Route1 Reports Second Quarter 2013 Financial Results

TORONTO, ONTARIO--(Marketwired - Aug. 29, 2013) - Route1 Inc. (TSX VENTURE:ROI), a digital security and identity management company whose customers include the U.S. Department of Defense, the Department of Homeland Security, the Department of Energy, and the Government of Canada, today announced its financial results for the three and six month period ended June 30, 2013.

Statement of Operations	For the Three Months Ended					For the Six Months Ended
(in 000s of CAD dollars)	Jun 30		Jun 30	Jun 30		Jun 30		Jun 30	Jun 30
	2013		2012	2012		2013		2012	2012
				before					before
				award					award
Revenue	1,366		1,888	1,297		2,423		4,840	2,585
Cost of revenue	223		185	185		415		872	312
Gross profit	1,143		1,703	1,112		2,008		3,968	2,273
Operating expenses	1,222		1,113	1,113		2,128		2,288	2,288
Operating profit (loss)	(79	)	590	(1	)	(120	)	1,679	(15	)
Net profit (loss)	(73	)	500	(91	)	(219	)	1,483	(211	)

Operating results for the three and six month period ended June 30, 2012 were positively affected by the proceeds of an arbitration award which was received in January 2012. For additional information, please see Route1's June 30, 2013 Financial Statements and Management's Discussion & Analysis.

Q2 2013 Financial Results Summary

For the six month period ended June 30, 2013, total revenue decreased to $1.4 million from $1.9 million in the second quarter of 2012. The decrease was a result of recognizing $0.6 million of services revenue from the arbitration award during the second quarter of 2012.

Services revenue by quarter	Jun 30	Mar 31	Dec 31	Sep 30	Jun 30
(in 000s of CAD dollars)	2013	2013	2012	2012	2012
MobiKEY application software revenue	1,158	853	964	954	942
Other services revenue	175	174	792	856	886
Total	1,333	1,027	1,756	1,810	1,828

Gross profit decreased during the second quarter to $1.1 million compared from $1.7 million during the same period in the prior year. The decrease in gross profit is attributable to the arbitration award. Operating expenses for the three months ended June 30, 2013 were $1.2 million compared to $1.1 million for the same period in 2012. The increase was primarily a result of:

• An increase in research and development expense - In the 2012 fiscal year, the Scientific Research and Experimental Development (SR&ED) credit was recorded during the three months ended June 30, 2012. The amount of $174,612 reduced the reported research and development expense in the second quarter of 2012. In the 2013 fiscal year, the SR&ED credit was recorded during the three months ended March 31, 2013 in the amount of $218,635; which reduced the reported research and development expense.
• A decrease in general administration expense - Professional fees decreased by approximately $0.1 million for the three months ended June 30, 2013 as compared to the same period in 2012, as a result of reducing outsourced human resource and investor relations activities.

As a result, Route1's second quarter 2013 total comprehensive net loss was $0.1 million compared to total comprehensive net income of $0.5 million during the same period in the prior year. Earnings before interest, tax, depreciation, and amortization (EBITDA) during the three-month period amounted to ($7,000) compared to an EBITDA of $0.6 million in the second quarter of 2012.

As at June 30, 2013, Route1 had no bank debt and a cash balance of $2.6 million.

Year-to-date 2013 Financial Results Summary

For the six month period ended June 30, 2013, total revenue decreased to $2.4 million from $4.8 million in the second quarter of 2012. Gross profit also decreased for the six month period ended June 30, 2013 to $2.0 million from $4.0 million during the same period in the prior year. The decrease in total revenue and gross profit is a result of the arbitration award.

Operating expenses for the six months ended June 30, 2013 were $2.1 million compared to $2.3 million for the same period in 2012. The reduction in operating expenses was driven by lower professional fees, an increase in the SR&ED tax credit amount, and lower salaries and benefits costs.

in 000s of CAD dollars	Jun 30		Mar 31		Dec 31	Sep 30	Jun 30
	2013		2013		2012	2012	2012
Revenue	1,366		1,057		2,277	1,933	1,888
EBITDA	(7	)	9		645	514	634
Amortization	72		50		47	54	44
Operating profit (loss)	(79	)	(41	)	598	460	590

As a result, Route1's year-to-date 2013 total comprehensive net loss was $0.2 million compared to total comprehensive net income of $1.5 million during the same period in the prior year.

Business Development Outlook

Route1 has advanced the plan it laid out to shareholders on April 11, 2013 during its fiscal year 2012 investor conference call and webcast. For confidentiality and competition reasons, Route1 is limited in what it can communicate to the market on any one specific business development opportunity but the below overview describes at a high level, current business development activity.

U.S. Department of Defense (DoD)

• Route1 continues to work with its two key DoD accounts. The focus has been to improve direct relationships with key decision makers and reduce the dependency on channel partners.
• Government wide budget cutbacks have slowed growth in defense spending and funding of technology projects. The deployment of the MobiKEY technology saves enterprises money - in most cases saving more than the investment in the MobiKEY technology. MobiKEY is an effective solution in the current budget environment without compromising on security or functionality.
• Route1 is targeting continued services revenue growth from its DoD accounts.

U.S. Government Civilian

• Adoption of the usage of PIV and FRAC cards as part of the authentication process for remote access sessions (HSPD-12 compliancy) has gained traction during fiscal year 2013, at least from a planning perspective.
• Route1 is targeting new sales from MobiKEY Fusion devices and a broader usage of its MobiKEY technology within DHS and the U.S. Department of Interior.

Canadian Government

• Route1 has focused on informing Shared Services Canada about its MobiKEY technology and is aggressively pushing to close on a couple of limited operational deployments prior to one or more request for proposals under the Workplace Technology Services (WTS) program being issued.
• Two of the primary goals of the WTS initiative, based on Government of Canada documentation, are to improve cyber security and data sovereignty, and reduce costs.

Enterprise

• Route1 is experiencing an increase in unsolicited, inbound communication over the last 60 days.
• A message being repeated to us from prospective clients is the challenge they are having in putting in place a cost effective and safe BYOD program. Specifically causing issues for industry is the legal implication associated with enterprise data being placed on a personal device and the high cost of supporting a BYOD campaign.
• Route1 is targeting growth from the financial services sector as this sector seems to be a leader in deploying secure, mobile technology.

Product Development Progress

Recent Releases:

• On April 2, 2013, Route1 announced the immediate availability of the MobiKEY technology for the Apple iPad. MobiKEY subscribers will now be able to use MobiKEY on an Apple iPad running iOS 6 and higher. The MobiKEY technology includes the use of both Route1's universal identity management and service delivery platform and MobiKEY application software.
• On April 5, 2013, Route1 announced that the Canadian Intellectual Property Office has issued Route1's first Canadian patent titled, "System and Method for Accessing Host Computer Via Remote Computer." The Canadian patent application was originally filed on February 26, 2007, claiming priority from a corresponding U.S. patent application (now U.S. Patent No. 7,814,216), filed on September 7, 2004.

Route1 Design Axioms:

• Authenticate - Prior to providing any access or entitlements to a worker, the user first must be authenticated by not less than two factors. Preferably, the "something you have" is discrete and separate from the device you are using for the remote access data session.
• Secure the fortress - Accessing data when you are remote does not mean that data needs to be transferred to the remote device you are working from. Data is best protected, and the network secured, when there is no movement of the data outside of the enterprise network, period.
• Reduce costs - The technology offerings will need to be delivered to enterprise based on no capital costs, and a reduced annual operating cost. The cost savings must be real and immediate; there can be no hidden or "add-on" costs to the enterprise.

Upcoming Releases:

1. MobiKEY for iOS - Integrate third party smart card reader technology with MobiKEY technology to offer unique hardware based multifactor authentication for tablets.
2. MAP 2.0 - Integrate administration and provisioning tool with reports module, feature enhancements and bug fixes.

2013 and 2014 Releases Target

1. MobiKEY technology feature addition - Audio support.
2. MobiKEY for Android.
3. Derived Credentials as per FIPS 201-2 - Level 2 to 4 credentials for mobile devices. Leveraging TPM or SIM enabled devices. Credential lifecycle management. Policies and authentication/authorization assertions.
4. Map 3.0 (Enhanced policy management) - Allow organizations to establish and implement MobiKEY policy management with real-time implementation of changes. Group policy support. Features include security settings (encryption settings), default connection settings, password policy, permissible operating systems and versions on remote computer, and mobile devices. Support for Derived Credentials policies and lifecycle management.
5. EnterpriseLIVE Virtualization Orchestrator (ELVO) 3.0. Enhanced functionality and improved integration with features available from the virtualization provider.
6. MobiLINK 2 (TCP Protocol Suite Support) - Support for native mobile applications.
7. Mobile Connection Persistence Technology.

There are also a number of additional product development projects being considered or at a premature stage to detail as part of Route1's Releases Target.

Product development plans are subject to change without notice, based on market factors and/or client demands.

Website

On august 26, 2013 Route1 launched a new website at www.route1.com.

ABOUT ROUTE1, INC.

Route1 delivers industry-leading security and identity management technologies to corporations and government agencies that require universal, secure access to digital resources and sensitive data. These customers depend on The Power of MobiNET - Route1's universal identity management and service delivery platform. MobiNET provides identity assurance and individualized access to applications, data and networks. 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.

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.

© Route1 Inc., 2013. All rights reserved. Route1, the Route1 and shield design Logo, SECURING THE DIGITAL WORLD, Mobi, MobiSecure, MobiLINK, Route1 MobiKEY, Route1 MobiVDI, MobiKEY, MobiKEY IBAD, DEFIMNET, MobiNET, Route1 MobiNET, TruOFFICE, TruFLASH, TruOFFICE VDI, MobiKEY Fusion, MobiNET Aggregation Gateway, MobiNET Switching Array, MobiNET Secure Gateway, EnterpriseLIVE, EnterpriseLIVE Virtualization Orchestrator, MobiNET Agent, MobiKEY Classic and MobiKEY Classic 2, 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, the MobiKEY, MobiKEY Classic, MobiKEY Classic 2 and MobiKEY Fusion devices, and MobiLINK are protected by U.S. Patents 7,814,216 and 7,739,726, Canadian Patent 2,578,053, and other patents pending.

Other product and company names mentioned herein may be trademarks of their respective companies.