Route1 receives two U.S. patents, grants option

2015-07-13 09:15 ET - News Release

Mr. Tony Busseri reports

ROUTE1 PROVIDES OPERATIONS UPDATE

Route1 Inc. has provided an update on recent market drivers, its operations and business development activity.

OPM data breach

"We believe that working with the U.S. government has changed significantly as a result of the recently announced breaches at the U.S. Office of Personnel Management (OPM)," said Brian Brunetti, president of Route1. As reported by The Washington Post on July 10, 2015, two major breaches last year of United States government databases holding personnel records and security clearance files exposed sensitive information of at least 22.1 million people, including not only federal employees and contractors, but also their families and friends.

Mr. Brunetti continued: "The OPM breaches have created unprecedented action among U.S. civilian department technology and security leadership to, among other items: fully comply with two-factor authentication policy (HSPD-12) by mid-August, 2015, review prior decisions to have enterprise network's inbound ports open, turn off all systems that are without appropriate accreditation or authorities to operate, and take action to properly protect data at rest. Route1 is working with civilian components of the U.S. government to help them improve and fully comply with policy and data security expectations as they pertain to mobility use cases."

Paid, active subscribers

As at June 30, 2015, Route1 had 15,410 paying, active subscribers.

                                Quarterly    Average               Quarterly
Paid, active          Closing  subscriber    revenue   Quarterly  subscriber
subscribers        subscriber      growth        per  subscriber     revenue
in dollars              count       count subscriber     revenue      growth

June 30, 2015          15,410         398       $352  $1,346,000     $94,000
March 31, 2015         15,012         220       $334  $1,252,000     $31,000
Dec. 31, 2014          14,792         147       $334  $1,221,000     $10,000
Sept. 30, 2014         14,645         184       $332  $1,211,000     $26,000
June 30, 2014          14,461         221       $329  $1,185,000     $77,000

Business development update

Route1 has more than 100 unique paying clients. Expected drivers of MobiKEY user growth will most likely centre on the U.S. federal government -- intelligence, civilian and defence, the Canadian federal government, and the financial services sector in the U.S.

U.S. Department of Defense (DOD)

As announced by Route1 in mid-2014, and as evidenced by the five consecutive quarters of subscriber user growth, Route1 continues to successfully leverage U.S. government reciprocity rules, and the installed accredited infrastructure to grow the number of proof of concepts and pilots within the DOD. Route1 continues to believe that as it works toward closing larger enterprise account opportunities, there will be smaller account purchases from DOD components that will drive increased subscribers.

Further, the next-generation enterprise network (NGEN) contracting issue that delayed the purchase of the software component of the company's MobiKEY technology by certain prospective users within the U.S. Department of the Navy was fully addressed in late June, 2015, and Route1 now expects to see additional user growth from this account shortly.

U.S. Fish and Wildlife Service (FWS)

Route1 has installed a Defimnet platform at DOI (U.S. Department of the Interior), and expects that the platform will be accredited for use by FWS and the broader DOI during the second half of 2015. The accreditation timing is a byproduct of the recent OPM breach and related priorities for the broader department.

Product development update

As an update to information provided on Route1's latest webcast held on April 1, 2015, and adjusted for client requirements and market changes, Route1 expects to deliver the outlined technologies to market based on the schedule as set out in the attached table.

Technology release                    Attributes                    Timing

                                                              On or before
MobiKEY for Android 4.5       Android OS support             Aug. 15, 2015
                                Linux OS support          
                                    IPv6 support              On or before
MobiKEY 5.0               Mac OS X audio support            Sept. 30, 2015   
                        Secure encrypted storage   
MobiKEY Fusion3 SES             using ID-1 cards              On or before
(new offering)          Local, smart card reader            Sept. 30, 2015
MobiKEY for iOS 5.0                  Improved UX                 Fall 2015

Route1 also has a number of additional continuing development initiatives that for competitive reasons it cannot disclose to the marketplace at this time. The new technologies centre around a current Route1 core competency -- public key infrastructure-based mutual authentication (a fundamental component to achieving a high level of assurance in communication), life cycle management of credentials and access to data.

Patent update

The U.S. Patent and Trademark Office (USPTO) recently issued Route1 two additional patents. Route1 now has been issued four patents by the USPTO.

Secure access to applications behind a firewall (U.S. patent 9,059,962 B2): "A user having remote device wants to access an application executing on an application server computer that is behind a firewall. During set-up, another firewall and a gateway computer are configured in front of the original firewall. During registration, users' remote devices are configured with security data. The security data includes user authentication cryptographic credentials for establishing secure channels, and may include user application cryptographic credentials as needed by individual applications executing on the application server. During operation, the user provides a password to an application program executing on his/her remote device to use the security information on the remote device to establish a secure channel to the application, and then conducts a data session with the application. If the application needs to verify the identity of the user, the user's remote device performs a cryptographic operation using the user application cryptographic credentials and sends the result to the application."

Distribution of secure or cryptographic material (U.S. patent 9,059,997 B2): "A user having remote device wants to access an application that requires that the user possess a user application cryptographic credential. If the application needs to verify the identity of the user, the user's remote device performs a cryptographic operation using the user application cryptographic credentials, and sends the result to the application. A configuration for securely distributing the user application cryptographic credentials includes at least one gateway located at an enterprise that is under the control of an enterprise administrator, and a controller that is not located in the enterprise, but can be configured by the enterprise administrator to co-operate with at least one gateway."

Route1 filed each of the patents on March 13, 2013.

Share repurchase program

On Sept. 5, 2014, the company announced with approval from the TSX Venture Exchange its intention to make a normal course issuer bid (NCIB). The NCIB permits the company to purchase for cancellation up to 10 per cent of the common shares in the public float. The maximum number of shares allowed for repurchase is 38,200,991. Purchases under the NCIB commenced on Sept. 11, 2014, and will end on Sept. 10, 2015, or the date upon which the maximum number of common shares has been purchased by the company.

As of June 30, 2015, the company has purchased a total of 15,644,500 common shares under the NCIB.

Stock option grant

Recently, a total of three million stock options at an exercise price of five cents per share was granted to a member of the company's executive team. Under the company's stock option plan, 10 per cent of the issued capital is reserved for issuance, or a total of 36,561,441 options.

As of today's date, including the above grant, a total of 34,014,000 options (as at April 7, 2015, 34,314,000) is currently outstanding under the stock option plan.

Reporting of second-quarter and year-to-date 2015 financial results

Route1 will report its second-quarter and year-to-date financial results for the period ended June 30, 2015, on Tuesday, Aug. 18, 2015.

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