Microsoft Word 10.0.2627;UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark one)
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[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended: June 30, 2008
[_] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from ______________ to _____________
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Commission File Number: 0-11596
ExperTelligence, Inc.
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(Exact name of small business issuer as specified in its charter)
Nevada 95-3506403
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(State of incorporation) (IRS Employer ID Number)
83 Stanley Road
UN 1 Box 103
RR6 Woodville, Ontario K0M 2T0
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(Address of principal executive offices)
(416) 554-6546
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(Issuer's telephone number)
N/A
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(Former name, former address and former fiscal year, if changed
since last report)
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
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 [_] NO [X]
Indicate by check mark whether the registrant is an accelerated filer, a
non-accelerated filer, or a smaller reporting company.
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |_| Smaller reporting company |X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act): YES [X] NO [_]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
As of August 15, 2008, there were approximately 104,818 shares of the Issuer's
common stock, par value $0.0001 per share outstanding.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this quarterly report on Form 10-Q contain or may contain
forward-looking statements that are subject to known and unknown risks,
uncertainties and other factors which may cause actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. These
forward-looking statements were based on various factors and were derived
utilizing numerous assumptions and other factors that could cause our actual
results to differ materially from those in the forward-looking statements. These
factors include, but are not limited to, economic, political and market
conditions and fluctuations, government and industry regulation, interest rate
risk, U.S. and global competition, and other factors including the risk factors
set forth in our Form 10-KSB. Most of these factors are difficult to predict
accurately and are generally beyond our control. You should consider the areas
of risk described in connection with any forward-looking statements that may be
made herein. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this report.
Readers should carefully review this quarterly report in its entirety, including
but not limited to our financial statements and the notes thereto. Except for
our ongoing obligations to disclose material information under the Federal
securities laws, we undertake no obligation to release publicly any revisions to
any forward-looking statements, to report events or to report the occurrence of
unanticipated events. For any forward-looking statements contained in any
document, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
ExperTelligence, Inc.
Form 10-Q for the Quarter ended June 30, 2008
Table of Contents
Page
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements F-4
ITEM 2. Management's Discussion and Analysis or Plan of Operation 14
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 18
ITEM 4T. Controls and Procedures 18
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 18
ITEM 2. Recent Sales of Unregistered Securities and Use of Proceeds 18
ITEM 3. Defaults Upon Senior Securities 18
ITEM 4. Submission of Matters to a Vote of Security Holders 18
ITEM 5. Other Information 18
ITEM 6. Exhibits 19
SIGNATURES 19
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors...............................................F-5
Balance Sheet................................................................F-6
Statements of Operations.....................................................F-7
Statements of Cash Flows.....................................................F-8
Notes to Financial Statement.................................................F-9
F-4
Expertelligence, Inc.
(A Development Stage Enterprise)
Balance Sheets
June 30,
2008 2007
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Assets
CURRENT ASSETS
Cash $ 0 $ 0
Prepaid Expenses 0 0
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Total current assets 0 0
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OTHER ASSETS
Goodwill 0 0
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Total other assets 0 0
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Total Assets $ 0 $ 0
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
Trade $ 0 $ 0
Accrued interest payable 70,695 42,285
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Total current liabilities 70,695 42,285
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LONG-TERM LIABILITIES
Line of credit payable 295,730 179,308
Total Liabilities 366,425 221,593
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STOCKHOLDERS' EQUITY
Preferred stock - no par value, 25,000,000 shares authorized,
None issued and outstanding 0 0
Common stock, $0.0001 par value, 300,000,000 shares authorized.
104,818 and 20,463,023 shares issued and outstanding,
respectively 11 2,082
Additional paid-in capital in excess of par 14,140,322 38,433
Deficit accumulated during the development stage (14,140,333) (262,108)
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Total stockholders' equity (366,425) (221,593)
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Total Liabilities and Stockholders' Equity $ 0 $ 0
============= =============
The accompanying notes are an integral part of the financial statements
F-5
Expertelligence, Inc.
(A Development Stage Enterprise)
Statement of Operations and Comprehensive Loss
Nine months ended June 30,
Period from October 1, 2003 (date of inception) through June 30, 2008
From
October 1, 2003
(Inception) through
2008 2007 June 30, 2008
---------------- -------------- ---------------
REVENUES $ 0 $ 0 $ 0
---------------- -------------- ---------------
OPERATING EXPENSES:
General and administrative expenses 1,519 14,852 311,730
Professional fees 1,000 0 34,000
Interest expense 7,380 4,345 59,380
---------------- -------------- ---------------
Total expenses 9,899 19,197 405,110
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Loss from operations
Before provision for income taxes $ (9,899) $ (19,197) $ (405,110)
================ ============== ===============
Provision for income taxes 0 0 0
---------------- -------------- ---------------
Net Loss (9,899) (19,197) (405,110)
---------------- -------------- ---------------
Other Comprehensive Income 0 0 0
---------------- -------------- ---------------
Comprehensive Loss (9,899) (19,197) (405,110)
================ ============== ===============
Income (loss) per weighted average common share Nil Nil
================ ==============
Number of weighted average common shares outstanding 104,818 20,463,023
================ ==============
The accompanying notes are an integral part of the financial statements
F-6
Expertelligence, Inc.
(A Development Stage Enterprise)
Statement of Cash Flows
Nine months ended June 30,
Period from October 1, 2003 (date of inception)
Through June 30, 2008
From
October 1, 2003
(Inception) through
June 30,
2008 2007 2008
---------------- -------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss for the period $ (9,899) $ (19,197) $ (405,110)
Adjustments to reconcile net loss to net cash used by
operating activities:
Stock issued for services 0 0 0
Changes in operating assets and liabilities
Increase (decrease) in accounts payable - trade 0 0 0
Increase (decrease) in accrued interest payable 7,380 19,197 59,380
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Net cash provided (used) by operating activities (2,519) 19,197 (345,730)
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CASH FLOWS FROM INVESTING ACTIVITIES:
None 0 0 0
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Net cash provided (used) by investing activities 0 0 0
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit note 2,519 119,197 295,730
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Proceeds from sale of common stock 0 0 50,000
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Net cash provided by financing activities 2,519 119,197 345,730
---------------- -------------- ---------------
Net increase (decrease) in cash 0 0 0
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CASH, beginning of period 0 0 0
---------------- -------------- ---------------
CASH, end of period $ 0 $ 0 $ 0
================ ============== ===============
The accompanying notes are an integral part of the financial statements
F-7
ExperTelligence, Inc.
Notes to Consolidated Financial Statements
For the period ended June 30, 2008 and 2007
NOTE A - Organization and Description of Business
ExperTelligence, Inc. (Company) was originally incorporated in accordance with
the Laws of the State of California on March 31, 1980. The Company formerly
developed Internet portal technology, published database software products for
the Internet, and developed and hosted web/database and electronic commerce
application solutions.
On June 26, 2006, the Company changed its state of incorporation from California
to Nevada by means of a merger with and into a Nevada corporation formed on
November 17, 2005 solely for the purpose of effecting the reincorporation. The
Certificate of Incorporation and Bylaws of the Nevada corporation are the
Certificate of Incorporation and Bylaws of the surviving corporation. Such
Certificate of Incorporation kept the Company's name of ExperTelligence, Inc.
and modified the Company's capital structure to allow for the issuance of up to
300,000,000 shares of $0.0001 par value common stock and 25,000,000 shares of
$0.0001 par value preferred stock.
On May 12, 2003, in a Current Report on Form 8-K, the Company announced that it
would conduct an auction to sell the Company's assets and use the proceeds to
settle company debt, distributing any remainder to shareholders. This action was
precipitated by a lack of developmental and operating capital.
On October 20, 2003, as announced in a Current Report on Form 8-K, the Company
confirmed that it conducted the previously-noticed public auction of Company
assets. That auction, held at noon on October 15, 2003, at the Company's
offices, then located at 614 Chapala Street in Santa Barbara, California, the
Company sold:
- the WebBase product, including all related intellectual property and
computer hardware, software, and related equipment, license and
customer agreements, and operating accounts;
- the 3DStockCharts product, including all related intellectual property
and computer hardware, software, and related equipment, license and
customer agreements, and operating accounts;
- the Advertising Commerce Network product, including all related
intellectual property and computer hardware, software, and related
equipment, license and customer agreements, and operating accounts;
- miscellaneous office furniture and computer equipment.
- its interests in any and all third party corporations
All sales were made to creditors of the Company, and all payment for all items
was made in the form of a reduction of debt. The Company realized no cash from
the auction.
On December 23, 2003, as announced in a Current Report on Form 8-K, the Company
issued 15,002,718 shares of the Company's unregistered, restricted Common Stock,
representing approximately 75.0% of the class, to Douglas P. Martin in exchange
for a cash payment of fifty thousand dollars ($50,000). The proceeds of the sale
were used to further reduce debt that was otherwise uncancelled by the October
15, 2003 auction of the Company's assets or incurred subsequent to that date.
The Company relied upon Section 4(2) of The Securities Act of 1933, as amended,
for an exemption from registration of these shares and no underwriter was used
in this transaction. The effect of this transaction was a change of control,
where Mr. Martin or transferees now beneficially own approximately 75.0% of the
issued and outstanding voting securities of the Company.
F-8
ExperTelligence, Inc.
Notes to Consolidated Financial Statements
For the period ended June 30, 2008 and 2007
NOTE A - Organization and Description of Business - Continued
On October 1, 2004, the Company secured a Line of Credit for the purposes of
bringing the financial information with respect to the Company current so that
it would be in a position to attract an operating company or a new business
operation. Since that time, the Company, through consultants and its new
auditor, has been able to update it's records and bring its books and records
current.
On October 1, 2004, the Company obtained a $250,000 unsecured line of credit to
provide for the updating, restructuring, and initial financing for
implementation of a Company business plan and model. The line of credit bears
interest at 10% per annum, payable quarterly, and all advanced principal and
unpaid interest is due and payable on December 31, 2008. The Lender has the
right to convert the principal amount of the indebtedness in whole or in part at
any time prior to repayment into the restricted common stock of the Company at a
conversion rate of the lesser of 66 2/3 of the average of the closing bid and
ask price on the date of conversion, or $0.01 per share.
As of June 30, 2008 a total of $295,730 has been advanced under this agreement.
Since the October 15, 2003 auction of the Company's assets, the Company has had
no operations or significant assets. The Company's current principal business
activity is to seek a suitable reverse acquisition candidate through
acquisition, merger or other suitable business combination method.
NOTE B - Preparation of Financial Statements
The Company follows the accrual basis of accounting in accordance with
accounting principles generally accepted in the United States of America and has
a year-end of September 30.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Management further acknowledges that it is solely responsible for adopting sound
accounting practices, establishing and maintaining a system of internal
accounting control and preventing and detecting fraud. The Company's system of
internal accounting control is designed to assure, among other items, that 1)
recorded transactions are valid; 2) valid transactions are recorded; and 3)
transactions are recorded in the proper period in a timely manner to produce
financial statements which present fairly the financial condition, results of
operations and cash flows of the Company for the respective periods being
presented.
The 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. All significant intercompany accounts and transactions
have been eliminated in consolidation.
F-9
ExperTelligence, Inc.
Notes to Consolidated Financial Statements
For the period ended June 30, 2008 and 2007
NOTE B - Preparation of Financial Statements - Continued
For segment reporting purposes, the Company operated in only one industry
segment during the periods represented in the accompanying financial statements
and makes all operating decisions and allocates resources based on the best
benefit to the Company as a whole.
NOTE C - Going Concern Uncertainty
As of October 15, 2003, the Company held an auction to sell the Company's assets
and use the proceeds to settle company debt. This action was precipitated by a
lack of developmental and operating capital. All sales were made to creditors of
the Company, and all payment for all items was made in the form of a reduction
of debt. The Company realized no cash from the auction. The Company has had no
operations since 2003.
The Company's continued existence is dependent upon its ability to generate
sufficient cash flows from operations to support its daily operations as well as
provide sufficient resources to retire existing liabilities and obligations on a
timely basis.
The Company anticipates future sales of equity securities to facilitate either
the consummation of a business combination transaction or to raise working
capital to support and preserve the integrity of the corporate entity. However,
there is no assurance that the Company will be able to obtain additional funding
through the sales of additional equity securities or, that such funding, if
available, will be obtained on terms favorable to or affordable by the Company.
If no additional operating capital is received during the next twelve months,
the Company will be forced to rely on existing cash in the bank and upon
additional funds loaned by management and/or significant stockholders to
preserve the integrity of the corporate entity at this time. In the event, the
Company is unable to acquire advances from management and/or significant
stockholders, the Company's ongoing operations would be negatively impacted.
It is the intent of management and significant stockholders to provide
sufficient working capital necessary to support and preserve the integrity of
the corporate entity. However, no formal commitments or arrangements to advance
or loan funds to the Company or repay any such advances or loans exist. There is
no legal obligation for either management or significant stockholders to provide
additional future funding.
While the Company is of the opinion that good faith estimates of the Company's
ability to secure additional capital in the future to reach our goals have been
made, there is no guarantee that the Company will receive sufficient funding to
sustain operations or implement any future business plan steps.
F-10
ExperTelligence, Inc.
Notes to Consolidated Financial Statements
For the period ended June 30, 2008 and 2007
NOTE D - Summary of Significant Accounting Policies
1........Cash and cash equivalents
For Statement of Cash Flows purposes, the Company considers all cash on
hand and in banks, certificates of deposit and other highly-liquid
investments with maturities of three months or less, when purchased, to be
cash and cash equivalents.
Cash overdraft positions may occur from time to time due to the timing of
making bank deposits and releasing checks, in accordance with the Company's
cash management policies.
2........Earnings (loss) per share
Basic earnings (loss) per share is computed by dividing the net income
(loss) available to common shareholders by the weighted-average number of
common shares outstanding during the respective period presented in our
accompanying financial statements.
Fully diluted earnings (loss) per share is computed similar to basic income
(loss) per share except that the denominator is increased to include the
number of common stock equivalents (primarily outstanding options and
warrants).
Common stock equivalents represent the dilutive effect of the assumed
exercise of the outstanding stock options and warrants, using the treasury
stock method, at either the beginning of the respective period presented or
the date of issuance, whichever is later, and only if the common stock
equivalents are considered dilutive based upon the Company's net income
(loss) position at the calculation date.
3........Recently Issued Pronouncements
The Company is of the opinion that any and all pending accounting
pronouncements, either in the adoption phase or not yet required to be
adopted, will not have a significant impact on the Company's financial
position or results of operations.
NOTE E - Fair Value of Financial Instruments
The carrying amount of cash, accounts receivable, accounts payable and notes
payable, as applicable, approximates fair value due to the short term nature of
these items and/or the current interest rates payable in relation to current
market conditions.
Interest rate risk is the risk that the Company's earnings are subject to
fluctuations in interest rates on either investments or on debt and is fully
dependent upon the volatility of these rates. The Company does not use
derivative instruments to moderate its exposure to interest rate risk, if any.
Financial risk is the risk that the Company's earnings are subject to
fluctuations in interest rates or foreign exchange rates and are fully dependent
upon the volatility of these rates. The company does not use derivative
instruments to moderate its exposure to financial risk, if any.
F-11
ExperTelligence, Inc.
Notes to Consolidated Financial Statements
For the period ended June 30, 2008 and 2007
NOTE F - Concentrations of Credit Risk
The Company and it's subsidiaries maintain their cash accounts in various
financial institutions subject to insurance coverage issued by the Federal
Deposit Insurance Corporation (FDIC). Under FDIC rules, the Company is entitled
to aggregate coverage of $100,000 per account type per financial institution.
NOTE G - Income Taxes
The components of income tax (benefit) expense for each of the years ended
September 30, 2007 and 2006, respectively, are as follows:
Year ended Year ended
September 30, September 30,
2007 2006
----------- --------------
Federal:
Current $ - $ -
Deferred - -
------- -------
- -
------- -------
State:
Current - -
Deferred - -
------- -------
- -
------- -------
Total $ - $ -
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F-12
ExperTelligence, Inc.
Notes to Consolidated Financial Statements
For the period ended June 30, 2008 and 2007
NOTE G - Income Taxes - Continued
As of September 30, 2003, the Company has a net operating loss carryforward of
approximately $14,000,000 to offset future taxable income. However, due to a
December 2003 change in control transaction and subject to current regulations,
the amount and availability of the net operating loss carryforwards will be
subject to limitations set forth by the Internal Revenue Code. Factors such as
the number of shares ultimately issued within a three year look-back period;
whether there is a deemed more than 50 percent change in control; the applicable
long-term tax exempt bond rate; continuity of historical business; and
subsequent income of the Company all enter into the annual computation of
allowable annual utilization of the carryforwards.
NOTE H - Equity Transactions
Preferred Stock
None during this period and none issued and outstanding.
Common Stock
None issued during this period.
NOTE I - Related Party Transactions
There are currently none.
[Balance of this page intentionally left blank.]
F-13
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with
our Financial Statements and Notes thereto appearing elsewhere in this Report on
Form 10-Q as well as our other SEC filings.
Results of Operations
The Company has had no operations or significant assets since October 15,
2003.
For the period ended June 30, 2008 and 2007, the Company realized
consolidated net revenues of approximately $-0- and $-0-, respectively.
In conjunction with the recognition of the above net revenues, the Company
experienced costs of providing services of approximately $-0- and $-0-,
respectively.
A major component of the ultimate demise of the Company's operations was
the recognition of research and development costs of approximately $108,000 and
$480,000, respectively; selling and marketing expenses of approximately $371,000
and $449,000, respectively; and corporate general and administrative expenses of
approximately $2,577,000 and $2,586,000, respectively, for each of the years
ended September 30, 2001 and 2000.
The Company does not expect to generate any meaningful revenue or incur
operating expenses for purposes other than fulfilling the obligations of a
reporting company under the Securities Exchange Act of 1934 unless and until
such time that the Company completes a business combination transaction with an
operating entity.
It is the belief of management and significant stockholders that sufficient
working capital necessary to support and preserve the integrity of the corporate
entity will be present. However, there is no legal obligation for either
management or significant stockholders to provide additional future funding.
Should this pledge fail to provide financing, the Company has not identified any
alternative sources. Consequently, there is substantial doubt about the
Company's ability to continue as a going concern.
The Company's need for working capital may change dramatically as a result
of any business acquisition or combination transaction. There can be no
assurance that the Company will identify any such business, product, technology
or company suitable for acquisition in the future. Further, there can be no
assurance that the Company would be successful in consummating any acquisition
on favorable terms or that it will be able to profitably manage the business,
product, technology or company it acquires.
Revenues
The Company did not generate any revenues from operations for the nine
months ended June 30, 2008 or 2007. Accordingly, comparisons with prior periods
are not meaningful. The Company is subject to risks inherent in the
establishment of a new business enterprise, including limited capital resources
and cost increases in services.
Operating Expenses
Operating expenses decreased by $9,298 from $19,197 for the nine months
ended June 30, 2007 to $9,899 for the nine months ended June 30, 2008. The
decrease in our operating expenses is due to decreased administrative expenses
we incurred for the nine months ended June 30, 2008.
14
Interest Expense
Interest expense for the nine months ended June 30, 2008, and 2007 was
$7,380 and $4,345 respectively.
Net Income/Loss
Net loss decreased by $9,298 from net loss of $19,197 for the nine months
ended June 30, 2007 to a net loss of $9,899 for the six months ended June 30,
2008. The decrease in net operating loss is due to the decrease in operating
expenses.
Assets and Liabilities
Our total assets were $0 at June 30, 2008.
Total Current Liabilities are $70,695 at June 30, 2008. Our notes payable
are for $366,425.
Financial Condition, Liquidity and Capital Resources
At June 30, 2008, we had cash and cash equivalents of $0. Our working
capital is presently minimal and there can be no assurance that our financial
condition will improve. To date, we have not generated cash flow from
operations. Consequently, we have been dependent upon a third party
non-affiliate, NBI-Joint Venture ("NBI-JV"), to fund our cash requirements. The
entire unpaid balance of principal(subject to conversion of such principal as
provided in the Note) and all accrued and unpaid interest shall be due and
payable on the day prior to the first anniversary of the Effective Date of the
Note.
As of June 30, 2008, we had a working capital deficit of $366,425. At June
30, 2008, we had no outstanding debt other than convertible notes payable to
NBI-JV and accrued interest payable on the Notes. The Company will seek funds
from possible strategic and joint venture partners and financing to cover any
short term operating deficits and provide for long term working capital. No
assurances can be given that the Company will successfully engage strategic or
joint venture partners or otherwise obtain sufficient financing through the sale
of equity.
No trends have been identified which would materially increase or decrease
our results of operations or liquidity.
We have short-term liquidity problems that will be addressed by the
Convertible Note. For long-term liquidity, we believe that we will need to raise
additional capital to remain an ongoing concern; however, as stated above no
commitments have been made as of this date.
Plan of Business
General
The Company intends to locate and combine with an existing, privately_held
company which is profitable or, in management's view, has growth potential,
irrespective of the industry in which it is engaged. However, the Company does
not intend to combine with a private company which may be deemed to be an
investment company subject to the Investment Company Act of 1940. A combination
may be structured as a merger, consolidation, exchange of the Company's common
stock for stock or assets or any other form, which will result in the combined
enterprise's becoming a publicly held corporation.
Pending negotiation and consummation of a combination, the Company
anticipates that it will have, aside from carrying on its search for a
combination partner, no business activities, and, thus, will have no source of
15
revenue. Should the Company incur any significant liabilities prior to a
combination with a private company, it may not be able to satisfy such
liabilities as are incurred.
If the Company's management pursues one or more combination opportunities
beyond the preliminary negotiations stage and those negotiations are
subsequently terminated, it is foreseeable that such efforts will exhaust the
Company's ability to continue to seek such combination opportunities before any
successful combination can be consummated. In that event, the Company's common
stock will become worthless and holders of the Company's common stock will
receive a nominal distribution, if any, upon the Company's liquidation and
dissolution.
Combination Suitability Standards
In its pursuit for a combination partner, the Company's management intends
to consider only combination candidates which are profitable or, in management's
view, have growth potential. The Company's management does not intend to pursue
any combination proposal beyond the preliminary negotiation stage with any
combination candidate which does not furnish the Company with audited financial
statements for at least its most recent fiscal year and unaudited financial
statements for interim periods subsequent to the date of such audited financial
statements, or is in a position to provide such financial statements in a timely
manner. The Company will, if necessary funds are available, engage attorneys
and/or accountants in its efforts to investigate a combination candidate and to
consummate a business combination. The Company may require payment of fees by
such combination candidate to fund the investigation of such candidate. In the
event such a combination candidate is engaged in a high technology business, the
Company may also obtain reports from independent organizations of recognized
standing covering the technology being developed and/or used by the candidate.
The Company's limited financial resources may make the acquisition of such
reports difficult or even impossible to obtain and, thus, there can be no
assurance that the Company will have sufficient funds to obtain such reports
when considering combination proposals or candidates. To the extent the Company
is unable to obtain the advice or reports from experts, the risks of any
combined enterprise's being unsuccessful will be enhanced. Furthermore, to the
knowledge of the Company's officers and directors, neither the candidate nor any
of its directors, executive officers, principal shareholders or general
partners:
1. will not have been convicted of securities fraud, mail fraud, tax fraud,
embezzlement, bribery, or a similar criminal offense involving
misappropriation or theft of funds, or be the subject of a pending
investigation or indictment involving any of those offenses;
2. will not have been subject to a temporary or permanent injunction or
restraining order arising from unlawful transactions in securities, whether
as issuer, underwriter, broker, dealer, or investment advisor, may be the
subject of any pending investigation or a defendant in a pending lawsuit
arising from or based upon allegations of unlawful transactions in
securities; or
3. will not have been a defendant in a civil action which resulted in a final
judgement against it or him awarding damages or rescission based upon
unlawful practices or sales of securities.
The Company's officers and directors will make these determinations by
asking pertinent questions of the management of prospective combination
candidates. Such persons will also ask pertinent questions of others who may be
involved in the combination proceedings. However, the officers and directors of
the Company will not generally take other steps to verify independently
16
information obtained in this manner which is favorable. Unless something comes
to their attention which puts them on notice of a possible disqualification
which is being concealed from them, such persons will rely on information
received from the management of the prospective combination candidate and from
others who may be involved in the combination proceedings.
Liquidity and Capital Resources
It is the belief of management and significant stockholders that sufficient
working capital necessary to support and preserve the integrity of the corporate
entity will be present. However, there is no legal obligation for either
management or significant stockholders to provide additional future funding.
Should this pledge fail to provide financing, the Company has not identified any
alternative sources. Consequently, there is substantial doubt about the
Company's ability to continue as a going concern.
The Company has no current plans, proposals, arrangements or understandings
with respect to the sale or issuance of additional securities prior to the
location of a merger or acquisition candidate. Accordingly, there can be no
assurance that sufficient funds will be available to the Company to allow it to
cover the expenses related to such activities.
The Company does not currently contemplate making a Regulation S offering.
Regardless of whether the Company's cash assets prove to be inadequate to
meet the Company's operational needs, the Company might seek to compensate
providers of services by issuances of stock in lieu of cash. For information as
to the Company's policy in regard to payment for consulting services, see
Certain Relationships and Transactions.
Critical Accounting Policies
Use of Estimates: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
materially from those estimates.
Loss per share: Basic loss per share excludes dilution and is computed by
dividing the loss attributable to common shareholders by the weighted-average
number of common shares outstanding for the period. Diluted loss per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that shared in the earnings of the
Company. Diluted loss per share is computed by dividing the loss available to
common shareholders by the weighted average number of common shares outstanding
for the period and dilutive potential common shares outstanding unless
consideration of such dilutive potential common shares would result in
anti-dilution. Common stock equivalents were not considered in the calculation
of diluted loss per share as their effect would have been anti-dilutive for the
periods ended June 30, 2008 and 2007.
Going Concern.
The Company has suffered recurring losses from operations and is in serious
need of additional financing. These factors among others indicate that the
Company may be unable to continue as a going concern, particularly in the event
that it cannot obtain additional financing or, in the alternative, affect a
merger or acquisition. The Company's continuation as a going concern depends
upon its ability to generate sufficient cash flow to conduct its operations and
its ability to obtain additional sources of capital and financing. The
accompanying financial statements do not include any adjustments that may be
necessary if the Company is unable to continue as a going concern.
17
ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk
The Company is not subject to any specific market risk other than that
encountered by any other public company related to being publicly traded.
ITEM 4T - Controls and Procedures
Our management, which includes our Chief Executive Officer who also serves
as our principal financial officer, have conducted an evaluation of the
effectiveness of our disclosure controls and procedures (as defined in Rule
13a-14(c) promulgated under the Securities and Exchange Act of 1934, as amended)
as of a date (the "Evaluation Date") as of the end of the period covered by this
report. Based upon that evaluation, our management has concluded that our
disclosure controls and procedures are not effective for timely gathering,
analyzing and disclosing the information we are required to disclose in our
reports filed under the Securities Exchange Act of 1934, as amended, because of
adjustments required by our independent auditors, primarily in the area of notes
payable. Specifically, our independent auditors identified deficiencies in our
internal controls and disclosures related to the valuation and amortization of
beneficial conversion features on our notes payable. We have made the necessary
adjustments to our financial statements and footnote disclosures in our Interim
Report on Form 10-Q. We are in the process of improving our internal controls in
an effort to remediate the deficiencies. There have been no significant changes
made in our internal controls or in other factors that could significantly
affect our internal controls subsequent to the end of the period covered by this
report based on such evaluation.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
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ITEM 6 Exhibits
(a) The following sets forth those exhibits filed pursuant to Item 601 of
Regulation S-K:
Exhibit
No. Description
- ------- ---------------------------------
31.1 Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a)/ 15d-14(a) Certification of Principal Financial and
accounting officer
32.1 Section 1350 Certification of Chief Executive Officer and Principal
Financial and Accounting officer
- -----------------
(b) The following sets forth the Company's reports on Form 8-K that have
been filed during the quarter for which this report is filed: None.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Jason Smart
---------------------------
Jason Smart*
Chief Executive Officer,
President and Chairman of the Board*
Date: August 18, 2008
* Jason Smart has signed both on behalf of the registrant as a duly
authorized officer and as the Registrant's principal accounting officer.
19