espion international business plan 11-1-10

8/15/2019 Espion International Business Plan 11-1-10

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ESPION INTERNATIONAL INC.

BUSINESS PLAN

November 1, 2010

Douglas SherrodCEO and Chairman of Board

Espion International, Inc.7117 Florida Avenue

Baton Rouge, LA 70806(225) 293-5252

Dated as of November 1, 2010

© 2010 Espion International, Inc. All Rights Reserved.


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TABLE OF CONTENTS

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EXECUTIVE SUMMARY

Business Description - Espion International Inc. (“Espion”, the “Company”, “we”, “our”, or “us”)develops, markets, and sells email security 1 solutions providing both comprehensive inboundprotection (anti-spam, anti-virus, anti-hacking) as well as outbound email protection and management(encryption, archiving, content based filtering, policy enforced encryption - HIPAA/ GLIBA/ SOX ). Our

solutions include an appliance product sold to business customers available in a single low cost unitas well as a cloud based SAAS (“software as a service”) solution. Easy to plug in, start up andmanage, our appliances and cloud based solutions accurately filter over 99.9% of spam, scams,phishing, viruses, spyware and electronic intrusions which threaten a customer’s inbound email flow ata comparatively low cost.

Technology -The Company’s products and solutions utilize a proprietary artificial intelligence basedalgorithm called Espion Probabilistic Reasoning (“EPR”) which deciphers between spam and approvedemail by using a constantly evolving set of spam signatures that are machine learned. In addition, thespam engine uses information specific to each customers email flow and actually learns the syntaxand semantics of end users within the organization, making its user profiling based learning systemextremely accurate and cost effective. The highly accurate and cost saving EPR technology sets theCompany apart from its competitors.

Products: Appliances and Cloud Based- The Company’s flagship product is called the Interceptor,which combines proprietary software bundled with a rack mounted server to provide an appliancesolution (see picture below) which is deployed at the customer’s network firewall. The product providesa total email security solution by packaging its anti-spam with anti-virus and anti-hacking capabilitiesalong with secure outbound email management via encryption, HIPAA, GLBA and Sarbanes-Oxleycompliance modules which the customer can order as additional features2. Having a separateappliance at the network’s gateway to scan for spam, viruses and hacking attempts takes theprocessing load off the email server, preventing it from crashing and thus prolonging its life.

Additionally, appliances are easier to deploy and manage than software solutions, and offer peace ofmind to companies that do not want to outsource their messages. As such, it is the fastest growingsegment of the email security market.

More recently, the Company has also entered the SaaS (“Software as a Service”) segment of theemail security market. Hosted solutions offer customers with minimal upfront costs since there is nohardware to buy and deployment to administration is virtually maintenance free, since all of thehardware is located at a datacenter. Espion has built its Interceptor software to run as a hostedsolution, allowing multiple administrators to run and manage their respective email accounts fromwithin the same hardware unit, hence making each unit able to house several customers at once. Thisallows Espion to pass the savings onto their customer and become price competitive as a hostedsolution. Espion is uniquely positioned to take advantage of the “race to the cloud” going on today asIT budgets are cut and customers look for greater capabilities and ease of use from the SaaS basedmodel. In addition the hosted (or SaaS solution) is one which doesn’t require a customer to purchasesoftware, but rather use it as a “service”, where it is resident remotely at a data center, allowing thecustomer to use the solution on demand. The SaaS model also relieves the customer from having to

constantly upgrade and monitor the software in house, often reducing IT internal support costs.


1 E-mail security is defined as any software, appliance, or hosted service that filters and protects against spam

(defined as unwanted or unsolicited electronic mail), viruses, and other e-mail related threats.

2 Out bound email management is used by most companies to regulate the content and availability of

information from being disseminated from their networks. Certain governmental regulations have been enactedto protect sensitive customer information – HIPAA for healthcare organizations, GLBA for financial institutionsand Sarbanes-Oxley for the protection and archiving of corporate emails and records sent between managementand its auditors


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Industry Outlook - Spam is a major security threat and financial drain for organizations worldwide,costing an estimated $130 billion per year. Organizations poorly protected against e-mail threats paya high price, loosing millions of dollars in extra IT costs, productivity costs, network downtime,bandwidth costs, and more.

Worldwide revenue in the email security market is expected to grow from $4.4 billion in 2009, to $6.7

billion in 2013, according to Radicati Group. Additionally, the appliance and hosting segments, inwhich the Company participates, have been and continue to be the fastest growing segments of themarket.

Research Analyst Richi Jennings with the Ferris Group, indicates that the HIPAA compliance marketrepresents an additional relatively new $1.5 Billion market that Espion’s [MX] Lock with encryptionproduct is directly targeting.

Strategic Vision/Market Opportunities – Espion has been a research and development operation forthe past five years since its founder, David C. Burdsall passed away in 2005. During this period wehave undergone a change in control and have made significant improvements to our products andtechnology. During these past few years our R&D team has kept our products up to date and on thecutting edge of our industry and market. With the recent hiring of our new CEO, Douglas Sherrod, the

Company is now poised to ramp up sales. Mr. Sherrod has many years of experience in helping placecompanies such as Espion on the map by building sales and marketing teams largely from internalcash generation. Mr. Sherrod has put forth a very conservative and achievable near term businessplan as well as longer term projected objectives. Through strategic and cost effective lead generationvia the use of previously engaged call centers located in India and local marketing and advertisingalready under way under Mr. Sherrod’s leadership, Espion is in the enviable position of becoming avery fast growing email security company with proven products and a highly scalable technology whichwill become very appealing to the larger industry players. Our strategic vision is to leverage ourfeature rich and competitive product lines and further penetrate into the replacement appliancemarket3. Initially and further develop our hosted solution so that we can compete with the SaaS orsoftware as a service vendors once we have achieved a critical mass in sales via our direct andindirect sales efforts in penetrating the replacement market.

Our goal is to achieve revenue growth in the coming 2011 fiscal year alongside upgrading our publiclisting of our common stock to that of a “fully reporting” company. By becoming fully reporting whichcalls for corresponding greater financial and operational transparency on a quarterly basis will allowEspion greater access to growth capital through the sale of equity and debt securities. We anticipatethat our common stock will recommence trading once again in the second quarter of fiscal year 2011.We are confident that we will be able to bring liquidity to our current shareholders by upgrading ourlisting (to fully reporting status) and with the corresponding growth anticipated to our sales revenues inthe next six to twelve months, our market value is likely to increase, making ownership in our stock avalue for old as well as future investors.



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Company Overview

Espion International is a 7 yr old maker of hardware based, vm-ware based, and “cloud” based emailsecurity products using highly efficient and proprietary artificial intelligence algorithms providing in–bound security against spam, viruses and hacking attacks and out–bound compliance and datasecurity using auto-encryption. With over 150 customers spanning large organizations includingComputer Science Corporation (NYSE: CSC), the U.S. Department of Homeland Security, majorhospitals to small Physicians offices seeking a cost-effective encryption solution, our products havebeen commercially deployed for the past six years, protecting over 12 million email boxes worldwide.Our customers have remained loyal to us since 2004, renewing their licenses each year. With a newlyhired management team in place after undergoing a change of control, Espion is now poised foraggressive sales growth and is ready to build a pre-eminent sales and marketing team to capturemarket share in the maturing replacement email security appliance marketplace and in becoming anotable contender in the cloud based security sector, both sectors which are experiencing continuedabove average growth in the IT industry through the next 4 to 6 years.

Espion International, Inc. was originally founded in 2003 and is currently has offices in Baton Rouge,

LA. The Company is organized as a C Corporation domiciled in the state of Nevada, which whollyowns Espion, LLC and INTLX, LLC, two Louisiana based limited liability companies which are theoperating companies.

Espion was initially funded with $500,000 from its founding members and further funded with anadditional $1.8 million in cash for operations and advances made for start up expenses paid by threeprivate investment firms. This capital has been utilized in a practical application of the proof of conceptand for marketing for over 200 customers, including Fortune 100 corporations, hospitals, stategovernments, and universities are now using Espion Interceptors for their complete email securityneeds.

Core Company Values

Espion has adopted the following three words to reflect its core company values offered to itscustomers:

Smart – we consistently have designed email protection and filtering solutions that utilize artificialintelligence to automate intensive processes, adapt to, and predict changes with minimal to no humanintervention in the updating process.

Simple – we have developed products that are simple to use, simple to install, and have no complexmaintenance requirements. We also offer our customers with state of the art technical supportavailable 24/7 year round.

Secure – our products are secure and operate on a hardened kernel, making our system virtuallyimpenetrable.



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Industry Background Emergence of electronic messaging as a mission critical business application.

With the global adoption of the Internet, the use of electronic messaging has become a ubiquitouscommunication tool and a mission critical application for the conduct of business. According toestimates by International Data Corporation, or IDC, by 2011 the number of worldwide email boxes willbe 1.6 billion, and the number of person-to-person email messages sent worldwide will be more than9.1 trillion. Surveys by market research firm META Group estimate that 80% of business peoplebelieve email is more valuable than the telephone for business communication. In addition to email, awide variety of other forms of electronic messaging have emerged and are increasingly embraced bybusinesses, including instant messaging, or real-time messaging through the Internet, and ShortMessaging Service (SMS), or short text messaging through mobile phones, two-way pagers, personaldigital assistants and other mobile devices.

Increasing threats to electronic messaging.

The widespread adoption of electronic messaging has made securing and managing the messaginginfrastructure increasingly important, complex and costly. The messaging standards originally adoptedby the public Internet were not optimized to address concerns for security, privacy and fraud. As aresult, the existing infrastructure is susceptible to security attacks, which compromise and threaten theutility of electronic messaging. Frequently encountered messaging security threats include: • spam, or unsolicited or unwanted bulk email, generally sent by individuals or organizations that sendmass emails to a specified list of email addresses; • viruses, or malicious code designed to disrupt computer systems or steal confidential information;and

• fraudulent email, or email that mimics legitimate corporate communications for the purpose ofstealing personal or financial information.

Proliferation of spam as a barrier to the effectiveness of email.

We believe the proliferation of spam is one of the most severe and challenging electronic messagingsecurity threats faced by businesses today. Spammers rapidly evolve techniques to circumvent effortsaimed at stopping them. The proliferation of spam is driven largely by its potential to generateattractive profits for spammers. Email allows a spammer to reach individuals and businesses for afraction of the cost of using any other communication vehicle because the spam market has almost nobarriers to entry and the marginal cost of sending additional emails is almost zero. In addition, hackers

and spammers increasingly use spam to introduce viruses into business networks and stealconfidential information from businesses. According to IDC, in 2009 spammers sent an average of15.5 billion emails per day, and spam as a percentage of overall Internet email traffic will grow from35% in 2006 to 67% in 2011.

Spam is a dynamic problem. Techniques frequently used by spammers include deliberately obscuringthe identity of the email sender, implementing false “unsubscribe” mechanisms to validate an emailaddress and harvesting email addresses published on the Internet. Spammers target virtually anyonewith a valid email address, across any geography or industry. Moreover, spam campaigns ofteninvolve large volumes of emails sent repeatedly, which tax network and server bandwidth and allowthe perpetrators to rapidly evolve the form and content of the message traffic to evade new spam



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filtering techniques. As a result, successfully addressing the spam problem requires a dynamicapproach to spam identification and analysis, as well as real-time generation, updating anddeployment of filters in the network, particularly at the gateway or the mail server, where messagetraffic can be filtered in the aggregate. Many jurisdictions in the United States and abroad have enacted legislation attempting to solve the

spam problem. While legislation has been an important driver toward raising public awareness ofspam and may act as a deterrent, legislation alone will not solve the spam problem. Governmentshave difficulty prosecuting across jurisdictions and have typically placed enforcing spam laws at alower priority. In addition, the international portability of spam operations and the ability of spammers toremain anonymous has meant that an effective technology solution in addition to legislation isnecessary to address the spam problem.

Spam causes significant challenges for businesses The proliferation of spam and the need to block it has created a number of significant challenges forbusinesses, including: • Lost productivity. The productivity loss caused by the time employees spend separating legitimate

email from spam or responding to spam is growing increasingly significant.• False positives. The cost of false positives, or the inappropriate blocking of legitimate messages byspam filtering systems, may result in loss of sales or critical information. • Strain on IT resources. Spam taxes the technology infrastructure by utilizing network, server andstorage resources, potentially requiring organizations to purchase additional systems and devote morepersonnel to manage them. • Damage to corporate brands. Techniques have emerged, such as “phishing,” where spammerscreate messages designed to resemble a message from a legitimate business, which not only placesthe recipient at risk, but also damages the trust in the business’ corporate brand. • Increased risk of workplace liabilities. Spam often contains or directs users to offensive content,which may create an uncomfortable or hostile work environment and result in greater liability risks forbusinesses. • Increased customer churn for messaging service providers. If email accounts become flooded withspam, customers may become dissatisfied with the messaging service provider, thereby increasingcustomer support costs and risk of service termination. These challenges result in significant costs for businesses. According to Ferris Research, a consultingfirm, the aggregate cost due to these spam threats for American corporations exceeded $10 billion in2011. These costs do not take into account spam techniques used as a delivery mechanism for otherthreats, such as viruses and fraud.

Businesses require an effective and accurate messaging security solution The proliferation of spam, compounded by the severity of email related security threats, presents aformidable challenge for businesses as they look to maintain a secure environment, contain costs andrealize the benefits of a messaging platform. As a result, businesses require a messaging securitysolution that can address these challenges. An effective solution must: • identify and prevent spam, viruses and fraudulent email from entering the core network; • minimize false positives;



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• limit the management and administrative cost required to maintain control over the rapidly evolvingspam tactics and messaging threats; • support the wide variety of hardware, software and messaging applications and protocols typical ofthe technology infrastructure; and

• process hundreds of millions of emails each day across multiple locations, without delayingmessage delivery. Given the growth of complex messaging threats, we believe that businesses of all sizes require adynamic messaging security solution to ensure a safe, secure and stable messaging system.Combating spam and related messaging threats has required increasing financial investment insecurity technology. IDC estimates that the messaging security software market will grow from $900million in 2010 to $1.8 billion in 2012, representing a compound annual growth rate of 31%. Today, themarket for enterprise anti-spam solutions remains largely unpenetrated. According to FerrisResearch, approximately 10% of corporate mailboxes have some level of anti-spam protection.

Encryption Market

Email is a mission-critical means of communication for enterprises. However, if email leaves a securenetwork environment in clear text, it can be intercepted along the path between a sender and arecipient, which permits theft, redirection, manipulation, or exposure to unauthorized parties. Failure tocontrol and manage such risks can result in enforcement penalties for noncompliance under numerousdifferent regulations. Healthcare organizations are primarily concerned with the recent changes to theHealth Information Portability Accountability Act (HIPAA) introduced via the Health InformationTechnology for Economic and Clinical Health (HITECH) Act of 2009. Financial institutions areconcerned with Gramm-Leach-Bliley Act (“GLBA”). In addition, individual states such asMassachusetts and Nevada have recently introduced state laws regulating email encryption. Failure tomanage the risks associated with email can also lead to decreased productivity, damaged reputation,competitive disadvantage, a loss of intellectual property or other corporate assets, exposure tonegligence or liability claims, and diversion of resources to repair such damage.

The most recent estimate we have puts the market at $120 million in 2011.

Even though there are still many security solutions focused on a single type of security threat, theoverall trend is to offer a complete package that protects against multiple threats. Most popularsolutions, today, offer anti-spam/anti-virus, content filtering, encryption and some Data LossPrevention (DLP) capabilities integrated together. These complete solutions are often made up oftechnology components sourced from multiple OEM suppliers. The key is that they are available froma single vendor, and all capabilities are managed centrally.



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Product Overview

Espion provides both standalone appliances as well as hosted solutions for inbound email security aswell as outbound content policy management and email encryption. Espion recently extended itsInterceptor line to offer customers more targeted solutions, creating the i-series and e-series.

Additionally the company recently introduced its software as a service solution.

MX LOCK - OUTBOUND EMAIL ENCRYPTIONInterceptorTM with MX LockTM supplies the highest level of security for emails carrying confidentialand proprietary information. MX Lock provides for selective and automatic data security byenforcement for outbound email content and attachment rules. Once an email is scanned for restrictedcontent, the email and any attachments are encrypted with a highly secure 1024-bit dual-keyencryption technique used by the U.S and Canadian governments and their military. Content Filteringand blocking rules prevent infractions of compliance for HIPAA and GLBA as well as enforce customIT management policy rules. Interceptor with MX Lock prevents data leakage and off-loads the mailserver resulting in improved system performance.

MX MERCURY - INBOUND EMAIL SECURITY

MX MercuryTM is the perfect solution for eliminating spam while simultaneously securing your emailnetwork and freeing up valuable IT resources. MX Mercury utilizes a state-of-the-art SMART artificialintelligence (AI) technology which learns email patterns for each individual user at your organization.

A typical install is SIMPLE and can have you spam free in less than 15 minutes. While everyone elsein the industry prefers a reactive approach for battling spam, we happen to be highly proactive. As aresult, MX Mercury makes your organizational network SECURE from spam and hackers.

PALADIN MX - SaaS/HOSTED SERVICESThe Paladin MXTM Software-as-a-Service (SaaS) is a military grade hardened cyber securitydevelopment for incoming and outgoing email. Paladin MX SaaS scans and defeats all cyber attacksassociated with incoming email at your organization. Additionally, Paladin MX SaaS filters outgoingemail for violations of HIPAA, GLBA and other data leakage problems. Your outgoing email is

automatically scanned, filtered and encrypted without any additional actions by the end-user. PaladinMX SaaS stops the loss of trade secrets and other confidential and sensitive information that mayadvertently or overtly be sent in an outgoing email.



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Core Technology - Inbound Content Filtering

Espion’s EPR AI technology uses a proprietary algorithm to intelligently determine the true nature ofSMTP traffic, rather than relying solely on rule-based techniques. This proactive approach gives ourproduct greater speed and accuracy in making determinations on spam iterations which can typicallyfool a signature based heuristic solution. Each email is analyzed to see if it meets criteria specific to

legitimate email, spam or other harmful traffic.

EPR is adaptive technology which allows it to “learn” an organization’s unique mail flow through usertraining; catching only spam, and allowing legitimate email to flow unimpeded to mail servers. Real-time analysis of mail flow allows EPR to sort email; quarantining or rejecting unwanted messages andfreeing up valuable IT resources.

EPR technology requires little to no maintenance, it achieves high performance and enhancedeffectiveness as it molds to a customer’s email flow for a very competitive total cost of ownership(TCO). “Marking” messages that were incorrectly filtered allows EPR to identify future messages andcategorize them accordingly, making training the engine simple and painless.

In the highly random and ever-changing field ofspam recognition, computer systems securityand filtering, EPR has proven a success. Themag ni t ude of EPR method olo gy hastremendous commercial business applicationsaround the world. It is anticipated that thisbreakthrough in efficient self learning artificialintelligence will lead to tremendous value forboth current and future shareholders of EspionInternational, Inc.

EPR can best be described as a “hybrid” A.I

system made up of multiple techniques thatcan be used to model any domain. The endresult is a decision making system that iscapable of making highly accurate decisionson incomplete information. The name“Probabilistic Reasoning” comes from thefact that the output from this system is a“probability” or a confidence level in the

result. Any domain can be modeled using EPR, by representing the conditional dependenciesbetween the different knowledge components in that domain. Unlike typical error pronekeyword Bayesian systems, EPR utilizes a hybrid of Markov random field, neural networkprogramming, reinforcement machine learning and a combination of probabilistic logic andfuzzy logic, all programmed in LISP code, providing robust and intuitive feature extraction onvirtually any domain it is presented. Our system is a “reasoning” system because it uses itsown feature sets and develops signatures via pattern detection of both end users as well asspammers. By being a proactive solution, our system is on the cutting edge of AI applied toemail filtering today. This itself will allow us to gain further visibility as we carry out our go tomarket strategy in 2011.



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Core Technology - Outbound Email Encryption

All outbound emails (Plain Text SMTP Traffic) leaving a customer’s organization are scanned by theInterceptor's MX Lock module. If an email matches content policies established by the IT administratoror if our HIPAA, GLBA and/or SOX module has been

purchased and content is determined by our EPR systemof triggering either of these policies or regulations, theemail is automatically encrypted and stored on-disk. Asecure link is then sent out to the recipient via email.Upon receiving this email, the recipient can click on thesecure link and view the email (plus any attachments)over a secure, 1024-bit encrypted SSL tunnel in a safeweb portal. An illustration of our email encryption systemis shown on the next page.

MX Lock employs a proprietary dual-key locking systemwith 1024-bit encryption. Both keys are required toaccess an email. MX Lock is simply the strongest emailencryption available.

MX Lock administers a feature-rich environment ofcustomizable controls that enable forced compliance tocustom IT policies on outbound email. Outbound email isencrypted using dual-key encryption, a method used bymany governmental agencies and the military, ensuringthe highest level of customizable security for emailcarrying confidential and proprietary information.

Additionally, MX Lock validates the recipient using anidentity management system which can be customized tomeet your company's security needs. Upon receipt and

successful recipient validation, an email can be viewed inany web browser installed on any operating system anddoes not require additional software installation by therecipient.

TRUSTED RECIPIENTMX Lock ensures that encrypted email content and attachments such as patient medical records,corporate trade secrets, financial information and any other confidential or otherwise sensitiveinformation is accessed only by the designated and trusted recipient. Upon receiving an encryptedemail, a recipient has to validate himself/herself before gaining access to the email content andattachments.

RECORDED RECEIPTWhen a secure/encrypted email is viewed by the recipient, a validated record containing the recipient'sIP address, email origin timestamp and email access timestamp are automatically emailed to senderby the Interceptor.

TRANSPORT LAYER SECURITY (TLS)MX Lock provides the custom capability to transmit email messages and attachments over a securechannel directly to the recipient's inbox. If and when TLS is unavailable, the Interceptor will send theemail securely via MX Lock.



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PROTECTION FROM PHYSICAL THEFTIf the Interceptor falls into the wrong hands due to theft of the server, all data on the hard drives isundecipherable as it is encrypted and is surrounded by several walls of security.

CUSTOM CONTENT FILTERINGThe IT Administrator has the privilege to create highly flexible content and encryption policies to scan

and block/encrypt outbound email. For instance, if your company requires all emails from Bob to besent out securely, a custom encryption policy will accomplish this. However, you can also block Bobfrom sending out emails to his personal email address using his company issued email address.

In addition, our encryption feature is offered as a device license. In other words, there are no per-useror per- message fees involved with our system. These provide a terrific reduction to the Total Cost ofOwnership (TCO). MX Lock is available as a standalone appliance or as part of our Hosted/SaaSproduct offering known as the Paladin MX.

Furthermore, these policies can be configured to notify the proper internal authority if and when aviolation is triggered.

INTRUSION PREVENTION SYSTEM (IPS)

The Interceptor is also encased in a hardened base operating system as well as a highly powerfulIntrustion Prevention System (IPS) which prevent brute force hack attempts while keeping your mailflow smooth with zero delays and errors.

Your confidential information should be just that - confidential and the Interceptor equipped with MX



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Lock will help achieve it.

MX Lock Industry Specific Applications

HIPAA ComplianceHealth Insurance Portability and Accountability Act

Complying under the Health Insurance Portability and Accountability Act (HIPAA) of 1996 - Section13400 and the Health Information Technology for Economic and Clinical Health (HITECH/ARRA) Act of2009 - Section 13400, all outbound email and file attachments MUST be sent securely and encryptionis the best method. MX Lock comes fully equipped with a HIPAA encryption engine (also known as theIntelligent Content Scanning engine) and allows for customizable compliance rules that can beuniquely tailored to meed our customer’s business needs. The IT administrator can implement specificrules to force encrypt emails based on their content or he/she can let the HIPAA encryption engine doits business.

MX Lock with HIPAA Encryption Engine(known as the Intelligent ContentScanning Engine in the above picture)

When sensitive/confidential data ismatched, MX Lock will encrypt anddeliver the email only to the pre-authorized recipients (regardless ofemail/attachment size). Only users withproper credentials can send encryptedemails and only trusted recipients withaccurate credentials can decrypt andview the content of the email. MX Lockis an impenetrable lock on patient/medical records assuring full HIPAAcompliance.

GLBA ComplianceGramm-Leach-Bliley Act Compliance

Complying under the Gramm-Leach-Bliley Act (GLBA) of 1999 - Section 501, requires that alloutbound email and file attachments containing trade secrets, intellectual property and otherproprietary and sensitive data or images MUST be sent securely and encryption is the best method.

MX Lock automatically scans outbound emails for specific content (customizable by the ITadministrator) and encrypts emails that trigger any custom policies. Only users with proper credentialscan send encrypted emails and only trusted recipients with accurate credentials can decrypt and viewthe content of the email. MX Lock is an impenetrable lock on our customer’s company's trade secretsand confidential records assuring full GLBA compliance.

PALADIN MX - SaaS CLOUD SOLUTION FOR CYBER SECURITYPaladin MX Software-as-a-Service (SaaS) is a military grade, hardened, cloud based cyber securityservice for inbound and outbound email. Paladin MX security software is developed and hosted byEspion International, Inc. using the Interceptor series network security appliances. However, instead ofhaving physical responsibility for hosting the Interceptor at your facilities, we (Espion) maintain the



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appliance at our SAS-70 approved facilities. Paladin MX scans and defeats all cyber attacksassociated with inbound email and filters outboung email for violations of HIPAA1, GLBA2 and otherdata loss problems. Paladin MX automatically scans, filters and encrypts all outbound email withoutany work by the network/IT administrator. Additionally, Paladin MX stops the loss of trade secrets andother confidential and sensitive information that may be inadvertently or overtly be sent in an outboundemail.

All the features that you would expect from a software or hardware solution such as:

Outbound email encryption - MX Lock AI based anti-spam - MX MercuryTMContent managementPolicy managementVirus and malware screeningProtection against Denial of Service (DoS) and Distributed Denial of Service (DDoS) attacksProtection against Directory Harvest Attacks (DHA)LDAP integrationEnd-user management portalsFull redundancy on data and power

Full spooling of email24/7/365 Service and support

Additional FeaturesCLUSTERINGThe Interceptor can guarantee our customer’s initial investment through clustering. As new Interceptorhardware platforms are deployed in a customer’s network, old Interceptor units can be configured tosync with the new units to provide redundancy and load balancing.

CLUSTERING FOR REDUNDANCY An old/existing Interceptor can be clusteredwith a new Interceptor to help maintain astandard EPR (Espion Probabilistic Reasoning)engine and a uniform configuration across allInterceptors in the cluster. While the newInterceptor can be used to handle live mail flow(as the hardware configuration is newer andmore powerful), the old Interceptor can be usedas a backup for if and when the newInterceptor is unavailable thereby providinghighly effective passive redundancy.

CLUSTERING FOR LOAD BALANCING

Multiple Interceptors can be clustered togetherto help manage heavy email loads at yourorganization. Each Interceptor will process

roughly the same amount of emails. If and when one of the Interceptors becomes unavailable, theother Interceptors in the cluster will take on the extra load with zero delays in email processing.

SECURE FILE TRANSFER WITH NO FILE SIZE LIMITATIONS

The Espion Interceptor configured with MX Lock supplies network/IT administrators with the controlsrequired to enforce encryption on emails to meet compliance standards. MX Lock equips users withthe ability to securely transfer files over the Internet. Users can send emails of any size, with virtually



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no size limit for attachments regardless of those limitations imposed by the sender/receiving mailserver. Users can securely send large email attachments such as medical images, X-rays, CAD-CAM,books or any other digital records. Users do not need to go outside of the company's IT infrastructureto send large emails and in doing so, potentially violate HIPAA, GLBA and SOX policies.

Upon receipt, a recipient can only view the email and download attachments upon providing propercredentials. Additionally, MX Lock allows the recipient to reply back (along with attachments of anysize) to the sender.

Patents/Intellectual PropertyThe Company’s algorithms, designs, methods, and code are held as trade secrets. Proper designcontrols for Espion Interceptors ensure that the source code cannot be reverse-engineered.

Additionally, the licensing system and CDs used to build the Interceptors are also protected. Theentire process from an Interceptor being built to a license being issued is logged completely.

Espion owns all code created for the Interceptor and has non-compete agreements with alldevelopment staff and key management members. The main developer of the intellectual propertyowns 30% of Espion International Inc. and other key employees are also properly incentivized toremain with the company for the requisite period.

Espion has all future rights of any implementation of the A.I. algorithms. This adds options and exitstrategies for investors.

Customers

Espion’s solutions are applicable for virtually every customer industry and geographic region asevidenced by our diverse customer base. Currently Interceptors using EPR are deployed andprotecting over 200 customers in three countries including:Fortune 500 companies: Computer Sciences Corporation (CSC)Government agencies - City of Irvine, City of North Las VegasHospitals - Northeast Health, Children’s HospitalSmall to mid sized businesses (“SMBs”) - CLECO, Atser, Acadian Ambulance Service, First NationalBankers Bank, Karta, Gray & Company, Sterling Bank, FEXCO



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Competition

Direct CompetitionEspion competes with large technology companies as well as standalone players and providessolutions which are far less expensive but just as comprehensive as compared to our competitors. Our1000 and 5000 series appliances are in terms of features and functionality the equivalent to IronPort

Systems, which was acquired by Cisco in 2008. Our Interceptor appliances cost 40% to 60% less onaverage upfront costs as well as annual maintenance fees. Our lower products also have theequivalent feature sets The industry has been undergoing marked consolidation by infrastructureplayers during the past several years; McAfee acquired Secure in 2008, Cisco acquired IronPort inJanuary 2007, and Google acquired Positini in July 2007. This follows the acquisitions by Secure in2006 (of CipherTrust) and Microsoft in 2005 (of FrontBridge Technologies).

Indirect Competition According to a Market Trends report by Joel Snyder, entitled “The Future of E-mail Security”, there aremore than 125 vendors in the email security market. These range from simple anti-spam, to anti-spamwith anti-virus, to encryption, to various combinations. These particular providers have only one or twoareas that they secure, and are generally able to charge lower initial rates. However, if the client

needs all of the functions that are naturally included on the Interceptor, they will have to buy severaldifferent products. When that happens, the initial cost can quickly rise, the deployment is complex, theclient does not get the full range of features, and administration cost is higher.

Large indirect competitors include Symantec, Barrucade Networks TrendMicro and Zix - none of whichinclude the entire core features in one offering as does Espion.

Marketing/Sales Strategy

Near Term Goals – Penetrate U.S. Replacement Appliance MarketWith the introduction and deployment of email security appliances by our competitors in the past sixyears, a replacement market exists which can be penetrated through both direct and channel sales viaValue Added Resellers, Systems Integrators, tactical Value Added Resellers and Value AddedDistributors. Espion’s near term strategy is to focus on selling at senior levels in organizations needingto replace their current appliance based email security solution which may be out of date or at the endof its support contract. This plan will be kicked off through the initial implementation of targeted andproven sales lead generation methods such as tech savvy India/Phillipines based call centers whichset up 8-20 webinar appointments per week for our current sales team to showcase our currentappliance offerings and the value of replacing their current solutions with ours. Once this plan is in fulloperation, Espion will hire and train additional experienced IT Security sales personnel and systemsengineers as well as additional tech support members to handle the added customer needs. Ourstrategy is to compete in the large and rapidly growing replacement appliance marketplace bytargeting customers who can benefit from receiving the added outbound compliance and encryptioncapabilities of our appliances while still paying the price of a scaled down in-bound only product.

Because our entire product line is attractively priced and contains the features and functionalityavailable in the higher end and much higher priced appliances of our competitors, we believe we canconsistently win new customers by a cost and feature competitive product at the time for replacement.In addition, the ease by which our products are installed and maintained, our products total cost ofownership including our ongoing annual support contract pricing is far more competitive than ourcompetition.

Year 2 through 5 Goals – Continued Expansion of Replacement Appliance Market Penetration andIntroduction of SaaS/Hosted Appliance Solutions to Industry Specific Customer Market NeedingEncryption SolutionsOur expansion plan in years 2012 through 2015 is dependent upon the influx of key sales managers



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and personnel experienced in selling in the IT Security VAR channels. By being a rapidly growing andattractive publicly traded email security company with superior product offerings in our space, we areconfident that we will be able to attract the right personnel with proper equity incentives. In addition,our products greater branding in our marketspace will assist us in furthering both our VAR Partnerreach, further developing and building our sales in this burgeoning replacement market for appliances.Once we have achieved a stable growth rate in this marketplace we will make strategic decisions on

the development and marketing of our highly scalable hosted/SaaS based solution for both inboundonly as well as offer our solutions to the specific verticals in which we have readily deployableencryption solutions to assist Healthcare Organizations with their HIPAA Regulatory requirements,public companies with their need for archiving required by Sarbanes-Oxley, and encryption needs offinancial organizations required by the Graham Leach Bliley Act - GLBA. As part of each such contentmanagement requirement brought on by such regulations, companies affected need the resource ofsecure transfer of such information which our encryption module provides. In addition our adaptivelearning technology allows for seamless “on-the-fly” automatic encryption and/or archiving of emailscontaining content which would be required to be kept or copied for safekeeping (i.e. SOX compliance)or transferred securely for HIPAA, and GLBA customers.

Introduction of New SaaS Solution - As some companies cut IT budgets in the current economicenvironment and customers look for greater capabilities and ease, Espion is positioned to take

advantage of this shift in customer preferences with the introduction of our new SaaS solution.

Marketing - Advertising and Promotion

PrintEspion will advertise in various technical journals such as Network World Magazine, NetworkComputing Magazine, CIO Magazine, and various industry specific publications. This type of pullmarketing, combined with the push efforts via Direct Mail/Call Center use as well as Internet marketingand Trade Show attendance should bolster the impressions we will receive from our print mediaadvertising.

Telemarketing/Direct MailThe new relationship with SaleBuild includes three teams of 2 full time telemarketers and anadministrator with industry and product experience, calling on leads furnished by VARs and by Espion.Previous direct sales effort utilized target market call center to spark activity. This will be ready as analternative plan if channel sales do not meet goals. Espion will furnish data sheets to VARs who wishto do their own direct mail programs, but has no plans of doing its own.

InternetTargeted email campaigns, upgrading our website to a more interactive and informative site, SEO, andGoogle/Bing/Yahoo! Advertising as well as Social Network and YouTube advertising is planned.

Trade ShowsTrade shows offer an opportunity to get the Espion brand out. For 2011, Espion is consideringparticipating in InterOp in Las Vegas and New York and NetSec in Scottsdale.

Pricing Strategy

Our strategy is to offer the same or more features and better performance than the current tier onemarket leaders. This will allow Espion to focus on the Mid-Range market that cannot afford the higheralternatives, but have the same business requirements.

Espion intends to compete in the Hosted/SaaS market by partnering with datacenter and InternetSecurity Vendors on a revenue share plan as well as provide Healthcare organizations with encryption



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and other content policy management functions, at a very aggressive price to bolster sales. Espionproducts offer unique functionalities and diversification to its customers. It is Espion’s intent to keepthe pricing at a comparative middle range for all products.

VAR pricing is at a 25% discount off of list, with additional incentive plans. Annual support is priced at15% of the product list price, which is industry standard.

Pricing PoliciesEspion holds the List Price to customers in nearly all cases. Discounts have been negotiated for largegovernment contractors such as General Dynamics, and other customers seeking to purchase multipleunits. VAR pricing is held firm to the VAR, but the VAR has the freedom to quote any margins that theysee fit. Many VARs will quote pricing below list, but add back installation and support services.

Management Bios

Douglas Sherrod, CEO Mr. Sherrod has participated in the formation of several startup companies and joint ventures,establishing rollout strategies, product positioning and distribution channels. In 1983, Mr. Sherrodstarted the initial operations for Force Computers, Inc. opening the first sales and marketingoperations in the US for the Munich Germany based company, a spin-off from Motorola-Germany. Mr.Sherrod initially held Director of Sales and Marketing title, for this startup, which grew from $0 to over$1.5 Million in shipments, $5 Million backlog, in less than 15 months of operation. After achievingexceptional and rapid growth, he was promoted to Vice President of Marketing and General Managerof the US operations. Mr. Sherrod was responsible for all North America operations, included staffing,product market, tradeshows, public relations, sales, and overall general management of the USfacilities. In 1987, Mr. Sherrod co-founded Allied Telesyn International, with a Japanese businesspartner. ATI is a manufacturer of local area network (LAN) equipment. Mr. Sherrod oversaw thegrowth of business and manufacturing infrastructure of this company from startup to several milliondollars in turnover. As co-founder to this startup, he assisted in building a business which began asan idea formed at his partner’s kitchen table in 1986, to over $200 million in sales by the end of 1995.

Mr. Sherrod was directly responsible for creation of the company’s first distribution channels in the USand Europe. In 2000, Mr. Sherrod co-founded VivoCom, Inc and remains a major stockholder of thiscompany. VivoCom is a developer of IP communication protocol and IP switching software. In 2002,Mr. Sherrod co-founded AdriaComm, LLC. AdriaComm is pre-IPO developer of security software forIP communications. AdriaComm has developed a firewall solution allowing IP voice & datacommutations through corporate firewalls without compromise to corporate firewall integrity. Mr.Sherrod studied electrical engineering at the University of Southern Mississippi while working the U.S.Navy and Litton Industries, as an intern in a special Navy sponsored program for naval engineering.Litton Industries is now a division of Northrop Grumman.

Muralidar Chakravarthi – Chief Technology Officer Mr. Chakravarthi is the creator of the Espion Probabilistic Reasoning System (“EPR”) AI based anti-spam gateway messaging solution, delivering a “unified threat management” system for (1) both

inbound/outbound threat prevention; email archiving; anti-virus and other content policy andcompliance based systems. Mr. Chakravarthi’s Ai have been developed and used in the EspionInterceptor since 2003. EPR is a completely self evolving classifier for emails that is able to detectspam/virus/malware with over 99.86% accuracy. Prior to joining Espion, Mr. Chakravarthi also was thefounding member of “Team Cajunbot” – the University of Louisiana’s –Lafayette’s entry into the USDepartment of Defense’s DARPA Grand Challenge where he developed an AI system used to steerthe vehicle. Mr. Chakravarthi’s AI self learning and auto updating algorithm has not been manuallyconfigured or updated nor any white papers have been written which would provide further guidancesince its initial deployment in 2003. By using an unmanned vehicle equipped with AI basedtechnology,Team Cajunbot finished and was ranked 8th worldwide, out of over 1200 entrants in thisunmanned vehicle race. Mr. Chakravarthi received his Master of Science (Computer Science –



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Artificial Intelligence Specialization) from Southern Illinois University in 2003 and his Bachelor Science(Computer Science) from the University of Madras in 2000. Mr. Chakravarthi has recently beeninvolved as a Key Note Speaker on Robotics at the North Carolina Mathematics and ScienceEducation Network (PARI Institute North Carolina). Mr. Chakravarthi is currently researching anddeveloping algorithms for gait processing and self balancing for robots, having built several auto-learning hexapods (robots with 6 legs used for future Mars landing projects). Mr. Chakravarthi also has

conducted significant foundational research on heuristic algorithms for Bayesian Belief Networkdecomposition which he accomplished as part of a National Science Foundation grant to be adaptedinto use for classifying radar information in a more “intelligent” manner without intervention.

Peter Messineo, Chief Financial OfficerMr. Messineo has been an accomplished PA and MBA with over 20 years of financial managementexperience in private and public accounting. Has been an integral part of corporate managementteams offering contributions in business planning; internal controls and procedures; systemsdevelopment and implementation; workplace re-engineering; due diligence for mergers, acquisitions,and divestures; business valuations and relationship management with Venture Capital investors.Peter has extensive experience in SEC reporting for various industries. Among Mr. Messineo’saccomplishments: Developed and documented internal controls and financial structure of companies.Including narratives and flowcharts of system procedures and controls, in compliance with Sarbanes-

Oxley requirements; Acquisition accounting, including coordination of data conversion and merger ofinformation systems, securing assets and coordination of financial information processes forcentralized reporting; Operations management. Documentation of workflows and job functionanalysis.Re-engineering department staffing and production. Discussed and implemented jobdescriptions and realigned functions to interface between departments of sales and production,through activity based costing models; Business modeling, budgeting and forecasting. Detailedthrough multi location and multi departmentalized companies, including those of foreign entities.Designed financial modules for analysis for the guidance of business segment profitability and focuson attainment of corporate objectives as set in the business plan; Prior to joining Espion, Mr. Messineowas affiliated with Pender Newkirk & Company as an Audit Manager and began his public accountingcareer at BDO Seidman, LLP. Mr. Messineo holds a MBA in Finance from the Long Island Universityand a BBA in Accounting from Pace University. Mr. Messineo’s CPA license entitles him to practice inNew York and Florida.

Operations

ProductionEspion orders server hardware from Chicago based MBX Systems on an OEM contract, then burnsour software onto this server hardware, making it an appliance we have named the Interceptor, whichwe in turn, ship to the client. It takes between 1-2 weeks to receive the hardware from MBX, but just amatter of hours to build and ship it out to the customer once it is received. This extremely efficientprocess allows Espion to be free of a massive inventory, thus keeping the payables to MBX in line withreceivables from the customer.

With the anticipated surge of business expected to accompany the new Direct sales initiatives, Espionis looking to outsource the fulfillment function to VARs and other synergistic organizations.

Receiving OrdersEspion only accepts orders from Customers or Channel Partners via a signed evaluation form or and aPurchase Order Number. A Build Request is then issued by the Operations Manager to the SupportStaff, who then builds and ships the boxes.

InventoryRaw materials inventory is controlled and tracked by the Director of Operations through a customspreadsheet as well as by regular physical counts. This information is tracked from the purchase



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order to the order number to the shipping company's tracking number and finally to the actual servicetag.

Since the actual product is not built until a Build Request is issued, there is no finished product that isstored. Once the boxes are built, shipped and installed, we have a network operations center thatstores the actual product and customer information.

Qualifying, Billing, and Collecting from CustomersEspion currently does not require its customers to apply or qualify for credit. Since more than 90% ofall product demo evaluations result in the customer retaining our product, our “stick” rate is veryimpressive. Once our product is shipped for its two week evaluation, an invoice is cut by theaccounting department and either mailed, faxed or emailed to the customer. Terms are Net 30 fromthat date. Accounts receivables are aged and collection calls are made by the Director of Operations.

Product/Service SupportThe Interceptor support team provides installation support, troubleshooting assistance, and usertraining. Espion provides email and phone support from 8:00 am CST to 6:00 pm CST.With the anticipated growth from the outsourced sales projects, Espion is looking to outsource first andsecond level support to an outside organization that provides 24/7 tech support. Our chosenoutsourced help desk provider is Buchanan Associates out of Dallas, TX. Buchanan presentlyprovides support for international firms, such as Mary Kay Cosmetics. Espion will be using a perincident (emails/calls) contract with Buchanan which will minimize overheard cost for Espion.

Handling Warranties and ReturnsBecause Espion allows the customer to evaluate the product at no charge, there is currently no writtenwarranty or return policy. The hardware is protected by a standard MBX 1-year warranty.

Financial Information and Projections

The accompanying chart contains historical performance and projections. These figures and the

attached financial statements to this business plan have not been prepared in accordance withgenerally accepted accounting principals, nor have they been presently been audited, reviewed orcompiled by an independent accounting firm. Full historical financial statements for the three mostrecent fiscal years are available for review. These projections represent the best estimation of currentmanagement of Espion International, Inc. as to the anticipated results of operations of the company ifthe assumptions underlying such projections come to pass as contemplated. There can be noassurance that any or all of such assumptions will occur as contemplated.

In (000s) 2009 2010 2011 2012 2013 2014 2015

Investment $ 0 $ 150 $ 350 $ 0 $ 0 $ 0 0

Reinvest

$ 0 $ 0 $ 250 $ 775 $ 625 $ 575 $ 450

Revenues $ 301 $ 325 $ 1,625 $ 3,250 $ 6,500 $ 13,000 $ 26,000

CGS $ 25 $ 55 $ 195 $ 1,465 $ 780$ 1,560 $ 3,120

Gross Profit $ 276 $ 260 $ 1,439$ 4,020 $ 5,095$ 10,087 $ 22,430

Espion is poised to ramp up its sales with the infusion of a minimum of $350,000 from its current



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$1,000,000 secured convertible promissory note offering (See accompanying Offering Memorandum).

Attached Exhibits:

A: Consolidated Historical Financial Statements and Operational Results forFYE 2007-2009

B: Pro forma 3 Year Financial Projections with Assumptions

espion international business plan 11-1-10

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