Route1 Inc.
TSX VENTURE : ROI

Route1 Inc.

April 26, 2012 16:00 ET

Route1 Reports Full Year 2011 Financial Results

TORONTO, ONTARIO--(Marketwire - April 26, 2012) - Route1 Inc. (TSX VENTURE:ROI) (Route1 or the Company), a digital security and identity management company, today announced its financial results for the year ended December 31, 2011.

Total revenues for the year increased to $5.5 million from $5.4 million in 2010. Higher-margin services revenue increased to $4.8 million in 2011 from $4.7 million the previous year, representing approximately 88% of revenues in both years. Cost of revenues increased during the year, resulting in a slight decline in gross profit for 2011 to $4.5 million from $4.7 million in 2010. The decrease in gross profit is attributable to increased cost for devices for resale, increased royalties on licenses, and reclassifying of certain employees and management.

The Company's profitability for 2011 was significantly and negatively affected by its auditors' advice that approximately $1.5 million for the costs of pursuing an arbitration award be included in Route1's results for the 2011 fiscal year, while the proceeds from payment of the award, amounting to approximately $3.4 million, could not be recognized until fiscal 2012. Interest income on the award in the amount of $583,741 is included in the Company's 2011 results.

"Our operations continue to perform up to our expectations. Although finalizing sales is proving to be a slow process, we are building a significant base of potential business and developing new applications that we believe will add to profitability in the future," said Tony Busseri, Chief Executive Officer of Route1. "The accounting for the arbitration award has a negative impact on our financial results for the past year, but will translate to significant benefits for the current year."

FY 2011 Arbitration Award Impact With Award Before Award Difference
Operating Expenses: General administration $ 4,374,736 $ 2,892,950 $ 1,481,786
Interest income 585,195 1,454 583,741
Loss from operations $ (1,910,933 ) $ (1,012,888 ) $ (898,045 )

The effect of the arbitration award in 2012, however, is expected to increase Route1's total revenues by $3.4 million and add approximately $2.9 million to both gross profit and income in 2012.

Including the accounting decision on the award, the Company reduced its net loss for 2011 to $1.9 million from $2.1 million in 2010. Basic and diluted earnings per share were unchanged at nil.

EBITDA for 2011 was a loss of $1.5 million. Without the accounting for the arbitration award, EBITDA would have been positive $0.3 million.

As at December 31, 2011, Route1 had no bank debt and a cash balance of $86,879. On January 24, 2012 Route1 announced it had received full payment of the approximately US$4 million from the arbitration award.

Quarterly Results
Quarter Ended
In 000s of CAD dollars
Dec 31
2011
Dec 31
2011(1)
(before award)
Sept 30
2011
June 30
2011
Mar 31
2011
Dec 31
2010
Revenue 1,401 1,401 1,399 1,238 1,417 1,777
Gross Margin 1,168 1,168 1,133 953 1,207 1,699
EBITDA (1,464 ) 18 (37 ) 70 205 439
Operating Income (Loss) (1,506 ) (22 ) (71 ) 30 154 405
Net Income (Loss) (1,081 ) (183 ) (627 ) (264 ) 61 10
(1)Illustrates the effect of the accounting for the arbitration award.

Revenue has grown over the past five quarters when adjusted for one-time "proof of concept" payments received from the U.S. Navy of US$675,000 in the fourth quarter of 2010 and US$225,000 in the first quarter of 2011.

Building the Potential Customer Base

Route1's key priority in 2011 was to continue to build on its base of potential large customers, primarily in the government and defense markets. During the year, the Company launched or advanced a number of initiatives with prospective clients in both the public and private sectors which added to its user base and which can be leveraged to establish new sales opportunities.

For example, in October 2011 Route1 was informed by the U.S. Customs and Border Protection (CBP), one of 14 principal agencies within the U.S. Department of Homeland Security (DHS), that the Company's DEFIMNET had received an Authority to Operate (ATO) from DHS. Prior to the ATO, only CBP was using Route1's highly secure remote access and identity management solution. From its first paid user in 2008, CBP has grown to have more than 8,100 paid, active users. With the ATO, Route1 can now provide its solution to all employees and contractors of DHS, which has more than 200,000 employees, and sets the standard for data security for civilian departments and agencies of the U.S. government. As a direct result of the ATO, a second component of DHS has initiated a pilot project using Route1's solution.

"Based on our progress to date, we remain convinced our strategy of focusing our marketing efforts on the government and military sectors, particularly in the United States, is best for Route1 in both the short and long-term," said Mr. Busseri. "While it is clearly taking longer than we had hoped to reach final purchase agreements with the many organizations in those sectors, we remain convinced that their size and security requirements mean their potential for Route1's revenues and profitability is significant in the long run."

On March 1, 2012 Route1 provided an update on its business development pipeline. It intends to provide a similar update in each quarter of 2012.

Continuing Advances in Product Development

At Route1's Annual Meeting of Shareholders held in September 2011, the Company set out certain product development objectives for 2012 and 2013. These objectives and the Company's progress to date are:

  1. Lead in cryptography application - Announced an update during November 2011. Highlights include: utilization of TLS 1.1 and support of SHA-2 smart cards and data sessions to 64-bit host computers.

  2. Support additional operating systems beyond Microsoft - Expect release of application software to support Mac OS X by the end of the summer.

  3. Tablet support - Expect release of Route1's solution by the end of the first quarter in 2013 to support Mac iOS and Android OS tablets.

  4. Simply authentication - The Company expects to have a commercially available product during the fourth quarter of the current year.

  5. Evolve enabling device - In a strategically important step, the Company has entered into a licensing agreement with its current MobiKEY Fusion device manufacturer, Giesecke & Devrient GmbH (G&D), to use and develop G&D's middleware while Route1 continues to develop its own middleware. The agreement allows Route1 to directly support and evolve the MobiKEY Fusion devices already deployed and to procure similar devices from other manufacturers that would use Route1's middleware, which it expects to have commercially available by the end of summer 2012. In conjunction with the agreement, Route1 has ordered an additional 4,605 MobiKEY Fusion devices from G&D.

It is important to note that these target dates can be affected by a number of factors, including priority product development requirements from new and existing clients.

Supporting Shareholder Value

"Market sentiment has turned against small-capitalization technology companies generally, but Route1 is unique in its successful and proven products and platforms, its research and development, and its sales focus," Mr. Busseri said. "The business is continuing to operate according to plan and we actively communicate developments to our shareholders and the overall market. The accounting decision on the arbitration award is unwelcome news for 2011, but we believe it is highly positive for 2012."

Subsequent Events

Patent Approval: In January 2012, the Company announced that the Canadian Patent Office had allowed Route1's patent application for its MobiNET platform. Route1 expects the patent, titled "System and Method for Accessing Host Computer Via Remote Computer," to be issued in 2012.

Added Board Strength: Also in January, Route1 announced the appointment of recently retired United States Navy Rear Admiral Mark S. Boensel to the Board of Directors. Admiral Boensel brings more than 32 years of experience in leading people, managing assets and maximizing the useful value of resources. He led the U.S. Navy's two largest geographic regions directing and participating in projects and forums for infrastructure sustainment, development, consolidation, anti-terrorism protection, and emergency preparedness at the highest levels within the U.S. Navy.

Normal Course Issuer Bid: Route1 announced on February 27, 2012, its intention to make a Normal Course Issuer Bid ("NCIB") to buy back its common shares through the facilities of the TSX Venture Exchange ("Exchange"), which was approved by the Exchange. The maximum number of common shares that may be purchased for cancellation pursuant to the NCIB is 35,480,904, which represents 10% of the common shares in the public float on the date that the Exchange approved the NCIB. Route1 stated that it believed its common shares had been trading in a price range which did not adequately reflect the value of the shares in relation to the business of Route1 and its future business prospects. As a result, depending upon future price movements and other factors, Route1 believes that its outstanding common shares may represent an attractive investment to Route1. In addition, the NCIB is expected to benefit all Route1 shareholders who continue to hold the Company's common shares by increasing their equity interest in Route1. To date, the Company has purchased and cancelled approximately 3.6 million common shares.

New VP Finance: Tom Lieu has joined Route1 as Vice President Finance and succeeds Gus Pergantis who left the Company to pursue personal investment opportunities. Mr. Lieu is a CMA and MBA and, prior to joining Route1, held progressively more senior roles in accounting and finance with ENGINEERING.com Incorporated and Open Text Corporation.

Investor Conference Call

The Company will hold a conference call and webcast to discuss the financial results on Friday, April 27, 2012 at 8:00 a.m. ET.

Participants should dial 1-888-857-6932 or 1-719-325-2327 at least 10 minutes prior to the conference time. The webcast will be presented live at: https://viavid.webcasts.com/starthere.jsp?ei=1005363. For those unable to attend the call, a replay will be available after 11:00 a.m. at 1-877-870-5176 or 1-858-384-5517 pass code 4201990 until midnight, May 11, 2012.

ABOUT ROUTE1, INC.

Route1 delivers industry-leading security and identity management solutions to enterprises worldwide, such as businesses, government and military, which need universal, secure access to all digital resources and sensitive data. These customers depend on The Power of MobiNET - Route1's communications and service delivery platform. MobiNET provides identity assurance and individualized access to networks and data. Route1's patented solutions are based on FIPS 140-2 cryptographic modules, and simplify the process of meeting increasingly stringent regulatory requirements for privacy and security. Headquartered in Toronto, Canada, Route1 is listed on the TSX Venture Exchange.

For more information, visit our website at: www.route1.com.

This news release, required by applicable Canadian laws, does not constitute an offer to sell or a solicitation of an offer to buy any of the securities in the United States. The securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

© Route1 Inc., 2012. All rights reserved. Route1, the Route1 and shield design Logo, SECURING THE DIGITAL WORLD, Mobi, MobiSecure, Route1 MobiKEY, Route1 MobiVDI, MobiKEY, MobiKEY IBAD, DEFIMNET, MobiNET, Route1 MobiNET, TruOFFICE, TruFLASH, TruOFFICE VDI, MobiKEY Fusion, EnterpriseLIVE, EnterpriseLIVE VO, MobiNET Agent and MobiKEY Classic, are either registered trademarks or trademarks of Route1 Inc. in the United States and or Canada. All other trademarks and trade names are the property of their respective owners. The DEFIMNET and MobiNET platforms and the MobiKEY, MobiKEY Classic and MobiKEY Fusion devices are protected by U.S. Patents 7,814,216 and 7,739,726, and other patents pending.

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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