Recommended at 81.5p in the last edition of Growth Company Investor, Dream Direct, the mail-order software provider, has seen its shares fall to 70.5p. But the company's first results since listing on Aim offer plenty of room for encouragement. The business both exceeded its growth targets for the year to March and cut its losses significantly.

The group, which focuses on the 'family software' market for computerised board games, educational and informational software packages, lost £991,000 during the 12 months. This compares with a loss of £1.5 million last time. Sales were meanwhile up from £1.7 million to £3.8 million – an increase of almost 120 per cent.

Moreover, the company confidently predicts that it will report increased sales (again, of around 100 per cent) and 'a substantially reduced loss' this year, drastically reducing its cash burn in the process.

This sales expansion will be fuelled by accelerating the marketing spend on customer acquisition. This year 20 million product catalogues are expected to be distributed – double last year's figure (the company's main means of acquiring customers is inserting its software catalogues into newspapers).

All the signs are that its catalogues are well received – customer satisfaction is high. For instance, repeat business grew by 81 per cent last year, and accounted for 36 per cent of group turnover. If the company repeats this feat in the current year, it will hit revenues in the region of £8.5 million – a figure which its internal forecasts undercut.

Chief executive Robert Colquhoun is coy about exactly when to expect profitability, but says it will be 'in the near future'. He lists the company's aims as being, 'one, to achieve profitability and, two, to achieve pole position in our sector'. He sees this occurring when Dream has a 500,000-strong customer database (compared with 205,000 at the moment and 86,000 in March 2001). 'After that I see no reason not to push towards 1 million [customers].'

Colquhoun describes Dream as 'a best seller of non-best sellers' that high-street retailers tuck away in the nether reaches of their stores. He adds: 'I see a function of mail-order being that of explaining the benefits of products to people. Our market needs it all explaining to them.'

According to Colquhoun, the board is 'very optimistic about the sale of new products'. In particular, he points to a new range of detective games coming in from the US, plus currently 'very popular' software that downloads records on to home computers and removes the scratching sound (they can then be transferred to CD).

The Artemis Aim VCT subscribed for 340,909 shares in the company's original placing at 88p. Insurer AXA soon followed with a market acquisition a few days after it was admitted. More recently, four directors bought at 71p a share directly after its results.

All the indications are that the shares represent an excellent punt. Dream has a proven business model that is working very well. Substantial profitability is on the cards in a few years time.

Recommendation: Hold/Buy

Share price: 70.5p

Market cap: £6.1 million