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 ACTS OF 1934
For the quarterly period ended March 31, 1999
[ ] 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 class of
stock, as of the latest practical date.
Class Outstanding at March 31, 1999
Preferred stock, no par 159,244
Common stock, no par 1,732,288
<PAGE>
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, 1999 and September 30, 1998 3
Statement of Operations for the 3 and 6 month period
ended March 31, 1999 and March 31, 1998. 4
Statement of Cash Flows for the 3 and 6 month period
ended March 31, 1999 and March 31, 1998. 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
<PAGE>
<TABLE>
<CAPTION>
ExperTelligence, Inc.
Balance Sheets
at 3/31/99 at 09/30/98
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $956,637 $130,149
Accounts receivable, net 78,220 102,409
Inventory 62,238 66,723
Prepaid exp. and other current assets 32,165 16,570
Deferred tax asset-current 242,322 125,000
Total current assets $1,371,582 $440,851
Long-Term Receivable 51,585 51,585
Product development costs, net 974,017 801,144
Property and equipment, net 64,061 52,732
Deferred tax asset-non-current 353,000 353,000
Other non-current assets 375,000 0
Total assets $3,189,245 $1,699,312
LIABILITIES & STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 25,331 $ 87,498
Accrued vacation 75,233 63,994
Deferred revenue 0 0
Line of Credit 0 0
Other accrued expenses 51 0
Total current liabilities $100,615 $ 151,492
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, 1999 and
September 30, 1998
Common stock, no par value.
Authorized 20,000,000 shares; issued and
Outstanding 1,732,288 shares as of
March 31,1999 and
September 30, 1998 $5,338,890 $3,651,890
Retained earnings (Accumulated deficit) $(2,568,747) $(2,422,557)
Net stockholders' equity $3,088,630 $1,547,820
Total liabilities and stockholders equity $3,189,245 $1,699,312
<FN>
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXPERTELLIGENCE, INC
STATEMENTS OF OPERATIONS
For the three months For the six months
ended March 31, ended March 31,
(unaudited) (unaudited)
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues $ 40,019 $255,341 $ 92,531 $529,659
Operating costs and expenses
Cost of Sales $ 27,710 $ 77,495 $ 66,101 $159,174
Sales & Marketing 51,238 24,515 78,698 43,099
General & Administration 142,229 100,501 229,066 190,207
Research & Development 28,387 37,295 51,758 69,251
Total operating costs
& expenses $ 249,564 $239,806 $ 425,623 $461,731
Profit/(loss) from
operations $(209,545) $ 15,535 $(333,092) $ 67,928
Other expense (income)
Interest expense $ 0 $ 1,195 $ 0 $ 1,544
Interest income (4,356) (1,017) ( 4,820) (1,132)
Gain/Loss on Fixed Assets 0 0 0 0
Income Tax 0 0 800 800
Deferred Tax Expense (64,815) (12,100) (117,322) 23,900
Other 0 0 0 0
Total other expense (income) $ (69,171) $ (11,922) $(121,342) $ 25,112
Net income (loss) (140,374) $ 27,457 $(211,750) $ 42,816
Net income (loss) per share (.07) $.02 (.11) $.03
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXPERTELLIGENCE, INC.
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
For the three months For the six months
Ended March 31, ended March 31,
(unaudited) (unaudited)
1999 1998 1999 1998
<S>
<C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss) for the
period ending March 31, $ (140,374) $ 27,458 $ (211,750) $ 42,816
Adjustments to reconcile
net income (loss) to net cash
used by operating activities:
Depreciation and amortization 18,763 $ 16,781 $ 37,699 $ 35,338
Decrease (increase) in accounts
receivable (6,102) 174,098 24,189 56,812
Decrease (increase) in
inventory 205 3,437 4,485 3,437
Decrease (increase) in prepaid
expenses 21,988 (4,593) (12,295) (13,547)
Decrease (increase) in other
current assets (3,075) 0 (3,300) 0
Increase (decrease) in accounts
payable & accrued expenses (5,077) (8,438) (50,877) 3,478
Increase (decrease) in
deferred revenue 0 0 0 0
Total adjustments $ 26,702 $181,285 $ (99) $ 85,518
Net cash provided (used) by
operating activities $ (113,672) $208,743 $ (212,042) $128,334
Cash flows from investing activities:
(Increase) decrease in product
development costs $ (68,660) $(17,546) $ (134,618) $(27,639)
Purchase of property and
equipment (23,264) (4,567) (21,723) (7,425)
(Increase)Decrease in
Deferred Tax Assets 64,815) (12,100) (117,322) 23,900
(Increase)Decrease in
other assets (375,000) 0 (375,000) 0
Net cash provided (used)
investing activities $ (531,739) $ (34,213) $ (648,663) $(11,164)
Cash flows from financing activities:
Repayments of notes to related
parties $ 0 $ 0 $ 0 $ 0
Repayments of other
long-term debt 0 30,000 0 0
Proceeds from issuance of
common stock 1,562,000 0 1,687,000 0
Net cash provided (used) by
financing activities $1,562,000 $ 30,000 $1,687,000 $ 0
Net increase(decrease) in cash $ 916,589 $ 144,530 $ 826,488 $ 117,170
Cash and cash equivalents as
of beginning of period $ 40,048 105 $ 130,149 27,465
Cash and cash equivalents as
of period end $ 956,637 $ 144,635$ $ 956,637 $ 144,635
</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., financial position as of March 31, 1999 and results of
operations and changes in financial position for the three and six
month ended March 31, 1999.
The accounting policies followed by the Company are set forth
in Note 1 of the ExperTelligence, Inc. Annual Report to Stockholders
September 30, 1998 and are incorporated by reference.
2. Fixed assets are comprised of the following :
<TABLE>
<CAPTION>
3/31/99 09/30/98
<S> <C> <C>
Furniture & Fixtures $33,983 $33,983
Purchased Software 10,500 9,662
Equipment 410,098 391,667
Total 454,581 435,312
Less :Accumulated depreciation 390,520 382,580
$ 64,061 $ 52,732
</TABLE>
3. The results of operations for the three and six month period ended
March 31, 1999, 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, 1998, the Company had the following approximate net
operating loss carryforwards available to reduce future Federal income
taxes:
<TABLE>
<CAPTION>
Federal Federal State State
Expiring Net Operating Tax Net Operating Tax
September30 Losses Credits Losses Credits
<S> <C> <C> <C> <C>
1999 28,000 56,000 - -
2000 487,000 30,000 - -
2001 390,000 - - -
2002 309,000 - 171,000 -
2003 125,000 - 38,000 -
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 342,000 2,000 - -
2013 76,000 -
$2,920,000 $192,000 $209,000 $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, 1998.
OVERVIEW
The objective of ExperTelligence (The Company) is to support its clients
in making their information needs or their information-driven products
interactive on the World Wide Web. The Company launched WebData.com, an
Internet database portal in December 1998. The Company designs, develops,
markets and implements software products for business applications based
on advanced, object-oriented, Internet-aware technologies which are
designed, developed, integrated, and sold by the Company and its
partners. The Company now specializes in the development and hosting of
Web/Database and Electronic Commerce application solutions using
WebBaseTM and ExperForms. The Company's extensive experience with
eCommerce and database systems, combined with their web service
WebData.com and the WebData Network, have given the Company the necessary
experience to develop significant cutting edge Web software tools and
high profile services. The Company is uniquely qualified to develop and
host complex "intelligent" web sites that take full advantage of
databases and their potential for sophisticated, cost effective
applications. Additional information on the Company's products and
consulting services can be found at its website
http://www.expertelligence.com/ and http://www.webdata.com/.
On December 1, 1998 ExperTelligence launched WebData.com, a specialized
database portal designed to provide rapid access to Internet databases
from a single place. Simultaneously, ExperTelligence announced its
banner exchange network "WebDataNetwork". This is the first banner
exchange program based on interactive queries to databases. Users can
add banners to their sites by following the instructions at
http://www.webdatanetwork.com/ the rest is completely automatic.
The WebData.com suite of features includes options for shopping for
books, music, movies and computers, checking flight schedules, viewing
the latest stock quotes, job search information and a simultaneous
keyword search across multiple search engines.
On March 6, 1999 the Company announced a software license and
collaborative service agreement with Time0, a Perot Systems business.
Time0 is a pioneer in business to business Digital Marketplace design and
development. Time0's patent pending technology, Enchilada, will extend
Webdata4D (WD4D), the Company's patent pending technology, to allow parallel
context searching across multiple shopping, classifieds and database sites.
On March 19, 1999, the Company announced ExperSearch, powered by Enchilada.
ExperSearch now allows the user to see a consolidated set of results retrieved
from multiple web sites at once. Users simply enter the keyword once and
ExperSearch does all the work for them.
On March 30, 1999 the Company announced a new patent pending, banner ad
server technology. This new technology departs from existing business
models for serving banner ads to Web sites. The most popular business
models today are cost per thousand (CPM) ads shown or pay per click
through. The Company's new technology vastly improves on the two
existing business models. This new technology allows an advertiser to
independently control costs to their target audience while still giving
sites maximum value for their control. The domain names acquired in
conjunction with this technology are experclick.com, maxclick.com,
extraclick.com, and maxiclick.com.
In March, 1999, the Company signed a letter of intent, to grant a non-exclusive
license the Company's portal technology, to eCustomize.com, in exchange for 20%
of eCustomize.com. eCustomize.com is an Internet portal company that will be
the premier gateway dedicated to customized products and services.
In the business to business ecommerce arena, the Company has registered the
domain names: dexcentral.com, chemicaldex.com, cofeedex.com, wheatdex.com,
manudex.com, plasticdex.com, commercedex.com, lumberdex.com, metaldex.com,
dexplace.com, dexcite.com, dexzone.com, zonedex.com, and dexsite.com.
The Company filed a patent pertaining to ecommerce and registered the domain
names 1please.com, orderme1.com, buyme1.com, getme1.com, and charge1.com.
The Company has applied for the trademark "The Internet IS the Database".
On February 16, 1999, the Company announced the hiring of Mr. Trygve
Duryea as Chief Operating Officer. Mr. Duryea joins ExperTelligence
from The Executive Committee (TEC), an international organization of
CEO's. Mr. Duryea has been brought on as Chief Operating Officer to
manage the growth of WebData.com. Mr. Duryea was elected a Director of
the Corporation at the Companys most recent annual meeting.
On April 1, 1999 the Company hired Mr. John McNamara. Mr. McNamara will
develop and deploy a real-time financial section of WebData.com.
Mr. McNamara's many years as a CEO, plus sales and marketing experience in
technically complex industries will be of great value to the Company. The
domain names acquired in conjunction with this program are tickerchat.com,
commoditychat.com, bondchat.com, equitychat.com and optionchat.com.
On May 13, 1999 the Company announced the hiring of Financial Relations Board,
Inc. The Financial Relations Board Inc., established in 1961, is regarded as
the worlds oldest and largest agency specializing in investor relations and
financial communications. The Company feels this relationship will enhance the
Companys shareholder value.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIOD ENDED
MARCH 31, 1999 AND 1998
ExperTelligence's revenues consist of product revenues, (including
licensing of its software), consulting, and other services.
Revenues for the three and six month period ended March 31, 1999 were
$40,019 and $92,531, respectively. These figures were down 84% and 83%,
respectively, from comparable figures last year, of $255,341 and
$529,659. This decrease is a direct result of the Company's decision to
focus its attention on the development and marketing of its new web
database portal WebData.com and its companion WebDataNetwork.com. On
December 1, 1998 the Company launched WebData and WebData Network.
Cost of Sales consists primarily of service personnel, software amortization
and provision for inventory.
Cost of Sales were $27,710 (69% of revenue) and $66,101 (71% of revenue)
for the three and six month period ending March 31, 1999. These figures
were down 27% and 58%, respectively, from comparable figures last
year of $77,495 and $159,174. This decrease is directly attributable
to Management's decision to put its full efforts into WebData and
WebData Network. Software amortization, which remains a constant,
pushed the percentage mix down.
Sales and marketing consists of sales personnel, advertising and
promotion.
Sales and marketing expenses were $51,238 (128% of revenue) and $78,698
(85% of revenue) for the three and six month period ended March 31, 1999.
Beginning with this fiscal year the Company will be reporting sales and
marketing personnel and their related expenses under this heading. In
prior years, the Company reported these expenses under the general and
administrative heading.
The Company has enlisted the services of Jupiter Communications, which
specializes in on-line advertising strategies. The agreement between
The Terpin Group, in which services were exchanged for stock, was not
renewed. (See Item-2, Changes in Securities.) The Company is presently
seeking the services of a public relations firm.
General and Administrative expenses includes costs of administrative
salaries, employee benefits, facilities, depreciation, communication,
insurance, professional fees, shareholder expense and other related
expenses associated with the day to day operation of the Company.
General and administrative expenses were $142,229 (355% of revenue) and
$229,066 (248% of revenue) for the three and six month period ended
March 31, 1999, respectively. General and administrative expenses were
up 142% and 120% from comparable figures of last year of $100,501 and
$190,207, respectively. Sales and marketing expenses have been
reclassified to the Sales and Marketing heading. Professional fees are
up due to accelerated patent and trademark protection. Shareholder expense is
up due to the February 3, 1999 Annual Meeting and the creation and mailing of
the proxy. During this quarter, an individual was hired to focus on strategic
business development.
Research and Development expense consists primarily of the cost of
research and development personnel.
Research and development expenses were $23,387 (71% of revenue) and
$51,758 (56% of revenue) for the three and six month period ended March
31, 1999, respectively. These figures are down 24% and 25% from
comparable figures of last year of $37,295 and $69,251, respectively.
The capitalization of developer's time on WebData development resulted
in this decrease.
Loss from operations for the three and six month period ended March 31,
1999, were $(209,545) and $(333,092), respectively. These figures were
down from profits of $15,535 and $67,928 for the same periods last year.
This decrease in profits represents management's decision to diversify
its revenue streams by completing and bringing to market, WebData.com.
The Company feels that in redirecting its team and leading Internet
technologies to it's database portal, WebData, they are much better
poised to ride the Internet growth wave.
Deferred tax expense decreased and increased proportionately with income
for the three and six month period ended March 31, 1999, respectively.
These numbers are a result of the change in accounting policy, which took
effect FY94, and are not actual cash expenses.
The software developed and used by the Company is Year 2000 compliant.
Internal reviews indicate that the Company's products do not contain
code that directly uses dates that would lead to user problems at the
turn of the century. In house software has been reviewed and the
necessary steps for compliance have been completed.
LIQUIDITY
At March 31, 1999 the Company reported working capital of $1,270,967
which is up 440% from $289,359 at September 30, 1998. This increase is
due to the receipt of $1,187,000 raised in private placements (See Item-
2, Changes in Securities). Net stockholder's equity of $3,088,630 was
up 100% from $1,547,820 on September 30, 1998.
Accounts receivable of $78,220 was down at March 31, 1999 from the
September 30, 1998, figure of $102,409. This 24% decrease is in
keeping with the Company's decision to pursue additional sources of
revenue by launching WebData and its companion WebData Network. It is
believed that all receivables will be collected.
Net product development costs were $974,017 and $801,144 for the
period ending March 31, 1999 and September 30, 1998, respectively.
This 21% increase reflects the shift in salaries from software and
contract services to software development. Management continues to
believe in the commercial viability of all products for which research
costs are capitalized.
Accounts payable was $25,331 at March 31, 1999 compared to $87,498 at
September 30, 1998.
Accrued vacation was $75,283 at March 31, 1999 compared to $52,732 at
September 30, 1998. Both figures represent less than 3% of total assets.
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
On March 24, 1999, the Company was notified of a pending lawsuit, initiated by
Opportunity Capital Partners, a former consultant for the Company, regarding a
dispute over employee options.
Item 2 - Changes in Securities
During the quarter ended March 31, 1999, the Company issued 2,732 shares
of common stock valued at $30,000 to pay for public relation expenses.
On January 12, 1999, a private investor exercised 15,000 warrants at $3
per share.
Under Section 4(2) of the Securities Act of 1933 and Regulation D, on
January 14 & 15, 1999, the Company sold 182,000 shares of unregistered common
stock through private placements, to individual investors at $6 per share.
In addition, 91,000 underlying warrants at $10 per share were issued. These
will expire in two years. The funds will be used for general corporate
purposes.
Under the same regulation D, on February 6, 1999, the Company sold 5,000 shares
of unregistered common stock to an individual investor at $10 per share. In
addition 2,500 underlying warrants at $15 per share were issued. These
warrants will expire February 15, 2000.
Item 3 - Defaults on Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
On February 3, 1999 the Company held its Annual Meeting of Shareholders.
The matters presented for vote were the Election of Officers and the
Ratification of Selection of Auditors. The nomination for directors,
Denison W. Bollay, Robert Reali and Trygve Duryea was carried with
832,567 for and 130 abstain. McGowan, Guntermann was ratified as
auditors for the Company with 832,697 for.
Item 5 - Other Information
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 14, 1998 Denison Bollay, President and Chairman of the Board
(signature)
May 14, 1998 Robert Reali, Director
(signature)
May 14, 1998 Trygve Duryea, Director
(signature)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1999
<CASH> 956,637
<SECURITIES> 0
<RECEIVABLES> 78,220
<ALLOWANCES> 0
<INVENTORY> 62,238
<CURRENT-ASSETS> 1,371,582
<PP&E> 454,581
<DEPRECIATION> 390,520
<TOTAL-ASSETS> 3,189,245
<CURRENT-LIABILITIES> 100,615
<BONDS> 0
<COMMON> 1,732,288
0
159,244
<OTHER-SE> 3,088,630
<TOTAL-LIABILITY-AND-EQUITY> 3,189,245
<SALES> 40,019
<TOTAL-REVENUES> 40,019
<CGS> 27,710
<TOTAL-COSTS> 249,564
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (209,545)
<INCOME-TAX> (64,815)
<INCOME-CONTINUING> (140,374)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (140,374)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
