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 June 30, 2000
[ ] 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
25 East Ortega 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
Common stock, no par value
Outstanding at June 30, 2000 2,343,140
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ExperTelligence, Inc.
REPORT ON FORM 10-QSB
TABLE OF CONTENTS
Page No.
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet at June 30, 2000
and September 30, 1999 3
Consolidated Statement of Operations for the
3 and 9 months ended June 30, 2000 4
Consolidated Statement of Cash Flows for the
3 and 9 months ended June 30, 2000 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
Management's Discussion and Analysis of the
Financial Condition and Results of Operation 7
PART II - OTHER INFORMATION
Other Information 8
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<TABLE>
<CAPTION>
ExperTelligence, Inc.
Consolidated Balance Sheets
at 6/30/00 at 09/30/99
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $5,043,722 $ 331,309
Accounts receivable, net 60,528 39,074
Inventory 45,712 46,536
Prepaid exp. and other current assets 71,226 35,537
Prepaid Royalties 32,785 32,785
Deferred tax asset-current 321,678 114,000
Total current assets $5,575,651 $ 599,241
Product development costs, net 696,395 575,571
Property and equipment, net 562,105 387,914
Organizational Costs, net 34,987 0
Deferred tax asset-non-current 687,000 687,000
Other non-current assets 104,172 5,295
Total assets $7,660,310 $2,255,021
LIABILITIES & STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $191,609 $ 66,853
Accrued vacation 80,835 79,915
Other accrued expenses 116 0
Total current liabilities $272,560 $ 146,768
Non Controlling Interest in Net Assets $3,542,459 0
Stockholders' equity:
Preferred stock, no par value.
Authorized 1,000,000 shares;
Issued and outstanding, 0 shares $ 0 $ 318,487
as of June 30, 2000 and 159,244
as of September 30, 1999
Common stock, no par value.
Authorized 20,000,000 shares; Issued and
Outstanding 2,343,140 shares as of
June 30, 2000 and 1,734,451 as of
September 30, 1999 $8,734,877 $ 5,338,890
Retained earnings (Accumulated deficit) $(4,889,586) $(3,549,124
Net stockholders' equity $7,387,750 $ 2,108,253
Total liabilities and stockholders equity $7,660,310 $ 2,255,021
<FN>
See accompanying notes to financial statements
</TABLE>
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<TABLE>
<CAPTION>
ExperTelligence, Inc
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months For the nine months
ended June 30, ended June 30,
(unaudited) (unaudited)
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues $ 101,306 $ 56,031 $ 270,310 $ 148,561
Operating costs and
expenses
Cost of Sales $ 17,804 $ 38,510 $ 69,433 $ 104,611
Sales & Marketing 139,273 49,672 260,390 128,370
General & Administration 598,894 205,954 1,532,818 433,863
Research & Development 193,985 20,515 348,656 72,274
Total operating costs
& expenses $ 949,956 $ 314,651 $ 2,211,297 $ 739,118
Profit/(loss) from
operations $ (848,651) $(258,620) $(1,940,987) $ (590,557)
Other expense (income)
Interest expense $ 43 $ 0 $ 43 $ 0
Interest income (50,372) ( 6,841) (69,952) (11,661)
Gain/Loss on Fixed Assets 0 0 0 0
Income Tax 0 0 800 800
Deferred Tax Expense (100,870) (138,856) (207,678) (256,178)
Other (23,833) 0 (52,515) 0
Total other expense
(income) $ (175,032) $(145,697) $ (329,302)$ (267,039)
Net income (loss) $ (673,619) $(112,923) $(1,611,684)$ (323,518)
NonControlling
Interest Net Loss $ (131,552) $ 0 $ (271,224)$ 0
Controlling Interest
Net Loss $ (542,067) $ 0 $(1,340,460)$ 0
Net income (loss)
per share $ (.29) $ (.06) $ (.69) $ (.17)
<FN>
See accompanying notes to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
EXPERTELLIGENCE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
For the three months For the nine months
ended June 30, ended June 30,
(unaudited) (unaudited)
2000 1999 2000
1999
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss) for the
period ending June 30, $(673,618)$ (112,923)$(1,611,684)$(323,518)
Adjustments to reconcile
net income (loss) to net cash
used by operating activities:
Depreciation and amortization $ 59,503 $ 22,608 $ 163,016 $ 57,856
Decrease (increase) in accounts
receivable 209 34,856 (21,454) 59,044
Decrease (increase) in
inventory 127 319 824 4,805
Decrease (increase) in prepaid
Expenses & other current assets(16,838) (8,415) (35,689) (24,010)
Increase (decrease) in accounts
payable & accrued expenses 119,516 5,874 125,792 (45,004)
Total adjustments $ 162,517 $ 55,242 $ 232,489 $ 52,691
Net cash provided (used) by
operating activities $(511,102) $ (57,681)$(1,379,195)$(270,827)
Cash flows from investing activities:
(Increase) decrease in product
development costs $(117,411) $ (84,856) $(120,824)$ (219,474)
Purchase of property and
equipment (145,129) (11,806) $(337,207)$ (32,232)
(Increase)decrease in
organizational costs 5,720 0 (34,987) 0
(Increase)Decrease in
Deferred Tax Assets (100,870) (138,856) $(207,678) (256,178)
(Increase)Decrease in
other assets ( 95,637) (25,000) (201,886) (400,000)
Net cash provided (used)
investing activities $ (453,327) $(260,518) $(902,582)$ (907,884)
Cash flows from financing activities:
Proceeds from issuance of
common stock $2,916,690 $ 0 $6,994,190 $1,687,000
Net cash provided (used) by
financing activities $2,916,690 $ 0 $6,994,190 $1,687,000
Net increase(decrease)
in cash $1,952,261 $(318,199)$4,712,413 $ 508,289
Cash and cash equivalents
as of beginning of period $3,091,461 $ 956,637 $ 331,309 $ 130,149
Cash and cash equivalents
as of period end $5,043,722 $ 638,438 $5,043,722 $ 638,438
</TABLE>
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ExperTelligence,Inc.
NOTES TO FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying financial statements
contain all adjustments necessary to present fairly, ExperTelligence,
Inc.'s, financial position as of June 30, 2000 and results of
operations and changes in financial position for the three and nine
month periods ended June 30, 2000.
The accounting policies followed by the Company are set forth
in Note 1 of the ExperTelligence, Inc. Annual Report to Stockholders
dated September 30, 1999 and are incorporated herein by reference.
2. Fixed assets are comprised of the following :
<TABLE>
<CAPTION>
6/30/00 9/30/99
<S> <C> <C>
Furniture & Fixtures $ 61,110 $ 36,630
Purchased Software 397,773 386,343
Equipment 719,595 445,250
Total 1,178,478 $868,223
Less :Accumulated depreciation 616,373 480,309
$ 562,105 $387,914
</TABLE>
3. The results of operations for the three and nine month periods ended
June 30, 2000 are not necessarily indicative of the results to be
expected for the full year.
4. Primary earnings per share are based on common stock and equivalents
outstanding during the period.
5. At September 30, 1999, the Company had the following approximate net
operating loss carryforwards available to reduce future Federal and
State 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>
2000 487,000 30,000 - -
2001 390,000 - - -
2002 309,000 - 171,000 -
2003 125,000 - 38,000 -
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 $834,000 $39,000
</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 and State 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,
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, risks common to all Internet companies
and risks particular to the business and related Internet industry
segments; dependence upon and need to hire and keep key personnel;
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, 1999. 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.
Item 1. Description of Business
ExperTelligence, Inc. develops Internet businesses and solutions for
Internet related businesses based primarily on its proprietary
technology. The Company also engages in consulting and software sales.
The Company's businesses are generated by the Company or from ideas
brought to the Company by third parties, which fit with the Company's
qualification criteria. The Company tends to focus on businesses that
create value by connecting and distributing information and content.
When the Company forms a new business, it capitalizes it, recruits
management, provides space in the Company's facilities, and provides on-
going strategic and operational support, accounting, legal and
administrative services. The Company expects to drive value primarily
through equity ownership in its portfolio of businesses at the point in
time at which each business becomes either profitable, goes public, is
sold or spun off.
3DStockCharts.com
On October 21, 1999, the Company announced the incorporation of
3DStockCharts.com as a 69%-owned subsidiary based on three dimensional
proprietary technology created by the Company. John McNamara is the
President and CEO.
3DStockCharts.com is a highly specialized Internet financial portal that
highlights three dimensional (3D) displays of real-time streaming
Electronic Communications Network (ECN) "order books" so Internet users
can gain insight into stock market activity. Data is integrated from the
Island and Archipelago ECNs into a single order book. This new
integrated book is presented in 3D format using a multi window
interface, which can be customized to meet the users needs.
The Company has a patent pending for a 3D display mechanism for real-
time order book information over the Internet. This patent was filed
June 30, 1999.
Experclick.com
On February 4, 2000, the Company incorporated ExperClick.com in the
state of Delaware. John Forge is the President and CEO. The Company is
currently building the management and technical teams. There are four
patents pending on the ExperClick technology.
ExperClick focuses on the design and operation of an efficient trading
system in which specific advertising and marketing opportunities are
individually matched with targeted consumers.
WebData
WebData.com is an Internet database portal specializing in the
cataloging, searching and comparison of online content from web sites
with databases.
WebData 4D(tm), is a proprietary, patent pending technology that is
utilized to enable users to locate specific products or data.
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.
WebHosting
ExperData.com is a database web-hosting site focused on hosting e-
commerce and business to business applications with the ability to
deliver high bandwidth connections, quality support services, site
development and database expertise.
Software Sales and Consulting
WebBase and Experforms are the Company's software products that account
for the majority of the Company's 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 most database formats. WebBase allows existing
databases to be enhanced through the addition of hypertext links into
other Internet publications. More information about WebBase may be
found on the Company's web site, http://www.expertelligence.com.
ExperForms, based on WebBase, automates the creation of forms, database
connected workflow and web based business applications.
With these tools customers have created applications for help desks,
auction websites, ecommerce, travel and expense reporting, calendaring,
purchasing requisitions, new hire management and human resources.
Other
On January 5, 2000, the Company announced the appointment of Chuck House
to its Board of Directors. Mr. House served with
Hewlett-Packard from 1962 to 1991, first, as a member of the technical
staff, and then as founder and later as general manager of HP's Logic
System division. He then served for 10 years as corporate engineering
director and general manager of HP's Software Engineering Systems
division. Mr. House has also served as a senior vice president of
Informix Software, senior vice president of Veritas Software and
president and general manager of Spectron Microsystems. Today, he is
executive vice-president for research at Intel's Dialogic Division.
On January 14, 2000, the Company announced the appointment of
William J. Van Beurden to it's Board of Directors. Mr. Van Beurden is
President and Chairman of Van Beurden Insurance Services, Inc., one of
the top 50 insurance brokers in the US. Mr. Van Beurden is also Chairman
of KRM Risk Management, a wholesale insurance brokerage and Chairman of
TotalPay, Inc. a payroll solutions provider.
On February 16, 2000, the Company announced the appointment of Dr.
Souhail Toubia to its Board of Directors. Dr. Toubia is founder and co-
owner of TMX Engineering and Manufacturing. TMX is a Southern
California leader in General Commercial, Computer, Aerospace and Medical
Manufacturing. Dr. Toubia has over ten years experience funding a
number of domestic and international companies.
On February 24, 2000, the Company announced the appointment of Stephen
Ketchum, CEO of Onview.com to the Board of Directors. Mr. Ketchum was
formally a managing Director of Donaldson, Lufkin, and Jenrette (DLJ)
investment banking group.
On May 8, 2000 the Company announced that Peter Bachmann, former
President of Spelling Entertainment, was named President of
ExperTelligence and a director of the Company, as well as a member of
its newly created Executive Committee; Michael Rollens, former chairman,
CEO and President of Hollywood.com, joined ExperTelligence as a member
of the Executive Committee; and John Agoglia, former President of NBC
Enterprises, joined the Company as a member of the Executive Committee
and a director of ExperClick.com.
On June 20, 2000 the Company began trading its shares on the NASDAQ
Small Cap Market.
The Company has sixteen full time and two part-time employees.
3DStockCharts.com has twelve full-time and two part-time employees.
ExperClick has six full-time employees and four part-time employees.
Additional contract workers are hired as necessary to complete
specific projects.
<PAGE>
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED
JUNE 30, 2000 AND 1999
The Company's revenues consist of software sales, consulting and
advertising revenues.
Revenues for the three and nine month periods ended June 30, 2000 were
$101,300 and $270,300,respectively. These figures were up 81% and 82%,
respectively, from comparable figures last year of $56,000 and $148,600.
This increase is a result of increased software sales of WebBase and
Experforms, consulting work performed for clients and advertising
revenues from 3DStockCharts.com.
Cost of Sales consists primarily of developers' salaries, software
amortization and provision for inventory.
Cost of Sales were $17,804 (18% of revenue) and $69,433 (26% of revenue)
for the three and nine month periods ending June 30, 2000. These figures
are down 47% and down 67%, respectively, from comparable figures last
year of $38,510 and $104,611. This decrease in the three and nine month
periods is due to the reallocation of service personnel from consulting
to research and development
Sales and marketing expenses consist of sales personnel, advertising and
promotion costs.
Sales and marketing expenses were $139,273 and $260,390 for the three
and nine month periods ended June 30, 2000. These figures are up 28%
and 50% respectively over comparable figures last year of $49,672 and
$128,370. These increases relate to 3DStockCharts.com's increased
marketing and promotion costs relative to its financial services web
site.
General and Administrative expenses include costs of administrative
salaries, employee benefits, facilities, depreciation, communications,
insurance, professional fees, shareholder expenses and other related
expenses associated with the general operations of the Company.
General and administrative expenses were $598,894 and $1,532,818 for the
three and nine month periods ended June 30, 2000. General and
administrative expenses were up 291% and 354%, respectively, from
comparable figures last year of $205,954 and $433,863. This increase is
largely attributable to staffing and the start up of operations of
3DStockCharts.com and ExperClick.com. ExperClick.com began operations
April 1, 2000. Startup costs include personnel, equipment, travel and
legal and accounting fees.
Research and Development expenses consists primarily of research and
development personnel responsible for new product development and
maintenance of existing websites and proven technologies.
Research and development expenses were $193,985 and $348,656 for the
three and nine month period ended June 30, 2000. These figures are up
946% and 483% respectively from comparable figures last year of $20,515
and $72,274. This is due primarily to the increased staffing for
3DStockCharts.com and ExperClick.com.
Loss from operations for the three and nine month periods ended June 30,
2000, were $(693,619) and $(1,611,684) respectively. These figures are
up from losses of $(112,923) and $(323,518) respectively for the same
periods last year because of the relocation of 3DStockCharts to its own
facilities and the costs associated with the first year of growth and
ExperClick.com.
Deferred tax recovery increased proportionately with losses for the
three and nine month periods ended June 30, 2000. These numbers are a
result of the change in accounting policy, which took effect FY94, and
are not actual cash expenses.
CONSOLIDATED LIQUIDITY
At June 30, 2000 the Company reported working capital of $5,303,091,
which is up from $452,473 at September 30, 1999. This increase is
due to the sale of a minority position in 3DStockcharts.com for
$3,916,690 and the private placement of $3,000,000 of the Company's
unregistered common stock.
Net stockholder's equity of $7,387,750 was up from $2,108,253 on
September 30, 1999 is due primarily to the raising of additional
capital.
Accounts receivable of $60,528 was up at June 30, 2000 from the
September 30, 1999 figure of $39,074. This increase is due to consulting
work performed by the Company and advertising revenues related to
3DStockCharts.com. It is believed that all receivables will be
collected.
Net product development costs were $696,395 and $575,571 for the
period ending June 30, 2000 and September 30, 1999 respectively. This
increase reflects development work on 3DStockCharts.com and
ExperClick.com.
Management continues to believe in the commercial viability of all
products for which research costs are capitalized.
Accounts payable was $191,609 at June 30, 2000 compared to $66,853 at
September 30, 1999. This increase is directly attributable to the
increase of 3DStockCharts.com's operations.
Accrued vacation was $80,835 at June 30, 2000 compared to $79,915 at
September 30, 1999.
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities
Item 3 - Defaults on Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None.
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)
August 14, 2000, Denison Bollay, CEO and Chairman of the Board
(signature)
August 14, 2000, Peter Bachmann, President
(signature)
August 14, 2000 Robert Reali, Secretary
(signature)
August 14, 2000, Charles House, Director
(signature)
August 14, 2000, William Van Beurden, Director
(signature)
August 14, 2000, Dr. Souhail Toubia, Director
(signature)
August 14, Steve Ketchum, Director
(signature)
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