A Challenge To All Of Us HTSFers
Understandably, we are beginning to hear whispers of DD, numbers, and “show me, I am from Missouri.” And DD is absolutely necessary. And obviously being a BB stock inspires little confidence over a few pennies per share. But let's separate some fact from “hype.” If I want to talk about hype, let's talk about AMZN. An investment grade company? It hit a post split price of $200/share with earning estimates for '99 at –0.81/share and in the year '00 of –0.23/share, and now BKS is in the market, after their lunch----PLEASE!!!!!!!
Heartsoft earned more in the 1st Q of this fiscal year than AMZN is estimated to earn in the next two years---COMBINED! At least HTSF can say they had a quarter that was in the black, granted 1.3 cents is little, but hey……
SO HERE IS THE CHALLENGE!!!! AND A HOMEWORK ASSIGNMENT AT THE END OF THIS POST!
In the hope that all of us may become better educated about this company, let's see what factual information we, as a group of investors on this thread, can glean about HTSF, the education market, and the potential size of the market in which Heartsoft competes and hopefully, get an idea of what we should expect.
I will go first.
1) There are approximately 6 million outstanding shares; 4 million are held by those people that we would describe as “insiders” or “close” to the company, the other 2 million are contained in the float.
2) There are approximately 111,000 elementary schools in the US (both public and private). Of these, roughly 12,000 have done “some” level of business with Heartsoft. To keep the math simple, let's say Heartsoft has 10% market penetration.
a) of these 12,000 only a few hundred have purchased
Thinkology to date. Remember that schools purchase their
"materials" at a specific time of year and Thinkology was not
ready for the school “buying” season in 1998. Let us say
that Thinkology is currently in only 600 schools, or in other
words, only purchased by 5% of Heartsofts customer base, and
therefore, only ½ of 1% of all of the elementary schools in
the country have Thinkology.
3) The company in late 1998 changed its marketing plan by shifting away from sales to individual schools and pursuing district-wide adoptions. The reason, the time and preparation for selling to an individual school is nearly the same as licensing an entire district. The problem, a different type of sales force was required. Therefore, Heartsoft took short-term pain in exchange for long-term gain.
4) Thinkology is not just an educational software program, it is an integrated teaching application that is meant to be incorporated into the classroom. In essence it is a curriculum onto itself ---let's call it, “Critical Thinking 101.”
a) the “curriculum” is software based but it contains handouts, specific goals, workbook pages, and a teacher's guide with various goals to be reached depending upon the grade level in which it is being used. “Reader Rabbit” is “educational software,” “Thinkology” that is sold to the school market is a ”curriculum.”
b) Thinkology does NOT sell for $400/school in a district. The 3-CD ROM version sells for $1000/school. Remember, the schools districts are buying it as a curriculum and require more than just the software. They need the whole course. They are also licensing it for each school so that each school in the district can put it on every computer that is in that particular school.
5) School Districts --- again for simplified math let us assume that each school district has 22 schools. The district in LA had about 16, Tulsa had 28. The bottom line is this;
for each school district of 22 schools, Heartsoft's gross earnings after cost of goods sold is $20,000, or in other words, each school district sale earns HTSF 1/3 cent per share, every 3 school districts signed, generates 1 cent in earnings. In the Commonwealth of Pennsylvania, where I live, there are 484 school districts.
govinfo.library.orst.edu
6) The continued sale of the company's old product line covers the overhead. I refer you to the July 13, 1997 press release. If you take the time to do the DD, you will find:
a) Without any revenues from Thinkology the company earned 1.3 cents for Fiscal Year, 1997.
b) Without the R&D expense for Thinkology in that fiscal year, HTSF would have earned 6.3 cents. In other words, the sales from the “old” software not only covered the company's overhead but it also paid for the R&D of Thinkology.
c) Without any contribution from Thinkology, net sales in FY 97 increased 55%.
7) How good is Thinkology? Let's look at the results of two independent evaluations.
a) TULSA, Okla., Dec. 14 /PRNewswire/ -- Today, Heartsoft (OTC Bulletin Board: HTSF) announced that it has earned a perfect five star review of its new critical thinking skills software product, Thinkology in the November/December issue of MultiMedia Schools, one of the most respected educational software trade journals in the country.
Note ---only 10% of the software ever reviewed by Multimedia achieves this ranking.
b) Heartsoft, Inc. (OTC BB:HTSF), announced today that the Purdue University Calumet School of Education, part of the prestigious Purdue University system, has selected Heartsoft's new critical thinking software, Thinkology(R) as the standard in instructing future educators on how to develop and implement technology-based teaching systems for their new 21st century classrooms.
Note---what product do you think these “future educators” might use?
8) Additional factors ---remember, we have not factored in any contributions to revenues from internet sales (Classroomdirect.com), international distributor
Agreements (Australia), Thinkology II, Thinkology Math Series, Thinkology Reading Series, joint venture agreements, and the additional product line referenced in the last press release.
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HOMEWORK ASSIGNMENT ---- Go to the following link:
govinfo.library.orst.edu
Find your state and report to the thread on how many school districts are in your state. (You will have to count them as you scroll through the list)
-Assume a 20% market penetration of Thinkology over the next three years
-Assume 1 cent in earning per 3 school districts
-Determine the total earnings that will be derived from your state
over a 3 year period.
Pennsylvania ---484 (484 x .20 = 96 districts)
(96 districts/3 = .32 cents in earnings over three years)
(average/yr. Approx 11 cents)
Note – earnings per year will not be linear)
Think this is too optimistic?
Ok, cut it in half!!!
Pennsylvania ---5.5 cents per year
Competitor: The Learning Company: Growth Rate --- 16%,P/E 21
Industry Average: Growth Rate --- 30%,P/E 35
Heartsoft : Growth Rate --- 50%+++,P/E (pick it)
Figure out what you think the company can do in just the 50 states with JUST THINKOLOGY --- and plug in either the 21 or 35 P/E
AND WHAT DO YOU GET???????????????
Take care,
Paul |
