From the Alert Investor of Oct.25:
THIS WEEK'S PICK
This week's stock pick, Heartsoft (HTSF,1 27/32,BB) is as close to a sure thing as there is. The Tulsa company, a top provider of children's educational software, has won many awards and has sold their suite of products to many, many school systems across the country. The stock, one of our very first picks in the early days of this newsletter, exploded last January - going from 20c to $5 in a few weeks - and has been drifting down ever since, forming a nice 5-month base in the $1.50 area. Since they are a non-reporting company, there were no earnings reports to light a fire under the stock and the news has been scarce. More importantly, the children's browser that was acquired a few months back has been kept under wraps, while the company was building important strategic affiliations. The principals don't concern themselves with the stock price very much, but you can the see the quality of their offerings at www.heartsoft.com
First the facts. The whole market cap is only $11M, and I think 1999 sales will be around $2M, with triple digit growth in store for 2000. The Thinkology line of educational software is selling briskly, and the last status report a few months back showed fast revenue growth, albeit on a small base. The company signed distribution agreements with nearly a dozen national and international software distributors, of which a single one, Target IT (for all of Singapore's state-run primary schools) is worth approximately $200K revenues during the current school year, more than the whole first quarter's sales.
The company said earlier they want to position their kids' browser as "a secure and safe alternative to Microsoft's Internet Explorer and Netscape's Navigator". The company also told us that it will be filing its 3 year audits in the 4th calendar quarter of 1999, in compliance with the SEC's timetable for stocks starting with H (so there will be no "E" or delisting). We also know that the company has been hiring aggressively and that they have been working on a "significant pre-release marketing campaign" for their browser, which is supposed to be head and shoulders above anything else that's available on the market, making something pedestrian like Crayon Crawler look like a joke. It "analyzes photographic material found on the Internet for pornographic content... to drastically improve the level of Internet protection over "text-based" content filters [URL's with dirty words, for example]. Or, as we put it in our August 9 write-up of HTSF: "It incorporates heuristics, or artificial intelligence, to dynamically adjust the filtering and data suppression process". No other secure web browser is advertising photo recognition blocking capabilities. This is from Heartsoft CEO Benjamin Shell's last post on Raging Bull, on Sept.1: ""Would computer manufacturers such as Apple, Dell, Compaq, Gateway, HP etc. want to ship our secure browser on their computers - they answer is yes". He's clammed up since then...
Now the excitement. Friday morning Heartsoft was listed as an exhibitor at the Learning & Technology Conference in Dallas in November. They listed a product called Internet Safari (because "It's a jungle out there"), a name that no one ever heard before. The lucky guy who posted the info on Raging Bull just stumbled upon the show's exhibitor list and posted it. The chatboard came alive, the stock started moving - closing the day up 25% - and the company clammed up completely. By the end of the day, Heartsoft was gone from the exhibitor list and the I.S. website was shut down. It was confirmed that the URL Internet Safari is registered to HTSF, but the company "will not confirm or deny" the use of the name for the browser. On Monday morning you'll probably see a press release to address the rumors and speculation, and presumably to talk about the "careful marketing plan" they've developed. We'll have to wait until the Dallas show, however, to get the full story.
There are five ways that a filtering software can block unwanted sites, and Heartsof'ts Internet Safari probably uses all but the third:
- Keywords - blocks access by looking for specific keywords, but it can be inaccurate ("turkey breast", for example).
- Stop lists - blocks a set of known URL's inputted by the use of a robot, with a need to update regularly .
- Non-access areas - only allowed to do specific tasks such as surf the internet, but not to e-mail, chat or join newsgroups.
- Go lists - a regularly-updated list of authorized URL's.
- Photo-recognition - this is the joker in the deck, detecting porno images (or guns, for example) even if the other four blocks are cleared.
The two Shell brothers running this company are serious, trustworthy people and there will be no stock-hype shenanigans involved, ever. They see their customers as their prime constituency, and shareholders come second. Nothing wrong with that.
Now go and buy the stock, if you can get it anywhere near Friday's close.
This newsletter has received no compensation whatsoever from Heartsoft... and, frankly, getting info out of them was like pulling teeth. We love'em anyway, and my son loves their software.
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