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, 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 Id number
25 East Ortega Street, 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 ]
Issuer's revenues for the most recent fiscal year: $228,652.
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 $7,934,582 based on a $4.19 per share
closing bid price as of December 27,1999.
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 1999
Preferred stock, no par 159,244
Common stock, no par 1,734,451
<PAGE>
ExperTelligence, Inc.
Annual Report on Form 10-KSB
For the Fiscal Year Ended September 30, 1999
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>
The Company notes that, except for the historical information contained
herein, the matters discussed below contain forward-looking statements, made
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section21E of the Securities Exchange Act of 1934, as amended,
subject to risks and uncertainties that may cause the Company's actual
results to differ materially. These statements relate to our plans,
objectives, expectations and intentions. 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. You should not rely on these forward looking
statements, which reflect only our opinion as of the date of this report. We
do not assume any obligation to revise forward-looking statements.
Part I.
Item 1. Description of Business
The objective of ExperTelligence (The Company) is to deliver high value data
to its customers on the web, and to build interactive Web solutions for its
corporate clients. The Company designs, develops, markets and implements
business applications based on advanced, object-oriented, Internet-aware
technologies which are designed, developed, integrated, and sold by the
Company and its partners.
This last fiscal year the Company changed its business focus to that of an
incubator, creating and operating Internet businesses. The Company currently
has 5 businesses in various stages of development based on the Company's
technologies and patents (pending). Resources include office space and the
accompanying network infrastructure, consulting and services relating to
development and technology, accounting, business development, support and
services. The model the Company follows is to first create the Internet
property at ExperTelligence, build a management and support team, incorporate
as a subsidiary and if appropriate, raise equity for the new company to focus
on its business independently.
3DStockCharts.com
The Company created 3DStockCharts.com, the first 3D display, on the web, of
an Electronic Communication Network, or ECN, an acronym used by Wall Street for
real-time computerized stock "order books". 3DStockCharts.com was formed in
September 1999. It is located in Santa Barbara, California. 3DStockCharts.com,
launched October 1999, is a highly specialized Internet financial portal that
highlights 3D displays of real-time streaming ECN "order books" so Internet
users can gain insight into stock market activity. Initially the data is from
Island ECN; as soon as possible the company will integrate data from the other
ECNs. This display provides users a new way to view the financial trading
activity of the Island ECN book of orders. The 3DStockCharts.com web site is
generating between 20,000 to 50,000 ad impressions per trading day with more
than 8,000 registered users in the first 6 weeks of operation. There is a link
from the Island ECN web site (http://www.Isld.com) directly to the
http://www.3DStockCharts.com site.
The real-time charting information at the present time is provided without
cost to allow visitors to use the information, evaluate the site and give the
company valuable feedback to improve the site. The revenue is generated from
advertising. The company may consider a subscription fee model for the 3D
real-time charts and associated information in the future. The company will
also license its site to third part vendors for a fee.
The Company filed a patent for a three dimensional (3D) display mechanism for
real-time order book information over the Internet.
The 3DStockCharts.com, Inc., is a new subsidiary, 80% owned by
ExperTelligence and 20% by new investors.
WebData.com
WebData.com reaches knowledge workers and consumers looking for facts and
figures, research and reference through http://www.WebData.com. It was
launched in December 1998. Www.WebData.com is an Internet database portal
specializing in the cataloging, searching and comparison of online content
from web sites with databases. It is for everyone who uses the Internet to
do research, reference and find facts and figures. Additionally, it features
comparison-shopping. WebData.com provides the ability to search and browse
high-quality interactive databases found on the Internet, for free, from a
single location. All databases are reviewed for excellence and approved by
our site librarian. The databases cover a broad range of topics from Business
to Shopping, Travel and Stocks with 6,000 different queries, from over 4,000
high quality online databases. Features include options for shopping for
books, music, movies, auctions and computers, checking flight schedules,
viewing the latest stock quotes, job search information and a simultaneous
keyword search across multiple search engines.
WebData 4D(tm), is a proprietary, patent pending technology that enables users
to locate specific products or data, from multiple Internet databases web
sites by entering information once and using a single click to retrieve the
resulting information. ExperSearch(tm), is an advanced searching capability
provided with www.WebData.com that provides consolidated results from
searching across multiple shopping, auction, classified and database sites.
ExperSearch is powered by Enchilada(tm), a patent pending search technology
developed by Time0, a business of Perot Systems Corporation, that enables the
simultaneous search of multiple web sites and the integration of the results
displayed in one location. The merging of the Enchilada technology with the
WebData 4D technology retains site branding and look and feel, and also
provides users with the option of integrating results from many sites.
The Company's Team Content was created to research and increase the number
of quality database sites listed in WebData. Team Content is lead by a full
time librarian. In addition to finding new information, Team Content is
focused on enhancing the existing web site, content, editors, and the user
interface.
Tasks include finding quality databases, detecting trends of popular topics,
signing up the new database sites as Partners, QA, Editor program, and
overall site grooming. There are over 4220 databases online with over 1500
in final approval stage and over 4000 more in the review and partner process.
There are 15 editors so far that provide input on high quality database sites.
Team Content participates in the revenue stream by handling all the merchant
affiliate relationships. Currently there are 60 merchant affiliates. If a
user goes to the ecommerce site through www.WebData.com and purchases a
product, a percentage of the sale (average 6%) is paid to the Company.
Team Traffic is responsible for establishing high search engine rankings and
the actual counting of site traffic. WebData.com averages 2,000 unique
visitors a day, which generates approximately 300,000 page views per month
while showing approximately 135,000 ads per month.
In June, 1999 the Company announced that incorporating portions of The World
Almanac and Book of Facts 1999 in a searchable format would enhance
WebData.com. The Company now features World Almanac Facts on its WebData.com
Internet site. The Company will continue to aggressively target premier
partners and branding opportunities to enhance its WebData.com portal. The
Company is planning a number of marketing programs featuring World Almanac
excerpts.
The Company recently entered in an agreement with DoubleClick to license its
DART technology to deliver banner advertising with audited reporting for
www.WebData.com and www.3DStockCharts.com.
While there is no certainty that WebData.com and 3DStockCharts.com can
generate substantial ad revenue from banner ads, overall ad revenues on the
web are projected to reach $3.3B from $1.2B in 1999. The Company is building
the revenue infrastructure by hiring staff for banner sales, building the
Merchant affiliate program, identifying targets for sponsorships and content
alliances. The Company created its own 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. There are over 100 members in the WebDataNetwork.
eCustomize.com
The Company has developed a commerce web portal focusing on custom made
products ranging from clothing, furniture and equipment, from automobiles
and coffee mugs to chocolate and vacations. The technology is based on
WebData.com database portal and WebData 4D(tm) single entry shopping
interface. Users visiting eCustomize.com will be able to browse and search
for a varietyof items, by entering specifications, logos or personalized
information tomake a selection or purchase, and check on competitive pricing
and purchase specialty products. A key feature of WebData 4D, utilized by
eCustomize.com,is the ability to key in product search information once and
compare results from different web sites simply by clicking on different
vendors' site logos. This allows the user to view a list of related products
retrieved from the different web sites, and easily search out and find the
exact product orservice that they require. The Company entered into an
agreement with a third party to assume an 80% ownership. The project has an
operational prototype, and the domain name eCustomize.com.
ExperData.com
The Company owns Experdata.com, a database web-hosting site.This site is
uniquely focused on hosting ecommerce, business to business, dynamic,
database-enabled Web sites for real-world applications. The Company is
fully equipped to deliver high bandwidth connections, fast file servers,
top quality support services, site development and database expertise.
ExperData hosts over 30 sites.
WebBase Software
WebBase still continues to be the Company's premier software product. It is
the basis for most of the consulting revenue and software sales. 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. WebBase provides for
solutions ranging from simple access, to 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. Full details about
WebBase may be found on our web site, http://www.expertelligence.com.
The Company specializes in the development and hosting of Web/Database and
Electronic Commerce application solutions using its flagship products WebBase
and ExperForms. The Company received an "A" ranking from Advertising Age's
NetMarketing Online for its work on HarrisInfoOnline.com as a Best Business to
Business Web Site. The Company has spent the last ten years combining
Internet programming experience with real world business process
understanding to produce well-engineered Internet, Intranet and Extranet
applications.
ExperForms Software
ExperForms, based on WebBase, is revolutionary new software that converts
scanned forms into complete web sites. It creates database and all the web
forms necessary to add, update, search and view any web browser on the Intra
or Internet. It is also resold through one of the Company's strategic
partners, CAERE Corporation. 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.
E-Merge Software
E-Merge, a WebBase add-on allows users to conveniently send email directly
from their WebBase web server. E-Merge dynamically creates emails from
databases.
WebberActive Software
WebberActive is a dynamic HTML editor and channel creation tool targeted
directly at Microsoft and Netscape software standards.
Webber32 Software
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.
Time 0
On March 6, 1999 the Company announced an agreement with Time0, a Perot
Systems Corporation 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, allowing for simultaneous search of multiple web sites
and the integration of the results displayed in one location.
On March 19, 1999, the Company announced ExperSearch, powered by Enchilada.
ExperSearch is an advanced searching capability provided with WebData.com that
gives consolidated results retrieved from web sites. Users simply enter the
keyword once and ExperSearch does all the work for them. The merging of these
technologies retains site branding and look and feel, and also provides users
with the option of integrating results from many sites.
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 trademarks "The Internet IS the Database",
WebData.com, 3DStockCharts.com, ExperClick, and "Get Your Facts Straight at
WebData.com".
Public Relations
In May 1999 the Company announced the hiring of The Financial Relations Board,
Inc. The Financial Relations Board Inc., established in 1961, is regarded as
the world's oldest and largest agency specializing in investor relations and
financial communications. The Company discontinued their services in
September 1999.
In May, 1999 the Company hired Jennifer Goddard of The Goddard Company
Public Relations. Since enlisting Ms. Goddard, Denison Bollay, CEO, has
appeared on numerous media events, such as radio, newspapers and magazines,
including: Cyberstation.com, Wall Street Transcript, CEO Chat, CBS
Marketwatch, PC Week, PC Today and the Los Angeles Times. Ms. Goddard has
been in public relations arena for 15 years.
Subsidiary
On October 21, 1999, the Company announced the incorporation of
3DStockCharts.com as an 80% owned subsidiary. Mr. John McNamara has been
named President and CEO of 3DStockCharts.com. The Company completed a
successful $1,000,000 round of financing into 3DStockCharts.
3DStockCharts.com is a new financial web resource specializing in live,
interactive, three-dimensional displays of order book information from Island
ECN.
General
The Company has eleven full time employees. Additional contract workers are
hired as necessary to complete specific projects.
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.
Competitive Information
Www.Webdata.com is a next generation search/find site that is often
mistakenly compared with classic search engines. As such, Yahoo, Excite,
Lycos, Infoseek, TheBigHub, Google, Ask, etc. can all be considered
potential competitors. However, the features and capabilities of
WebData.com are so different (the database specialization) that such
classical sites are really not direct competitors. There are two search
sites, of which we are aware, that are somewhat similar to WebData.com.
While www.invisibleweb.com and www.internets.com are two emerging sites that
allow database searches, these sites do not provide content review for
quality from a Librarian or Editor, and do not provide the special value
added tools for comparisons and direct access to information like
WebData.com.
The Company is a pioneer in web database server technology. The company has
delivered proven solutions to many Fortune 500 customers. We now have many
competitors in this field however. The rapidly changing nature of the
software industry and the fact that the Internet market is highly dynamic and
competitive, requires that a significant effort be devoted to constantly
developing new goods, services and partnerships.
In July 1999 the Company launched 3DStockCharts which is the first of its
kind, three dimensional (3D) display mechanism for real-time ECN
"order book" information over the Internet. While we have no competitors at
the moment, it is possible we will in the future.
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.
<PAGE>
Item 2. Description of Property
The Company does not own any real property. The following is the Company's
principle place of business:
<TABLE>
<CAPTION>
<S> <C> <C>
Location Size Lease Term
25 East Ortega Street 6,000 Sq. Ft. Three Years
Santa Barbara, CA 93101
203 Chapala Street 2,200 Sq. Ft. OneYear,2Yr.opt
(This space is occupied by 3DStockCharts.com)
</TABLE>
Item 3. 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 10,000 employee options. This lawsuit was settled
out of court.
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.
<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, 1999 there were approximately
984 holders of record (983 holding common stock and 1 holding preferred stock).
As of September 30, 1999 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):
For the fiscal year ended September 30,
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C> <C> <C<
High Low High Low
First Quarter $11.37 $1.75 $3.25 $3.00
Second Quarter $25.00 $7.00 $2.37 $1.12
Third Quarter $13.50 $8.00 $5.48 $2.12
Fourth Quarter $11.69 $7.00 $7.50 $1.63
</TABLE>
There were no dividends declared during the past fiscal year.
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.
On October 7, 1998 the Company issued 16,667 shares of unregistered common
stock valued at $50,000, in exchange for marketing and consulting services.
On December 31, 1998 the Company issued 3,000 shares of common stock 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 197,000 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 are being used for general corporate purposes.
Under the same regulation D, on February 6, 1999, the Company sold 5,00
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.
On March 6, 1999, 25,000 shares of unregistered common stock was issued to
Perot Systems Corporation in exchange for a software license and service
agreement. In addition 25,000 shares of common stock warrants were also
issued at $15 per share and expired on July 6, 1999.
On March 24, 1999 an employee exercised an option for 863 shares of the
Company's common stock.
Subsequent to fiscal year end the Company completed equity financing of
$1,000,000 into 3DStockCharts, Inc. making it an 80% owned subsidiary.
Item 5. MANAGEMENT' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Comparison of Fiscal Year 1999 to 1998
The Company's revenues consist of product revenues, (including
licensing of its software), consulting, hosting and other services.
Revenues for the year ended September 30, 1999 was $228,652. This figure
was down 75% from a comparable figure last year, of $897,226. 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, its
companion WebDataNetwork.com and 3DstockCharts.com. On December 1, 1998 the
Company launched WebData and WebData Network. In October 1999 the Company
launched 3DStockCharts.
Cost of Sales consists primarily of service personnel, software amortization
and provision for inventory.
Cost of Sales were $670,218 (293% of revenue) for the year ending
September 30, 1999. This figure was up 204% over last year's figure of
$327,881. This increase is due in part to amortizing $527,000 of obsolete
capitalized software. During the year the Company created Team Content.
These individuals were responsible for populating WebData.com with databases
from the web. Various other duties included affiliate merchant programs,
generating traffic to WebData.com and quality and assurance of the existing
sites. The Company has hired a full time librarian whose primary duty is to
review databases for content and appropriateness and to catalogue those
databases in an easy to find fashion for the users of WebData.
Sales and marketing consists of sales personnel, advertising and
promotion.
Sales and marketing expenses were $184,150 (81% of revenue) for the year
ended September 30, 1999. Beginning with this fiscal year the Company is
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. During this year the Company spent
$111,225 on a public relations firm, an investor relations firm and a full
time marketing person.
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 $633,997 (277% of revenue) for
the year ended September 30, 1999. General and administrative expenses were
up 135% from a comparable figure of $470,352 last year. Professional fees
are up due to the numerous legal contracts, such as the agreements with Time0
and the private placement and accelerated patent and trademark protection.
Travel expense was up due to increased meetings with potential partners and
the raising of capital. Shareholder expense was up due to the
February 3, 1999 Annual Meeting and the creation and mailing of the proxy.
During this year, an individual was hired to focus on strategic business
development. That individual is now president and CEO of 3DStockCharts, the
Company's new subsidiary. General and administrative expenses were up on the
whole due to the increased staff.
Research and Development expense consists primarily of the cost of research
and development personnel.
Research and development expenses were $206,900 (90% of revenue) for the
year ended September 30, 1999. This figure is up 172% from comparable figures
of last year of $120,618. This increase is due to the hiring of employees to
implement the WebData business plan and $75,974 in depreciation on the Time0
technology.
There was no interest expense this year as there was no borrowed money.
Interest income for the year ending September 30, 1999 was $17,846. This
figure was up 636% as compared to $2,807 last year due to the high interest
bearing account in which the private placement funds were kept.
Loss from operations for the year ended September 30, 1999 was $1,126,568.
This decrease in profits represents management's decision to diversify its
revenue streams by completing and bringing to market, WebData.com and
3DstockCharts.com. The Company feels that in redirecting its team and
leading Internet technologies to it's database portal, WebData, and financial
portal , 3D, they are much better poised to ride the Internet growth wave.
Deferred tax expense decreased and increased proportionately with income
for the year ended September 30, 1999, respectively. These numbers are a
result of the change in accounting policy, which took effect FY94, and are
not actual cash expenses.
LIQUIDITY
At September 30, 1999 the Company reported working capital of $452,473
which is up 156% 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 $2,108,253 was
up 136% from $1,547,820 on September 30, 1998. Subsequent to the fiscal year
end the Company completed equity financing of $1,000,000 into 3DStockCharts,
Inc. an 80% owned subsidiary.
Accounts receivable of $39,074 was down at September 30, 1999 from the
September 30, 1998, figure of $153,994. This 75% decrease is in
keeping with the Company's decision to pursue additional sources of
revenue by launching WebData and its companion WebData Network and the write
off of a large receivable from a foreign company. It is believed that all
receivables will be collected.
Net product development costs were $575,571 and $801,144 for the period
ending September 30, 1999 and September 30, 1998, respectively. This 28%
decrease reflects the amortization of obsolete capitalized software.
Management continues to believe in the commercial viability of all products
for which research costs are capitalized.
Fixed assets were up due to the purchase of equipment for new employees and
the startup of 3DStockCharts.
Accounts payable was $66,853 at September 30, 1999 compared to $87,498 at
September 30, 1998.
Accrued vacation was $79,915 at September 30, 1999 compared to $63,994 at
September 30, 1998. Both figures represent less than 3% of total assets.
Item 7. Financial Statements
The Financial Statements as of September 30, 1999 and 1998 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
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
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 - 17
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, 1999 and 1998, and the related 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 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 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, 1999 and 1998, and
the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
McGowan Guntermann
Santa Barbara, California
November 5, 1999
- -1-
EXPERTELLIGENCE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
CURRENT ASSETS
Cash
Non-interest bearing $5,288 $5,659
Interest bearing 326,021 124,490
Total Cash 331,309 130,149
Accounts receivable -
Net of allowance (Note 1E) 39,074 102,409
Inventory (Note 1C) 46,53 666,723
Prepaid expenses 35,537 7,290
Prepaid royalties 32,785 9,280
Deferred tax assets
(Note 1J and 7) 114,000 125,000
Total Current Assets 599,241 440,851
PROPERTY AND EQUIPMENT -
Net (Note 1I and 2) 387,914 52,732
OTHER ASSETS
Long-term accounts receivable - 51,585
Product development costs,
Net (Note 1D) 575,571 801,144
Deferred tax assets
(Note 1J and 7) 687,000 353,000
Investments 5,295 -
Total Other Assets 1,267,866 1,205,729
TOTAL ASSETS $2,255,021 $1,699,312
LIABILITIES AND SHAREHOLDERS' EQUITY
1999 1998
CURRENT LIABILITIES
Accounts payable $66,853 $87,498
Accrued vacation 79,915 63,994
Total Current Liabilities 146,768 151,492
SHAREHOLDERS' EQUITY
(Notes 3, 4, 5 and 6):
Preferred stock - no par value,
authorized 1,000,000 shares;
Issued and outstanding
159,244 shares for 1999 and
1998(liquidation preference
is $3 per share, see Note 3) 318,487 318,487
Common stock, no par value,
authorized 2,000,000 shares;
issued and outstanding
1,734,451 for 1999 and
1,471,921 shares for 1998 5,338,890 3,651,890
Accumulated deficit (3,549,124) (2,422,557)
Total Shareholders'
Equity 2,108,253 1,547,820
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $2,255,021 $1,699,312
</TABLE>
The accompanying notes are an integral part of these financial statements.
- -2-
EXPERTELLIGENCE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
INCOME (Note 8) $228,652 $897,226
OPERATING COSTS AND EXPENSES
Cost of sales 670,218 327,881
Selling and marketing 184,150 81,514
General and administration 633,997 470,352
Research and development 206,900 120,618
Total Operating Costs
and Expenses 1,695,265 1,000,365
LOSS FROM OPERATIONS (1,466,613) (103,139)
OTHER (INCOME) EXPENSES
Interest income (17,846) (2,807)
Interest expense - 2,879
Total Other (Income) Expenses (17,846) 72
LOSS BEFORE INCOME TAXES (1,448,767) (103,211)
INCOME TAXES (Note 7) (322,200) (39,200)
NET LOSS $(1,126,567) $(64,011)
EARNINGS PER COMMON SHARE
(Note 1G)
NET LOSS $(0.6804) $(0.0392)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 1,655,857 1,631,753
</TABLE>
The accompanying notes are an integral part of these financial statements.
- -3-
EXPERTELLIGENCE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Accumulated
Shareholders'
Shares Amount Shares Amount Deficit Equity
<S> <C> <C> <C> <C> <C> <C>
Balance,
September30,1997 159,244 $318,487 1,472,621 $3,653,627 $(2,358,583)$1,613,531
Stock redeemed - - (700) (1,737) 37 (1,700)
Net loss - - - - (64,011) (64,011)
Balance,
September30,1998 159,244 318,487 1,471,921 3,651,890 (2,422,557) 1,547,820
Stock issued in
private placement - - 202,000 1,187,000 - 1,187,000
Stock issued for
services and
Equipment - - 44,667 455,000 - 455,000
Stock issued -
stock options and
warrants exercised
- - 15,863 45,000 - 45,000
Net loss - - - - (1,126,567)(1,126,567)
Balance,
September30,1999 159,244 $318,487 1,734,451 $5,338,890 $(3,549,124) $2,108,253
</TABLE>
The accompanying notes are an integral part of these financial statements.
- -4-
EXPERTELLIGENCE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Collections from customers $291,987 $1,014,544
Interest collected 17,846 2,807
Interest paid - (2,880)
Taxes paid (800) (800)
Cash paid to suppliers and employees (923,037) (814,238)
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES (614,004) 199,433
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in product development costs (353,629) (75,711)
Purchase of property and equipment (57,912) (19,338)
Purchase of investment (5,295) -
NET CASH USED BY INVESTING ACTIVITIES (416,836) (95,049)
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issuance 1,232,000 -
Common stock redeemed - (1,700)
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES 1,232,000 (1,700)
INCREASE IN CASH 201,160 102,684
CASH AND EQUIVALENTS -
BEGINNING OF YEAR 130,149 27,465
CASH AND EQUIVALENTS -
END OF YEAR $331,309 $130,149
RECONCILIATION OF NET LOSS TO
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES:
Net loss $(1,126,567) $(64,011)
Adjustments to reconcile net
loss to net cash provided (used)
by operating activities:
Loss on disposition of fixed assets - 425
Depreciation and amortization 676,932 114,827
Deferred tax expense (benefit) (323,000) (40,000)
Bad debt 51,585 -
Non cash expenditures (Note 11) 80,000 -
Changes in:
Accounts receivable 63,335 117,318
Inventory 20,187 (1,546)
Prepaid expenses (51,752) 11,513
Accounts payable and accrued expenses (20,645) 54,325
Accrued vacation 15,921 6,582
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES $614,004) $199,433
</TABLE>
The accompanying notes are an integral part of these financial statements.
- -5-
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Business
ExperTelligence, Inc., (the Company) was incorporated in California on
March 31, 1980. The Company develops Internet portal technology, publishes
database software products for the Internet, and develops and hosts
web/database and electronic commerce application solutions.
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 has been provided
for both 1999 and 1998.
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, 1999 and 1998, aggregated $353,629 and
$75,711, respectively. Related amortization and write-off of obsolete
products, utilizing the straight-line method, for the years ended
September 30, 1999and 1998, aggregated $579,202 and $94,699, respectively.
For the year ended September 30, 1999, write-offs of obsolete products
totaled $510,579 and is included in cost of sales. Accumulated amortization
of product development costs total $177,088 and $372,758,
at September 30, 1999 and 1998, respectively.
E. Allowance For Doubtful Accounts
The allowance for doubtful accounts at September 30, 1999 and 1998, is $0 for
both years.
- -6-
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
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,
1999 and 1998, there were no costs and estimated earnings in excess of
billings or billings in excess of costs on uncompleted contracts. Product
development services include post contract customer support and software
services. Revenue from post contract customer support is recognized ratably
over the period of the post contract support arrangement. Revenue from
software services is recognized as the services are performed.
G. Earnings Per Share
Earnings per common share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the year.
Dilutive earnings per share was not presented for 1999 and 1998, because the
stock options and warrants 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-
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
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 1999 and 1998 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. 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 year 1997. Options granted to non-employees are recognized
at their estimated fair value at the date of grant.
N. Reclassifications
Certain amounts from the 1998 financial statements have been reclassified to
conform with current year presentation with no effect on net loss.
O. Advertising
The Company expenses advertising costs as they are incurred. Advertising
expenses for the years ended September 30, 1999 and 1998 were immaterial.
- -8-
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
Note 2 - PROPERTY AND EQUIPMENT
Depreciation expense for the years ended September 30, 1999 and 1998, is
$97,730 and $20,128, respectively. Property and equipment at
September 30, 1999 and 1998, is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Furniture and Fixtures $36,630 $33,983
Purchased software 386,343 9,662
Equipment 445,250 391,667
868,223 435,312
Less: Accumulated depreciation 480,309 382,580
$387,914 $52,732
</TABLE>
Note 3 - SHAREHOLDERS' EQUITY
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, 1999 and 1998. 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, 1999 and 1998, no
dividends have been declared.
Note 4 - STOCK OPTION PLANS
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. Options expire ten years after
the date of grant unless an earlier expiration date is set at the time of
grant. The Company has reserved a total of 475,000 shares of common stock
for the exercise of options under this Plan.
- -9-
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
Note 4 - STOCK OPTION PLANS (continued)
1996 Equity Participation Plan (continued)
Stock option activity for the Incentive Stock Option plan and the Nonqualified
Stock Option plan is shown below:
<TABLE>
<CAPTION>
Weighted Average
Grant Date Fair
Value of Options
Number Weighted Average Granted During
of Shares Exercise Price Year1999
<S> <C> <C> <C>
Outstanding at
beginning of year 178,500 $3.140 -
Granted 87,500 2.250 $2.920
Exercised (1,000) 1.435 -
Cancelled - - -
Outstanding at
end of year 265,000 2.810 -
Exercisable at
end of year 75,400 3.460 -
1998
Outstanding at
beginning of year 198,500 $4.100 -
Granted 60,000 1.435 $1.750
Exercised - - -
Cancelled (80,000) 4.250 -
Outstanding at
end of year 178,500 3.140 -
Exercisable at
end of year 29,700 4.000 -
</TABLE>
As of September 30, 1999, 12,500 options were granted and are outstanding
under the Nonqualified Stock Option plan.
The following table summarizes information about options outstanding at
September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Number Number
Outstanding at Remaining Exercisable
September 30, Contractual September 30, Exercise
1999 Life Exercise Price 1999 Price
<C> <C> <C> <C> <C>
7,500 7.0 $4.000 51,900 $4.000
111,000 7.3 4.000 11,000 1.435
59,000 8.3 1.435 12,500 3.000
75,000 9.0 2.125 75,400
12,500 0.8 3.000
265,000
</TABLE>
- -10-
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
Note 4 - STOCK OPTION PLANS (continued)
1996 Equity Participation Plan (continued)
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:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Net loss
As reported (1,126,567) (64,011)
Pro forma (2,234,792) (242,516)
Primary earnings per share
As reported (0.6804) (0.0392)
Pro forma (1.3496) (0.1486)
</TABLE>
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 $441,500 and $71,100, for the years ended September
30, 1999 and 1998 respectively, has 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 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Expected life (years) 1-10 1-10
Risk-free interest rate 4.75% 6%
Volatility 143% 160%
Expected dividends None None
</TABLE>
Note 5 - COMMON STOCK
During the year ended September 30, 1998, the Company redeemed 700 of its own
shares. To properly record the redemption, common shares issued and
outstanding was reduced by 700 shares, the dollar amount of common stock was
reduced by $1,737 and retained earnings was increased by $37.
- -11-
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
Note 5 - COMMON STOCK (continued)
During the year ended September 30, 1999, the Company sold 217,000 shares of
unregistered common stock through private placements to individual investors.
15,000 of these shares represent common stock warrants that were exercised.
Unregistered common stock represent shares issued under Rule 144 of the
Securities Act which permit limited resale of securities purchased in a
private placement subject to the satisfaction of certain conditions.
On October 7, 1998, the Company issued 16,667 shares of unregistered common
stock valued at $50,000, in exchange for marketing and consulting services.
On March 6, 1999, the Company issued 25,000 shares of unregistered common
stock at $15 per share in exchange for a software license and service
agreement. In addition, 25,000 shares of common stock warrants were also
issued at $15 per share and expired on July 6, 1999.
On May 24, 1999, the Company issued 10,000 shares of common stock at $3 per
share in exchange for public relation consulting services.
Note 6 - COMMON STOCK WARRANTS
Common stock warrants granted during the year ended September 30, 1999 are as
follows:
<TABLE>
<CAPTION>
Warrant
Warrant Warrant Warrant Shares
Shares Exercise Expiration Shares Shares Outstanding
Granted Price Date Expired Exercised 9-30-99
<S> <C> <C> <C> <C> <C>
15,000 $3.00 1-15-99 - (15,000) -
25,000 10.00 1-15-01 - - 25,000
2,500 15.00 2-15-00 - - 2,500
66,000 10.00 1-25-01 - - 66,000
25,000 15.00 7-06-99 (25,000) - -
133,500 (25,000) (15,000) 93,500
</TABLE>
There are no vesting requirements on the common stock warrants. The weighted
average grant date fair value of warrants granted during the year ended
September 30, 1999 is $15.
- -12-
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
Note 7 - INCOME TAXES
Income tax expense (benefit) for the years ended September 30, 1999 and 1998,
are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Current $800 $800
Deferred (323,000) (40,000)
Total $(322,200) $(39,200)
</TABLE>
Components of the deferred tax assets recognized in the balance sheet at
September 30, 1999, are as follows:
<TABLE>
<CAPTION>
Current Non-current
<S> <C> <C>
Accrued vacation pay $33,000 $-
Property and equipment - (7,000)
Software costs - (247,000)
Deferred state tax 8,000 17,000
Net operating losses 73,000 727,000
Deferred tax credits - 183,000
114,000 673,000
Deferred tax assets valuation
Allowance - 14,000
Deferred tax asset $114,000 $687,000
</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, 1999, is as follows:
Income taxes computed at Federal statutory tax rate $(493,000)
State tax provision (18,000)
Graduated tax rates -
Net operating loss and deferred credits 644,000
Valuation allowance (455,200)
Provision for income taxes $(322,200)
- -13
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
Note 7 - INCOME TAXES (continued)
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.
As of September 30, 1999, 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
September 30 Losses Credits Losses Credits
<S> <C> <C> <C> <C>
2000 $487,000 $30,000 $ - $ -
2001 390,000 - - -
2002 309,000 - 171,000-
2003 125,000 - 8,000 -
2004 - 6,000 625,000 -
2005 614,000 30,000 - 9,000
2006 481,000 39,000 - 16,000
2007 68,000 14,000 - -
2008 - 10,000 - -
2009 - - - -
2010 - 1,000 - -
2011 - 4,000 - 8,000
2012 342,000 2,000 - 1,000
2013 9,000 8,000 - 5,000
2014 1,250,000 - - -
$4,075,000 $144,000 $804,000 $39,000
</TABLE>
- -14
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
Note 7 - INCOME TAXES (continued)
Components of the deferred tax assets recognized in the balance sheet at
September 30, 1998, are as follows:
<TABLE>
<CAPTION>
Current Non-current
<S> <C> <C>
Accrued vacation pay $26,000 $ -
Property and equipment - (6,000)
Software costs - (265,000)
Investment in subsidiary - (78,000)
Deferred state tax 9,000 (2,000)
Net operating losses 90,000 921,000
Deferred tax credits - 226,000
125,000 796,000
Deferred tax assets valuation
Allowance - (443,000)
Deferred tax asset $125,000 $353,000
</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, 1998, is as follows:
Income taxes computed at Federal statutory tax rate $(24,000)
State tax provision 3,000
Graduated tax rates (7,000)
Net operatting loss and deferred credits 69,000
Valuation allowance (80,200)
Provision for income taxes $(39,200)
Note 8 - SIGNIFICANT CUSTOMERS AND CREDIT RISK
For the year ended September 30, 1999, 56% of accounts receivable was
concentrated among three customers. These same customers accounted for
approximately 26% of total revenue.
For the year ended September 30, 1998, 68% of accounts receivable was
concentrated between two customers. These same customers accounted for
approximately 71% of total revenue.
- -15-
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
Note 9 - CASH AND CASH EQUIVALENTS - CONCENTRATION OF CREDIT RISK
Uninsured cash balances were $185,006 at September 30, 1999, and $31,985 at
September 30, 1998.
Note 10 - LINE OF CREDIT
On October 14, 1997, the Company reactivated a line of credit that had
expired January 31, 1996. The limit on this line of credit was $30,000. The
balanceon this line of credit at September 30,1998, was $ 0. This line of
credit was not renewed during September 30, 1999.
On February 25, 1998, the Company opened a second line of credit that expired
February 1, 1999. The limit on this line of credit was $100,000, and secured
by inventory, receivables, contract rights and furniture and fixtures. The
balance on this line of credit at September 30, 1998 was $ 0.
Note 11 - NON-CASH TRANSACTIONS
During the year ended September 30, 1999, the Company issued 16,667 shares of
unregistered common stock valued at $3 per share in exchange for marketing and
consulting services, 10,000 shares of unregistered common stock valued at $3
per share in exchange for public relation consulting services, and 25,000
shares of unregistered common stock at valued $15 per share in exchange for a
software license and service agreement.
Note 12 - 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, 1999 and 1998, does not differ materially from
the carrying values of its financial instruments recorded in the accompanying
balance sheet. Considerable judgement 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-
EXPERTELLIGENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
Note 13 - COMMITMENTS AND CONTINGENCIES
Lease
On January 1, 1999, the Company signed a two-year lease extension for office
space on Chapala Street under a non-cancelable operating lease dated December
15, 1995. The lease expires on December 31, 2001 and monthly rental payments
are $2,445. 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.
Sublease
As of September 1, 1999, the Company subleased additional office space under
a non-cancelable operating lease through August 31, 2002 for monthly rental
payments of $8,400. Beginning on September 1, 2000, and every anniversary date
thereafter, the monthly rent will be adjusted by the year-to-year percentage
change in the Los Angeles Consumer Price Index for the month of July. The
Company has an option to extend the sublease for one additional year.
Total office rent expense for the years ended September 30, 1999 and 1998 is
$38,225 and $28,494 respectively.
Future minimum lease payments for the year ending September 30, are as
follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $130,140
2001 130,140
2002 99,735
Total $360,015
</TABLE>
Note 14 - SUBSEQUENT EVENTS
On October 21, 1999, the Company announced the incorporation of
3DstockCharts as an 80% owned subsidiary. The Company completed net
financing of approximately $937,000 into 3DstockCharts. 3DstockCharts has
created 3DstockCharts.com which is a new financial web resource specializing
in live, interactive, three-dimensional displays of order book information
from Island ECN.
- -17-
<PAGE>
Part III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a) of the
Exchange Act
<TABLE>
<CAPTION>
Name Age Position Year first elected Director
<S> <C> <C> <C>
Denison Bollay 47 President, Chairman of the Board 1980
Robert Reali 38 Exec VP Director 1988
Trygve Duryea 44 COO Director 1999
</TABLE>
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. Trygve Duryea was appointed to the Board of Directors on
February 1, 1999. Mr. Duryea joins The Company from The Executive
Committee (TEC), an international organization of CEO's. He attended the
University of California at Santa Barbara and later received his California
Teaching Credential.
<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 1999 fiscal year.
<TABLE>
<CAPTION>
Name & Position Year Salary Bonus Annual
<S> <C> <C> <C> <C>
Compensation
Denison Bollay, CEO 1999 $151,200 $0 $151,200
Robert Reali, VP Dev 1999 $ 75,917 $0 $ 75,917
Trygve Duryea COO 1999 $ 34,292 $0 $ 34,292
</TABLE>
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, 1999, (ii) the number of
options exercised prior to September 30, 1999, iii) the
number of options currently exercisable as of September 30,
1999, and iv) the average per share option exercise price.
As of September 30, 1999 265,000 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 120,000 0 35,000 $3.29
Robert Reali 50,000 0 7,000 $2.29
George Barilla 18,000 0 5,200 $2.58
Beverly Pierson 40,500 0 12,700 $2.67
OCP 12,500 0 12,500 $3.00
</TABLE>
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners
and Management
On September 30, 1998, 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.
<TABLE>
<CAPTION>
<S> <C> <C>
Number of Percent of
Name and Address of Shares Owned Class
Beneficial Owner
Denison Bollay, CEO
203 Chapala Street
Santa Barbara, CA 93101 383,963 20.3%
BNP Venture Capital Corporation
c/o Bank of the West
50 W. San Fernando, 2nd Floor
San Jose, CA 95113 150,000 7.9%
Officers and Directors 442,113 23.3%
as a Group
Item 12. Certain Relationships and Related Transactions
None.
Item 13. Exhibits and 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)
December 28, 1999 Denison Bollay, President and Chairman of the Board
(signature)
December 28,1999 Robert Reali, Director
(signature)
December 28, 1999 Trygve Duryea, Director
(signature)
<PAGE>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> Year End`
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 331,309
<SECURITIES> 0
<RECEIVABLES> 39,074
<ALLOWANCES> 0
<INVENTORY> 46,536
<CURRENT-ASSETS> 599,241
<PP&E> 868,223
<DEPRECIATION> 480,309
<TOTAL-ASSETS> 2,255,021
<CURRENT-LIABILITIES> 146,768
<BONDS> 0
<COMMON> 1,734,451
0
159,244
<OTHER-SE> 2,108,253
<TOTAL-LIABILITY-AND-EQUITY> 2,255,021
<SALES> 228,652
<TOTAL-REVENUES> 228,652
<CGS> 670,218
<TOTAL-COSTS> 1,695,265
<OTHER-EXPENSES> (17,846)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,448,767)
<INCOME-TAX> (322,200)
<INCOME-CONTINUING> (1,448,767)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,126,567)
<EPS-BASIC> (.68)
<EPS-DILUTED> (.68)
