U. S. Securities & Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
For the transition period from _______ to _______
Commission file Number 0-11596
EXPERTELLIGENCE, INC.
(Exact name of small business issuer)
California 95-3506403
(State of incorporation) IRS Employer Id number
203 Chapala Street, Suite B, Santa Barbara, CA 93101
(Address of principal executive offices)
(805) 962-2558
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange
Act:
Title of each class Name of each
exchange on which
registered
None None
Securities registered under Section 12(g) of the Exchange
Act:
Preferred Stock, no par Common Stock, no par
(Title of class) (Title of class)
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and 2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this
form and no disclosure will be contained, to the best of the
registrant's knowledge, in definitive proxy statements or
information statements incorporated by reference in Part III
of this Form 10-KSB or in any amendment to this Form 10-KSB.
[ X ]
Issuers revenues for the most recent fiscal year: $955,246
State the aggregate market value of the voting stock held by
non-affiliates, computed by reference to the per share
closing bid price thereof on the Over-the-Counter Exchange
as of a specified date within the past 60 days:
Approximately $1,840,776 million based on a $1.25 per share
closing bid price as of December 23,1997.
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest
practical date.
Outstanding at September, 30 1997
Preferred stock, no par 159,244
Common stock, no par 1,472,621
<PAGE>
ExperTelligence, Inc.
Annual Report on Form 10-KSB
For the Fiscal Year Ended September 30, 1997
Table of Contents
Item number Page Number
Part I
1. Description of Business iv
2. Description of Property v
3. Legal Proceedings v
4. Submission of Matters to a Vote of Security
Holders v
Part II
5. Market for Common Equity and Related
Stockholder Matters vii
6. Management's Discussion and Analysis vii
7. Financial Statements 1-15
8. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure ix
Part III
9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act x
10. Executive Compensation x
11. Security Ownership of Certain Beneficial
Owners and Management xi
12. Certain Relationships and Related
Transactions xi
13. Exhibits and Reports on Form 8-K xi
<PAGE>
Part I
Item 1. Description of Business
The objective of ExperTelligence is to support
companies in making their information needs or their
information-driven products interactive on the World
Wide Web. It does this by providing software tools
and applications based on advanced, object-oriented,
Internet-aware technologies which are designed,
developed, integrated, and sold by the Company and its
partners.
The Company successfully completed its transition to
the Internet market by continuing sales and support of
WebBaseTM, a web data-base server, and its internet
compatible mail merge tool, E-Merge TM. The Company
devoted considerable resources this year in further
promoting these internet products. WebBase is now
being sold over the internet and through the Company's
telephone sales organization. WebBase is being resold
through two major OEMs. "GemBuilder for the Web" from
GemStone Systems, Inc. is targeted towards the Global
2000 business objects market, and ExperForms (based on
WebBase) is being resold by CAERE Corporation as a
business web forms solution.
This year the Company introduced a Japanese version of
WebBase and Emerge with Open Technologies of Japan.
This year the Company acquired, Cerebral Systems
Development, a Canadian corporation which produces
software. As a result of this acquisition the
Company has introduced two new HTML editors, Webber 32
and WebberActive. We are finalizing development of a
third product, which will be introduced next year.
The Company has a presence in the telecommunications
industry with ANDE TM (Ameritech Network Design
Expert). ANDE has been licensed to Southwestern Bell
(12/95) and Bell Canada (6/96), and is jointly owned
with our development partner, Ameritech.
ExperTelligence employs ten people full time and one
person part time. Additional contract workers are
hired as necessary to complete specific projects.
Business of Issuer
Software development remains the primary business of
ExperTelligence. The Company creates tools and applications
both independently and under contract for various customers.
WebBase provides users the tools to develop easy access to
database information over the Internet. It includes full
server capabilities and can interface with any of 50
database formats including Microsoft Access, Excel and SQL
Server, Sybase SQL Server, Oracle, dBase, Paradox, and
Btrieve. Full details about WebBase TM may be found on our
web site, http://www.expertelligence.com.
WebBase provides for solutions ranging from simple access to
a real estate listing to complex enterprise-wide information
system applications in human resources, finance, and sales.
It allows existing databases to be enhanced through the
addition of hypertext links into other Internet
publications.
"GemBuilder for the Web" from GemStone Systems, Inc.
is targeted towards the Global 2000 business objects
market. It delivers the first web server based on
persistent business smalltalk objects. GemStone is
transitioning towards Java solutions presently.
In addition, ExperForms, based on WebBase, is being
resold through CAERE Corporation packaged with
"OmniForm for Internet Publisher". Together, our
products allow someone to convert a paper form into a
functioning web database solution in minutes. The
Company has participated with CAERE in major trade
shows and other joint marketing activities this year
allowing the Company to receive industry wide
exposure.
WebberActive 4.1 is capable of assisting authors building
"dynamic HTML" pages, as well as building "channels" (part
of Microsoft's push technology). This product is based on
HTML standards, including the latest standard HTML 4.0. It
has Microsoft's Internet Explorer built into the product,
and can work closely with Netscape's browsers. An HTML
validation engine can verify the adherence of the desired
HTML standard. The product is also capable of hosting
ActiveX controls, including "design time controls". The
"tag assistant" helps users select from the hundreds of
tags, attributes and values.
Webber32 is a free HTML editor and validation tool the
Company distributes internationally to introduce potential
customers to the Company. It is downloaded free at over 20
popular internet sites.
Ameritech Network Design Expert (ANDE) is a fully integrated
design tool which allows users to analyze and determine
workable ISDN solutions by illustrating the equipment
configurations required to run the applications. The ANDE
co-marketing agreement signed in May of 1994 remains in
force. This agreement establishes Ameritech and
ExperTelligence as co-owners of ANDE with ExperTelligence
entitled to a percentage of all gross sales of the product.
The Company has entered into negotiations with two of the
largest software and hardware manufacturers in the high tech
industry. One is a license to use our HTML validation
engine from WebberActive. The other is a license for a
customized WebBase for a major consumer electronics firm.
Competitive Information
We were one of the first entrants in the web database server
marketplace and have delivered proven solutions to many
Fortune 500 customers, but the Internet market is highly
dynamic and competitive. The Company continues to solidify
its market base with the addition of three new OEMs. The
rapidly changing nature of the software industry requires
that a significant effort be devoted to constantly
developing new goods, services and partnerships. The
Company has shown significant activity in each of these
areas during the last year.
Regulatory Information
Government approval is not required for the sale of any of
the Company's products.
There are no existing or probable government regulations
which will have a material effect on the Company, and there
is no material cost of compliance to environmental laws.
Item 2. Description of Property
The Company does not own any real estate. The following is
the Company's principle place of business:
Location Size Lease
Term
203 Chapala Street, Suite B 2,100 Sq. Ft.
Two Years
Santa Barbara, CA 93101
Item 3. Legal Proceedings
The Company is not a party to any litigation.
Item 4. Submission of Matters to a Vote of Security
Holders
<PAGE>
Part II
Item 5. Market for Common Equity and Related Stockholder
Matters
The Company's common stock is traded on the Over-the-Counter
Exchange, under the symbol "EXGP". At September 30, 1997
there were approximately 1,088 holders of record (1,086
holding common stock and 2 holding preferred stock).
As of September 30, 1997 the Company's assets and equity are
still below NASD's minimum requirements. As such,
quotations of the Company's security are not traded on
NASDAQ.
The high and low bid price per share of the Company's common
stock on the Exchange for the last two fiscal years was as
follows (as these shares are traded on the OTC market, the
prices indicated below are not necessarily reflective of
actual transactions):
<TABLE>
<CAPTION>
For the fiscal year ended September 30,
1997 1996
High Low High Low
<S> <C> <C> <C> <C>
First Quarter $4.25 $3.25 $1.00 $.075
Second Quarter $5.00 $4.00 $14.00 $8.00
Third Quarter $3.25 $2.75 $13.00 $8.50
Fourth Quarter $2.50 $2.50 $5.00 $4.00
</TABLE>
There were no dividends declared during the past two fiscal
years.
No dividends shall be paid or other distributions made
(other than those payable solely in Common Stock) with
respect to the Common Stock during any fiscal year of the
Corporation until dividends in the total amount of $.18 per
share on the outstanding shares of Series A Preferred shall
have been paid. The Corporation shall not declare or pay
any dividends on any shares of Preferred Stock or any other
class or series of stock of the Corporation ranking as to
dividends on a parity with the Preferred Stock unless the
Corporation shall pay a ratable dividend on the Preferred
Stock and such parity stock in proportion to the full
dividend preference amounts to which each is entitled.
After the payment of the full dividend preference amount on
the Series A Preferred and on all other parity stock, and
after payment in any fiscal year of the Corporation of $.18
per share of Common Stock (adjusted to reflect any
subdivision or combination of the Common Stock after the
Original Issue Date of the Series A Preferred) outstanding
on such payment date, if any additional dividend is paid in
such fiscal year on the Common Stock, the holders of Series
A Preferred shall be entitled to receive, contemporaneously
with such additional payment on the Common Stock, an amount
per share equal to (i) the amount of such additional
dividend paid on the Common Stock, multiplied by (ii) the
number of shares of Common Stock into which a share of
Series A Preferred is convertible on the date of the payment
of the additional dividend on the Common Stock.
Item 6. Management's Discussion and Analysis
General
The past year has been a period of considerable change for
the Company. The Company has signed and completed numerous
contracts, added OEMs, acquired a foreign subsidiary, and
added several new products. The Company has completed a
transition to the Internet market.
Results of Operations
Comparison of Fiscal Year 1997 to Fiscal Year 1996
Sales decreased 25% from $1,270,773 to $955,246. Consulting
revenues decreased by 75% while License and Royalty revenues
increased by 50%. Cost of Sales decreased by 59% due to
increased sales of licensed software and decreased travel
and support in consulting activities. General and
Administrative expenses were up 20% due to the addition of
two new officers. Research and Development decreased by
15%. This decrease is a direct result of the President of
the Company taking a more active role in the sales and
marketing of the company. Sales and Marketing increased by
73%. This increase is due to increased trade show activity,
increased sales and telemarketing staff and the addition of
a full time sales administrator. Income from operations
after taxes decreased from $427,707 to a loss of $(146,910).
This loss is indicative of the Company's decision to
actively pursue product sales, develop and promote new
products through acquisitions and negotiate contracts with a
variety of partners. These results are consistent with the
Company's plan to anticipate where growth is necessary
within the high tech market.
Liquidity and Capital Resources
Cash decreased from $523,422 in 1996 to $27,464 in 1997.
The decrease is due to decreased sales and profits and
increased marketing effort. Working capital decreased over
the same period from $779,513 to $411,450.
The net value of Capitalized Product Development Costs
increased by $289,875 due to the purchase of Cerebral
Systems Development.. The Company believes product
development costs will be recovered in the future as
development costs are matched to sales.
Long term debt has been eliminated.
Item 7. Financial Statements
The Financial Statements as of September 30, 1997 and 1996
are presented on the pages that follow.
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure
None.
<PAGE>
EXPERTELLIGENCE, INC. AND SUBSIDIARY
SANTA BARBARA, CALIFORNIA
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
TABLE OF CONTENTS
Page
Independent Auditor's Report 1
Consolidated Financial Statements:
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Shareholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6 - 18
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
ExperTelligence, Inc.
Santa Barbara, California
We have audited the accompanying consolidated balance sheets of
ExperTelligence, Inc., a California corporation, and subsidiary as of
September 30, 1997 and 1996, and the related consolidated statements
of income, shareholders' equity, and cash flows for the years then
ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
ExperTelligence, Inc., and subsidiary at September 30, 1997 and 1996,
and the results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting
principles.
McGowan Guntermann
Santa Barbara, California
December 4, 1997
<PAGE>
-1-
<PAGE>
<TABLE>
<CAPTION>
EXPERTELLIGENCE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, 1997 and 1996
ASSETS
1997 1996
<S> <C> <C>
CURRENT ASSETS
Cash:
Non-interest bearing $16,355 $56,654
Interest bearing 11,110 466,768
Total Cash 27,465 523,422
Accounts receivable - related party (Note 9) - 7,167
Accounts receivable - net of allowance (Note 1E) 271,312 202,526
Inventory (Note 1C) 65,178 68,300
Prepaid expenses and other current assets 28,083 17,280
Deferred tax assets (Note 1J and 6) 110,000 85,000
Total Current Assets 502,038 903,695
PROPERTY AND EQUIPMENT - Net (Note 1I and 2) 53,947 59,769
OTHER ASSETS
Product development costs, net (Note 1D) 820,133 530,258
Deferred tax assets (Note 1J and 6) 328,000 227,000
Total Other Assets 1,148,133 757,258
TOTAL ASSETS $ 1,704,118 $ 1,720,722
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
1997 1996
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 33,174 $ 57,932
Accrued payroll taxes - 178
Accrued vacation 57,413 40,072
Deferred revenue - 26,000
Total Current Liabilities 90,587 124,182
SHAREHOLDERS' EQUITY (Notes 3 and 4):
Preferred stock, no par value, authorized
1,000,000 shares; issued and outstanding
159,244 shares for 1997 and 1996 (liquidation
preference is $3 per share, see Note 3) 318,487 318,847
Common stock, no par value, authorized
2,000,000 shares; issued and outstanding
1,472,621 shares for 1997 and 1,331,321 shares
for 1996 3,653,627 3,189,727
Common stock subscribed (Note 5) - 300,000
Accumulated deficit (2,358,583) (2,211,674)
Total Shareholders' Equity 1,613,531 1,596,540
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,704,118 $ 1,720,722
</TABLE>
SEE AUDITOR'S REPORT AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-2-
<PAGE>
EXPERTELLIGENCE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
INCOME (Note 7) $ 955,246 $ 1,270,773
OPERATING COSTS AND EXPENSES
Cost of sales 215,997 364,808
Selling and marketing 229,231 62,839
General and administration 706,649 564,887
Research and development 84,531 99,363
Total Operating Costs and Expenses 1,236,408 1,091,897
INCOME (LOSS) FROM OPERATIONS (281,162) 178,876
OTHER EXPENSES (INCOME)
Interest expense 738 931
Interest income (10,916) (10,051)
Loss on foreign currency exchange 1,125 -
Miscellaneous income - (2,511)
Total Other Expense (Income) (9,053) (11,631)
INCOME (LOSS) BEFORE INCOME TAXES (272,109) 190,507
INCOME TAXES (Note 6) (125,200) (237,200)
NET INCOME (LOSS) $ (146,909) $ 427,707
EARNINGS PER SHARE AND COMMON STOCK
EQUIVALENTS (Note 1G)
INCOME (LOSS) BEFORE INCOME TAXES $ (.1721) $ .1368
INCOME TAXES (.0792) (.1703)
NET INCOME (LOSS) $ (.0929) $ .3071
EQUIVALENT NUMBER OF SHARES 1,580,379 1,392,621
</TABLE>
SEE AUDITOR'S REPORT AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-3-
<PAGE>
<TABLE>
<CAPTION>
EXPERTELLIGENCE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended September 30, 1997 and 1996
Preferred Stock Common Stock
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Balance, September 30, 1995 348,248 $ 696,488 949,451 $ 2,808,226
1988 ISOP shares issued for cash - - 35,000 3,500
1988 ISOP shares issued for stock - - 160,000 -
Stock redeemed to issue stock - - (145,000) -
Stock reissued - - 142,866 -
Preferred shares converted to
Common shares (189,004) (378,001) 189,004 378,001
Common stock subscribed (Note 5) - - - -
Net income - - - -
Balance, September 30, 1996 159,244 318,487 1,331,321 3,189,727
Stock issued - - 41,300 163,900
Common stock subscribed (Note 5) - - 100,000 300,000
Net lost - - - -
Balance, September 30, 1997 159,244 $ 318,487 1,472,621 $ 3,653,627
</TABLE>
SEE AUDITOR'S REPORT AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-4.1-
<PAGE>
<TABLE>
<CAPTION>
EXPERTELLIGENCE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended September 30, 1997 and 1996
Preferred Stock Common Stock
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Balance, September 30, 1995 - $ - $(2,639,381) $ 865,333
1988 ISOP shares issued for cash - - - 3,500
1988 ISOP shares issued for stock - - - -
Stock redeemed to issue stock - - - -
Stock reissued - - - -
Preferred shares converted to
Common shares - - - -
Common stock subscribed (Note 5) 100,000 300,000 - 300,000
Net income - - 427,707 427,707
Balance, September 30, 1996 100,000 300,000 (2,211,674) 1,596,540
Stock issued - - - 163,900
Common stock subscribed (Note 5) (100,000) (300,000) - -
Net loss - - (146,909) (146,909)
Balance, September 30, 1997 - $ -$(2,358,583) $1,613,531
</TABLE>
SEE AUDITOR'S REPORT AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-4.1-
<PAGE>
<TABLE>
<CAPTION>
EXPERTELLIGENCE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 1997 and 1996
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Collections from customers $ 893,627 $ 1,278,263
Interest collected 10,916 10,051
Cash paid to suppliers and employees (1,211,615) (967,957)
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (307,072) 320,357
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in product development costs (176,791) (60,160)
Purchase of property and equipment (12,094) (39,698)
NET CASH USED BY INVESTING ACTIVITIES (188,885) (99,858)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments on line of credit - (25,000)
Repayments of notes payable - (13,293)
Common stock subscribed - 300,000
Common stock issued - 3,500
NET CASH PROVIDED BY FINANCING ACTIVITIES - 265,207
NET INCREASE (DECREASE) IN CASH (495,957) 485,706
CASH AND EQUIVALENTS - BEGINNING OF YEAR 523,422 37,716
CASH AND EQUIVALENTS - END OF YEAR $ 27,465 $ 523,422
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES:
Net income (loss) $ (146,909) $ 427,707
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 64,832 94,781
Deferred tax expense (benefit) (126,000) (238,000)
Decrease (increase) in:
Accounts receivable (61,619) 7,490
Inventory 3,122 (33,717)
Prepaid expenses and other current assets (10,803) (12,918)
Increase (decrease) in:
Accounts payable and accrued expenses (21,036) 38,319
Accrued vacation
Deferred revenue (26,000) 26,000
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES $(307,072) $ 320,357
</TABLE>
SEE AUDITOR'S REPORT AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-5-
<PAGE>
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Business
ExperTelligence, Inc., (the Company) was incorporated in California
on March 31, 1980. The Company develops custom software
applications for telecommunication and transportation companies
and publishes general purpose software products for the Internet.
B. Cash and Cash Equivalents
The Company considers all highly-liquid investments with a maturity
of three months or less at the time of purchase to be cash equivalents.
C. Inventory
Inventory consists primarily of product manuals, CD ROMs, and
processing boards and is stated at the lower of average cost
(determined on the FIFO basis) or market. A reserve for obsolescence
of $230,874 and $242,883, has been provided for 1997 and 1996,
respectively.
D. Product Development Costs
Product development costs represent the costs of new products and
new application enhancements to existing products incurred
subsequent to establishing technological feasibility of the product
and prior to the date the product is available for release to customers.
Amortization is calculated using the straight-line method over its
economic useful life, approximately five years, or on a product-by-
product basis in the ratio that current period sales bear to the total of
current and anticipated revenues. This policy was adopted by the
Company as of April 1, 1986, in accordance with the provisions of
Financial Accounting Standards Board Statement No. 86, "Accounting
for Software Development Costs." Total costs capitalized during the
fiscal years ended September 30, 1997 and 1996, aggregated $336,791
and $60,160, respectively. Related amortization, utilizing the
straight-line method, for the year ended September 30, 1997 and 1996,
aggregated $46,916 and $82,285, respectively. Accumulated
amortization of product development costs aggregated $278,059 and
$231,143, at September 30, 1997 and 1996, respectively.
E. Allowance For Doubtful Accounts
The allowance for doubtful accounts at September 30, 1997 and 1996,
is $0 and $18,000, respectively.
-6-
<PAGE>
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
F. Revenue
Revenue from software sales is recognized on delivery of the software
when no further obligations remain under the sales or licensing
agreement. Revenue from software license agreements that include
significant product development is recognized upon the percentage of
completion method. As of September 30, 1997 and 1996, there were no
costs and estimated earnings in excess of billings or billings in excess
of costs on uncompleted contracts. Product development services
include postcontract customer support and software services.
Revenue from postcontract customer support is recognized ratably
over the period of the postcontract support arrangement. Revenue
from software services is recognized as the services are performed.
G. Earnings Per Share
Earnings per common share and common equivalent share is
computed by dividing net income by the weighted average number of
shares of common stock and common stock equivalents outstanding
during the year. Preferred shares are considered in the computation
of earnings per common and common equivalent shares for the years
ended September 30, 1997 and 1996. Stock options were not considered
in the computation of common equivalent shares for 1997, because
the stock options were considered antidilutive.
H. Research and Development
Research and development expenses, not subject to capitalization, are
charged to expense as incurred.
I. Property and Equipment
Property and equipment is recorded at cost. Depreciation expense is
provided over the useful lives of the assets, which range from three to
five years, using the straight-line method.
J. Income Taxes
The Company uses Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes"(SFAS No. 109) in reporting
deferred income taxes. SFAS No. 109 requires a company to recognize
deferred tax liabilities and assets for the expected future income tax
consequences of events that have been recognized in the company's
financial statements. Under this method, deferred tax assets and
liabilities are determined based on temporary differences between the
financial carrying amounts and the tax basis of assets and liabilities
using enacted tax rates in effect in the years in which the temporary
differences are expected to reverse.
-7-
<PAGE>
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
K. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
L. Principles of Consolidation
The 1997 consolidated financial statements include the accounts of
ExperTelligence, Inc. and its wholly-owned subsidiary,
ExperTelligence Canada, Inc. All inter-company accounts and
transactions have been eliminated in consolidation.
M. Reclassification
Certain prior year amounts have been reclassified to conform to the
September 30, 1997 financial statement presentation.
N. Stock-Based Compensation
The Company accounts for compensation costs related to employee
stock options and other forms of employee stock-based compensation
plans in accordance with the requirements of Accounting Principles
Board Opinion 25 ("APB 25"). APB 25 requires compensation costs for
stock-based compensation plans to be recognized based on the
difference, if any, between the fair market value of the stock on the
date of the grant and the option exercise price. In October 1995, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standards 123, Accounting for Stock-Based Compensation
("SFAS 123"). SFAS 123 established a fair value-based method of
accounting for compensation costs related to stock options and other
forms of stock-based compensation plans. However, SFAS 123 allows
an entity to continue to measure compensation costs using the
principles of APB 25 if certain pro forma disclosures are made. SFAS
123 is effective for fiscal years beginning after December 15, 1995. The
Company adopted the provisions of pro forma disclosure requirements
of SFAS 123 in fiscal 1997. Options granted to non-employees are
recognized at their estimated fair value at the date of grant.
-8-
<PAGE>
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
Note 2 - PROPERTY AND EQUIPMENT
Depreciation expense for the years ended September 30, 1997 and 1996, is
$17,916 and 12,496, respectively. Property and equipment at September
30, 1997 and 1996, is summarized as follows:
1997 1996
Furniture and fixtures $ 33,983 $ 33,982
Purchased software 8,929 3,467
Equipment 373,486 366,855
416,398 404,304
Less: Accumulated depreciation 362,451 344,535
$ 53,947 $ 59,769
Note 3 - SHAREHOLDERS' EQUITY
During the year ended September 30, 1996, the majority of employees
under the 1988 Incentive Stock Option Plan (ISOP) used their previously
issued shares of the Company's common stock to exercise their options
and purchase the common shares (Note 4). In total, 145,000 shares of
common stock were redeemed by employees at a price of $7.50 per share
which was the fair market value of the shares on June 27, 1996. These
shares were canceled and 2,134 shares were used to exercise 160,000 shares
of common stock under the 1988 ISOP at a price of $.10 per share.
Subsequently, 142,866 shares (145,000 shares - 2,134 shares) of common
stock were reissued to the same employees at $7.50 per share. The
remaining 35,000 shares under the 1988 ISOP were exercised with cash.
The preferred stockholders have voting rights equal to that of common
stockholders. The preferred stock is convertible into common stock on a
one-for-one basis at any time. No shares of preferred stock were issued
during the year ended September 30, 1997 and 1996. During the year ended
September 30, 1996, 189,004 shares of preferred stock were converted to
189,004 shares of common stock. The preferred stock is nonredeemable,
has a preference in liquidation equal to $3 per share plus any declared but
unpaid dividends and provides for dividends to be declared at
management's discretion. As of September 30, 1997 and 1996, no
dividends have been declared.
-9-
<PAGE>
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
Note 4 - STOCK OPTION PLANS
A. 1983 Incentive Stock Option Plan
In June 1983, the Company adopted an employee Incentive Stock
Option Plan (1983 ISOP) and a Nonqualified Stock Option Plan (NSOP).
Under the 1983 ISOP, the Company reserved a maximum of 55,000
shares to be issued upon the exercise of options. The number of shares
that may be issued pursuant to the NSOP is subject to determination of
the Board of Directors. Both plans are administered by the Board of
Directors. As of September 30, 1997 and 1996, the board has not
granted any options under the NSOP. As of September 30, 1997 and
1996, there are no options outstanding under the 1983 ISOP. This plan
was terminated as of September 30, 1997.
B. 1988 Incentive Stock Option Plan
In August 1988, the Board of Directors adopted a new ISOP (1988 ISOP),
whereby options may be granted to management and key employees
at exercise prices equal to or greater than the fair market value of the
Company's common stock on the date of grant. The Company had
reserved 200,000 shares of common stock for the exercise of options
under this plan. 195,000 options were granted at exercise prices per
share of $.10 for options with a ten-year term and $.11 for those
options with five-year terms (the estimated fair market value at the
date of the grant).
During the year ended September 30, 1996, the stock options of 195,000
shares were exercised. 35,000 shares were issued for cash and 160,000
shares were issued in exchange for stock of the Company. This plan
was terminated as of September 30, 1997.
C. 1996 Equity Participation Plan
On August 15, 1996, the Board of Directors adopted the 1996 Equity
Participation Plan, whereby options may be granted to employees,
consultants, or independent directors. For Incentive Stock Options
the exercise price shall be equal to or greater than the fair market
value of the Company's common stock on the date of the grant. For
Nonqualified Stock Options, the exercise price shall be not less than
85% of the fair market value of a share of common stock on the date
the option is granted. The board of directors shall determine whether
options granted under this plan are to be Incentive Stock Options or
Nonqualified Stock Options. The Company has reserved a total of
475,000 shares of common stock for the exercise of options under this
Plan.
-10-
<PAGE>
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
Note 4 - STOCK OPTION PLANS (continued)
C. 1996 Equity Participation Plan (continued)
On August 23, 1996, 87,500 of options were granted under the Incentive
Stock Option Plan to purchase the Company's common stock at $4 per
share (the fair market value on the date of the grant). The weighted-
average grant date fair value is $4.00 per share. As of September 30,
1996, options to purchase 7,500 shares of the Company's common
stock were exercisable under the 1996 Incentive Stock Option Plan. No
options were exercised, forfeited, or expired. The exercise prices for all
of these options is $4.00 per share, with the weighted-average exercise
price being the same. The contractual life of all the outstanding
options is ten years. No options were granted under the Nonqualified
Stock Option Plan.
During the year ended September 30, 1997, 191,000 options were
granted under the Incentive Stock Option Plan to purchase the
Company's common stock at a range of $4.00 to $5.00 per share (the
fair market values on the date of the grant) with a weighted-average
exercise price of $4.10 per share. At September 30, 1997, outstanding
options were 198,500 with a weighted-average grant date fair value of
$4.78 per share. As of September 30, 1997, options to purchase 7,500
shares of the Company's common stock were exercisable with a
weighted-average exercise price of $4.00 per share. No options were
exercised, 80,000 options that were granted in 1996 were forfeited, and
no options expired. The contractual life of all outstanding options is
ten years. No options were granted under the Nonqualified Stock
Option Plan.
Statement of Financial Accounting Standards 123, "Accounting for
Stock-Based Compensation", encourages but does not require
companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to
continue to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees", and related
interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the
Company's stock at the date of grant over the amount an employee
must pay to acquire the stock.
Had compensation costs for the plan been determined based on the
fair value of the options at the grant dates consistent with the method
of SFAS 123, the Company's net income and earnings per share
would have been:
1997 1996
Net income (loss)
As reported (146,909) 427,707
Pro forma (231,904) 310,361
Primary earnings per share
As reported (.0929) .3071
Pro forma (.1467) .2228
-11-
<PAGE>
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
Note 4 - STOCK OPTION PLANS (continued)
C. 1996 Equity Participation Plan (continued)
These pro forma amounts may not be representative of future
disclosures because they do not take into effect pro forma
compensation expense related to grants made before 1996. In
addition, potential deferred tax expense and benefits of
approximately $34,100 and $47,100, respectively, have not been
reflected in the pro forma amounts. The fair value of these options
was estimated at the date of the grant using the Black-Scholes
option-pricing model with the following weighted average
assumptions for 1997 and 1996:
Expected life (years) 10
Risk-free interest rate 6%
Volatility 25%
Expected dividends None
Note 5 - COMMON STOCK SUBSCRIBED
On February 26, 1996, the Company signed a stock subscription agreement
for 100,000 shares of common stock at a price of $300,000. As of September
30, 1996, the Company received the $300,000, but issued the common
shares in October 1996. There were no stock subscription agreements
outstanding at September 30, 1997.
Note 6 - INCOME TAXES
Temporary differences have resulted between financial statement and
income tax reporting including depreciation, capitalized software costs,
non-deductibility of accrued vacation wages not paid within seventy-five
days of year end, and net operating loss carryforwards.
Income tax expense (benefit) for the years ended September 30, 1997 and
1996, are as follows:
1997 1996
Current $ 800 $ 800
Deferred (126,000) (238,000)
Total $ (125,200) $ (237,200)
-12-
<PAGE>
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
Note 6 - INCOME TAXES (continued)
Components of the deferred tax assets and (liabilities) recognized in the
balance sheet at September 30, 1997, are as follows:
<TABLE>
<CAPTION>
Current Non-current
<S> <C> <C>
Accrued vacation pay $ 24,000 $ -
Property and equipment - (8,000)
Software costs - (355,000)
Deferred state tax 8,000 2,000
Net operating losses 78,000 992,000
Deferred tax credits - 223,000
110,000 854,000
Deferred tax assets valuation allowance - (526,000)
Deferred tax asset $ 110,000 $ 328,000
</TABLE>
Reconciliation of the difference between income taxes computed at
Federal statutory tax rates and provision for income taxes, for the year
ended September 30, 1997, is as follows:
Income taxes computed at Federal statutory tax rate $ (93,000)
State tax provision 10,000
Graduated tax rates (16,000)
Net operating loss and deferred credits 1,000
Valuation allowance (27,200)
Provision for income taxes $ (125,200)
-13-
<PAGE>
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
Note 6 - INCOME TAXES (continued)
As of September 30, 1997, the Company had the following approximate net
operating loss and tax credit carryforwards available to reduce future
federal and state income taxes:
<TABLE>
<CAPTION>
Federal Federal State State
Expiring Net Operating Tax Net Operating Tax
Sept. 30 Losses Credits Losses Credits
<S> <C> <C> <C> <C>
1998 $ - $ - $ 49,000 $ -
1999 28,000 56,000 - -
2000 487,000 30,000 - -
2001 390,000 - - -
2002 309,000 - 275,000 -
2003 125,000 - - -
2004 - 6,000 - -
2005 614,000 30,000 - -
2006 481,000 39,000 - 9,000
2007 68,000 14,000 - 16,000
2008 - 10,000 - -
2009 - - - -
2010 - 1,000 - -
2001 - 4,000 - 8,000
2012 551,000 - - -
$ 3,053,000 $ 190,000 $ 324,000 $ 33,000
</TABLE>
Components of the deferred tax assets and (liabilities) recognized in the
balance sheet at September 30, 1996, are as follows:
Current Non-current
Accrued vacation pay $ 17,000 $ -
Property and equipment - (20,000)
Software costs - (229,000)
Deferred state tax 5,000 1,000
Net operating losses 63,000 818,000
Deferred tax credits - 211,000
85,000 781,000
Deferred tax assets valuation allowance - (554,000)
Deferred tax asset $ 85,000 $ 227,000
-14-
<PAGE>
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
Note 6 - INCOME TAXES (continued)
Reconciliation of the difference between income taxes computed at
Federal statutory tax rates and provision for income taxes, for the year
ended September 30, 1996, is as follows:
Income taxes computed at Federal statutory tax rate $ 65,000
State tax provision 11,000
Graduated tax rates 8,000
Net operating loss and deferred credits 42,000
Valuation allowance (363,200)
Provision for income taxes $ (237,200)
Note 7 - SIGNIFICANT CUSTOMERS AND CREDIT RISK
For the year ended September 30, 1997, 69% of accounts receivable was
concentrated among three customers. These same three customers
accounted for approximately 54% of total revenue.
For the year ended September 30, 1996, 71% of accounts receivable was
concentrated among two customers. No one customer accounted for more
than 17% of total revenue.
Note 8 - CASH AND CASH EQUIVALENTS - CONCENTRATION OF CREDIT RISK
Uninsured cash balances were $0 at September 30, 1997, and $379,309 at
September 30, 1996.
Note 9 - RELATED PARTY TRANSACTIONS
During the year ended September 30, 1996, the Company performed work
for another entity that is owned 50% by the Company's president. Total
revenue for this project is $294,792 and accounts receivable is $7,167 at
September 30, 1996. No revenue was earned from this entity during the
year ended September 30, 1997. Accounts receivable is $-0- at September
30, 1997. The prior year's accounts receivable balance of $7,167 was
written off as bad debt expense during the year ended September 30, 1997.
The Company paid interest of $528 to a related party (a significant
shareholder) during the year ended September 30, 1996. The note payable
was a demand note with monthly payments of $909, with an annual
interest rate of 10%. The note was paid off during the year ended
September 30, 1996.
-15-
<PAGE>
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
Note 10 - LINE OF CREDIT
At September 30, 1996, the Company had a line of credit that expired
January 31, 1996. The Company did not reactivate this line of credit
until October 14, 1997. The limit on this line of credit is $30,000.
The Company subsequently borrowed $30,000 on December 4, 1997.
Note 11 - NON-CASH TRANSACTIONS
During the year ended September 30, 1996, the Company exercised 1988
Stock Options for 160,000 shares of common stock at $.10 per share
option price by redeeming 2,134 shares of previously issued common
stock at $7.50 per share (Note 4B).
During the year ended September 30, 1997, the Company issued 40,000
shares of common stock at $4.00 per share to acquire a wholly owned
subsidiary (see Note 14).
During the year ended September 30, 1997, the Company issued 1,300
shares of common stock at $3.00 per share to pay for legal expenses.
Note 12 - SOFTWARE DEVELOPMENT, LICENSE, AND DISTRIBUTION AGREEMENT
On September 30, 1996, the Company signed a contract with another
company (licensee) to develop and license the Company's software to
operate within the licensee's own software (New Product). As part of this
contract, the licensee will additionally advance $250,000 as prepaid
royalties. The licensee will pay the Company royalties for sub-licensing
the New Product. For the later of 90 days following the licensee's
acceptance of the New Product or March 31, 1997, the licensee may
convert any then outstanding advance balance into an equivalent
number of shares of the Company's common stock. The conversion
price will be $5.25 per share. The licensee did not convert any of the
outstanding advance balance during the year ended September 30, 1997.
Note 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has various financial instruments, none of which are held
for trading purposes. The Company estimates that the fair value of all
financial instruments at September 30, 1997 and 1996, does not differ
materially from the carrying values of its financial instruments
recorded in the accompanying balance sheet. Considerable judgment
is necessarily required in interpreting market data to develop the
estimates of fair value, and accordingly, the estimates are not
necessarily indicative of amounts the Company could realize in a
current market exchange.
-16-
<PAGE>
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
Note 14 - BUSINESS ACQUISITION
On March 12, 1997, the Company acquired Cerebral Systems
Development Corporation (formerly CSD, now ExperTelligence Canada,
Inc.) for an aggregate purchase price of $188,052 (excluding acquisition
costs of $44,473), consisting of $28,052 cash and the issuance of 40,000
shares of common stock of the Company at $4.00 per share.
ExperTelligence Canada, Inc. (ET Canada) is a Canadian company that
develops software which is sold worldwide, mainly over the Internet.
The acquisition was accounted for as a purchase and, accordingly, the
acquired assets and liabilities were recorded at their estimated fair
market values at the date of acquisition. The purchase price plus costs
directly attributable to the completion of the acquisition have been
allocated to the assets and liabilities acquired. Approximately $210,000
of acquisition costs represents product development costs that have
reached the technological feasibility stage. There is no goodwill
deemed to be a part of the aggregate purchase price. The Company's
consolidated results of operations include the operating results of ET
Canada from the acquisition date.
The following unaudited pro forma condensed combining balance
sheet as of September 30, 1996, and the unaudited pro forma
condensed combining statements of operations of the Company and
ET Canada for the year ended September 30, 1997 and 1996 have been
prepared to illustrate the effect of the acquisition which is being
accounted for as a purchase, as if the acquisition had occurred on
October 1, 1995. Adjustments have been made including the issuance
of common stock as part of the acquisition. The pro forma
information is presented for illustrative purposes only, and is not
necessarily indicative of what actual results of operations would have
been during such periods.
1996
Balance Sheet
Assets $ 1,742,976
Liabilities 131,986
Equity 1,610,990
Year Ended Year Ended
09/30/97 09/30/96
Income Statement
Net sales $ 993,204 $ 1,344,144
Net income (loss) (131,570) 431,259
Net income (loss) per share (.0833) .3097
-17-
<PAGE>
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
Note 15 - COMMITMENTS AND CONTINGENCIES
Leases
Starting on January 1, 1997, the Company leased its office space under a
non-cancelable operating lease through December 31, 1998 for monthly
rental payments of $2,350. The monthly rental rate will be adjusted on
January 1st of each subsequent year to reflect the year-to-year
percentage change in the Los Angeles Consumer Price Index for
September. Total office rent expense for the years ended September 30,
1997 and 1996 is $28,200 ($21,150 under the non-cancelable lease) and
$24,000, respectively.
Future minimum lease payments for the year ending September 30, are
as follows:
1998 $ 28,200
1999 7,050
Total $ 35,250
<PAGE>
Part III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a) of the
Exchange Act
Year first
Name Age Position elected Director
Denison Bollay 45 President, Chairman of the
Board 1980
Robert Reali 36 Vice President, Director 1988
Mr. Denison Bollay is the founder and has been the President
of the Company and Chairman of its Board of Directors since
March 1980. He received his Bachelor of Science Degree in
Engineering in 1974 from Harvey Mudd College.
Mr. Robert Reali was appointed to the Board on August 1,
1988. He is Vice President of Development. He has been with
ExperTelligence, Inc. since 1981. He majored in Computer
Science Engineering at the University of California, Santa
Barbara.
Mr. Karl Marlantes resigned on September 26, 1997.
Mr. David Swan resigned on October 3, 1997.
<PAGE>
Item 10. Executive Compensation
The following table sets forth as required all compensation
to officers for services rendered in all capacities to the
Company during or with respect to the 1997 fiscal year.
Name & Position Year Salary Bonus Annual
Compensation
Denison Bollay, CEO 1997 $151,200 $0 $151,200
Robert Reali, VP Dev 1997 $ 64,500 $0 $ 64,500
Karl Marlantes, COO 1997 $ 96,250 $0 $ 96,250
David Swan, VP Sales 1997 $ 80,462 $0 $ 80,462
The table on the following page sets forth, as to
individuals having received greater than 5% of options
granted and as to all executive officers and directors as a
group, the following information with respect to stock
options: (i) the aggregate number of shares of the Company's
common stock subject to options granted under the 1988
Incentive Stock Option Plan and the 1996 Incentive Stock
Option Plan through September 30, 1997, (ii) the number of
options exercised prior to September 30, 1997, iii) the
number of options currently exercisable as of September 30,
1997, and iv) the average per share option exercise price.
As of September 30, 1997 198,500 options had not been
exercised.
<TABLE>
<CAPTION>
(i) (ii) (iii) (iv)
Options Options Options Average
Identity of grp Granted exercised exercisable exercise
price
<S> <C> <C> <C> <C>
Denison Bollay 80,000 0 0 $4.00
Robert Reali 10,000 0 0 $4.00
Ofelia Garcia 5,000 0 0 $4.00
George Barilla 8,000 0 0 $4.00
Beverly Pierson 8,000 0 0 $4.00
David Swan 60,000 0 0 $4.00
Steven Owens 20,000 0 0 $5.00
</TABLE>
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners
and Management
On September 30, 1997, no person owned beneficially more
than five percent (5%) of the outstanding shares of the
common stock of the Company except as set out below. The
Company has no securities other than its preferred stock and
common stock.
Number of Percent of
Name and Address of Shares Owned Class
Beneficial Owner
Denison Bollay, CEO
203 Chapala Street
Santa Barbara, CA 93101 395,463 29.7%
BNP Venture Capital Corporation
c/o Bank of the West
50 W. San Fernando, 2nd Floor
San Jose, CA 95113 150,000 11.3%
George Mueller
875 Park Lane
Montecito, CA 93108 89,622 6.7%
Officers and Directors 440,463 33.1%
as a Group
Item 12. Certain Relationships and Related Transactions
None.
Item 13. Exhibits and Reports on Form 8-K.
By reference
3/18/97 Acquisition of Cerebral Systems Development
Corp. of Ontario Canada
12/12/97 Reorganization agreement with Electronic Offsite
Services
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
ExperTelligence, Inc.
Denison Bollay,
President, Chief Financial Officer and Chairman of the Board
December 23,1997
Robert Reali
Director
December 23,1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 27,465
<SECURITIES> 0
<RECEIVABLES> 271,312
<ALLOWANCES> 0
<INVENTORY> 65,178
<CURRENT-ASSETS> 502,038
<PP&E> 416,398
<DEPRECIATION> 362,411
<TOTAL-ASSETS> 1,704,118
<CURRENT-LIABILITIES> 90,587
<BONDS> 0
<COMMON> 1,472,621
0
159,244
<OTHER-SE> 1,613,531
<TOTAL-LIABILITY-AND-EQUITY> 1,704,118
<SALES> 955,246
<TOTAL-REVENUES> 955,246
<CGS> 215,997
<TOTAL-COSTS> 1,236,408
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 738
<INCOME-PRETAX> (272,109)
<INCOME-TAX> (125,200)
<INCOME-CONTINUING> (272,109)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (146,909)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
