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, 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 December 31, 1998
Preferred stock, no par 159,244
Common stock, no par 1,504,288
<PAGE>
ExperTelligence, Inc.
REPORT ON FORM 10-QSB
TABLE OF CONTENTS
Page No.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheet at December 31, 1998 and September 30, 1998 3
Statement of Operations for the 3 months period
ended December 31, 1998 and December 31,1997. 4
Statement of Cash Flows for the 3 months period
ended December 31, 1998 and December 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 9
<PAGE>
<TABLE>
<CAPTION>
ExperTelligence, Inc.
Balance Sheets
at 12/31/98 at 09/30/98
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents *** $ 40,048 $ 130,149
Accounts receivable, net 72,118 102,409
Inventory 62,443 66,723
Prepaid exp and other current
assets 51,078 16,570
Deferred tax asset-current 177,507 125,000
Total current assets $403,195 $440,851
Long- Term Accounts Receivable $ 51,585 $ 51,585
Product development costs, net 919,692 801,144
Property and equipment, net 48,225 52,732
Deferred tax asset-noncurrent 353,000 353,000
Total assets $1,775,696 $1,699,312
LIABILITIES & STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $42,794 $87,498
Accrued vacation 65,767 63,994
Deferred revenue 0 0
Line of Credit 0 0
Other accrued expenses 161 0
Total current liabilities $108,722 $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 December 31, 1998 and
September 30, 1998
Common stock, no par value.
Authorized 2,000,000 shares;
issued and outstanding
1,504,288 shares as of
December 31,1998 and 1,471,921
shares as of September 30,
1998 $3,776,890 $3,651,890
Retained earnings
(Accumulated deficit) $(2,428,403) $(2,422,557)
Net stockholders' equity $1,666,974 $1,547,820
Total liabilities and stockholders
equity $1,775,696 $1,699,312
<FN>
*** Subsequent to the end of the quarter, approximately $1,187,000
was raised in private placements (see Item-2, Changes in Securities).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXPERTELLIGENCE, INC.
STATEMENTS OF OPERATIONS
For the three months
ended December 31 December 31,
(unaudited) (unaudited)
1998 1997
<S> <C> <C>
Revenues $52,512 $286,419
Operating costs
and expenses
Cost of Sales 38,132 96,450
Sales & Marketing 31,744 158
General &
Administration 82,841 88,189
Research &
Development 23,371 26,756
Total operating costs
and expenses $176,088 $211,593
Profit/(loss) from
operations $(123,576) $ 74,826
Other expense (income)
Interest expense 0 348
Interest income (464) (69)
Gain/Loss on Fixed Assets 0 0
Income Tax 800 800
Deferred Tax Expense (52,507) 36,000
Other 0 0
Total other expense
(income) $(52,171) $37,079
Net income (loss) $(71,405) $37,747
Net income (loss)
per share $( .04) $.02
<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 ended
December 31, December 31,
1998 1997
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)
for the period ending
December 31, 1998 and
December 31, 1997 $ (71,405) $37,747
Adjustments to reconcile
net income (loss) to net cash
used by operating activities:
Depreciation & amortization 18,743 18,557
Decrease (increase) in
accounts receivable 30,291 (139,675)
Decrease (increase) in
inventory 4,280 0
Decrease (increase) in
prepaid expenses (34,508) (8,954)
Decrease (increase) in other
current assets 0 0
Increase (decrease) in accounts
payable & accrued expenses (42,771) 11,672
Increase (decrease) in
deferred revenue 0 0
Total adjustments $( 23,964) $(82,400)
Net cash provided (used)
by operating activities $(95,370) $(44,653)
Cash flows from investing activities:
(Increase) decrease in product
development costs $(65,959) $ (12,252)
Purchase of property and
equipment (1,265) (455)
Decrease in Deferred Tax
Assets (52,507) 36,000
Decrease in other assets 0 0
Net cash provided (used) by
investing activities $(119,731) $ (12,707)
Cash flows from financing activities:
Repayments of notes to
related parties 0 30,000
Repayments of other
long-term debt 0 0
Proceeds from issuance of
common stock 125,000 0
Net cash provided (used)
by financing activities 125,000 30,000
Net increase (decrease )
in cash $(90,101) $(27,360)
Cash and cash equivalents
as of beginning of period $130,149 $ 27,465
Cash and cash equivalents as
of period end $ 40,048 $ 105
</TABLE>
<PAGE>
ExperTelligence, Inc.
NOTES TO FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared by
ExperTelligence, Inc. ( or the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission regarding interim
financial reporting. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements and should be read in
conjunction with the Annual Report Form 10-K for the year ended
September 30, 1998. The accompanying financial statements reflect all
adjustments, which are, in the opinion of management, necessary for a fair
presentation of results for the interim periods presented. The results of
operations for the three months period ended December 31, 1998 are not
necessarily indicative of the results to be expected for any other
interim period or for the full fiscal year.
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>
12/31/98 09/30/98
<S> <C> <C>
Furniture & Fixtures $33,983 $33,983
Purchased Software 9,662 9,662
Equipment 392,930 391,667
Total 436,575 435,312
Less : Accum depreciation 388,350 382,580
$ 48,225 $ 52,732
</TABLE>
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 NetOperating Tax NetOperating 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 $34,000
</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. The Company's financial disclosures can be
accessed at its website http://www.exgp.com/.
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 designs, develops,
markets and implements software solutions for business applications based on
advanced, object-oriented, Internet technologies which are
designed, developed, integrated, and sold by the Company and its partners.
The Company 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(R) 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. The company has applied for the trademark "The Internet
IS the Database". ExperTelligence has a patent pending on its WebData4D
interface.
Simultaneously, ExperTelligence announce it's link 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.
RESULTS OF OPERATIONS FOR THE THREE MONTHS PERIOD ENDED
DECEMBER 31, 1998 AND 1997
ExperTelligence's revenues consist of product revenues, (including
licensing of its software), consulting, and other services.
Total revenues were $52,512 and $286,419 for the three months period
ended December 31, 1998, and 1997, respectively. This decrease of 82% is a
direct result of the Company's decision to focus its attention on the final
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 $38,132 (73% of revenue) and $96,450 (34% of
revenue)for the three months period ended December 31, 1998 and 1997,
respectively. The 60% 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 $31,744 (60% of revenue) and $198 (0%
of revenue) for the three months period ended December 31, 1998 and 1997,
respectively. 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. In this quarter the Company enlisted the
services of two consultants. Jupiter Communications, which specializes
in on-line advertising strategies. The Terpin Group, whom the Company has
an ongoing relationship, will assist the Company with the preparation of
widespread, timely news reporting. An agreement between the Terpin Group
and the Company was reached in December 1998, in which services will be
exchanged for common stock. (See item-2, Changes in Securities).
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 $82,841 (159% of revenue) and
$88,189 (31% of revenue) for the three months period ended December 31,
1998 and 1997, respectively. General and administrative expense on the
whole were down 6%. Sales and marketing expenses have been reclassified to
the Sales and Marketing heading. Professional fees are up due to
accelerated patent and trademark protection. During this quarter,
efforts were made to hire an individual to focus on strategic business
development. Subsequent to this quarter end, such an individual was hired.
Research and Development expense consists primarily of the cost of
research and development personnel.
Research and development expenses were $23,371 (45% of revenue) and
$26,756 (9% of revenue) for the three months period ended December 31, 1998
and 1997, respectively. The capitalization of developer's time on WebData
development resulted in this 13% decrease.
Loss and profit from operations for the three months period ended
December 31, 1998 and December 31, 1997 were $(123,576), and $74,826,
respectively. 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 months period ended December 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.
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 December 31, 1998 the Company reported working capital of $294,473
which was up 2% from $289,359 at September 30, 1998. This increase is due to
an increase in prepaid expenses and current deferred tax assets. Net
stockholder's equity of $1,666,974 was up 8% from $1,547,820 on September 30,
1998. Subsequent to the end of the quarter, approximately $1,187,000
was raised in private placements (see Item-2, Changes in Securities).
Accounts receivable of $72,118 was down at December 31, 1998 from the
September 30, 1998 figure of $102,409. This 30% 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 $919,692 and $801,144 for the
periods ending December 31, 1998 and September 30, 1998, respectively.
This 15% 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 $42,794 at December 31, 1998 compared to $87,498 at
September 30, 1998.
Accrued vacation was $65,767 at December 31, 1998 compared to $63,994 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
During the quarter ended December 31, 1998, the Company agreed to issue
10,000 shares of common stock at $3.00 per share to pay for public
relation expenses.
Under Section 4(2) of the Securities Act of 1933 and Regulation D, on
November 30, 1998, the Company sold 15,000 shares of unregistered
common stock with warrants at $3 per share to a private investor.
Subsequent Events:
On January 12, 1999, these warrants were exercised.
Under the same 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.
Item 3 - Defaults Upon 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
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
None
Item 6 - Exhibits and Reports on Form 8-K
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)
February 16, 1999 Denison Bollay, President and Chairman of the Board
(signature)
February 16, 1999 Robert Reali, Director
(signature)
February 16, 1999 Trygve Duryea, Director
(signature)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1998
<CASH> 40,048
<SECURITIES> 0
<RECEIVABLES> 72,118
<ALLOWANCES> 0
<INVENTORY> 62,443
<CURRENT-ASSETS> 403,195
<PP&E> 436,575
<DEPRECIATION> 388,350
<TOTAL-ASSETS> 1,775,696
<CURRENT-LIABILITIES> 108,722
<BONDS> 0
<COMMON> 1,504,288
0
159,244
<OTHER-SE> 1,666,974
<TOTAL-LIABILITY-AND-EQUITY> 1,775,696
<SALES> 52,512
<TOTAL-REVENUES> 52,512
<CGS> 38,132
<TOTAL-COSTS> 176,088
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (123,576)
<INCOME-TAX> (51,707)
<INCOME-CONTINUING> (464)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (71,405)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
