When I visited the Heartsoft booth at the Orange County (Orlando)
Convention Center today, I had the opportunity to meet and talk with
the company's investment banker, Mr. Steve Dotson. In his view, the
firm is poised for a move soon from small to medium-size company
status. The successful launch of the THINKOLOGY software series
and continuing sales of past releases provide the infrastructure for
the next phase of corporate growth.
The catalyst for growth will be more software engineers building
bigger and better software titles, and a larger sales and marketing
force to move the merchandise. The premise is that Heartsoft has
demonstrated conclusively they can manufacture and sell a critically
acclaimed software series (THINKOLOGY) -- now it's a matter of
scale-up to the next level of revenues and earnings.
Scaling up requires capital. Dotson is looking for a $250K "bridge"
over the next several months followed by a $2M to $3M infusion of
cash over the next two years to underwrite the next increment of
growth. As an investor, I cautioned against more private placements
or other equity offerings which would dilute the number of shares
currently in the float. Dotson agreed. He also argued for finding the
type of "strategic partner" that could be counted on to hold shares
(nothing drives down price in a relatively illiquid stock like impatient
shareholders trying to unload).
I asked Steve if he had been courting any "big name" educational
software companies at the convention. He said, "Four or five". I
asked if they are recognized in the business and he said yes. I told
him that my experience with another Bulletin Board stock recently
might by be instructive for Heartsoft.
In the past few months I have taken a position in General Magic, Inc.,
a company that has a smashing product (like THINKOLOGY) called
Serengeti, and has populated its Board of Directors with some real
heavyweights -- there's a thread on Silicon Investor (GMGC) if you'd
like to read more. They were trading between a dollar and $1.75 as
I built my position. All of a sudden last Wednesday the stock nearly
tripled in a day. The catalyst was an announcement that Microsoft
had invested $9M in GMGC and had secured some unstated rights
to license technology.
Nine million dollars is pocket change to Bill Gates. But the blush of
respectability Microsoft brought to GMGC via their investment is, of
course, priceless. I encouraged Steve Dotson and Ben Shell to
seek out such a strategic partner for Heartsoft to fund the next leg
up. Dotson also noted that such an alliance would not only provide
cash and legitimacy, but also an opportunity for Ben to be mentored
by some of the true corporate heavyweights in educational software.
As the company grows over the next few years, the goal would be
to initiate an acquisition strategy -- either buy out firms or get bought
out yourself. Either way, patient investors in Heartsoft ought to
realize significant gains on their holdings.
Patience is the key word. In other words, hang on to your shares --
I think this stock has a bright future, particularly if a fiscal/technology
strategic alliance is skillfully crafted. |
