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 December 31, 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 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 December 31,1997
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 December 31, 1997 and September 30, 1997 3
Statement of Operations for the 3 month period
ended December 31, 1997 and December 31, 1996 4
Statement of Cash Flows for the 3 month period
ended December 31, 1997 and December 31, 1996 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 12/31/97 at 09/30/97
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $105 $ 27,465
Accounts receivable, net $410,987 $271,312
Costs and estim uncompleted contracts $0 $0
Inventory $65,178 $65,178
Prepaid exp and other current assets $37,037 $28,083
Deferred tax asset-current $74,000 $110,000
Total current assets $587,307 $502,038
Product development costs, net $817,467 $820,133
Property and equipment, net $51,007 $53,947
Deferred tax asset-noncurrent $328,000 $328,000
Total assets $1,783,781 $1,704,118
LIABILITIES & STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $46,897 $33,174
Accrued vacation $55,362 $57,413
Deferred revenue $0 $0
Line of Credit $30,000 $0
Other accrued expenses $244 $0
Total current liabilities $132,503 $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 December 31, 1997 and
September 30, 1997
Common stock, no par value.
Authorized 2,000,000 shares; issued and
outstanding 1,472,621 shares as of
December 31,1997 and September 30, 1997 $3,653,627 $3,653,627
Retained earnings (Accumulated deficit) $(2,320,836) $(2,358,583)
Net stockholders' equity $1,651,278 $1,613,531
Total liabilities and stockholders equity $1,783,781 $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
ended December 31,
1997 1996
(unaudited)
<S> <C> <C>
Revenues $286,419 $349,757
Operating costs and expenses
Cost of Sales 96,450 41,295
Advertising & Promotion 198 70,368
General & Administration 88,189 171,620
Research & Development 26,756 49,830
Total operating costs/exp $211,593 $333,113
Profit/(loss)from operations $ 74,826 $ 16,644
Other expense (income)
Interest expense 348 138
Interest income (69) (3,455)
Gain/Loss on Fixed Assets 0 0
Income Tax 800 800
Deferred Tax Expense 36,000 8,700
Other 0 0
Total other expense (inc) $37,079 $6,183
Net income (loss) $37,747 $10,461
Net income (loss) per share $.023 $ .007
<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 fiscal yr
ended Dec 31, Dec 31,
(unaudited)
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) for the period
ending Dec 31, 1997 and 1996 $37,747 $ 10,461
Adjs to reconcile net income (loss) to net
cash used by operating activities:
Depreciation and amortization $18,557 $ 11,598
Decrease (increase) in a/r (139,675) (166,237)
Decrease (increase) in inventory 0 327
Decrease(increase)in deferred tax assets 36,000 8,700
Decrease (increase) in prepaid expenses (8,954) (1)
Decrease (increase) in current assets 0 ,0
Increase (decrease) in a/p accr exp 13,723 16,780
Increase(decrease) in accrued vacation (2,051) 6,238
Increase (decrease) in def rev 0 153,666
Total adjustments $(82,400) $ 31,071
Net cash (used) by op activities $(44,653) $ 41,532
Cash flows from investing activities:
(Increase) decrease in prod devel costs $(12,252) $(41,843)
Purchase of property and equipment (455) (760)
Decrease in Deferred TaxAssets 0 0
Decrease in other assets 0 0
Net cash (used) by investing activities $(12,707) $(42,603)
Cash flows from financing activities:
Proceeds from Line of Credit $ 30,000 $ 0
Repayments of notes to related parties 0 0
Repayments of other long-term debt 0 0
Proceeds from issuance of common stock 0 0
Net cash provided by financing activity $ 30,000 $ 0
Net increase (decrease ) in cash $(27,360) $ (1,071)
Cash/ cash equiv beginning of period $ 27,465 $523,422
Cash/ cash equivalents as of period end $ 105 $522,351
</TABLE>
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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 December 31,1997 and results of
operations and changes in financial position for the three months ended
December 31,1997.
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>
12/31/97 09/30/97
<S> <C> <C>
Furniture & Fixtures $ 33,983 $33,983
Purchased Software 9,285 8,929
Equipment 375,989 373,486
Total 419,257 416,398
Less : Accumulated depreciation 368,250 362,451
$ 51,007 $ 53,947
</TABLE>
3. The results of operations for the three month period ended December
31, 1997, 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.
RESULTS OF OPERATIONS
During the quarter ended December 31, 1997 the Company devoted its
efforts to the licensing of WebberActive 4.0, consulting, the closing of
one large contract and one Letter of Intent. WebberActive 4.0 is a
channel creation and HTML content authoring tool with extensive dynamic
HTML and stylesheet support. This product is important because it
supports new Microsoft standards that will be used by Internet Explorer
4.0 and Windows 98. The company secured consulting contracts with four
new customers. These contracts range from private industry to
government entities. They involve the use of WebBase, WebberActive and
unannounced future products. A large WebBase license with a major
communications company was delivered at the end of December. It
involved an up front license fee, and per unit royalties.
In December 1997, a Letter of Intent to license software to a leading
software company was signed. The license will be worth $300,000 if the
final contract is signed, plus a quarterly maintenance fee. This is not
reflected in the financial figures shown.
Also, a sizable consulting contract with a multinational communications
company was negotiated. Most of this work will be done in the next two
quarters.
Revenues for the three months ended December 31, 1997 were the
result of sales of contract services, and license fees from our
software.
Revenues for the three month period ended December 31,1997 were
$286,419, down 19% from a comparable figure from the prior year of
$349,757. This is determined by the uneven effect from large licensing
deals falling in a quarter. Last year they fell into the December
quarter.
Cost of sales for the three months ended December 31,1997 was $96,450
compared to prior year periods of $41,295 reflecting increased time
spent by personnel on consulting contracts.
Advertising and promotion expenses decreased to $198 from the prior year
period's costs of $70,368. This decrease reflects management's decision
to postpone marketing efforts until the cash flow stabilizes.
General and administrative expenses decreased to $88,189 for the three
months ended December 31, 1997. The comparable figure for the prior
year is $171,620. These numbers reflect the decrease in personnel of
two officers and one marketing person and management's decision to
decrease operating costs.
Research and development was $26,756 for the three months ended December
31, 1997, compared to prior year figures of $49,830. Research and
development decreased because more time was spent on consulting
contracts.
Profit from operations was $74,826 for the three months ended December
31, 1997. The increased profits reflect management's decision to
decrease spending.
Deferred tax expense decreased proportionately with income to $36,000
from $8,700 for the three months ended December 31, 1997 and 1996
respectively. These numbers are a result change in accounting policy
which took effect FY94, and are not actual cash expenses.
LIQUIDITY:
At December 31, 1997 the Company reported working capital of $454,804
up from $411,451 due to a increase in accounts receivable. Net
stockholder's equity of $1,651,278, was up from $1,613,531 on September
30, 1997.
Accounts receivable of $410,987 was up at December 31,1997 from the
September 30, 1997 figure of $271,312. It is believed that all
receivables will be collected.
Net product development costs were $817,467 and $820,133 for the
periods ending December 31,1997 and September 30, 1997 respectively.
Management continues to believe in the commercial viability of the
products for which research costs are capitalized.
Accounts payable was $46,897 at December 31, 1997 compared to $33,174 at
September 30, 1997.
Accrued vacation was $55,362 at December 31,1997 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
On March 12, 1997 ExperTelligence purchased CSD Corporation of
Toronto, Ontario, for 40,000 shares of ExperTelligence common stock
and $28,052 in cash. As part of the transaction, the previous owners of
CSD immediately purchased the accounts receivable and other assets of
CSD. The purchase of CSD Corporation brings new technology to the
ExperTelligence family of software for the emerging Webmaster function.
One new ExperTelligence product, Webber32 and WebberActive 2.0, are
already out on the market as a result of this acquisition. SmartSite
will be released in the current fiscal year.
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)
January 27, 1998 Denison Bollay, President and Chairman of the Board
(signature)
January 27, 1998 Robert Reali, Director
(signature)
January 27, 1998 Tami Bollay, Director
(signature)
<PAGE>
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> Dec-30-1997
<CASH> 105
<SECURITIES> 0
<RECEIVABLES> 410,987
<ALLOWANCES> 0
<INVENTORY> 65,178
<CURRENT-ASSETS> 587,307
<PP&E> 419,257
<DEPRECIATION> 368,250
<TOTAL-ASSETS> 1,783,781
<CURRENT-LIABILITIES> 132,503
<BONDS> 0
<COMMON> 1,472,621
0
159,244
<OTHER-SE> 1,651,278
<TOTAL-LIABILITY-AND-EQUITY> 1,783,781
<SALES> 286,419
<TOTAL-REVENUES> 286,419
<CGS> 96,450
<TOTAL-COSTS> 211,593
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 279
<INCOME-PRETAX> 74,826
<INCOME-TAX> 36,800
<INCOME-CONTINUING> 37,747
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,747
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
