Techstep ASA — Interim / Quarterly Report 2010

Nov 10, 2010

birdstep TECHNOLOGY
Q3 2010

BIRDSTEP ANNOUNCES Q3 RESULTS

Core Operating Revenues of NOK 14.5m in Q3, Yielding Growth of 11% over Q2
EasyConnect Segment Grew Revenues by 15%

Core Operating Losses Reduced from NOK (11.3m) in Q2 to NOK (4.7m) in Q3
Adjusted EBITDA Improved by NOK 6.6m in Q3 over Q2

Operating Cash Flow Improved by NOK 6.2m from Q2 to Q3
At Q3 End, Held Sufficient Cash Balances of NOK 33.5m

OSLO, Norway – 10 November 2010 – Birdstep Technology ASA, a leading provider of secure and seamless wireless connectivity software for operators, enterprises and mobile device manufacturers, today announced financial results for the third quarter and nine months ended September 30, 2010.

• Q3 core revenues of NOK 14.5m; grew by 11% quarter on quarter

• Underlying growth of 15% in EasyConnect segment was driven by winning new customer contracts and expanding relationships with existing customers

• Q3 core operating losses of NOK 4.7m; reduced from NOK 11.3m in Q2

• In addition to a gain of NOK 3.3m in Q3 due to a reduction of accrued pensions costs, core operating cash costs are being trimmed as part of management’s ongoing focus on achieving operational efficiencies

• Adjusted EBITDA was NOK (2.1m) in Q3; improved by NOK 6.6m from Q2

• Operating cash flow of NOK (1.8m) improved by NOK 6.2m and is mirroring adjusted EBITDA performance

• Quarter end cash balances of NOK 33.5m remain at sufficient levels

• Net cash outflow of NOK 4.2m in Q3, represents an improvement of over NOK 9.8m in Q2 and this was primarily due to higher cash receipts from customers during the quarter

• Key customer contracts

• Number of customer wins in Q3, including key wins with Cell C in South Africa, Virgin Media Group in the United Kingdom, Elisa in Estonia and a North American service provider

• Existing customer license extensions

• Significant customer relationships have been extended through the quarter with additional licenses across Elisa Finland

• Raima Sale

• The sale of Raima was closed in Q3

Birdstep Technology Interim Report Q3 2010

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Q3 and 9 Month 2010 Financial Summary

	For the three months ending			For the nine months ending
Amounts in NOK 000's	30-Sep.-10 (unaudited)	30-Jun.-10 (unaudited)	30-Sep.-09 (unaudited)	30-Sep.-10 (unaudited)	30-Sep.-09 (unaudited)
IFRS:
Revenue	14,484	13,100	16,321	41,584	47,648
Operating income(loss)	(4,676)	(11,312)	(5,812)	(27,977)	(23,984)
Adjusted EBITDA*	(2,088)	(8,677)	(3,591)	(20,185)	(17,737)
Operating cash flow	(1,780)	(7,980)	300	(17,238)	(23,005)

*Adjusted EBITDA is equivalent to core operating income (loss) excluding both discontinued operations and non-cash charges, such as share-based compensation and depreciation & amortization. The Company is currently divided into two core operating segments (EasyConnect and SafeMove). Raima in Q2 and Orbyte in Q3 2010, have been classified as assets held for sale and discontinued operations according to IFRS 5 and presented separately in the income and balance sheet statements. Preceding periods have been re-presented accordingly.

Financial Performance

Torbjörn Sandberg, Chief Executive Officer of Birdstep, said, "It is clear that Birdstep Technology and EasyConnect have passed the turning point. The rate of new customer acquisitions is unprecedented in the company's history and demonstrates that we're on track for a solid year in 2011. At the same time, one of our main challenges going forward is to scale the SafeMove business despite cuts by our potential customers in Europe's public sector. Completing the sale of Raima was a good example of executing on our strategic plan of focusing on core assets. Further, our plans are underway for exiting our other non-core assets. This will enable us even further to focus on driving forward our EasyConnect and SafeMove businesses."

Birdstep Technology Interim Report Q3 2010

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André V. Demarest, Chief Financial Officer of Birdstep, remarked, “In Q3, we hit the financial check points that should boost confidence that we’re on a positive trend. The numbers speak for themselves – the adjusted EBITDA and cash flow metrics both improved by roughly NOK 6 million due to double digit revenue growth and reduced costs. While Birdstep achieved 11% top line growth in Q3, the underlying growth rate is higher as EasyConnect, which accounted for 70% of the revenues, grew by 15%. We will continue to trim down costs and implement cost saving measures that will make the company more scalable. Getting out of our remaining non-core assets in the near term will further solidify our current cash balance of NOK 33.5 million. Thus, we are well positioned already both in relation to Q4 and for going into 2011.”

New Customers

Strong progress has been made within the Mobile Operator market with the EasyConnect product being selected by Cell C in South Africa, as well as by the Virgin Media Group in the United Kingdom.

Cell C is the first cellular operator in South Africa to roll out a HSPA+ network and provides coverage to more than 30% of South Africa's geographic area. Cell C is adopting the EasyConnect solution to ensure a unified user experience and reduction in support costs with the continued expansion of their Mobile Broadband service.

The selection of EasyConnect by the Virgin Media Group in the United Kingdom will also see the software deployed across the mobile broadband service for pre-paid services through both direct and indirect sales channels.

After several years of service with Elisa Finland, EasyConnect has also been chosen for their Mobile Broadband services in Estonia. A key recognition of the product’s potential to assist Elisa in the control and management of their subscriber base.

These contracts represent key milestones in the Company’s expansion plans and provide long term revenue and growth potential.

Birdstep Technology Interim Report Q3 2010

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Customer Milestones

In addition to the acquisition of key new customers and partners, Birdstep has received significant license renewal orders through the quarter from our key customers. These license renewals and expansion orders provide a significant stability to the Company's earnings and lay the foundation for continued growth.

Strategic Partnerships

Of great significance within the quarter, is the expansion of both the EasyConnect and SafeMove products to new territories and new markets. Through the realization of two partnerships within North America, both products have opened opportunities to capitalize on the growth of one of the world's leading mobility markets.

In addition, the expansion of the EasyConnect customer base to South Africa has re-enforced the opportunity presented by the growth in Mobile Broadband and shown Birdstep's potential to solve the needs of mobile operators in this global market.

Q4 2010 Business Focus & Outlook

Operators continue to show good demand for mobile broadband, driven by laptop and smartphone usage. The current challenge for the mobile industry as a whole is how to support the massive growth in data traffic and still retain adequate levels of profitability. Key focus for Birdstep and EasyConnect is placed on demonstrating cost benefits of mobile broadband solutions to support a positive return for mobile operators. The connection clients business is being expanded into service management solutions for connectivity, mobility and security, with a solution suite meeting the demands for both operators and enterprises.

With the continued expansion of mobile broadband services, the potential for businesses to realize improved efficiency and productivity has opened significant opportunities for Birdstep's SafeMove product range. Maintaining seamless and secure mobile connectivity with the SafeMove product is allowing enterprises to deploy new applications for mobile workforces and cope with the demands of an always connected business environment. High growth in this market continues to be forecast and Birdstep is well positioned with an industry proven product range. The release of our Android solution for seamless connectivity, SafeMove Mobile IP, is also expected to add further interest to the Birdstep portfolio.

Birdstep Technology Interim Report Q3 2010

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Consistent with its Q3 2010 financial performance, the Company is moving towards profitability by the end of this year and fully expecting to be profitable (on an adjusted EBITDA basis) for 2011.

The Company engaged an external advisor in Q2 2010 to explore alternative strategies for improving shareholder value, including among other things additional divestures of non-core investments and businesses. Accordingly, the Company aims to close at least one divestiture during Q1 2011.

Disclosure

Forward Looking Statements and Risks

This report contains statements regarding the future in connection with the company’s growth expectations, general and specific market outlook and objectives. All statements regarding the future are subject to inherent risks and uncertainties, and many factors can lead to actual profits and developments deviating substantially from what has been expressed or implied in such statements.

Birdstep Technology ASA is exposed to various forms of market, operational, and financial risk. After closing the sale of Raima, overall risk of operational and financial losses has been reduced while focus on core businesses where the company possesses particular expertise can increase.

Financial risk has increased as liquidity reserves have been reduced through the last quarters. However, the risk has been mitigated by improving cash flow performance from Q2 to Q3 2010. Apart from this particular risk, there are no other significant changes in risk exposure compared to the disclosures presented in the 2009 annual and previous 2010 interim reports.

Birdstep Technology Interim Report Q3 2010

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Birdstep Technology ASA

Birdstep Technology ASA is a software vendor, headquartered in Oslo, Norway and with offices in Norway, Sweden, Finland, UK and the United States. The Company is currently divided into two core operating segments (EasyConnect and SafeMove) as well as Orbyte, which is considered discontinued operations for accounting and reporting purposes:

Birdstep Technology provides mobile broadband connectivity, security and policy management with the EasyConnect and SafeMove offerings.

EasyConnect offers mobile broadband connection and service management solutions for network operators and laptop manufacturers. EasyConnect Go and Advanced are Birdstep Technology’s solutions for mobile internet, directed towards mobile operators and deployed on USB-modems and mobile notebooks. EasyConnect Inside is provided to laptop manufacturers with embedded connectivity solutions. Key customers for EasyConnect Go and Advanced are 3, KPN, T-Mobile, TDC and Cosmote. EasyConnect Inside has contracts with HP, Acer, Sony and Toshiba.

SafeMove provides seamless and safe connectivity to business data for OEM-providers and corporations through mobile VPN software. SafeMove has a leading position in the Finnish market with key customers as Nordea Bank, Finnish ministries, the Finnish Defence Forces, Helsinki and Uusimaa Hospital District (HUS).

Orbyte allows network operators to rapidly deploy and manage large networks with advanced features. It is designed to allow simplified wireless broadband connectivity for end users whilst allowing centralized authentication, enabling businesses to on-sell connectivity and taking advantage of existing infrastructure deployments. Key customers are TeliaSonera, DU, 3 Sweden, TDC, Eircom and RomTelecom.

Birdstep Technology ASA has 82 employees, of which 14 are a part of Orbyte. For additional information about Birdstep’s products, services, partners and customers please visit us at www.birdstep.com.

For further information about the Q3 2010 press release, please contact:

Torbjörn Sandberg
CEO and President
Phone: +46 70 5170964
Email: torbjorn.sandberg@birdstep.com

André V. Demarest
CFO
Phone: +46 70 3928810
Email: andre.demarest@birdstep.com

Birdstep Technology Interim Report Q3 2010