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Stochasto ASA

Stochasto ASA

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Stochasto ASA

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  1. Stochasto ASA A brief presentation May 2004

  2. Investment case • Company description • Market and industry trends • Appendix: Antivirus and protection business And, actually, the ultimate search engine, which would understand, you know, exactly what you wanted when you typed in a query, and it would give you the exact right thing back, in computer science we call that artificial intelligence. Larry Page, co-founder of Google

  3. Investment case Stochasto – overview • Stochasto owns technology in three application areas: • Intelligent search • Antivirus • Protection (Encryption) • Stochasto’s main product is an intelligent search engine developed in Russia that utilises a unique method (patent pending) of semantic analysis to analyse sentences, paragraphs and documents in the sources (e.g. Internet pages, documents, video/voice archives) to generate answers based on natural-language queries • Stochasto’s technologies are based on years of research in stochastic analysis and artificial intelligence • Stochona, Stochasto’s R&D partner in Moscow, which is obliged to provide R&D services exclusive to Stochasto, has a staff of 30 employees developing the technologies and their applications • The search engine and virus control are commercially available products in Russia

  4. Investment case Market • Enterprise search • Market is $1bn in 2003 (FAST) • Avg. growth is 21% to 2007 (Ovum) • OEM sales • Search integrated with ECM and other applications • ECM market increasing from $1.5 bn in 2003 to $3.4 bn in 2006 (Giga Research) • Internet search • Market increasing from $2-3 bn in 2003 to $6-8 bn in 2007 (SearchEngingeWatch.com) Stochasto Autonomy Ask Jeeves Fast Verity Google Yahoo! IMP Oracle/ Other DB whitepages.com

  5. Investment case Enterprise Search Direct licensing Service and maintenance charges OEM Search Licensing through application providers Typically ECM and other text intensive Share of licensing revenue The Company Q2 ‘04 Q1 ‘05 Q3 ‘05 Q1 ‘06 Q3 ‘06 Internet Search Development English Enterprise Search English Search Engine Launch Russian Commercial Launch OEM Licensing Internet Search • Licensing to Internet Search providers • Income as share of advertisement revenue Revenue Models • Text-intensive segments like: • Publishing • Law Firms • News incl. TV and radio ECM (Enterprise Content Management), portals, and other applications conatining large amounts of unstructured data • Internet-wide search services like: • Google • Yahoo! • Ask Jeeves Customers

  6. Investment case Financing rounds • July ’03: RaisedNOK 3.5 mill (USD 0.5 mill) through a convertible loan at NOK 20 per share • now converted • Nov ’03: RaisedNOK 5 mill (USD 0.7 mill) in share issue at NOK 40 per share • April ’04: Raised NOK 9 mill (USD 1.3 mill) in share issue at NOK 55 per share • NOK 55 per share values the Company at a market capitalisation of NOK 70 million after financing

  7. Investment case • Company description • Market and industry trends • Appendix: Antivirus and protection business

  8. Stochasto – company description Stochasto business overview • Stochasto owns proprietary technology in three application areas • Search • Antivirus • Protection (encryption) • The technologies are based on years of research in stochastic analysis and artificial intelligence • Stochasto’s research and development facility in Moscow has a staff of 30 employees developing the technologies and their applications • The search engine and virus control are commercially available products in Russia

  9. Stochasto – company description The Stochasto search technology • Unique, patent pending method of semantic analysis • Based on years of research and development • Analyzes sentences, paragraphs and documents in the sources • Internet pages, documents, video/voice archives, etc • Builds index containing semantic, morphologic and syntactic information • Larger index: 2-3 times the size of the filtered source text • Provides lookup by relevance • Analyzes the users’ natural-language queries • Builds structure of semantic, morphologic and syntactic information for lookup in the index • Provides relevant, meaningful answers immediately! • As opposed to thousands of hits from keyword lookup • Without prior categorization or tagging

  10. Stochasto – company description Present search engine product • The present product is ready in Russian language • Ready for demonstration • English language database started • Several enhancements under development • Available in several versions • Personal (PC) – for locally stored documents and other texts • CD-ROM – for creation of CDs with intelligent search functionality • Corporate – for sources on the corporate network • Site – for intranets and Web sources • Global – for use with an Internet crawler • Developed in C++ • Microsoft Visual Studio development environment • Microsoft SQL Server infrastructure or proprietary database • Can be adapted to other architectures

  11. Stochasto – company description Indexed Keyword Search Simple keyword or key phrase queries Immediate results from index lookup in high volumes of data Advanced Non-Index Searches More complex search criteria Natural language, pattern matching, semantic techniques Immediate results in low volumes Delayed results by monitoring high volumes The best of two worlds The Stochasto Search • Complex search criteria • Natural language queries • Advanced keyword and phrase searches • Immediate results from high volumes via the unique semantic index • Index built by full sentence analysis of source text • Fast and relevant results from one search engine on high volumes

  12. Stochasto – company description Applications • Internet Search • Enterprise Search • Translations • Semantic matching yields more accurate results • Speed of index allows real-time translations (e.g., by phone) • SMS-based search • Short questions and short, relevant results can be exchanged with the mobile phone • Video and audio search • Combined with voice recognition it allows for searching TV, film and radio archives • Online learning • The Stochasto search technology can, for example, indicate to what extent answers to quizzes are correct • Student questions can be answered appropriately

  13. Stochasto – company description Technical characteristics • Based on a comprehensive language database • Full vocabulary including all forms and tenses • Grammar and structure information • Semantic network • The search index contains all words from the source, their morphological and syntactic characteristics and semantic information • Considers all words in the user’s request, including morphological variations (lexemes) • Several levels of sophistication • Direct answer according to semantic matching • Semantic match but excluding verbs • Keyword search • All three with or without the use of synonyms and derived phrases • Classifies results according to the degree of the semantic, syntactic and morphological closeness to the query

  14. Stochasto – company description Management Board • Riulf Rustad, Chairman • Ivar Formo • Fredrik Klaveness • Alexander Shishov Management • Jan Husby, CEO • Shamil Urazdeldiev, PhD, General Manager, R&D Operation • Vladimir Nasypny, PhD, Inventor, Scientific Director • Andrej Ogarok, PhD, Technical Director

  15. Stochasto – company description Shareholders • As of 16 April 2004

  16. Investment case • Company description • Market and industry trends • Appendix: Antivirus and protection business

  17. Market and industry trends Market for search engines “Ask anyone in Silicon Valley what the hottest application on the Internet is today and you can bet their answer will be search. The dealmaking has been nothing short of torrid. Only a year ago there were at least half a dozen major players. Now there are just three: Yahoo, Googleand Microsoft.... They're all fighting to dominate the huge and ballooning market, already worth $2 billion and expected to generate between $6 billion and $8 billion in revenues by 2007.” SearchEngineWatch.com: An Open Source Search Engine by John Battelle, September 11, 2003 Source: comScore Networks

  18. Market and industry trends Global internet usage The use of search engines for Web lookup is growing, and there remains a large market to capture

  19. Market and industry trends Billions of textual documents indexed KEY: GG=Google, ATW=AllTheWeb, INK=Inktomi, TMA=Teoma, AV=AltaVista Source: SearchEngineWatch.com

  20. Market and industry trends Search engines jockeying for position • Yahoo buys Kelkoo for $575m (March 04) • MSN has made search engine key priority for 2004 • Yahoo buys Overture for $1.6bn in cash and stock (July 03) • Google buys Applied Semantics (April 03) • LookSmart buys Grub (March 03) • Overture buys Fast for $100m (Feb 03) • Overture buys Alta Vista for $140m (Feb 03) • Yahoo buys Inktomi for $235m (Dec 02) • Overture sues Google for patent infringement (April 02)

  21. Introduction • Responsibility Statements • Investment case • Stochasto – company description • Market and industry trends • Transaction Details • Appendix • Stochasto Anti-virus and protection business

  22. Appendix: Antivirus and protection business The Stochasto antivirus technology • The Stocona Antivirus product detects viruses and Trojans by analyzing the target code • It checks calls to potentially dangerous functions in their context of program execution, i.e., the sequences of statements or instructions in which such function calls occur • Each such sequence, including loops and recursion, is matched against a knowledge base of malicious behavior • Malicious code, for example macros in Microsoft Word documents, are deactivated, leaving benign macros functional • Tested by PC Magazine in Russia • See http://www.microsoft.ru/offext/details.aspx?id=662 • The commented missing functionality (file formats, application support) has been added in later versions • The product has been developed over the last three years • Based our own patent pending technology, which in turn is based on scientific advances in stochastic analysis and artificial intelligence

  23. Appendix: Antivirus and protection business Identifies viruses by lexical and syntactic analysis of the target code Requires no virus signature updates or other prior knowledge of particular viruses Detects viruses and Trojans without executing the target code Avoids false positives by considering each potentially malicious function call in its context of program execution By utilizing stochastic indices and a set of basic heuristics, detection is linear in time with respect to the size of the target code and requires little in terms of resources on the host computer Stochasto’s own tests, those of PC Magazine in Russia, and the feedback from sales in Russia show very positive results with respect to virus detection as well as avoidance of false positives. Key characteristics

  24. Appendix: Antivirus and protection business Technical characteristics • Multiple file formats and points of detection • Catches script viruses about to be executed by Internet Explorer, Netscape Communicator, Outlook Express and Microsoft Outlook by monitoring components • Scans Microsoft Office documents before opening using the IOfficeAntivirus COM interface • Checks files in folders by schedule or user request • Present version works on interpreted code • Visual Basic, VBScript and JScript • Machine code (exe, dll) analysis to be included • Part of the development plan • Development can be accelerated • Standard development tools • Written in C++ • Microsoft Visual Studio development environment  • Borland C++ Builder (interface components)

  25. Appendix: Antivirus and protection business The virus control market • Substantial market growth • “IDC predicts a compound annual growth rate of 19 per cent over the next five years for the SCM market as a whole, growing from the current level of US$2.7 billion in 2002 to US$6.4 billion in 2007. Furthermore, IDC research indicates spending on the security segments of IT budgets will increase in 2003 and 2004” • IDC report: Worldwide Secure Content Management Forecast Update and Competitive Vendor Shares, 2002-2007 • Main players are doing deals to enhance current offering and gain market share • Symantec recently bought an anti-virus patent for USD 62.5 mill. • The patent covers in-transit scanning for malicious code based on virus signatures • Microsoft recently acquired a Romanian anti-virus software company