NEW CORPORATE PLAYER IN THE INDUSTRY AGAINST CYBER-TERRORISM   [IMAGE]  IMMEDIATE BUY RECOMMENDATION Initiating Research Coverage   Merilus Inc.    Symbol: MERH Shares Outstanding: 13.2 million Share Price: $1.90 Market Capitalization: $25 million 52 Week Hi/Low: $8.50/$0.45 Estimated Public Float: 2 million shares  Developed over the last four years, Merilus has recently started marketing the latest and most advanced computer security products targeted for small to medium businesses.   This market has been, and is projected to be, one of the fastest sectors in technology, largely unaffected by the current weakness in the market.      THE PROBLEM AND OPPORTUNITY A Computer Security Institute and FBI survey showed 90% of large organizations detected breaches into their computing systems.  74% of these organizations acknowledged financial losses.  Price Waterhouse estimated this loss to be about $40 billion last year.  The estimated number of computer attacks doubled last year according to the Emergency Response Team at Carnegie Mellon University.  International Data Corp. (IDC) predicts the compounded annual growth rates of digital security revenues will continue at over 88% per year over the next 5 years.    Merilus' products target small to medium businesses, a particularly fast growing segment of the overall security market, which has been underserved by the major security manufacturers.  IDC estimates the small to medium business percentage of the total internet security software market will increase from the current 43% to about 70% by 2004. In terms of dollars, this means companies with fewer than 1000 employees could spend about $7.4 billion on security in 2004.  We strongly feel Merilus is focusing on the right market, at the right time.   MERILUS SOLUTIONS Merilus' computer software and hardware products represent major innovations, which protect against computer information theft from hackers and others both outside and within the business.  Their recently introduced FireCards are the world's first network security system and firewall (controlling who can access what type of data) that easily inserts into the standard PCI slot inside the computer. It is a computer within the computer allowing for remote updating of new innovations and security measures to ensure sensitive data is protected as well as transmitted in a secure manner.   Industry reviews have given the new products high ratings.  Secure Computing Magazine gave the FireCard a five out of five star rating and The Tech Zone awarded a 9.5 out of 10 score.  NASA and Lockheed Martin are just a couple of the sophisticated organizations that have started using Merilus products.  Even though Merilus and its products are relatively new to the market place we feel they will also have good acceptance because they are extremely price competitive.  Management will strive to maintain its current 2:1 cost/feature ratio, where products are either half the price of competitors for the same functionality or twice the functionality for the same price.  Manufacturing of the products is contracted out to keep capital and inventory costs down and flexibility up.   THE ROLLOUT Over the summer, after rigorous testing in Compaq's labs, Merilus has become a member of the Compaq Solutions Alliance, allowing installation of products into Compaq computers. Merilus recently announced they have partnered with the three largest distributors in North America: Ingram Micro, Tech Data and EMJ.  Last week Merilus announced its Reseller Program, which provides marketing and technical support as well as substantial rebates to vendors selling Merilus' suite of computer security products.   MANAGEMENT Dana Epp, President of Merilus started writing commercial security monitoring software at the age of 14 and authored the book Computer Security Concepts, Managing Business Threats in a Wired World.  Merilus has attracted a number of credible and notable Board members such as John Connally, son of the former US Treasury Secretary, John Paul DeJoria, Chairman of John Paul Mitchell Systems.   FINANCIALS and PROJECTIONS Two companies established in this industry are SonicWall (SNWL) and Watchguard Technologies (WGRD).  Over the last couple of years these two companies have enjoyed approximately 100% annualized revenue growth.  Analyst's consensus (Thompson Financial) is that they will have sales growth next year of about 50% and 40%, respectively. Merilus is in the process of raising $3 million in a Private Placement to power its marketing initiatives, increase inventory and to strengthen its balance sheet.  Management and its financiers expect to close this needed funding before year-end. Currently the Company has minimal, but rapidly increasing revenues.    Management is estimating revenues of $8 million next year increasing to $34 million in 2003.  In 2003 they estimate achieving net income of roughly $4 million.  By 2003, we estimate the shares outstanding could increase to about 18 million.  If these numbers were met and a price to earnings ratio of 30 was applied, it could suggest a possible $6 share price.  Management's latest estimates are for revenues increasing to $93 million in 2004.  Merilus is little known in investment circles however an Investor Awareness Program is expected to start next week.   For more information see www.merilus.com and call Steve Clare, investor relations, at 866-623-3320.   Ben Johnson, Analyst First Securities Northwest, Inc. Member NASD and SIPC November 14, 2001 Mr. Johnson has been a Registered Representative and Analyst for NASD member firms for over 25 years.   Investing in Merilus, which is not yet profitable, is speculative and carries a high degree of risk.  The material contained herein is solely for informational purposes only and is neither an offer nor solicitation to buy or sell any securities.  The information is not guaranteed to be accurate and is not a complete statement or summary of the available data on Merilus, and there may be errors and omissions. First Securities Northwest and Ben Johnson own, and may buy and sell shares of Merilus from time to time. Forward looking-statements and comments contained herein within the meaning of provisions of the Securities Exchange Act of 1934, such as statements regarding business and financing, business trends, future revenues and profits, etc. contain no guarantee of future performance and that the actual results may differ materially.  There can be no assurances that any expectations will prove to be correct due to various risks and uncertainties.  First Securities' prior app! roval is needed for any distribution of this report.        Disclaimer: This is a paid advertisement from First Securities Northwest Research. The material contained in this report is being furnished solely for informational purposes. This is not a solicitation for the purchase or sale of securities. Readers are encouraged to conduct their own research and due diligence, and/or obtain professional advice, prior to making any investment decision. The information contained herein is based on sources, which First Securities Northwest Research believes to be reliable, but is not guaranteed to be accurate, and does not purport to be a complete statement or summary of the available data. Any opinions expressed are subject to change without notice. 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