An Emerging Growth Company In Cloud Security

It's only been seven months since we first started covering Viscount Systems (VSYS) but things have moved quickly as seemingly everyone is waking up to the inevitability of using the cloud, software and mobile devices to replace old approaches to handling access control specifically, and physical security in general. This is a major shift in the security segment and one that is at a very early stage of evolution, with Viscount leading the way.

Viscount stock has performed well since our initial report (up 60%) but still well below our near-term IV (Intrinsic Value) estimate of $0.26. Reported results have remained on track in terms of expanded distribution, ramped up channel partners and large pipeline of new business to close. The company recently attracted an additional direct investment of $675K via a private placement at the current valuation to accelerate their plans.

Viscount has had success in cultivating a relationship with Microsoft (MSFT), and is now partnered with the Microsoft Global Security Operations Center, which handles security for all of Microsoft's facilities and people around the globe - encompassing 700 sites worldwide with 183,000 active personal access control accounts. Viscount's Freedom access control technology is now deployed in a facility at the Microsoft Redmond, WA campus. For more information click http://www.msgsoc.com/p_viscount.html.

Viscount recently announced new contracts for Freedom with a diverse set of end users, including the U.S. Government, school districts, financial institutions and real estate properties. These wins not only demonstrate Viscount's compelling value proposition, but also a "dual use" market opportunity in the government and private sector.

The market for security software is developing faster than we thought a few months ago. Investors have recognized the need for "next generation" IT security software technologies like those from Imperva (IMPV) and Palo Alto Networks (PANW) but there is a similar set of developments around people and access control as well.

Near-term business trends are encouraging. Here are a few snippets we pulled out of the company conference call in March discussing 2012 results and progress in 2013:

· The company has a pipeline of new business opportunities of over $12M, which means that substantive YoY growth depends only upon their ability to execute and close business.

· The company is expanding their sales force and opening strategic field offices in North America with the first now up and running in Washington, DC. Channel partners are being brought on board. Recent financing is boosting their sales and channel expansion.

· Viscount is maintaining a strong edge over competition with no losses of business to competitors so far in the expanding sales process. Their technology solution is unique compared to what the other large vendors are offering.

· Technology leadership is being actively protected with an active IP development program. Viscount has filed 60 patent claims in the past two years and is adding more to ensure that the innovations they have brought to market will not be adopted without returns to shareholders.

Viscount is the only public investment vehicle in this space and has the potential to reward investors with large returns. The shares are trading at less than half of our base case intrinsic value (IV) estimate of $0.26. Based on the potential acceleration of adoption led by companies like Microsoft we would reach an IV of $0.84 in one year.

We encourage investors to refer to our full original report for more background and the IV model.

About Viscount Systems

Viscount Systems Inc., designs unified IT and physical security software platforms for building security and emergency planning. Recent awards include the 2012 Microsoft "Be What's Next" award, SIA Convergence Solution of the Year 2011 and Homeland Security Platinum Award for Emergency Response and Gold Award for Access Control at GOVSEC 2011.

About Viscount's Freedom Encryption Bridge Solution

Freedom Encryption Bridge is the first and only access control system that allows entry devices (ID cards, RFID readers, biometrics etc.) to be connected to standard building IT networks without requiring expensive control panels that are programmed from a PC. Freedom changes the paradigm of IT friendly access control. It eliminates up to 80% of the cost of traditional systems that require the installation of control panels. And, it utilizes existing logical IT security software (LDAP) to replace both the control panel component and the software component of traditional systems. Freedom drastically reduces system costs while providing a much more secure software solution.