U. S. Securities & Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] 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 Identification number
203 Chapala Street, Santa Barbara, CA 93101
(Address of principal executive offices)
(805) 962-2558
(Issuers telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter periods that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
YES NO
X
Indicate the number of shares outstanding of each of the issuer's
classes of stock, as of the latest practical date.
Class Outstanding at March 31, 1998
Preferred stock, no par 159,244
Common stock, no par 1,472,621
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ExperTelligence, Inc.
REPORT ON FORM 10-QSB
TABLE OF CONTENTS
Page No.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheet at March 31, 1998 and September 30, 1997 3
Statement of Operations for the 3 and 6 months period
ended March 31, 1998 and March 31,1997. 4
Statement of Cash Flows for the 3 and 6 months period
ended March 31, 1998 and March 31, 1997. 5
Notes to Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION
Management's Discussion and Analysis of the
Financial Condition and Results of Operation 7
PART II - OTHER INFORMATION
Other information 8
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<TABLE>
<CAPTION>
ExperTelligence, Inc.
Balance Sheets
at 3/31/98 at 09/30/97
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $144,635 $ 27,465
Accounts receivable, net 214,500 271,312
Costs and estim uncompleted
contracts 0 0
Inventory 61,741 65,178
Prepaid exp and other current
assets 41,630 28,083
Deferred tax asset-current 86,100 110,000
Total current assets $548,606 $502,038
Product development costs, net 822,260 820,133
Property and equipment, net 51,546 53,947
Deferred tax asset-noncurrent 328,000 328,000
Total assets $1,750,412 $1,704,118
LIABILITIES & STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $36,951 $33,174
Accrued vacation 56,669 57,413
Deferred revenue 0 0
Line of Credit 0 0
Other accrued expenses 445 0
Total current liabilities $94,065 $90,587
Long term debt 0 0
Stockholders' equity:
Preferred stock, no par value.
Authorized 1,000,000 shares;
outstanding and 159,244 shares $318,487 $318,487
as of March 31, 1998 and
September 30, 1997
Common stock, no par value.
Authorized 2,000,000 shares;
issued and outstanding
1,472,621 shares as of
March 31,1998 and
September 30, 1997 $3,653,627 $3,653,627
Retained earnings
(Accumulated deficit) $(2,315,767) $(2,358,583)
Net stockholders' equity $1,656,347 $1,613,531
Total liabilities and stockholders
equity $1,750,412 $1,704,118
<FN>
See accompanying notes to financial statements
</TABLE>
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<TABLE>
<CAPTION>
EXPERTELLIGENCE, INC.
STATEMENTS OF OPERATIONS
For the three months For the six months
ended March 31,1998 ended March 31,1997
(unaudited) (unaudited)
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues $255,341 $248,698 $529,659 $598,456
Operating costs
and expenses
Cost of Sales 77,495 38,065 159,174 79,360
Advertising & Promotion 24,515 14,312 43,099 84,680
General &
Administration 100,501 173,372 190,207 341,533
Research &
Development 37,295 58,369 69,251 111,659
Total operating costs
and expenses $239,806 $284,118 $461,731 $617,232
Profit/(loss) from
operations 15,535 (35,420) 67,928 (18,776)
Other expense (income)
Interest expense 1,195 70 1,544 208
Interest income (1,017) (4,050) (1,132) (7,505)
Gain/Loss on Fixed Assets 0 0 0 0
Income Tax 0 0 800 800
Deferred Tax Expense (12,100) (10,451) 23,900 (1,751)
Other 0 0 0 0
Total other expense(income) $(11,922) $(14,431) $25,112 $(8,248)
Net income (loss) $27,457 $(20,989) $42,816 $(10,528)
Net income (loss)
per share $.02 $(.02) $.03 $(.01)
<FN>
See accompanying notes to financial statements.
</TABLE>
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<TABLE>
<CAPTION
EXPERTELLIGENCE, INC.
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
For the three months ended For the six months ended
March 31, March 31, March 31, March 31,
1998 1997 1998 1997
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)
for the period ending
March 31, 1998 and
March 31, 1997 $27,458 $ (20,989) $ 42,816 $(10,528)
Adjustments to reconcile
net income (loss) to net cash
used by operating activities:
Depreciation & amortization 16,781 12,615 35,338 24,214
Decrease (increase) in
accounts receivable 174,098 230,573 56,812 64,336
Decrease (increase) in
inventory 3,437 (5,955) 3,437 (5,628)
Decrease (increase) in
prepaid expenses (4,593) (13,991) (13,547) (13,991)
Decrease (increase) in other
current assets 0 0 0 0
Increase (decrease) in accounts
payable & accrued expenses (8,438) 27,476 3,478 50,494
Increase (decrease) in
deferred revenue 0 (173,167) 0 (19,500)
Total adjustments $181,285 $77,551 $85,518 $99,925
Net cash provided (used)
by operating activities $208,743 $56,562 $128,334 $89,397
Cash flows from investing activities:
(Increase) decrease in product
development costs $(17,546) $(269,516) $(27,639) $(311,359)
Purchase of property and
equipment (4,567) (7,574) (7,425) (8,337)
Decrease in Deferred Tax
Assets (12,100) (10,451) 23,900 (1,751)
Decrease in other assets 0 0 0 0
Net cash provided (used) by
investing activities $(34,213) $(287,541) $(11,164) $(321,447)
Cash flows from financing activities:
Repayments of notes to
related parties 0 0 0 0
Repayments of other
long-term debt 30,000 0 0 0
Proceeds from issuance of
common stock 0 160,000 0 160,000
Net cash provided (used)
by financing activities 30,000 160,000 0 160,000
Net increase (decrease )
in cash 144,530 (70,979) 117,170 (72,050)
Cash and cash equivalents
as of beginning of period 105 522,351 27,465 523,422
Cash and cash equivalents as
of period end $144,635 $451,372 $144,635 $451,372
</TABLE>
<PAGE>
ExperTelligence, Inc.
NOTES TO FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying financial statements
contain all adjustments necessary to present fairly, ExperTelligence,
Inc.'s financial position as of March 31,1998 and results of operations and
changes in financial position for the three and six months ended March 31,
1998.
The accounting policies followed by the Company are set forth in Note 1 of
the ExperTelligence, Inc. Annual Report to Stockholders September 30, 1997
and are incorporated by reference.
2. Fixed assets are comprised of the following :
<TABLE>
<CAPTION>
3/31/98 09/30/97
<S> <C> <C>
Furniture & Fixtures $33,982 $33,983
Purchased Software 8,929 8,929
Equipment 380,912 373,486
Total 428,823 416,398
Less : Accumulated depreciation 372,277 362,451
$ 51,546 $ 53,947
</TABLE>
3. The results of operations for the three and six months period ended
March 31, 1998, are not necessarily indicative of the results to be expected
for the full year.
4. Primary earnings per share are based on the weighted average number
of common stock and equivalents outstanding during the period.
5. At September 30, 1997, the Company had the following approximate net
operating loss carryforwards available to reduce future Federal income
taxes:
<TABLE>
<CAPTION>
Federal Federal State State
Expiring NetOperating Tax NetOperating Tax
September30 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 - -
2011 - 4,000 - 8,000
2012 551,000 - - -
$3,053,000 $190,000 $324,000 $33,000
</TABLE>
SFAS 109 was adopted as of October 1, 1993. The Company believes
that the net effect to the tax provision and deferred taxes will not
materially differ from the amounts presented in the accompanying
financial statements due to the available Federal tax net operating loss
carryforwards.
<PAGE>
ExperTelligence, Inc.
MANAGEMENT's DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company notes that, except for the historical information contained
herein, the matters discussed below contain forward-looking statements
subject to risks and uncertainties that may cause the Company's actual
results to differ materially. Such risks and uncertainties include, but
are not limited to, various important competitive and technological
factors such as pricing pressures; as well as customers opting to
upgrade to newer or more fully featured products; changes in customer
order patterns, manufacturing considerations, including the maintenance
of margins in a declining-price environment as well as risk of inventory
obsolescence due to shifts in market demand and new product
introductions; and other risk factors listed from time to time in the
Company's reports filed with the Securities and Exchange Commission,
including, but not limited to, the report on Form 10-K for the year
ended September 30, 1997.
OPERATIONS
Expertelligence, Inc. (the Company) designs, develops, markets and implements
software products for Internet based business applications. The company also
provides consulting services , including installation, training, maintenance
and customization of its software products. The Company is diversifying its
business strategy to include Internet services. These Internet services are
based on our proprietary products WebBase, Experforms, WebberActive,
Smartsite and Interactive Discovery. The same engineering team that built
this cutting edge Internet software will be deploying highly innovative
solutions in several vertical Internet applications. These applications
will be deployed in conjunction with strategic partners.
Our consulting services group has recently deployed similar Internet
applications for a large mailing list vendor, a multinational consumer
electronics company, and Santa Barbara County Assessors Office.
WebBase is the first web database server (first deployed in 1995).
Experforms transforms a scanned paper form into an entire interactive web
site ( in conjunction with Caere's OFIP). WebberActive is a dynamic HTML
(DHTML) editor. Smartsite monitors corporate web sites for HTML syntax,
spelling, and application errors on a real-time basis. Interactive
Discovery allows users to walk through a database intuitively to find the
company, product, used car (etc.) they are looking for.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIOD ENDED
MARCH 31, 1998 AND 1997
Revenues for the three and six months period ended March 31, 1998 were
$255,341 and $529,659, up 3% and down 11% respectively, from a comparable
figure from the prior year of $248,698 and $598,456.
Revenues for the three months ended March 31, 1998 were the
result of sales of contract services and licenses. Included in licenses
revenue is a final royalty payment from Gemstone.
Cost of sales for the three and six month period ended March 31, 1998 were
$77,495 and $159,174 up 104% and 101% compared to prior year periods of
$38,065 and $79,360 reflecting increased time spent by personnel on
consulting contracts.
Advertising and promotion expenses for the three and six month period ended
March 31, 1998 were $24,515 and $43,099 up 71% and down 51% compared to
prior year totals of $14,312 and $84,680 respectively. The current
quarter reflects a year-to-date adjustment for the amortization of trade
show costs. The year-to-date reflects management's decision to decrease
marketing expenses until revenues warrant.
General and administrative expenses for the three and six month period ended
March 31, 1998 were $100,501 and $190,207 down 58% and 56% from comparable
figures for the prior year of $173,372 and $341,533 respectively. These
numbers reflect a shift in salaries to cost of sales, the reduction of two
officers and management's decision to decrease overall spending.
Research and development expenses for the three and six month period ended
March 31, 1998 were $37,295 and $69,251 down 64% and 62 % from comparable
figures for the prior year of $58,369 and $111,659 respectively. This
reduced spending is indicative of the Company's shift from developing
software to consulting.
Profit from operations for the three and six month period ended March 31,
1998 were $15,535 and $67,298 up from losses for the prior year
of $35,420 and $18,776. These profits are the result of management's
diligent efforts to review and make the necessary changes to reduce expense.
Deferred tax expense decreased and increased proportionately with income
for the three and six months ended March 31, 1998 and 1997 respectively.
These numbers are a result of the change in accounting policy which took
effect FY94, and are not actual cash expenses.
LIQUIDITY
At March 31, 1998 the Company reported working capital of $454,542
which was up 9% from $411,451 at September 30, 1997, due to an increase in
cash. Net stockholder's equity of $1,656,347 was up 3% from $1,613,531 on
September 30, 1997.
Accounts receivable of $214,500 was down at March 31, 1998 from the
September 30, 1997 figure of $271,312 due to the collection of a large
receivable accrued at year end. It is believed that all receivables will be
collected.
Net product development costs were $822,260 and $820,133 for the
periods ending March 31, 1998 and September 30, 1997 respectively. This
reflects the shift in salaries from software development to contract
services. Management continues to believe in the commercial viability of
the products for which research costs are capitalized.
Accounts payable was $36,951 at March 31, 1998 compared to $33,174 at
September 30, 1997.
Accrued vacation was $56,669 at March 31, 1998 compared to $57,413 at
September 30, 1997. Both figures represent less than 3% of total
assets.
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
See item 5.
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) None
(b) Reports on Form 8-K
None
SIGNATURES
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.
(registrant)
May 11, 1998 Denison Bollay, President and Chairman of the Board
(signature)
May 11, 1998 Robert Reali, Director
(signature)
May 11, 1998 Tami Bollay, Director
(signature)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> Mar-31-1998
<CASH> 144,635
<SECURITIES> 0
<RECEIVABLES> 214,500
<ALLOWANCES> 0
<INVENTORY> 61,741
<CURRENT-ASSETS> 548,606
<PP&E> 428,823
<DEPRECIATION> 372,277
<TOTAL-ASSETS> 1,750,412
<CURRENT-LIABILITIES> 94,065
<BONDS> 0
<COMMON> 1,472,621
0
159,244
<OTHER-SE> 1,656,347
<TOTAL-LIABILITY-AND-EQUITY> 1,750,412
<SALES> 255,341
<TOTAL-REVENUES> 255,341
<CGS> 77,495
<TOTAL-COSTS> 239,806
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,195
<INCOME-PRETAX> 15,535
<INCOME-TAX> (12,100)
<INCOME-CONTINUING> 27,457
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,457
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
