Sample Executive Summary Heartsoft

Executive Summary Heartsofl, Inc. Hearts0 www.heartsoft.com 2oo A little about who we are: Heartsoft,Inc. isa publiclyheld, educationalsoftwarepublishingcompany,whichspecializesin the design,development, distribution,and sale of computer softwarefor youngchildrenages 4 through 10yearsold. The company'sdiversesoftware products can be sold to consumer and schoolmarkets in Englishand Spanish-speaking countriesworldwide. Sinceits inceptionas a regionalpublisherin 1985,Heartsofthassuccessfully maintainedownershipin and completecontrol over the developmentof its proprietaryeducationalsoftwareproducts. Over the last 15years,the companyhas published nearly50educationalsoftwaretitlesof which,over 95%are stillin distributionbythe companyin one formor another. These proprietaryproduct linescan be broken into three districtcategorieswith the most recentlypublished titles discussedfirst: Internet Safari@, (Projectdevelopmentname: iSafari),s a revolutionarynew secureInternet browserfor youngchildren i whichboasts advancedfeaturesthat placethe product farabove the limitedcapabilitiesof other Intemet products claimingto protect youngchildrenfromdangerousaspectsof the Intemet. iSafari'sdistinguishingfeaturescan be broken downinto severalaspects: • iSafariis an Intemet browserdesignedfor youngchildrenincorporatinga jungle-themecartoon interfacewith fun graphicsand junglesounds,iSafarihides allaspects of the advancedtechnologiesutilizedto allowchildren to safelybrowse the Intemet --a featurethat neither Microsoft ntemet Explorernor NetscapeNavigatornclude.As I i a result,children havean Internetbrowserdesignedspecifically their attention span combinedwith an exciting for cartoon interfacewith animationand sound effectscreated to keep their interest levelhigh duringeach Intemet session. • DuringIntemet Safari'sinitialdesign,Heartsoftchoose to completelydevelopthe newbrowserin-houserather than licensingthe browserprogrammingcode fromother publishers.Whileboth Microsoft nd Netscapeprovide a accessto the programmingcode of their Intemet browsersthroughlicensingarrangements,Heartsoftchose to tacklethe huge projectof developingits own Intemet browser,a project that has been successfully completed by only a few dozen publishersworldwide.The two principlereasons for this taskwere to a) allowthe company's proprietaryInternet security(discussedbelow)to be integratedinto nearlyeveryline of programmingcode of iSafari,therein increasingthe stabilityof the product'ssecurity,and b) to providesubstantiallyincreasedvalue to the company'sshareholders. Obviously, product built upon programmingcode (software)that it does not own,has a limitedmarket valueas a compared to proprietary,copyrightedcode owned bya publisher. In demonstratingthe value of a publisherowningits ownsoftwareprogramwhichit hasliterallydevelopedlineby-line,simplyrefer to the recent sale of CyperPatrol®,whichwassold by Mattel,Inc. for $100millionwithin the last fewmonths. CyperPatrol s a simple Internetfilteringprogramwhichrequiresit's users to use lnternet i Exploreror NetscapeNavigator.Withrevenuesbarelyapproaching$7.5million,CyberPatrol old at 13times s grossrevenues. Internet Safari'scomplexityfarexceedsthat of CyberPatrol. • Further, unlikenearlyeveryIntemet browserdevelopedbyother publishers,Heartsoftchose to program it's new browserfor twomajorcomputer platforms,Windows2000/98/95and the AppleMacintoshOS,the latterof which ownsthe majorityof the education market. Internet Safari'sInternetbrowseris builtupon a proprietaryartificialintelligence-based (M-based)Internet securitysystemwith 6 distinctlevelsof Internet protection,iSafari's securitysolutionutilizessignificantly improvedaspectsof manyof the securitycharacteristics productsthat couldbe consideredcompetitors. It in should be noted that these products offeronly a fractionof the securityaspects includedin Intemet Safari.In fact, comparingthe few commercially available "filter"productsto Internet Safariwouldbe similarto drawinga comparisonof Microsoft OS3.3 to Windows98. Bothof these productsare defined as "operatingsystems",but D cannot reallybe consideredcompetitivedue to the huge differencein their technologiesand capabilities. In a moveto further empowerInternetSafaribeyondits perceivedcompetitors,Heartsoftannounced that it has developeda pornographicimagedetection and analysis technologythat looks at picturestransmitted over the Internet, and determines to a high levelof accuracy, hether a computer-basedpicture is pornographicin nature w or not. The technologywasso revolutionaryin it's capability timing,that Heartsoftfileda patent with the U.S. and Patentand TrademarkOfficein earlyJune, 2000to protect the advancedproprietarytechnologyfromcopyright and patent infringement. • • Together,these combinedfeatureshave created a turnkeysolutionwhichallowsboth parents and educators to protect youngchildren frominappropriateInternetcontent at an unprecedented levelwith a simpleclickof the mouse. SinceiSafariis not dependent on MicrosoftInternetExploreror AOL's NetscapeNavigator, either of these n adultbrowserseven need to be present on a computer on whichiSafariis to be installedand run. Internet Safariprovidessafeand fun Internetaccessforyoungchildren in a Saturday-morning stylecartoon environment,whileallthe complextechnologyof the Internetis tucked safelyawayin a product writtenby and owned 100% Heartsoft,Inc.Asa result, iSafariis devoidof tediousinstallationand set-upprocedures and can be installed by byliterallycopyinga single filefrom the product CD-ROM by downloading singlefilefromthe Internet. or a Internet Safari,is one of an estimateddozen, independentlywrittenbrowsers,worldwide,availablefor both Windows and Macintoshplatforms. It is the only product of its kindwith an engagingchildren'sinterface,integratedM-based securityfeatures,and the only browserwith the abilityto reviewInternet picturesand determine with an excessof 90% accuracywhether a picture is pornographicin nature. However,the pornographydetection software,whileaccuratein excessof90%,when combinedwith the artificialintelligence-based securitycapabilities Intemet Safariprovidesa of highlysafeenvironmentfor youngInternet users. Thinkology , latein the 4th quarterof 1998,Heartsoft,introduced another cutting-edgeproduct,Thinkology, ublished p in conjunctionwith the Foundationfor CriticalThinkingat SonomaState University, onoma,California. hinkology S T was the firstproduct of its kind designedto teach youngchildrenessentialcriticalthinkingand higher order reasoning skillsthat formthe foundationofallaspects of basiclearningskills. TM Thinkologyis an advancedsoftwareapplicationthat required Heartsoftto writea one-of-a-kind authoringsoftware utility. This utilityallowsthe criticalthinkingskillsto literallybe demonstrated on the computer screen, much like Saturday-morning cartoons aredisplayedon the television. Thinkologyincludes3 CD-ROM volumescontainingboth Windowsand Macintoshversions.The three volumescontain over 40,000hand-drawnanimationcellswith fullvoice tracksand hundreds of sound effects.Thinkology provides childrenwith highlyengaginglearningsoftwareand provideseducators and parents with a unique teachingtool capableof teachingchildren the proper methods of thinkingand reasoning. The tleartsoft K-8Library is a product lineconsistingofa basisof 38educationalsoftwaretitles that are derivativesof the company'soriginalsoftwareprogramsdevelopedduringits inceptionin 1985.Whilethe originaltitlescould be consideredsoftwareclassicsby the education market,the entire softwareline continuesto sell incrediblywell.During the fiscalyear 1999,product salesof the K-8Libraryproduct line accountedfor over 50%of Heartsoft'srevenuesto the education market.The reason forcontinued strong salesis that the subjectsaddressed (i.e.,reading,math,geography, TM, etc.) bythe programsremainbasictopics taughteach and everyyear to elementaryschoolstudents. The future looks bright! The company'sfuture looks extraordinarybright with significant rowthprojectedin its current market,the education g market,combinedwith the developmentof powerfulopportunitiesin additionalmarkets.Traditionally, eartsofthas H focusedits salesand marketingeffortsexclusively the Education market. However,movinginto the later halfof fiscal to 2001,new product developmentand salesand marketingwillbroaden it opportunitiesinto two new market segments- the Consumer market and the Business (B2B)market. The Education Market- Hear_oft willcontinue to focuson the educationmarket and buildupon the foundation establishedbysalesof its existingproduct lines.However,with the additionof Intemet Safarito the Heartsoftproduct line,the entire education divisionwillsignificantly expand itsenergieson the recentlyreleasedThinkologyand Intemet Safariproducts. • Development- Futuredevelopmentfor the education market includesthe completionof Intemet Safari,the developmentof a networkingversionof Internet Safarifor localarea networks(LANs)n schools,and continued i refinementof securityand feature sets as required to meet the continuedneeds of the education market. The Thinkologycriticalthinkingseries is expected to be expandedto includetwo new fullfeatured CD-ROMs Relevanceand Evidence,bringingthe entire series to 5 CD-ROMs. existingthree volumeswillalsobe The augmented bythe developmentofadditionalstoriesand activities, hich maybe includedin an upgradeor w offered separatelyto existingcustomers. • Sales and Marketing- Heartsoftwillcontinue effortsto broaden itsbase ofeducation resellersbyfocusingon regionalresellerswith strong relationshipsin keystatesor schooldistricts. Products linesoffered bythe education divisionwillbe benefitedby an increasein the Heartsoftdirect salesforce whichwillincludeoutside fieldsalesrepresentativeswhowillconcentrateon majorstates and schooldistricts alongwith additionalinside salesrepresentativeswho conduct outbound telemarketing-sales. Thinkologymarketingeffortswillfocuson well-fundededucationalprogramstargetingearly learnersand remedial learners. These programsmayincludeTitleI, Preschool,EarlyChildhood,and AfterSchoolprograms. Marketing effortsfor Internet Safariwillincludethe developmentand broad distributionof a self-expiring demonstration version,as wellas, facilitating reviewsof the product in education and Intemet trade journals. Targeted direct mailwillalsobe used to focuson districtsuperintendents,technologycoordinators and informationsystemspersonnel whichwillenhance salesthrough all three saleschannelsof the education division: resellers,inside salesrepresentativesand outside salesrepresentatives. The Consumer Market- Internet SafarioffersHeartsoftthe opportunity to expand its salesand marketingeffortsinto the consumer,or retail market. Internet safetyfor youngchildrenis a majorconcern for parents allowingtheir childrento accessthe Internet at home. Salesand marketingopportunitiesincludedirect to consumer salesbyHeartsoftviaInternet e-commerce,retail computer and mass marketerssuch as Wal-Mart, Best BW,CompUSA manyothers. Potentiallicensing and opportunities abound withinthe consumer market includingISPs(Internet ServiceProvides),OEMs(Original EquipmentManufacturers)such as Compaq,Dell,Gateway, pple,and manyothers. A The companyhas alreadyset a goalof distributing10mi:llion copiesof an expiringdemonstrationversionof Internet Safariviathe Internet, as wellas, inclusionof CDsbound-inand includedwith computer and Internet magazines. DireCtmailwillalsobe consideredas an appropriatemarketingtechnique to reach this largemarket. The Business Market- Duringthe developmentof the advancedInternet securityfeatures containedwithinInternet Safari, everaltechnologieshave emergedfrom the company'sresearch and developmentgroup whichare s substantially transferableto other markets and industry.Principally,he pornographicimageanalysisand detection for t whichthe companyhas filedfor patent protection with the U.S.Patent and TrademarkOffice,hasopened a huge opportunitywithinthe corporate businessmarket. Heartsoftannounced inJuly 2000,the establishmentof a new business divisiondesignedto take these technologiesto corporate Americaand then later to the internationalmarkets.The firstproduct of this dMsionis expected to be a plug-inthat willexpand the capabilitiesof Microsoft ntemet Explorerand NetscapeNavigator, imilarto plug-insfrom I s RealMedia®,AppleQuicktime®, and Macromedia Flash®. The new plug-inwillrevieweverypicture receivedbyan InternetBrowser,suchas MicrosoftExplorer,andwill instantaneouslydetermine ifa picture is pornographicin nature. Ifsuch determinationis made,the picture willbe replaced byan alternate image. In a report distributedby the FAA (FederalAviationAdministration)n 1999,the FederalGovernmentindicatedthat i approximately60%of allsexualharassmentclaimssettledin 1998,werebased upon Internet deliveredpornographyin government and agencyoffices. Withthe establishmentof thisnew business divisionwhichwillsell its products to businessand governmental agencies,the companyforesees future developmentof other browser-basedtechnologiesdesigned to giveemployers greater control over accessto inappropriatecontent ofany nature. Discussion of Capital Needs: Uponcompletionof an analysisof Heartsoft'sgrowth potential,managementbelievesthat to capitalizeon Heartsoft's earning potentialand fullysupport its expandingproduct line,the Companymust receivea capitalcontributionof no less than $8million.The use of proceeds fromthe additionalcapitalcontributionwillbe utilizedbyHeartsoftin the followingmanner: Source & Use of Funds: Sales& Marketing Costs ProductDevelopmentCosts General& Administrative Costs ReduceAccountsPayable Computer& EquipmentPurchases Subtotal RetainedWorkingCapital Proceedsfrom CapitalContribution $2,750,000 1,500,000 1,500,000 100,000 100,000 5,950,000 ......................... 2,050,000 $8,000,000