Mr. Peter Chodos reports

ROUTE1 PROVIDES Q4 2016 OPERATIONS UPDATE

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

Trump administration

On Jan. 20, 2017, Donald J. Trump was sworn in as the President of the United States. As has been widely reported, the new President's administration is likely to approach public administration matters very differently than the previous administration.

On the matter of cybersecurity, an early glimpse into Mr. Trump's administration's approach was provided through a publicly circulated draft executive order, commentary on the draft executive order at a morning briefing by the White House on Jan. 31, 2017, and public comments made by President Trump and the Congressional Cybersecurity Caucus.

Of note, President Trump has stated that he plans to do the following:

• Direct heads of federal agencies, not just the chief information officer (CIO), to take responsibility for internal cybersecurity and for modernizing their organizations' technology, holding cabinet secretaries and agency heads totally accountable for the cybersecurity of their organizations;
• Empower agencies to modernize their IT systems for better security and other uses, spanning federal networks and data.

"One of the things I was really upset about with the OPM (the Office of Personnel Management) breach is the director or the agency clearly didn't understand the value of the data they were charged with protecting," said Jim Langevin, Representative of the District of Rhode Island, and head of the House Cybersecurity Caucus.

The Office of Personnel Management breach which was first reported in June, 2015, is in reference to the data breach targeting the records of approximately 21.5 million people. The massive intrusion exposed personally identifiable information such as social security numbers, as well as names, dates and places of birth, and addresses.

Route1's sales opportunities lie in the potential impact of a final executive order that holds agency leadership accountable for data protection. The company expects to see:

• The full implementation of HSPD-12 across all civilian departments, thus ensuring personal identity verification cards are used for user authentication while accessing data remotely;
• Reassessment of the risk vectors associated with the deployment of virtual-private-network-based technologies for accessing data while a user is mobile;
• Investment in technologies that take away the human risk factor -- humans cannot be trained to be perfect in the use of any technology;
• Demand from technology vendors that improved cybersecurity will also generate true cost savings;
• Delivering functionality and convenience at the expense of cybersecurity to no longer be an acceptable practice;
• Requirement for full and complete audit trails of how and when government data were accessed and/or used;
• Reassessment of vulnerabilities related to certain currently approved approaches used to deliver derived credentials.

Appointment of John Marino

Route1 has appointed John Marino as a board director to assist the company in working with Mr. Trump's administration and the leadership of agencies in which Route1 has a strong interest in the continued use and/or expansion of the MobiKEY technology and the adoption of DerivID.

Mr. Marino is the principal of Marino Consulting, a Washington strategic consulting firm with a client portfolio of domestic and international companies spanning across diverse industries. He brings more than 15 years of progressive experience in public relations, business development and international affairs. This includes serving in leadership roles at public affairs firms and non-governmental organizations in the nation's capital.

Marino Consulting has represented technology, cybersecurity, transportation and manufacturing companies, non-profits and NGOs, trade associations, and higher-education institutions. The firm delivers government relations, communications, market access, issue management and brand enhancement capabilities that navigate the private and public sectors and position its clients for favourable outcomes.

Earlier in his career, Mr. Marino served as the national executive director of the National Italian American Foundation (NIAF), the foremost organization advancing United States-Italy relations in the areas of politics, business, education and culture. He worked closely with the bipartisan Italian American Congressional Delegation and other governmental leaders and directed the organization's thought leadership programs.

Mr. Marino received a bachelor of arts from Clemson University in South Carolina, a master of arts from Fordham University in New York and pursued professional training at Georgetown University's Government Affairs Institute in Washington.

Mr. Marino has been granted one million stock options at an exercise price of five cents per share. The stock options will expire on Feb. 8, 2022, and will vest 30 per cent on the first anniversary, 30 per cent on the second anniversary and the remainder on the third anniversary. Under the company's stock option plan, 10 per cent of the issued capital is reserved for issuance, or a total of 34,766,091 options. As of today's date, including the above grant, a total of 32,689,000 options are currently outstanding under the stock option plan.

Change has risks

As a significant portion of Route1's revenues is generated from U.S. government departments and agencies, there are also risks for Route1 that come with a new president and administration. Further, a majority of Route1's MobiKEY renewals with the U.S. government falls within the first 100 days of Mr. Trump's administration.

• Immediately after an election, U.S. government agencies sometimes defer material changes in their operations and purchases of products and services until a new cabinet is appointed and the political direction is confirmed. A deferral and possible change in political direction following the election could have an adverse effect on the company's renewals, prospects and results of operations.
• President Trump has publicly supported certain policies, including those related to changes to international trade agreements and policies favouring U.S. persons and companies. Therefore, there is uncertainty as to which policies will be implemented by the U.S. government in 2017 and beyond, and when such measures and policies would be implemented.
• Certain CIOs of U.S. government agencies are required to resign following the election of a new president. There is no assurance that a resigning CIO will be reappointed or that a newly appointed CIO will be supportive (or continue to be supportive) of Route1's products and services.
• As a consequence of the timing of the transition to a new administration, the renewal of Route1's products and services could be delayed or cancelled.

Conversely, this same political landscape, marked by turnover of agency CIOs and senior staff, also presents opportunities for companies offering value-based solutions. The Republican-controlled Congress will demand fiscal restraint and push the agencies to identify cost-saving solutions without compromising security. In addition, Mr. Trump's administration seems to be committed to expanding cybersecurity effectiveness across the agencies and has called for a comprehensive review. President Trump is also seeking to run the government in a corporate manner where performance, efficiency and cost are measured. So while the company foresees some uncertainty, this same environment may create new opportunities for Route1 in the public sector.

MobiKEY paid, active subscribers

Revenue from services includes the MobiKEY application software, the MobiNET (DEFIMNET) platform, and other appliance licensing or yearly maintenance. All 2016 numbers are preliminary figures, unaudited and subject to final adjustment.

                                      SERVICES REVENUE                                  
                             (dollar figures are in thousands)

                                 Dec. 30,    Sept. 30,    June 30,    March 31,    Dec. 31,
                                    2016         2016        2016         2016        2015

Closing number of subscribers     17,883       17,344      16,800       16,490      16,286
Revenue per subscriber              $388         $383        $383         $367        $361
Subscriber revenue                $1,701       $1,639      $1,591       $1,496      $1,467
Other services revenue              $164         $169        $169         $152        $149
Total services revenue            $1,865       $1,808      $1,760       $1,648      $1,616

Business development highlights:

• U.S. Department of Defense (DoD) -- in February, 2017, in accordance with the DoD risk management framework (RMF), an authority to operate (ATO) was issued by the DoD's joint service provider for Route1's MobiKEY technology;
• U.S. Marine Corps (USMC) -- the USMC started testing the MobiKEY technology in November, 2015. In January, 2017, in accordance with the DoD RMF, an authority to operate (ATO) and authority to connect (ATC) were issued by the USMC, authorizing Route1's MobiKEY technology for the Marine Corps enterprise network. In addition, Route1 has been working with the USMC to set up the MobiKEY technology on an enterprise-wide contract vehicle that will allow all components of the USMC to procure the MobiKEY technology. Route1 now anticipates the contracting process to be completed by late February or early March, 2017. Upon MobiKEY being available for procurement by USMC, Route1 expects sales in the first 90 days of 100 to 250 users and additional further growth on a monthly basis similar to the company's experience with the U.S. Department of the Navy. There is no assurance that any of the sales assumptions mentioned above will transpire in either the expected amounts or within the expected time frame;
• U.S. Department of the Interior (U.S. Fish and Wildlife Service) -- in December, 2016, U.S. Fish and Wildlife Service renewed and expanded its use of the MobiKEY technology from 550 to 1,000 users.

Share repurchase program

On Sept. 27, 2016, the company received approval from the TSX Venture Exchange for its intention to make a normal course issuer bid (NCIB). The NCIB permits the company to purchase for cancellation up to 5 per cent of the common shares in the public float. The maximum number of shares allowed for repurchase is 17,563,870. Purchases under the NCIB commenced on Sept. 27, 2016, and will end on Sept. 26, 2017, or the date upon which the maximum number of common shares has been purchased by the company. As of Feb. 7, 2017, the company had purchased a total of 2,884,000 common shares under the NCIB.

Since the first NCIB was announced on Feb. 28, 2012, Route1 has repurchased a total of 40,727,200 of its common shares, representing 10.5 per cent of Route1's common shares outstanding as at Feb. 28, 2012.

As at Feb. 7, 2017, Route1 has 348,193,414 common shares outstanding.

Fourth quarter 2016 financial results notification

Route1 will release its fourth quarter and full year financial results for the period ending Dec. 31, 2016, during the month of April, 2017. A notification will be sent out in advance of Route1 reporting its results. Further, Route1 intends to hold a conference call and webcast the day following the release of its results.

We seek Safe Harbor.