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, 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 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: $419,913.
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 NASDAQ Exchange
as of a specified date within the past 60 days:
Approximately $8,786,775 based on a $3.75 per share
closing bid price as of December 22,2000.
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, 2000
Common stock, no par 2,343,140
<PAGE>
ExperTelligence, Inc.
Annual Report on Form 10-KSB
For the Fiscal Year Ended September 30, 2000
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>
<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
ExperTelligence, Inc. is a technology company. It develops and operates
Internet businesses based on the Company's proprietary technologies and ideas.
The Company maintains a division to support its long-standing consulting
practice and software products, WebBase and ExperForms. The Company runs
a database portal at WebData.com.
ExperTelligence focuses on businesses relating to "Internet hubs" and
"exchanges" that create value by connecting and distributing information over
the Internet. The Company forms and capitalizes the new entities, recruits
management, provides space in the Company's facilities, provides ongoing
strategic guidance and mentoring, creative design, Web development, accounting,
legal and administrative services, with the goal of preparing each business for
independent operation. The Company created 3DStockCharts.com and
ExperClick.com, as subsidiaries.
The Company generates revenue from its WebBase division through software and
consulting sales. The Company intends to generate cash flow from a
combination of equity ownership, operations of its subsidiaries and/or
licensing of its technologies.
3DStockCharts.com
On October 21, 1999, the Company announced the incorporation of
3DStockCharts.com as a subsidiary based on three dimensional proprietary
technology created by the Company. 3DStockCharts.com is a pioneering Web
service, which provides an integrated continuous portrayal of stock market buy
and sell orders (limit order books) from the country's largest ECNs,(Electronic
Communications Network) in a colorful 3-dimensional graphic format. ECNs are
regulated, all electronic, stock trading networks that facilitate continuous
matching of customer buy and sell limit orders while providing those orders
with direct electronic access to the national market system. 3DStockCharts.com
has agreements with the ECN's Island, Archipelago , REDIBook , BRUT and
Instinet Corporation representing 90% of all ECN transactions to display
their limit order books.
The Company is a specialized ECN market center that features real-time
3D charts of individual and integrated ECN limit order books. The Company is
also utilizing the streaming data from ECNs to develop useful trading tools
and provide critical ECN trading information in an easy-to-interpret format.
3DStockCharts.com has developed a patent pending technology that capitalizes on
the dramatic changes in the markets. The Company successfully deployed the
Internet's first real time, three-dimensional chart of the four largest ECNs'
limit order books. The chart's display is a fascinating view into the buying
and selling pressures that affect the price of a stock and provides traders
with a unique insight into pricing trends that are not apparent simply by
tracking the inside quote. This information has previously been available
only to institutional and professional traders. 3DStockCharts.com has 77,000
registered users who spent an average of 66.78 minutes at the site per visit.
3DStockCharts.com shows approximately twelve to fifteen million banner ads
based on up to 50,000 visitors a month.
The Company sold a minority interest in 3DStockCharts.com to a group of private
investors for $3,916,690. The Company owns 69% of 3DStockCharts.com.
ExperClick.com
On April 5, 2000, the Company announced the incorporation of ExperClick.com in
the state of Delaware. ExperClick.com is a real-time advertising ECN, similar
in nature to the Wall Street Exchange, but for highly targeted individual
advertising impressions. ExperClick.com offers advertisers, using all forms of
digital media, a unique and innovative solution for delivering targeted
personalized messages at the instant a Web page is accessed.
To enable the delivery of valuable advertising to an individual using the
Internet today, the recipient has to be identified and the appropriate message
selected. Advertisers executing campaigns in real-time can select an audience
and buy the media space needed at a value they determine, one impression at a
time. For the first time, advertising results can be monitored with a highly
detailed real-time report. For this purpose, ExperClick.com has developed a
(patent pending) hardware and software technology, which is open, and based on
TCP/IP and XML standards. The technology is designed for all forms of digital
media. ExperClick is focused on the design and operation of an efficient
trading system in which specific advertising and marketing opportunities
are individually matched with targeted consumers.
The Internet advertising market is the fastest-growing segment of the Internet
industry. According to Forrester Research, spending in the U.S. totaled $2.8
billion dollars in 1999, and is expected to increase to $22.6 billion in 2004.
The Company has built the technical team and is currently building the sales
and marketing team. Board members and strategic partners are being reviewed.
There are three patents pending on the hub exchange technology. The Company has
built a unique hosting infrastructure with a state of the art fiber
connection. The Company recently entered into a contract with Intel to
provide co-location services in Santa Clara, Ca.
WebData.com
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.
WebData.com consists of 5,000 high quality cataloged databases and receives
approximately 2000 unique visitors a day accounting for approximately 700,000
monthly page views. The site has 251 affiliate relationships with sites that
contain databases that also sell products or services. The site receives
over 1,500 requests each week from other sites to include their databases on
WebData.com.
WebData is the first site to use the ExperClick advertising exchange to
deliver its banner advertising
WebBase
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 and http://www.webbase.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. The Company has
recently become a value added reseller of Adobe products.
ExperData.com is a database web-hosting site for WebBase focused on hosting
the websites the company creates for its e- commerce and business-to-business
applications. ExperData.com has a state of the art fiber optic backbone with
the ability to deliver high bandwidth connections, quality support services,
site development and database expertise.
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. Mr. House
is also a member of 3DStockCharts.com board of Directors.
On January 14, 2000, the Company announced the appointment of William J. Van
Beurden to its 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 Total Pay, 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. Dr. Toubia is also a member of 3DStockCharts.com board of
Directors.
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 March 10, 2000 the Board of Directors approved the formation of an Audit
Committee. Steve Ketchum was elected to head the committee, with Bill
VanBeurden and Souhail Toubia as committee members.
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 October 4, 2000 the
Company and its Board of Directors accepted the resignation of Peter
Bachmann.
On June 20, 2000 the Company began trading its shares on the NASDAQ Small Cap
Market.
On August 1, 2000 the Company began a 401K plan with American United Life as
administrators. The plan is presently non-matching.
On October 18, 2000 the Company appointed C. Keith Rooker, a member of the
Southern Nevada and Salt Lake City law firm of Rooker & Gibson, to its Board
of Directors. Mr. Rooker practiced law from 1962 until 1985 in Salt Lake
City. He was a founding faculty member of the J. Reuben Clark School of Law
at Brigham Young University. Mr. Rooker practices primarily in the areas of
general corporate and business counseling, and large-scale commercial
litigation. Mr. Rooker was Executive Vice President of American Pacific
Corporation 1985 thru 1997 and has been a member of its Board of Directors
since 1973, and formerly served as a Director of other publicly held firms.
The Company has thirteen full time and one part-time employees.
3DStockCharts.com has twelve full-time and two part-time employees.
ExperClick has fifteen full-time employees and four part-time employees.
Additional contract workers are hired as necessary to complete specific
projects.
Competitive Information
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 October 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. The financial data services on the Internet is
highly competitive with hundreds of companies selling real time data.
In April 2000 the Company formed ExperClick.com. The on line ad industry is
volatile and highly competitive containing many companies operating many
competing types of digital marketplaces.
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.
Item 2. Description of Property
The Company does not own any real property. The following is the Company's
principle place of business:
Location Size Lease Term
25 East Ortega Street 6,000 Sq. Ft. Two Years 1Yr. option
Santa Barbara, CA 93101
203 Chapala Street 2,200 Sq. Ft. One Year, 2 Yr. option
(This space is occupied by 3DStockCharts.com)
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
On May 22, 2000 the Company held its Annual Meeting of Shareholders. The
following matters were presented for vote: To Change the number of authorized
Directors to not less than Five (5) or more than Nine (9); Election of
Directors Denison Bollay, Robert Reali, Charles House, William Van Beurden,
Dr. Souhail Toubia and Steve Ketchum; Approval of an increase in the number
of shares allocated to the 1996 Equity Participation Plan, to 690,000 shares,
along with other amendments to the plan; the Ratification of the Selection of
McGowan Guntermann as the Auditors for fiscal year 2000. All of the above
motions were passed by a majority vote.
<PAGE>
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's common stock is traded on the NASDAQ, under the symbol "EXGP".
At September 30, 2000 there were approximately 922 holders of record.
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 were
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>
2000 1999
<S> <C> <C> <C> <C>
High Low High Low
First Quarter $9.50 $3.31 $11.37 $1.75
Second Quarter $22.75 $3.25 $25.00 $7.00
Third Quarter $15.25 $5.25 $13.50 $8.00
Fourth Quarter $12.69 $3.50 $11.69 $7.00
</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 January 28, 2000 an employee exercised 1,000 options.
Under Section 4(2) of the Securities Act of 1933 and Regulation D, on
January 12, the Company sold 250,000 shares of unregistered common stock
through private placement, to an individual investor at $4 per share.
On February 8, 2000 the Company issued 12,500 shares of common stock at $3.00 a
share as settlement for a dispute with consultants.
Under Section 4(2) of the Securities Act of 1933 and Regulation D, on February
29, 2000 the Company sold 166,667 shares of unregistered common stock through
private placement, to individual investors at $12 per share.
On March 7, 2000 the Company issued 10,000 shares of common stock to a graphics
consultant.
On February 1, 2000 two Company employees exercised 11,386 options.
On August 29, 2000 the Company issued 730 shares of restricted common stock as
payment for investor relations services.
Item 5. MANAGEMENT' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Comparison of Fiscal Year 2000 to 1999
The Company's revenues consist of product sales, (including licensing of its
software), consulting, hosting and advertising revenues.
Revenues for the year ended September 30, 2000 were $419,913. This figure was
up 84% from a comparable figure last year, of $228,652. There was a 50%
increase in consulting. There was a 55% increase in WebBase and ExperForms
sales. Advertising revenues for 3DStockCharts accounted for 15% of revenue.
Cost of Sales consists primarily of service personnel, software amortization
and provision for inventory.
Cost of Sales was $284,303 (52% of revenue) for the year ending September 30,
2000. This figure is down 136 % over last year's figure of $670,218. Last year
a one-time amortization of obsolete capitalized software resulted in an unusual
high cost of sales expense.
Sales and marketing expense consists of sales personnel, advertising, public
relations and promotion.
Sales and marketing expenses were $448,594 (%107 of revenue) for the year ended
September 30, 2000. This is a 244% increase over a comparable figure of
$184,150 for the prior year. The Company hired a full time salesman and
marketing person for its WebBase division. 3DStockCharts accounted for 67% of
sales and marketing expense due to its sales staff, direct advertising
and promotion of its product.
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 $2,583,844 for the year ended
September 30, 2000. General and administrative expenses were up 308% from
a comparable figure of $633,997 last year. 3DStockCharts accounted for 63%
of general and administrative expenses with the largest expenditures in
internet communication, travel and professional fees. The Company also
incurred general and administrative expenses associated with the start
up of its newest subsidiary ExperClick. These expenses consisted of
officer's salaries, benefits, training, travel and professional fees.
Research and Development expense consists primarily of the cost of research
and development personnel.
Research and development expenses were $480,084 (115% of revenue) for the year
ended September 30, 2000. This figure is up 132% from comparable figures of
last year of $206,900. This increase is due to the hiring of employees to
implement the ExperClick technology.
There was no interest expense this year as there was no borrowed money.
Interest and other income for the year ending September 30, 2000 was $163,135.
This figure was up 815% as compared to $17,846 last year due to investment in
commercial paper and high interest bearing accounts.
Loss from operations for the year ended September 30, 2000 was $2,599,061
compared to a loss of $1,126,567 for year ending September 30, 1999. This
increase in losses is due to the operations of 3DStockCharts.com (65% of the
loss) and ExperClick (8% of the loss).
Deferred tax expense increased proportionately with income for the year ended
September 30, 2000, 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, 2000 the Company reported working capital of $3,801,879
which is up 845% from $452,473 at September 30, 1999. This increase is
due to the raising of private placements funds for both the Company and
3DStockCharts.com. Net stockholder's equity of $2,586,692 was
up 23% from $2,108,253 on September 30, 1999.
Accounts receivable of $123,248 was up at September 30, 2000 from the
September 30, 1999, figure of $39,074. This 315% increase is due to increased
software sales, consulting and ad sales. It is believed that all receivables
will be collected.
Net product development costs were $722,220 and $575,571 for the period ending
September 30, 2000 and September 30, 1999 respectively. This 25% increase
reflects the ExperClick 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.com and ExperClick.com.
Accounts payable was $111,823 at September 30, 2000 compared to $66,853 at
September 30, 1999.
Accrued vacation was $89,850 at September 30, 2000 compared to $79,915 at
September 30, 1999.
Item 7. Financial Statements
The Financial Statements as of September 30, 2000 and 1999 are presented on the
pages that follow
<PAGE>
EXPERTELLIGENCE, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
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 - 22
<PAGE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
ExperTelligence, Inc. and Subsidiaries
Santa Barbara, California
We have audited the accompanying consolidated balance sheets of
ExperTelligence, Inc., a California corporation, and subsidiaries, as of
September 30, 2000 and 1999, and the related consolidated 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 subsidiaries at September 30, 2000 and 1999, 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 16, 2000
<PAGE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
September 30, 2000 and 1999
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
CURRENT ASSETS
Cash
Non-interest bearing $ 48,499 $ 5,288
Interest 3,628,475 326,021
Total Cash 3,676,974 331,309
Accounts receivable -
net of allowance of -0-
for 2000 and 1999 123,248 39,074
Inventory (N 18,299 46,536
Prepaid exp 65,322 35,537
Prepaid royalties - 32,785
Deferred tax assets (Note 1L and 8) 146,000 114,000
Total Current Assets 4,029,843 599,241
PROPERTY AND EQUIPMENT - net
(Note 1K and 2) 673,335 387,914
OTHER ASSETS
Product development costs, net (Note 1F) 722,220 575,571
Deferred tax assets (Note 720,000 687,000
Patent costs, net of amortization (Note 1E) 17,661 -
Investments - 5,295
Total Other Asset 1,459,881 1,267,866
TOTAL ASSETS $6,163,059 2,255,021
</TABLE>
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
CURRENT LIABILITIES
Accounts payable $ 111,823 66,853
Accrued liabilities 26,291 -
Accrued vacation 89,850 79,915
Current Liabilities 227,964 146,768
MINORITY INTEREST IN SUBSIDIARY 3,348,403 -
SHAREHOLDERS' EQUITY (Notes 3, 4, 5, 6 and 7):
Preferred stock - no par value, authorized
1,000,000 shares; Issued and outstanding
-0- shares for 2000 and 159,244 shares for
1999 (liquidation preference is $3 per share,
see Note 3) - 318,487
Common stock, no par value, authorized
20,000,000 shares; issued and outstanding
2,343,140 for 2000 and 1,734,451 shares for
1999 8,734,877 5,338,890
Accumulated deficit (6,148,185) (3,549,124)
Total Shareholders' Equity 2,586,692 2,108,253
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $6,163,059 $2,255,021
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended September 30, 2000 and 1999
</TABLE>
<TABLE>
<S> <C> <C>
2000 1999
INCOME (Note 9) $419,913 $228,652
OPERATING COSTS AND EXPENSES
Cost of sales 284,303 670,218
Selling and marketing 448,594 184,150
General and administration 2,583,844 633,997
Research and development 480,084 206,900
Total Operating Costs and Expenses 3,796,825 1,695,265
LOSS FROM OPERATIONS (3,376,912) (1,466,613)
OTHER (INCOME) EXPENSES
Interest income (149,743) (17,846)
Rental income (13,392) -
Total Other (Income) Expenses (163,135) (17,846)
LOSS BEFORE INCOME TAXES AND
MINORITY INTEREST (3,213,777) (1,448,767)
INCOME TAXES (Note 8) (64,200) (322,200)
MINORITY INTEREST (550,516) -
NET LOST $(2,599,061) $(1,126,567)
EARNINGS PER COMMON
SHARE (Note 1I)
NET LOSS $ (1.1812) $ (0.6804)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 2,200,321 1,655,857
</TABLE>
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended September 30, 2000 and 1999 Net
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Preferred Stock Common Stock Shareholders'
Shares Amount Shares Amount Deficit Equity
Balance, September
30, 1998 159,244 $318,487 1,471,921 $3,651,890 $(2,422,557) $1,547,820
Stock issued in
private placem - - 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
exercise - - 15,863 45,000 - 45,000
Net loss - - - - (1,126,567) (1,126,567)
Balance, September
30, 19 159,244 318,487 1,734,451 5,338,890 (3,549,124) 2,108,253
Stock issued in
private placement - - 416,667 3,000,000 - 3,000,000
Stock issued - stock
options and warrants
exercised - - 32,778 77,500 - 77,500
Preferred stock converted
to common stock (159,244) (318,487) 159,244 318,487 - -
Net loss - - - - (2,599,061) (2,599,061)
Balance, September
30, 2000 - $ - 2,343,140 $8,734,877 $(6,148,185) $2,586,692
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
CASH FLOWS FROM OPERATING
ACTIVITIES
Collections from customers $335,739 $291,987
Interest collected 149,743 17,846
Rent collected 13,392 -
Taxes paid (1,600) (800)
Cash paid to suppliers and employees (3,345,106 (923,037)
NET CASH USED BY OPERATING
ACTIVITIES (2,847,832) (614,004)
CASH FLOWS FROM INVESTING
ACTIVITIES
Increase in product development costs (274,954) (353,629)
Purchase of property and equipment (509 (57,912)
Purchase of investment - (5,295)
Sale of equipment 1,562 -
NET CASH USED BY INVESTING
ACTIVITIES (782,922) (416,836)
CASH FLOWS FROM FINANCING
ACTIVITIES
Common stock issuance 3,077,500 1,232,000
Minority interest in subsidiary 3,898,919 -
NET CASH PROVIDED BY
FINANCING ACTIVITIES 6,976,419 1,232,000
INCREASE IN CASH 3,345,665 201,160
CASH AND EQUIVALENTS -
BEGINNING OF YEAR 331,309 130,149
CASH AND EQUIVALENTS -
END OF YEAR $3,676,974 $331,309
RECONCILIATION OF NET LOSS TO
NET CASH USED BY OPERATING
ACTIVITIES:
Net loss $ (2,599,061) $(1,126,567)
Adjustments to reconcile net loss to net
cash provided (used) by operating
activities:
Loss on sale of investment 5,295 -
Depreciation and amortization 351,046 676,932
Deferred tax expense (benefit) (65,000) (323,000)
Bad debt - 51,585
Non cash expenditures (Note 11) - 80,000
Minority interest (550,516) -
Changes in:
Accounts receivable (84,174) 63,335
Inventory 28,237 20,187
Prepaid expenses 3,001 (51,752)
Patent costs (17,856) -
Accounts payable and accrued expenses 71,261 (20,645)
Accrued vacation 9,935 15,921
NET CASH USED BY OPERATING
ACTIVITIES (2,847,832) (614,004)
</TABLE>
<PAGE>
Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Nature of Business
ExperTelligence, Inc. and subsidiaries (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.
On October 19, 1999, the Company incorporated 3DStockCharts.com,
Inc. (3DStockCharts) which is a 69% owned subsidiary (Note 14).
3DStockCharts distributes its technology and market data through a
financial web portal specializing in real time, interactive,
two-dimensional (2D) and three-dimensional (3D) browser-based
displays of buy and sell order activity and trading volumes for specific
stocks and market indexes.
On February 4, 2000, the Company incorporated ExperClick.com, Inc.
(ExperClick), a Delaware corporation, which is a wholly-owned
subsidiary (Note 15). 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.
On June 20, 2000, the Company began trading its shares on the
NASDAQ Small Cap Market.
B. Principles of Consolidation
The 2000 consolidated financial statements include the accounts of
ExperTelligence, Inc. and its wholly-owned subsidiaries,
ExperClick.com, Inc. and ExperTelligence Canada, Inc. and its
majority-owned subsidiary 3DStockCharts.com, Inc. Minority interest
represents minority shareholders' proportionate share of the equity in
3DStockCharts.com, Inc. The 1999 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.
C. 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.
D. 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 2000 and 1999.
<PAGE>
Note 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
E. Patent Costs
Patent costs include legal costs for software patents which are being
amortized over a life of 20 years. Amortization expense is $195 for
2000 and -0- for 1999.
F. 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, 2000 and 1999, aggregated $360,704 and $353,629, respectively.
Related amortization and write-off of obsolete products, utilizing the
straight-line method, for the years ended September 30, 2000 and 1999,
aggregated $128,305 and $579,202, respectively. For the year ended
September 30, 2000 and 1999, write-offs of obsolete products totaled
$12,341 and $510,579 and is included in cost of sales. Accumulated
amortization of product development costs total $293,052 and $177,088,
at September 30, 2000 and 1999, respectively.
G. 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, 2000 and 1999, there were
no costs and estimated earnings in excess of billings or billings in
excess of costs on uncompleted contracts. Product development
services include postcontract customer support and software services.
Revenue from postcontract customer support is recognized ratably over
the period of the postcontract support arrangement. Revenue from
software services is recognized as the services are performed.
H. 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 2000
and 1999, because the stock options and warrants were considered
antidilutive.
I. Research and Development
Research and development expenses, not subject to capitalization, are
charged to expense as incurred.
<PAGE>
Note 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
J. 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.
K. 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.
L. 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.
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. Advertising
The Company expenses advertising costs as they are incurred.
Advertising expenses for the year ended September 30, 2000 are
$147,604 and for September 30, 1999 were immaterial.
Note 2 - PROPERTY AND EQUIPMENT
Depreciation expense for the years ended September 30, 2000 and 1999, is
$222,546 and $97,730, respectively. Property and equipment at
September 30, 2000 and 1999, is summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
Furniture and Fixtures $67,766 $36,631
Purchased software 495,542 386,343
Equipment 797,052 445,250
1,360,360 868,224
Less: Accumulated
Depreciation 687,025 480,310
$673,335 $387,914
</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, 2000 and 1999. 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, 2000 and 1999,
no dividends have been declared.
During the year ended September 30, 2000, the remaining preferred shares
were converted into common stock. At September 30, 2000, there are no
preferred shares outstanding.
Note 4 -STOCK OPTION PLANS
ExperTelligence, Inc. 1996 Equity Participation Plan
On August 15, 1996, the Company's Board of Directors of the Company
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. As of May 5, 2000, an additional 219,000 shares of common
stock have been reserved for the exercise of options under this Plan. The
number of unoptioned shares available at September 30, 2000 and 1999 for
the granting of options under the Plan are 105,800 and 210,000,
respectively.
<PAGE>
Note 4 -STOCK OPTION PLANS (continued)
ExperTelligence, Inc. 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>
<S> <C> <C> <C>
Weighted Average
Grant Date Fair
Value of Options
Number Weighted Average Granted During
Shares Exercise Price
Year
1999
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 -
2000
Outstanding
at beginning
of year 265,000 $2.810 -
Granted 389,000 8.236 $8.349
Exercised (25,300) 2.999 -
Cancelled (40,500 2.672 -
Outstanding
at end of year 588,200 6.418 -
Exercisable
at end of year 151,5 4.56 -
</TABLE>
As of September 30, 1999, 12,500 options were granted and are
outstanding under the Nonqualified Stock Option plan. As of September
30, 2000, there are no options granted or outstanding under the
Nonqualified Stock Option plan.
<PAGE>
Note 4 - STOCK OPTION PLANS (continued)
ExperTelligence, Inc. 1996 Equity Participation Plan (continued)
The following table summarizes information about options outstanding at
September 30, 2000:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Options Outstanding Options Exercisable
Number of
Outstanding Number of Shares
Shares at Remaining Exercisable
Sept. 30, Contractual Sept. 30 Exercise
2000 Life Exercise Price 2000 Price
95,200 6.4 $4.000 30,556 $8.000
44,000 7.4 1.435 54,000 4.000
60,000 8.0 2.125 14,000 1.435
5,000 8.4 15.375 12,000 2.125
175,000 9.6 8.000 40,000 4.250
65,000 9.2 4.250 1,000 15.375
14,000 9.3 7.375 151,556
10,000 9.6 7.875
1,000 9.2 8.190
20,000 9.4 14.938
4,000 9.8 7.000
10,000 9.4 13.500
10,000 9.4 15.812
25,000 9.3 4.000
25,000 9.4 12.000
25,000 9.3 9.625
588,200
</TABLE>
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.
Note 4 -STOCK OPTION PLANS (continued)
ExperTelligence, Inc. 1996 Equity Participation Plan (continued)
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 loss and earnings per share would have been:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
Net loss
As reported (2,599,061) (1,126,567)
Pro forma (3,468,116) (2,234,792)
Primary earnings per share
As reported (1.1812) (0.6804)
Pro forma (1.5762) (1.3496)
</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 $398,500 and $441,500, for the
years ended September 30, 2000 and 1999 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 2000 and
1999:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
Expected life (years) 1-10 1-10
Risk-free interest rate 6.00% 4.75%
Volatility 200% 143%
Expected dividends None None
</TABLE>
3DStockCharts 2000 Equity Participation Plan
On January 19, 2000, the Board of Directors of 3DStockCharts adopted the
2000 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 3,500,000 shares of common stock for the exercise of options under
this Plan. The number of unoptioned shares available at September 30,
2000 for the granting of options under this Plan are 665,160.
Note 4 -STOCK OPTION PLANS (continued)
3DStockCharts 2000 Equity Participation Plan (continued)
Stock option activity for 3DStockChart's Incentive Stock Option Plan and
the Nonqualified Stock Option Plan is show below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Weighted Average
Grant Date Fair
Value of Options
Number Weighted Average Granted During
Shares Exercise Price Year
2000
Outstanding at
Beginning of year - - -
Granted 2,834,840 $0.5726 $0.5833
Exercised - - -
Cancelled - - -
Outstanding at
end of year 2,834,840 0.5726 -
Exercisable at
end of year 1,165,608 0.5726 -
</TABLE>
As of September 30, 2000, 349,840 options were granted and are
outstanding, and 344,840 were exercisable under the Nonqualified Stock
Option Plan.
The following table summarizes information about Options outstanding at
September 30, 2000.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable,
<S> <C> <C> <C> <C>
Number of
Outstanding Number of Shares
Shares at Remaining exercisable
September 30 Contractual Exercise September 30, Exercise
2000 Life Price 2000 Price
28,379 9.4 $0.01 1,055,004 $0.50
2,620,000 9.5 $0.50 68,556 $1.96
37,500 9.5 $1.00 5,208 $1.00
72,500 9.6 $1.96 36,840 $0.01
5,000 9.7 $1.96 1,165,608
63,000 9.8 $1.96
8,461 9.9 $0.01
2,834,840
</TABLE>
Note 4 -STOCK OPTION PLANS (continued)
ExperClick 2000 Equity Participation Plan
On February 7, 2000, the Board of Directors of ExperClick adopted the
2000 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 3,000,000 shares of common stock for the exercise of options under
this Plan. The number of unoptioned shares available at September 30,
2000 for the granting of options under this Plan are 1,435,000.
Stock Option activity for ExperClick's 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
Shares Exercise Price Year 2000
<S> <C> <C> <C>
Outstanding at
Beginning of
Year - - -
Granted 1,565,000 $1.00 $1.00
Exercised - - -
Cancelled - - -
Outstanding at
end of year1, 565,000 1.00 -
Exercisable at
end of year 1,116,668 1.00 -
</TABLE>
<PAGE>
As of September 30, 2000, no options have been granted under the
Nonqualified Stock Option Plan.
Note 4 -STOCK OPTION PLANS (continued)
ExperClick 2000 Equity Participation Plan (continued)
The following table summarizes information about options outstanding at
September 30, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable,
<S> <C> <C> <C> <C>
Number of
Outstanding Number of Shares
Shares at Remaining exercisable
September 30 Contractual Exercise September 30, Exercise
2000 Life Price 2000 Price
1,040,000 9.4 $1.00 1,116,688 $1.00
330,000 9.5 $1.00
165,000 9.6 $1.00
20,000 9.8 $1.00
10,000 9.0 $1.00
1,565,000
</TABLE>
Note 5 - COMMON STOCK
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 reslae of securities purchases 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 sold 10,000 shares of common stock at $3 per
share in exchange for public relation consulting services.
On January 14, 2000, the Company sold 250,000 shares of unregistered common
stock through private placements to individual investors for a total of
$1,000,000.
On February 23, 2000, the Company sold 166,667 shares of unregistered
common stock through private placements to individual investors for a total of
$2,000,000. Common stock warrants to purchase 1,000,000 shares of
ExperClick common stock at $1.00 per share were also issued in connection
with this private placement.
Note 6 - PUT RIGHTS
The Company has agreed that the holders of 3DSTockCharts Series A Preferred
Stock (Investors) shall have the right to put their shares to the Company in
exchange for the Company's issuance to the Investors of shares of the
Company's common stock and warrants to purchase shares of the Company's
common stock. The Investors may put to the Company either or both of the
shares of Series A Preferred Stock and the original warrants to purchase
1,100,000 shares of Common Stock. The Investors may exercise this put right at
any time after May 4, 2000 and on or before November 4, 2001.
Initially the Put Ratio shall be as follows:
One share of the Company's common stock shall be issuable for each fourteen
shares of common stock of 3DstockCharts issuable upon conversion of the
shares of Series A Preferred Stock with respect to which the Put Right is
exercised, and
One warrant to purchase one share of the Company's common stock shall be
issuable for each fourteen shares of common stock of 3DstockCharts issuable
upon conversion of the shares of Series A Preferred Stock issuable upon
exercise of the 3DstockCharts warrants with respect to which the Put Right is
exercised.
The warrant to purchase the Company's common stock shall have an exercise
price of $10.50 per share and shall have a term that expires on September 30,
2002. The Put Ration and the exercise price of the warrants to purchase the
Company's common stock shall be adjusted from time to time to reflect all stock
dividends, stock splits, recapitalization and similar changes in the Company's
common stock.
Note 7 - STOCK WARRANTS
A. ExperTelligence, Inc. Common Stock Warrants
The Company's common stock warrants outstanding as of September 30, 2000
are as follows:
<TABLE>
<CAPTION>
Warrant
Warrant Warrant Warrant Shares
Shares Grant Exercise Expiration Shares Shares Outstanding
Granted Date Price Date Expired Exercised 9-30-00
<S> <C> <C> <C> <C> <C> <C>
20,000 1-14-00 $ 4.00 1-14-02 - (10,000) 10,000
25,000 1-31-99 $10.00 1-15-01 - - 25,000
2,500 2-28-99 $15.00 2-15-00 (2,500) - -
66,000 1-31-00 $10.00 1-25-01 - - 66,000
113,500 (2,500) (10,000) 101,000
</TABLE>
The weighted average grant date fair value of warrants granted during the
year ended September 30, 2000 is $7.75
B. ExperClick Common Stock Warrants
Experclick common stock warrants granted during the year ended
September 30, 2000 are as follows:
<TABLE>
<CAPTION>
Warrant
Warrant Warrant Warrant Shares
Shares Grant Exercise Expiration Shares Shares Outstanding
Granted Date Price Date Expired Exercised 9-30-00
<S> <C> <C> <C> <C> <C> <C>
1,000,000 2-11-99 $1.00 4-30-01 - - 1,000,000
</TABLE>
The weighted average grant date fair value of warrants granted during the
year ended September 30, 2000 is $1.00.
C. 3DStockCharts Common Stock Warrants
3DStockCharts common stock warrants granted during the year ended
September 30, 2000 are as follows:
<TABLE>
<CAPTION>
Warrant
Warrant Warrant Warrant Shares
Shares Grant Exercise Expiration Shares Shares Outstanding
Granted Date Price Date Expired Exercised 9-30-00
<S> <C> <C> <C> <C> <C> <C>
109,088 10-19-99 $0.825 10-19-02 - - 109,088
1,090,912 1-19-99 $0.75 10-19-02 - - 1,090,912
32,859 5-05-00 $0.75 5-05-03 - - 32,859
1,232,859 - - 1,232,859
</TABLE>
D. 3DStockCharts Preferred Stock Warrants
3DStockCharts preferred stock warrants granted during the year ended
September 30, 2000 are as follows:
<TABLE>
<CAPTION>
Warrant
Warrant Warrant Warrant Shares
Shares Grant Exercise Expiration Shares Shares Outstanding
Granted Date Price Date Expired Exercised 9-30-00
<S> <C> <C> <C> <C> <C> <C>
200,000 10-19-99 $0.55 10-19-02 - - 200,000
</TABLE>
Note 8 -INCOME TAXES
Income tax expense (benefit) for the years ended September 30, 2000 and
1999, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
Current $ 800 $ 800
Deferred (65,000) (323,000)
Total $(64,200) $(322,200)
</TABLE>
Components of the deferred tax assets recognized in the balance sheet at
September 30, 2000, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Current Non-current
Accrued vacation pay $ 37,000 $ -
Property and equipment - (16,000)
Software costs - (310,000)
Deferred state tax 9,000 52,000
Net operating losses 100,000 2,474,000
Deferred tax credits - 270,000
146,000 2,470,000
Deferred tax assets valuation allowance - (1,750,000)
Deferred tax asset $146,000 $720,000
</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, 2000, is as follows:
<TABLE>
<CAPTION>
<S> <C>
Income taxes computed at Federal statutory tax rate $(1,077,000)
State tax provision (151,000)
Graduated tax rates -
Net operating loss and deferred credits -
Valuation allowance 1,163,800
Provision for income taxes $(64,200)
</TABLE>
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.
Note 8 - INCOME TAXES (continued)
As of September 30, September 30, 2000, the Company had the following
approximate net operating loss and tax credit carryforwards available to
reduce future federal and state income taxes:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Federal Federal State State
Expiring Net Operating Tax Net Operating Tax
Sept. 30 Losses Credits Losses Credits
2001 390,000 - - -
2002 309,000 - 171,000 -
2003 125,000 - 8,000 -
2004 - 6,000 592,000 -
2005 614,000 30,000 1,710,000 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 1,166,000 41,000 - 23,000
2015 3,420,000 33,000 - 20,000
$6,924,000 $188,000 $2,481,000 $82,000
</TABLE>
Components of the deferred tax assets recognized in the balance sheet at
September 30, 1999, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Current Non-current
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>
Note 8 -INCOME TAXES (continued)
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:
<TABLE>
<CAPTION>
<S> <C>
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)
</TABLE>
Note 9 -SIGNIFICANT CUSTOMERS AND CREDIT RISK
For the year ended September 30, 2000, 68% of accounts receivable was
concentrated among three customers. These same customers accounted for
approximately 20% of total revenue.
For the year ended September 30, 1999, 56% of accounts receivable was
concentrated between three customers. These same customers accounted
for approximately 26% of total revenue.
Note 10 - CASH AND CASH EQUIVALENTS - CONCENTRATION OF CREDIT
RISK
Uninsured cash balances were $3,400,131 at September 30, 2000, and
$185,006 at September 30, 1999.
Note 11 - NON-CASH TRANSACTIONS
During the year ended September 30, 2000, several employees exercised a
total of 12,800 stock options under the 1996 Equity Participation Plan in
the form of a cash-less exercise and forfeited 2,522 shares of common
stock in order to receive 10,278 shares of unregistered common stock.
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, 2000 and 1999, 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.
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. This office space is being subleased to the Company's
subsidiary, 3DStockCharts.com, Inc., for $4,290 per month based on a
month-to-month lease agreement. Intercompany income of $19,871 was
eliminated in consolidation.
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, 2000 and
1999 is $138,368 and $38,225 respectively.
Future minimum lease payments for the year ending September 30, are as
follows:
2001 $131,136
2002 99,984
Total $231,120
Note 14 - SPIN-OFF - 3DSTOCKCHARTS
On October 19, 1999, 3DStockCharts was incorporated and the Company
received 8 million shares of common stock and an 80% ownership of
3DStockCharts in exchange for transferring $82,400 of capitalized
software costs. In April and May 2000, additional shares of 3DStockCharts
were issued in private placements which diluted the Company's ownership
percentage to 69%.
Minority Interest
Minority interest in subsidiary on the Consolidated Balance Sheet consists
of 2 million shares of preferred stock of 3DStockCharts valued at
$1,000,000 and 1,523,137 shares of common stock of 3DStockCharts
valued at $2,985,348. Each share of preferred stock is convertible into one
share of common stock at any time at the option of the holder. In addition,
the holders of the Series A preferred stock also hold warrants which
contain Put Rights as disclosed in Note 6. The loss attributable to the
noncontrolling interest in 3DStockCharts is $550,516 and is reflected in
Minority Interest in the Consolidated Statements of Income.
Note 15 - INVESTMENT IN EXPERCLICK
On February 4, 2000, ExperClick.com, Inc. was incorporated in the state of
Delaware. On February 7, 2000, the Company acquired 100% ownership
of ExperClick and received 10 million shares of common stock in
exchange for $500,000 in cash.
Note 16 - DEFERRED COMPENSATION PLAN
During the year ended September 30, 2000, the Company implemented a
salary deferral plan under Internal Revenue Code Section 401 (k). The
participants must be 21 years of age and employed for at least 90 days.
The Company's contributions to the plan, as determined by the Board of
Directors, is discretionary but may not exceed 15% of the participants'
compensation. The Company has elected not to make any contributions for
2000.
Note 17 - RELATED PARTY TRANSACTIONS
The Company uses an outside payroll service and a director on the
Company's board is also the chairman of the board of the outside payroll
service.
3DStockCharts has a contract with Island ECN and a director of
3DStockCharts is an employee of Island ECN. Total payments of $15,409
were made during the year ended September 30, 2000.
Part III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a) of the
Exchange Act
Name Age Position Year first elected Director
Denison Bollay 48 President, Chairman of the Board 1980
Robert Reali 39 COO, Secretary Director 1988
Charles House 59 Director, January 2000
W. VanBeurden 59 Director, January 2000
Dr. S. Toubia 46 Director, February 2000
Steve Ketchum 39 Director, February 2000
C. Keith Rooker 63 Director, October 2000
Mr. Denison Bollay is the founder and has been the President
of the Company and Chairman of its Board of Directors since
March 1980. Mr. Bollay is Chairman of ExperClick. 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 Chief Operating Officer and Corporate Secretary. He is a Director
of ExperClick. He has been with ExperTelligence, Inc. since 1981. He majored
in Computer Science Engineering at the University of California, Santa
Barbara.
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. Mr. House is also a member of
3DStockCharts.com 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 Total Pay, Inc. a payroll solutions provider.
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. Dr. Toubia is also a member
of 3DStockCharts.com board of Directors.
Mr. Ketchum is president and CEO of Onview.com. Mr. Ketchum serves on
the Board of Directors of Mail.com, a publicly-traded (MAIL: NASD)
provider of Internet messaging services; of Manufacturers' Services
Limited, a privately-held contract manufacturing company; of Onview.com,
an online art portal and e-commerce provider. He also serves on the
Board of Advisors of Infopost, an online portal that facilitates the
exchange of digital information and content. Mr. Ketchum serves on the
Board of Trustees of the East Side House Settlement and is on the Board
of the Guggenheim Museum Circle Committee and Young Collectors Committee.
Mr. Ketchum received his B.A. from New England College in Finance and Marketing
summa cum laude and his M.B.A. from the Harvard Business School. Mr. Ketchum
was formally a managing Director of Donaldson, Lufkin, and Jenrette (DLJ)
investment-banking group.
C. Keith Rooker is a member of the Southern Nevada and Salt Lake City law
firm of Rooker & Gibson. Mr. Rooker practiced law from 1962 until 1985 in
Salt Lake City. He was a founding faculty member of the J. Reuben Clark
School of Law at Brigham Young University. Mr. Rooker practices primarily in
the areas of general corporate and business counseling, and large-scale
commercial litigation. Mr. Rooker was Executive Vice President of American
Pacific Corporation 1985 thru 1997 and has been a member of its Board of
Directors since 1973, and formerly served as a Director of other publicly
held firms.
<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>
<S> <C> <C> <C> <C>
Name & Position Year Salary Bonus Annual
Compensation
Denison Bollay, CEO 2000 $189,833 $0 $189,833
Robert Reali, COO 2000 $103,333 $0 $103,333
</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, 2000, (ii) the number of
options exercised prior to September 30, 2000, 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, 2000 466,605 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 140,000 0 84,000 $3.48
Robert Reali 70,000 0 42,000 $2.26
Charles House 25,000 0 0 $4.25
W. VanBeurden 25,000 0 0 $4.00
Souhail Toubia 25,000 0 0 $12.00
Steve Ketchum 25,000 0 0 $9.62
</TABLE>
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners
and Management
On September 30, 2000, 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.
Number of Percent of
Name and Address of Shares Owned Class
Beneficial Owner
Denison Bollay, CEO
25 E. Ortega
Santa Barbara, CA 93101 383,963 16.4%
William Van Beurden
1600 Draper
Kingsburg, CA 250,000 10.67%
BNP Venture Capital Corporation
c/o Bank of the West
50 W. San Fernando, 2nd Floor
San Jose, CA 95113 150,000 6.4%
Officers and Directors 730,280 31.2%
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 22, 2000 Denison Bollay, President and Chairman of the Board
(signature)
December 22, 2000 Robert Reali, Director
(signature)
December 22, 2000 Charles House, Director
(signature)
December 22, 2000 William Van Beurden, Director
(signature)
December 22, 2000, Dr. Souhail Toubia, Director
(signature)
December 22, 2000, Steve Ketchum, Director
(signature)
<PAGE>
