Route1 (ROI.V) Q1 Results Do Not Yet Reflect Milestone Order.

Actually, a small percentage of Qwest's (Q) 30,000 unit order have been reflected in Q1 results. We estimate that several hundred units were shipped ahead of the precursor DEFIMNET deployment, which was completed subsequent to quarter end. Even with a small number of shipments, revenue for the quarter jumped by 124% to $0.44 million from $0.19 million for the same period for the previous year.

Gross margins were reported at 73%, which Management believes to be a typical range going forward. This is good news for investors as the Qwest deployment begins to take off. Management expects that a vast majority of the Qwest's first order should be shipped by the end of the summer, with close to 10% of the order already shipped only three weeks subsequent to completion of the DEFIMNET roll-out.

An Interesting Market Development: The Swine Flu Pandemic has created more urgency among U.S. government agencies to get government employees set up to work from home. The TruOffice deployments on the DEFIMNET fits under several "emergency preparedness" initiatives that have become more prominent as the cases of Swine Flu have increased. Route1 should benefit from increased velocity of deployment, as well as from more potential demand from U.S. Government agencies thoughout the year.

Don't Forget Europe: The Company has had a couple of reference deployments operating in Europe for several quarters. Subsequent to Q1, we may see a marked increase in activity from Europe as governments in this region begin to deploy relatively significant numbers of units. There may be a possibility of regional distribution agreements (similar to Qwest) by the end of fiscal 2009.

Fly in the Ointment: The Company has reported a skinny balance sheet at the end of Q1, with $0.75 million and a high quarterly burn of over $1.4 million. Of the $1.4 million, approximately $0.5 million could be categorized as one-time expenses, leaving $0.85 million of operating burn. Notwithstanding, this presents forward risk. Offsetting the future burn is a portion of cash received from the approximately $2 million DEFIMNET deployment, along with cash received from the rolling Qwest purchase order. In the short-term Management will be required to manage cash diligently as shipments ramp.

Bottom Line: The Company is finally now in the middle of the ramp that investors have been waiting for patiently for many quarters. The new challenge is that growth will need to be managed with a skinny balance sheet.

Disclosure: I do not own shares of Qwest or Route1.

Route1 (ROI.V) Hits a Key Milestone.

Ealier today, Route1 announced that it has completed the deployment of the Defense Identity Management Network, (DEFIMNET) for the U.S. Department of Homeland Security. The total value of this platform is approximately $2 million. More importantly, this is a launch point to deploy TruOffice subscriptions.

In Jaunary, its exclusive government reseller partner, Qwest (Q.NYSE) Government Services inc, commited to deliver 30,000 Mobikeys and related TruOffice subscriptions during 2009. The total expected value of those subscriptions is expected to reach $8 million in year 1 and $5 million annually once the roll-out is completed. To put this into perspective, we estimate that to date, Route1 has deployed somewhere in the range of 4000 to 6000 subscriptions under various pricing models. The Qwest commitment is approximately 8x total historical deployments. Unlike in the past, the pricing for these subsciptions is set, making future cash flows more predictable than in the past, so shareholders should expect fewer downside surprises. With guaranteed free hosting by Quest Communications, the gross margins on the TruOffice subscriptions may reach over 90%, which is impressive.

Expect the Company to finally become break-even shortly, and to begin to generate free cash flow by 2010 based on reaching this important milestone (right on schedule). It is unlikely that Qwest will stop selling Mobikeys and TruOffice subscriptions to government agencies, so investors should expect the level of subscriptions to grow beyond 30,000 over the next several quarters, adding to free cash flow potential.

The market conditions appear favorable for more U.S. government agency subscriptions. The new U.S. administration has a stronger bias towards "green" initiatives, and reduced energy consumption. The security afforded by the DEFIMNET platform combined with Mobikeys and TruOffice subscriptions allows U.S. Federal Agencies of all levels of data security access to more easily and cost-effectively tele-commute. DEFIMNET/TruOffice aligns with President Obama's stated Agenda (which should reflect budget prioritization) in several areas including:

• Technology:
• "Bring Government into the 21st Century"
• "Modernize Public Safety Networks"
• Homeland Security:
• "Protect Our Information Networks"
• Energy and Environment:
• "Reduce our Greenhouse Gas Emissions 80 Percent by 2050"

The stock should benefit from today's announcement. Is it a good entry point for investors? First of all, with approximately 400 million shares, there are a LOT of shares outstanding for a Company at this stage of development. The stock is highly liquid on a share basis, although the daily value traded is modest. It is unlikely now that the company will return to the market to raise more equity, so there is little chance that that the fully diluted share count will increase in the short-term. However, the capital structure could be a value impediment. Secondly, as the Company scales and becomes profitable, shareholders could see its market valuation align to similar recurring revenue technology companies that have reported one or two consecutive EBITDA positive quarters. Many of those Companies have experienced significant share price increases since March, and appear to be trading in the $30 million to $50 million range measured in terms of market cap. As ROI progresses, the market cap may reach similar levels once it begins to report positive earnings, which on a share basis, implies upside from current levels. However, the excessive shares outstanding creates inherent volatility. At current prices, a half a penny swing in the shareprice could mean up to a 10% swing in valuation.

I do not own shares of ROI.V or Q.