive quarter of $1.7 million and $3.7 million for the nine month period ended September 30, 2014 up 171% year-over-year and 45% over the prior quarter;
  • Continued to deliver strong quarterly gross margins of 81%, up from 76% in the previous quarter and from 69% the same period in 2013;
  • Continued shipments of its first generation Virtual Reality Interconnect chips to OEMs since announcing production in May of this year;
  • Completed the design of the Company's next-generation Virtual Reality products, including the VR7050, the industry's first chip capable of enabling lightweight, ultra-thin active interconnects for gesture recognition and motion control backhaul to meet increasing demand and interest from major OEMs for the Company's Virtual Reality technology;
  • Pursued validation of the Company's DisplayDirect™ products including early sampling to select customers;
  • Announced the WR7100, the first chip of its kind to enable weavable interconnects that can deliver real-time deep color 4K UHD resolution from wearable visual systems to on-person mobile phones and storage devices; and
  • Subsequent to September 30, 2014, the Company received CDN $4,605,430 and issued 10,647,269 common shares and 1,456,710 non-broker warrants, as a result of the exercise of 1,456,710 broker warrants at CDN $0.30 per unit (each unit consisting of one common share and one non-broker warrant), 326,658 broker warrants at CDN $0.55 per share and 8,863,901 non-broker warrants at CDN $0.45 per share.

Shortly after the end of the quarter, the Company announced the VR7050, the industry's first chip capable of enabling lightweight, ultra-thin interconnects that achieve the requisite high speed and low latency for gesture recognition processing and motion control featured in the latest gaming and Virtual Reality products.

"Spectra7's success with our new and existing customers reflects the unique value of our products including virtual reality, wearable computing and consumer interconnects and has resulted in record revenue and gross margins for the second consecutive quarter," said Tony Stelliga, CEO of Spectra7. "The momentum in revenue, combined with the commencement of warrants being exercised has strengthened the capital structure of the Company."

Financial Summary

The following table is a summary of the financial information presented in the financial statements:

Three months ended Nine months ended
September September
2014 2013 2014 2013
(unaudited) $ (unaudited) $ (unaudited) $ (unaudited) $
Revenue 1,658,437 612,902 3,666,171 2,008,389
Cost of Sales 313,527 192,452 794,639 687,969
Gross Margin 1,344,910 420,450 2,871,532 1,320,420
Gross Margin % 81 % 69 % 78 % 66 %
Operating Expense 2,296,954 2,758,396 7,987,931 8,061,548
Other expense 934,367 856,466 2,795,558 4,206,586
Net loss (1,886,411 ) (3,194,412 ) (7,911,957 ) (10,947,714 )

Revenue

Revenue for the three months ended September 30, 2014 was a record $1.7 million and reached $3.7 million for the nine months ended September 30, 2014, up 49% and 83% respectively over the same periods the previous year. Interconnect product revenue increased by 129% for both the three and nine months ended September 30, 2014 compared to the same periods the previous year and 25% over the previous quarter. The growth was driven by demand for active cable products used with high resolution HD displays and by market availability of the Company's Virtual Reality products in market-leading VR platforms that commenced volume production in the second quarter and continued in the third quarter of 2014. Revenue for Wireless products for the three months ended September 30, 2014 increased by 135% compared to the previous quarter to $483 thousand due mainly to a milestone license payment in the quarter.

Gross Margins

Product gross margins topped a record 81% in the quarter, up 12% year-over-year as a result of improved product mix and higher margins for Interconnect products with orders placed from the Company's new and existing customers.

Expenses

Operating expenses, including research and development, sales and marketing and general and administrative, for the three month period ended September 30, 2014 were $2.3 million or 31% lower than the previous quarter and 17% lower than the three month period ended September 30, 2013. The main reasons for these decreases were a reduction in headcount in part due to the closure of the Irvine office, a reduction in contracted personnel and lower legal costs. Operating expenses for the nine month period ended September 30, 2014 was $8.0 million or 1% lower than the same period the previous year. Although headcount and contracted personnel are significantly lower, the loss of the Scientific Research and Development investment tax credit and the increase in new product development costs such as tape-out costs offset the savings.

Other expense in 2013 included significant costs related to the Company's qualifying transaction completed in the first quarter of 2013. These expenses do not repeat in 2014.

Product and Customer Highlights

During the three month period ended September 30, 2014, the Company made significant progress to towards the completion of development on key products and growing demand of leading Virtual Reality platforms with the Company's technology framework, including:

  • Continued shipments of its first generation Virtual Reality Interconnect chips to OEMs since previously announcing production in May of this year;
  • Completed the design of the Company's next-generation Virtual Reality products, including the VR7050, the industry's first chip capable of enabling lightweight, ultra-thin active interconnects for gesture recognition and motion control backhaul, which was announced shortly after the end of the quarter to meet increasing demand and interest from major
    OEMs for the Company's Virtual Reality technology;
  • Pursued validation of the DisplayDirect™ products including early sampling to select customers; and
  • Announced the WR7100, the first chip of its kind to enable weavable interconnects that can deliver real-time deep color 4K UHD resolution from wearable visual systems to on-person mobile phones and storage devices.

Appointment of New Director

The Company also announces that it has appointed Mr. John Vettese as a director of the Board, effective immediately. Mr. Vettese is a corporate finance and M&A lawyer and is the Deputy Managing Partner of Cassels Brock & Blackwell LLP.

Option Grants and RSU Awards to Officers and Employees

On November 17, 2014, options to purchase up to 564,776 common shares ("Options") were granted to certain officers of the Company pursuant to the Company's stock option plan. The Options are subject to vesting provisions in accordance with the stock option plan and are exercisable at a price equal to the greater of CDN $0.92 and the closing price of the Company's common shares on the TSX Venture Exchange on November 20, 2014. In addition, 564,776 restricted share units were awarded to certain officers of the company pursuant to the Company's restricted share unit plan, with such restricted share units subject to vesting provisions in accordance with the restricted share unit plan.

Cancellation of Subordinated Secured Loan Facility

The Company also announces that due to the recent exercise of warrants resulting in proceeds to the Company of approximately CDN $4.6 million, the Company shall not be drawing down on the previously announced CDN $4.75 million subordinate secured non-revolving loan facility based on the facility's terms and the facility will be cancelled.

ABOUT SPECTRA7 MICROSYSTEMS INC.

Spectra7 Microsystems Inc. is a high performance consumer connectivity company delivering unprecedented bandwidth, speed and resolution to enable disruptive industrial design for leading consumer electronics manufacturers in Virtual Reality, Wearable Computing and Ultra-HD 4K/8K displays. Spectra7 is based in Palo Alto, California and Markham, Ontario with a Design Center in Cork, Ireland. For more information, please visit www.spectra7.com.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this press release constitute "forward-looking statements" within the meaning of applicable securities laws. 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 which are made in good faith and reflect the Company's current judgment regarding the direction of the business. These statements and assumptions 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. 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.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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