UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
AMENDMENT NO. 4
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
VERTICA SOFTWARE, INC.
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(Name of Small Business Issuer in its Charter)
Colorado
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(State or Other Jurisdiction of Incorporation or Organization)
93-1192725
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(I.R.S. Employer Identification Number)
5801 Christie Avenue, Suite 390
Emeryville, California 94608
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(Address of Principal Executive Offices, including Zip Code)
(510) 595-3333
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(Issuer's Telephone Number, Including Area Code)
Securities to be registered pursuant to Section 12(b) of the Act: None.
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $0.0001 par value
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(Title of class)
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TABLE OF CONTENTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS 3
SPECIAL NOTICE REGARDING FORWARD-LOOKING STATEMENTS 3
OUR COMPANY 3
ITEM 2. PLAN OF OPERATION 14
ITEM 3. DESCRIPTION OF PROPERTY 16
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 16
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS 17
ITEM 6. EXECUTIVE COMPENSATION 18
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 19
ITEM 8. DESCRIPTION OF SECURITIES 19
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS 20
ITEM 2. LEGAL PROCEEDINGS 21
ITEM 3. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED 21
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES 21
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS 23
PART F/S 24
PART III
ITEM 1. INDEX TO EXHIBITS 24
ITEM 2. DESCRIPTION OF EXHIBITS 25
SIGNATURES 26
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ITEM 1. BUSINESS
SPECIAL NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain information in this Registration Statement includes
forward-looking statements within the meaning of applicable securities laws that
involve substantial risks and uncertainties including, but not limited to,
market acceptance of our products and new technologies, the sufficiency of
financial resources available to us, economic, competitive, governmental and
technological factors affecting our operations, markets, services, and prices,
and other factors described in this Registration Statement. Our actual results
could differ materially from those suggested or implied by any forward-looking
statements as a result of such risks. See "Our Company -- Risk Factors" below.
All trademarks and trade names appearing in this document are the
property of their respective holders.
OUR COMPANY
We are a development-stage company that is developing Internet and
intranet software products intended to serve industries that are impacted by
government regulation of hazardous materials and other environmental laws and
regulations. We are developing software products designed to provide information
about environmental regulations and a software management system to assist
companies with their environmental regulation compliance and related activities
for common industrial applications. We are developing software systems in the
form of modules within a software management system called "VEMS." We are also
developing a web site called Vertica.com. The VEMS system's applications will
include chemical inventory listing and tracking, transportation manifests,
emergency compliance, permit applications and occupational training.
VEMS is intended to be a set of computer software modules that are
being designed to streamline environmental regulation compliance and related
activities with the use of compliance wizards, for common industrial
applications. Vertica.com is our proposed web site under construction that we
are designing to provide updated information on environmental regulations and
serve as an e-commerce web portal in which vendors and clients in the hazardous
materials industry will be able to buy and sell products and services. VEMS is
intended to link to Vertica.com for additional content information, on-line
regulations compliance and on-demand training and services.
We were organized as a Colorado corporation in April 1997 under the
name Perfection Development Corporation. We were originally formed for the
purpose of developing and constructing real estate properties. On September 29,
1998, we acquired all of the outstanding capital stock of Vertica Software,
Inc., a California corporation ("Vertica California"). At that time, we were
inactive and had no significant assets. Vertica California was in the business
of developing Internet and intranet software products serving the hazardous
materials industry. We have continued this business since the acquisition. On
December 31, 1998, Vertica
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California, which we then held as a subsidiary, merged with and into us. We were
the surviving corporation in the merger and the separate corporate existence of
Vertica California ceased. Concurrently with the merger, we changed our name to
Vertica Software, Inc. Our stock trades on the NASD OTC Bulletin Board under the
symbol "VERI."
Our headquarters are located in Emeryville, California.
Current Status of Development
We completed the development of two modules included in the VEMS
system, the VEMS Communicator module and the Inventory module, on February 1,
2000. These two modules are currently in use and are being evaluated on a test
basis by The Chevron Companies, Equiva Services, LLC (Shell, Texaco and Saudi
Aramco working together), Sybron Chemicals, Inc. and Olympian Oil Company. It is
our current plan to complete the development of the other VEMS System Modules,
comprised of the Transporter, Permitter, HazOSHA, and Processor modules, during
the next 12 months. We currently estimate that we will need approximately
$3,000,000 in funds, in addition to our present cash reserves of approximately
$170,000, in order to satisfy our estimated cash requirements over the next
twelve months, including the funds needed to complete the development of the
remainder of our initial product line. We cannot assure you, however, that the
development will occur in accordance with this timetable as a result of delays
that may be encountered because of financing, personnel or other unanticipated
reasons or that all modules will be developed successfully.
As a development-stage Company, we have had no revenues and had not
made any sales of products or services to any customer. Our expenses to date
have been incurred in connection with the development of the software products
and the Vertica.com web site and other administrative expenses. We have not
formalized our pricing models, which we intend to develop as we seek to
negotiate licenses with our initial customers.
Industry Overview
Companies that transport, store, or handle hazardous materials are
required by federal, state and local laws to meet current regulations. These
regulations require training of personnel, proper handling and storing of
hazardous materials, filing of appropriate government forms, production of
required shipping papers and labeling and placarding of hazardous materials.
These government regulations are complex and difficult to interpret and are
updated and revised from time to time. Failure to comply with current
environmental regulations can result in significant criminal and civil
penalties, including fines, damages and injunctions. See "Government
Regulation."
The growth of the environmental regulation compliance market is driven
primarily by the maintenance and expansion of environmental regulations in the
United States, including federal, state and local regulatory schemes. We believe
that continued public pressure for environmental protection in the United States
will likely result in continued and increased environmental regulation of many
industries.
We believe our products can serve companies in the following industries
and the following government agencies:
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Transportation, including railroad, highway, marine and air;
Manufacturing, including petroleum refining and related industries,
chemical and allied products, rubber and miscellaneous plastics,
primary metal industries, fabricated metal products, industrial and
commercial machinery, electronic, electrical equipment and components,
transportation equipment, measuring and analyzing and controlling
instruments, and other manufacturing industries;
Engineering and research services, including petroleum, chemical,
industrial, sanitary, biological, non-commercial biological and testing
laboratories;
Utilities, including electric, gas and sanitary;
Other industries, including mining, agricultural, construction,
insurance, industry wholesale trade, training agencies and industry
consulting agencies; and
Government agencies, including the Environmental Protection Agency, the
Department of Transportation and the Occupational Health and Safety
Administration.
We cannot assure you, however, that we will be able to successfully
market our products to participants in these potential markets.
The Vertica Solution
We believe that many companies hire consultants to insure environmental
compliance and that other companies spend substantial amounts to hire in-house
information technology groups to design and maintain environmental compliance
systems. We seek to offer a solution based on a combination of a Web browser and
Microsoft SQL Servers, and bring together a software management system with an
on-line community. This solution is intended to allow our proposed software
products and Internet web site, discussed below, to function in concert.
We are designing our proposed environmental software management system,
VEMS, to assist our customers by reducing the time and costs required by
consultants, internal information technology and environmental management staff
for regulatory compliance with environmental regulations. Our products would
not, however, provide any check for compliance with applicable regulations of a
customer's internal systems.
We are also designing an Internet web site, Vertica.com for an
environmental web portal serving the hazardous materials community. We plan for
Vertica.com to contain extensive and continuously updated information relating
to current environmental regulations, and to enable clients and vendors in the
hazardous materials industry to interact on-line. We are also constructing
Vertica.com as an on-line activities hub for hazardous materials professionals
and clients.
Once we complete the development of these systems and the web site, we
believe that a customer will be able to use our systems to reduce the labor time
and resources needed to comply with hazardous waste and environmental
regulations. A customer will be asked by the software to respond to a list of
relevant questions, the responses to which will be linked to forms
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and other documentation used for reporting and compliance purposes. We call
these lists of questions and links "wizards." The data accumulated in the
modules can be retrieved for a variety of purposes through the software, thus
enabling the user to reduce the amount of manual calculations, hard paper
information gathering and storage and other clerical functions needed to
complete required reports and notices.
Our Strategy
We intend to derive revenues from three diversified products and
services: Licensing of VEMS modules, transaction fees for filing activities, and
advertising and e-commerce referral and transaction fees on the Vertica.com web
site. We believe that our pricing for the licensing and training will be lower
than the costs a customer would incur in developing an in-house system due to
the distribution of our costs of development and maintenance across our entire
client base. We also believe that VEMS modules will attract clients by lowering
their capital and labor costs associated with environmental compliance. We
anticipate that some activities such as plain text searches of government
regulations will be offered for free, in order to generate initial traffic to
our web site. Finally, we intend to set our advertising, referral and
transaction fees on Vertica.com at the then current market rates for such fees.
We believe that our Vertica.com web site will be a hub for a client's
environmental compliance transaction activity, as well as the entry point for
research queries into our proposed database. We believe that eventually a steady
traffic flow through our site will result in vendors connecting with clients in
these industries.
Products and Services
VEMS. On February 1, 2000, we released two modules, the VEMS
Communicator module and the Inventory module. We plan to complete the
development and release of the other modules, including the VEMS Transport,
Permitter and Processor during the next twelve months. We currently estimate
that we will need approximately $3,000,000 in funds, in addition to our present
cash reserves of approximately $170,000, in order to satisfy our estimated cash
requirements over the next twelve months, including the funds needed to complete
the development of the remainder of our initial product line. VEMS is intended
to be an automated environmental management system that will provide up-to-date
government regulations and guides the user to track, review, interpret, share
and comply with those regulations.
VEMS Features
We are designing our proposed VEMS software products , comprised of
separate Internet accessible software modules as described below, to assist
clients in industries subject to environment and hazardous materials regulations
in environmental compliance, reduce regulatory paper trails and streamline the
administrative efforts associated with hazardous materials management and crisis
communications, thus reducing costs to those industries.
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VEMS Modules
Inventory Module
The Inventory module, as part of each of the other VEMS modules discussed below,
provides assistance to customers and data to other VEMS modules by managing
chemical and waste information for each customer site. The module is designed to
link material safety data sheets ("MSDS") and waste profile information directly
to a customer's facility inventory. The module provides customers with a site
map feature and the capability to track inventory down to the individual
building level. A customer will be able to use the inventory and regulated
chemical lists to facilitate chemical control, emergency compliance and
environmental reporting. Inventory can be updated manually by the customer or
automatically by VEMS modules as products are received, manufactured,
transported or released. The Inventory module is complete and is currently being
evaluated on a test basis by Olympian Oil Company, a regional petroleum
distribution company, and at a local refinery of The Chevron Companies, a
national petroleum company.
Communicator Module
The Communicator module is designed to manage a facility's crisis
communications, emergency compliance, and environmental reporting information.
The module includes plan builders, compliance wizards and automated document
submission. Electronic forms and checklists are designed to streamline response
efforts and minimize reporting errors. The Communicator module is also designed
to facilitate internal as well as external communications allowing continuous
control of a customer's facility image. This module also supports compliance
with EPCRA (Emergency Planning and Community Right to Know) and related
environmental regulations. The Communicator module was released on February 1,
2000 and is currently being evaluated on a test basis by The Chevron Companies,
Equiva Services, LLC (including Shell, Texaco and Saudi Aramco working
together), Olympian Oil Company and Sybron Chemicals, Inc.
Transporter Module
The Transporter module is being designed to serve the hazardous
material and waste transportation needs of a customer's facility. The module
will include automated Department of Transportation registration form, bill of
lading and waste manifest software "wizards," document tracking and incident and
exception report capability. The module will perform automatic updates to
chemical and waste inventories, will allow access to material information and
will provide labeling and placard information essential to the shipment of
hazardous materials. This module supports compliance with Department of
Transportation regulations. The Transporter module planned completion date is
March 31, 2000, and a test module is currently being reviewed, or beta-tested,
by Olympian Oil Company.
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Processor Module
The Processor module will be designed to serve each VEMS customer
site's production floor process mapping, inventory, hazardous materials and
waste stream needs. It will support compliance with TSCA (Toxic Substance
Control Act) and related regulations. The first release of this module is
planned for September 30, 2000.
HazOSHA Module
The HazOSHA module will be designed to serve each VEMS customer site's
hazardous materials employee safety policies, procedures and training
communication needs, including on-line training. This module will support
compliance with hazardous materials related sections of 29 CFR OSHA (Code of
Federal Regulations for Occupational Safety and Health Administration). The
first release of this module is planned for September 30, 2000.
Permitter Module
The Permitter module will be designed to serve each VEMS customer
site's permit monitoring and compliance needs, and will include air, liquid
discharge and hazardous waste permit application software "wizards." This module
will support compliance with CAA (Clean Air Act), EPA (Environmental Protection
Agency), RCRA (Resource Conservation and Recovery Act), CWA (Clean Water Act),
AQMD (Air Quality Management District) and related regulations. Programming of
permit processors for this module has begun, and the first release of this
module is planned for June 30, 2000.
Vertica.com
Vertica.com is our proposed web site that will be designed to provide
updated information on environmental regulations and serve as an e-commerce web
portal in which vendors and clients in the hazardous materials industry will be
able to buy and sell products and services. We anticipate that the costs for
launching this web site will be approximately $500,000. The features of this
proposed system are:
News & Analysis It is intended that Vertica.com will provide
current industry news for the hazardous
materials community including stories from
business, government, energy, environment
and finance. Our web site will feature
informational articles written by experts in
the hazardous materials industry and will
offer an internet posting site for industry
related press releases and publications. We
anticipate acquiring industry news from
ScreamingMedia.com, Inc. and Stockpoint,
Inc. at an approximate annual cost of
$80,000 to $100,000.
E-Business Vertica.com will also offer an industry
specific marketplace for the purchase, sale
and exchange of hazardous materials related
goods
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and services. It is intended to include an
up-to-date directory of products, services
and suppliers and feature an online auction
site for interactive bidding and sales. We
intend to provide ongoing maintenance and
updating of products and services internally
through research as well as gathering
information on industrial companies' needs
by attending industry conferences and trade
shows.
Community It is intended that Vertica.com will serve
the multifaceted information needs of the
hazardous materials community. It will
feature industry specific glossaries, a
public contacts database, codified
regulations, online MSDS access, discussion
groups, event calendars and an
industry-related resume posting and career
center.
Vertica.com is currently being evaluated on a test basis by The Chevron
Companies and Olympian Oil Company.
Customer Support
Vertica's environmental and computer science support staff will be
available to assist Vertica.com and VEMS
users during regular business hours.
Training
We intend to offer fee-based seminars and training on the use of our
proposed Vertica.com web site and VEMS modules.
Sales and Marketing
We intend to use marketing tools including focus groups, public
relations, direct mail, channel distributions, advertisement and telemarketing.
Based on the evolving markets for each product line, we will modify the
marketing program to utilize all appropriate marketing resources. In general,
the marketing for each product line will follow the following format:
1. Introductory product announcements, public relations and media
coverage.
2. Promotion via trade shows, conferences and the Internet.
3. Direct sales using our sales personnel.
4. Expansion of sales channels through distributors and business
partnerships.
5. Ongoing advertising through targeted media and the Internet.
6. Product demonstration and information at Vertica.com (web-site),
www.vertica.com.
We also intend to promote our product lines and web site through
affiliates, individual seminars, trade shows, and in trade publications. Direct
sales using our subject-expert sales personnel will also be a high priority,
including direct calls to our customers. In addition, we intend to seek
marketing and distribution partnerships with other firms that would stand to
benefit from bringing our target industries on-line. This could include such
partners in the on-line infrastructure field such as computer network equipment
manufacturers, software database providers and other business solutions
providers. Additionally, we will promote
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Vertica.com's ability to provide data for research and crisis preparedness, make
available information that helps companies dealing with the industry's
fragmented environment and "information overload ," and to minimize the
paperwork associated with hazardous materials regulations compliance.
We intend to develop marketing relationships with the following
organizations:
California Trucking Association
American Petroleum Institute
Petroleum Marketers Association of America
Western States Petroleum Association
American Electronics Association
Other associations and marketing companies
Competition
While we are not aware of any other company that currently offers a
suite of software products similar to our proposed products, several
environmental management firms, with substantially greater financial and
marketing resources than us, have existing products and services that will
compete with one or more of our proposed VEMS modules, as described below. In
addition, several firms have established their own Internet web sites that could
compete with our proposed Vertica.com web site.
For example, GreenSuites, a subsidiary of Levine-Fricke, offers an
environmental management system based on SAP, a database software application
system that performs logistics, finance, sales, human resources and related
business functions. Amoco Corporation offers a system based on Lotus Domino, an
integrated messaging and applications software platform. While these competing
systems will appeal to companies that already use the SAP or Domino
applications, the SAP and Domino applications are based on an in-house or
intra-company paradigm. We believe, however, that our system will permit the
integration of regulatory compliance work flow among suppliers, carriers,
receivers and governmental agencies, all of which input or receive data
regarding hazardous chemical activities.
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One central aspect of our proposed VEMS Transport module is producing
hazardous materials shipping papers that are filed with the Environmental
Protection Agency. We have approached the California EPA to accept electronic
filing of these papers and we believe that Sterling Software has a similar
initiative in Illinois based on their electronic data interchange, or EDI,
technology. Industrial facilities rely on CAD/CAM software that includes process
models. Process models typically track raw materials through the initial
production process to shipment of the product. These models can be extended to
serve environmental process applications, and in these situations these
"in-house" models will compete with our proposed VEMS Process module. Most
industrial facilities rely on a variety of consultants and training classes to
comply with OSHA regulations and such services will compete with the services to
be offered by our proposed VEMS HazOSHA module. Similarly, most industrial
companies rely on environmental engineering firms to prepare and obtain permits
and such firms will, therefore, offer services in competition with the services
offered by our proposed VEMS Permitter Module.
We will also face competition in connection with our proposed Internet
web site. For example, Verticalnet is an existing web portal with an
environmental community that offers environmental industry news and electronic
commerce, but does not provide the additional resources, including a glossary,
access to regulations, industry contacts or MSDS repositories, or the software
applications that our proposed Vertica.com web site will provide. While other
Internet sites provide similar resources for free, we are designing our site to
offer them in combination with industry news and environmental management
applications. Also, the Environmental Protection Agency itself offers an
assortment of on-line access to regulations and form completion software, but
the software is not integrated with the customer's environmental information
database and the applications are maintained at the customer's site, away from
access to the regulations. In addition, the University of Vermont offers an
extensive MSDS repository, however, we intend that the proposed Vertica.com MSDS
repository will be capable of being linked to a customer's chemical inventory,
which will facilitate access to MSDS data used for a customer's regulatory
compliance calculations, emergency planning hazardous materials shipping papers,
and employee hazard communication.
Patent and Intellectual Property Rights
We are in the process of preparing a patent application regarding the
combination of the management system with an on-line community. We also intend
to file a patent application for our Internet/Intranet safety back-up for crisis
communications and emergency notification.
Employees
As of February 21, 2000, we have 13 full-time employees and
1 part-time employee.
Government Regulation
We intend to offer software products and services through our proposed
Internet web site that will assist customers to comply with a variety of federal
and state environmental statutes and administrative regulations. Consequently,
our business will be affected to a substantial degree
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by the existing and future government regulatory environment. While not
anticipated, our business would be adversely affected to the extent regulatory
requirements are reduced or eliminated, thereby reducing the demand for our
proposed products and services. We will need to continuously monitor and respond
to changes in environmental statutes and regulations in order to provide our
customers with current information regarding reporting and compliance
requirements. Our business would be adversely affected if we are unable to
respond to such changes in a timely manner. We do not believe that products and
services we intend to offer will be subject to governmental agency approval. We
believe, however, that compliance with regulations regarding the submission of
reports and data electronically to governmental agencies may be required at a
future date.
Risk Factors
Our business and results of operations could be seriously harmed by any
of the following risks. The trading price of our common stock could decline due
to any of these risks, and you may lose all or part of your investment.
We are a development-stage company that has had no revenues to date.
We were formed in 1996 and have been a development stage company that
has had no revenues to date. Our revenue model is evolving and we have had no
customers to date. Potential customers have only begun to evaluate our products.
We will encounter risks and difficulties frequently encountered by
development-stage companies in new and rapidly evolving markets. Many of these
risks are described in more detail in this section. We may not successfully
address any of these risks. If we do not successfully address these risks, our
business would be seriously harmed.
We have not yet developed a sales or marketing force, and if we are
unable to effectively develop adequate sales and marketing capabilities, we may
be unsuccessful in commercializing our products and services.
We intend to market and sell our products and services through a direct
sales and marketing force and on-line marketing capabilities. In order to do
this, we will have to develop a sales and marketing force with technical
expertise and establish a supporting distribution capability. Developing a sales
and marketing force is expensive and time-consuming and could delay sales of our
products and services. If we are unable to establish our sales and marketing
capability, we may fail to realize our full sales potential.
We anticipate we will incur continued losses for the foreseeable
future.
We expect to incur significant losses for the foreseeable future. To
date, we have not generated revenues and have not been profitable. Once we begin
to make sales of our products and services, our revenues may not grow. We may
never be profitable or, if we become profitable, we may be unable to sustain
profitability.
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The anticipated losses may result from our plan to increase our operating
expenses to:
launch additional VEMS modules and the Vertica.com web site;
increase our sales and marketing operations;
broaden our customer support and software capabilities; and
pursue strategic marketing and distribution alliances.
Continued losses may result in our inability to develop and market our
products, which is important to our plan to generate and grow future revenues.
We may have difficulty obtaining future funding sources, if needed, and
we might have to accept terms that would adversely affect shareholders.
We will need to raise funds from additional financings. We have no
commitments for any financing and any financing commitments may result in
dilution to our existing stockholders.
We may have difficulty obtaining additional funding, and we may have to
accept terms that would adversely affect our stockholders. For example, the
terms of any future financings may impose restrictions on our right to declare
dividends or on the manner in which we conduct our business. Also, lending
institutions or private investors may impose restrictions on a future decision
by us to make capital expenditures, acquisitions or significant asset sales. We
may not be able to locate additional funding sources at all.
If we cannot raise funds on acceptable terms, when needed, we may not
be able to develop or enhance our services to customers, launch new products,
grow our business or respond to competitive pressures or unanticipated
requirements, which could seriously harm our business.
We may not be able to compete effectively with other providers of
hazardous materials and environmental management products.
We believe that the strongest potential competition does not come from
traditional service groups but rather the evolution of the Internet and the
types of hazardous materials and environmental management service providers that
evolution will create. As applications for hazardous materials and environmental
management providers begin to proliferate and mature, we will compete with other
technology companies and traditional service providers such as environmental
management firms that seek to integrate on-line hazardous materials and
environmental management technologies with their traditional service mix.
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Competition for Internet products and services is intense. We expect
that competition will continue to intensify. Barriers to entry are minimal, and
competitors can launch new web sites at a relatively low cost. We expect that
additional companies will establish competing environmental management systems.
Hazardous materials and environmental management applications are in
the early stages of development. As these applications evolve, however, we
expect that other entrepreneurs and large, well known leaders of the hazardous
materials and environmental compliance industries will create other niche
environmental services that may compete with our services. These large industry
leaders would have better name recognition in the market that we may target.
Several environmental management firms have existing products and
services that will compete with one or more of our proposed VEMS modules. In
addition, several environmental management firms have established their own
Internet web sites that could compete with our proposed Vertica.com web site.
These firms have substantially greater financial and marketing resources than we
do.
Our common stock price is likely to be highly volatile.
The market price of Vertica Software common stock is likely to be
highly volatile as the stock market in general, and the market for
Internet-related and technology companies in particular, has been highly
volatile. Our shareholders may not be able to resell their shares of Vertica
Software common stock following periods of volatility because of the market's
adverse reaction to this volatility. The trading prices of many technology and
Internet-related companies' stocks have reached historical highs within the past
18 months and have reflected relative valuations substantially above historical
levels. During the same period, these companies' stocks have also been highly
volatile and have recorded lows well below those historical highs. We cannot
assure you that our stock will trade at the same levels of other Internet stocks
or that Internet stocks in general will sustain their current market prices.
Factors that could cause this volatility may include, among other
things:
actual or anticipated variations in quarterly operating
results;
announcements of technological innovations;
new products or services;
changes in financial estimates by securities analysts;
conditions or trends in the hazardous materials and
environmental management industries, including regulatory
changes;
conditions or trends in the Internet industry;
changes in the market valuations of other Internet companies;
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announcements by us or our competitors of significant
acquisitions, strategic partnerships or joint ventures;
changes in capital commitments;
additions or departures of key personnel; and
sales of Vertica Software common stock.
Many of these factors are beyond our control. These factors may
materially adversely affect the market price of our common stock, regardless of
our operating performance.
ITEM 2. PLAN OF OPERATION
Certain statements contained in the following Plan of Operation,
including, without limitation, statements containing the words "believe,"
"anticipate," "estimate," "expect" and words of similar meaning, constitute
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward looking
statements as a result of certain factors set forth in other parts of this
document.
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Liquidity and Capital Resources
To date our activities have been financed primarily through the sale of
our common stock and promissory notes convertible into our common stock. We
currently estimate that we will need approximately $3,000,000 in funds, in
addition to our present cash reserves of approximately $170,000 and estimated
revenues of $300,000 from the sale of our initial products, in order to satisfy
our estimated cash requirements over the next twelve months. We cannot assure
you however, that we will be able to reach this revenue amount. Operating
revenues are expected to be generated following the release of VEMS Communicator
but such revenues may not be substantial or in the amounts we expect. We
anticipate that we will need these additional funds to complete the development
of the remainder of our initial product line and our proposed Internet web site
and to establish strategic alliances with other companies. We intend to raise
such funds primarily through the sale of our equity or debt securities. There
can be no assurance that we will be able to obtain such additional financing, or
whether the terms of such financing will be favorable to us. Failure to obtain
such financing or our failure to generate sufficient operating revenues from the
sale of our initial products would have a material adverse affect on our
business, financial condition and results of operations.
On November 24, 1999, we entered into a Memo of Understanding with an
investment firm to obtain financing to accelerate the completion of our products
and to assist management in the development of the Company. In conjunction with
the Memo of Understanding, in December 1999 we received $50,000 in bridge
financing. In January 2000, in conjunction with the Memo of Understanding, we
received an additional $250,000 in bridge financing. Interest accrues on these
notes at the rate of 12% per annum. We are paying the firm $10,000 a month for
an initial period of six months to promote market makers, increase investor
awareness and develop strategic opportunities for the Company. If the investment
firm is able to obtain financing for us of $2,500,000 or more, we will pay the
firm a fee in the amount of 8% of the amount of financing raised plus 2%
nonaccountable expense fees and an option to purchase shares of the Company
equal to 20% of the amount of money raised at the same price as paid by
investors. In addition, the firm will be reimbursed by the Company for all
reasonable out-of-pocket expenses. The Memo of Understanding also provides that
if certain named individuals are granted board membership and early stage
management positions, those persons would be entitled to receive options to
purchase an aggregate of 5% of the Company's outstanding stock at the exercise
price of $.65 a share. We estimate that the proceeds from these transactions
will provide adequate funding to sustain the Company's operations until
permanent equity funding can be raised. However, we cannot assure you that the
permanent funding will be available or that any permanent funding will be
sufficient to substain operations until the Company begins generating positive
cash flows.
In the event that future equity capital cannot be raised in a timely
manner to fund Vertica Software's products development to completion,
development will be halted at that time for all modules and services excluding
the Communicator and Transporter modules. We would be forced to reduce the
current staff level to five and pursue additional bridge financing to fund the
Company until such time as permanent equity funding could be obtained. The
Transporter module would continue to be developed to its original specifications
and efforts would focus on the marketing and sales of the Communicator and
Transporter modules.
Research and Development
We have completed the development of the following products, which are
available for licensing to potential customers:
VEMS Communicator (released for licensing February 1, 2000)
VEMS Inventory (released for licensing February 1, 2000)
Over the next 12 months, we plan to complete development of the
remainder of our core products and our Internet web site. Provided that we
obtain the required funding, release of our remaining core products is projected
to be as follows:
By March 31, 2000:
VEMS Transport
By June 30, 2000:
VEMS Permitter
By September 30, 2000:
VEMS HazOSHA
VEMS Processor
16
<PAGE>
While completing the core products above, we also intend to develop our
Internet web site and web community strategic alliances within our industry
through target marketing opportunities, advertising and other related
E-business. Product and initial web site development expenses for the next
twelve months are expected to be approximately $1,700,000.
Purchase of Significant Equipment
Depending on the number of new employees we hire over the next twelve
months, we intend to purchase twenty-five to thirty additional desktop
computers, two servers, and related peripheral equipment. The total cost for the
acquisition of this equipment is estimated at approximately $86,500. We entered
into an office lease agreement in December 1999 for new office space totaling
approximately 4,350 square feet. In connection with this lease, we acquired the
predecessor tenant's workstation modules, telephone system and other related
telephone and network equipment. The total purchase price for the furniture and
equipment was $3,000. Office lease payments for the next twelve months will be
approximately $98,000.
Significant Change in Number of Employees
If we are successful in obtaining additional funding, we intend to hire
over the next twelve months between twelve to seventeen software and Web content
engineers, and approximately ten additional sales, marketing and administrative
employees. We anticipate that such additional employees will be required in
order to meet the projected release dates of our initial products described
above. Total projected personnel costs for the next twelve months are estimated
to be approximately $2,100,000, of which approximately $1,700,000 of this
projected amount is included above under projected research and development
costs.
ITEM 3. DESCRIPTION OF PROPERTY
We presently occupy approximately 4,350 square feet of office space at
5801 Christie Avenue, Suite 390, Emeryville, California, pursuant to a lease
that expires at the end of December 2004. The lease provides for rent of $9,774
per month, commencing on December 1, 1999, fully serviced.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information with respect to beneficial
ownership of our common stock by:
each person who beneficially owns more than 5% of each class of stock;
each of our executive officers;
each of our directors;
and all executive officers and directors as a group.
17
<PAGE>
The address of each stockholder listed in the table is c/o Vertica
Software, Inc., 5801 Christie Avenue, Suite 390, Emeryville, California 94608.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power with
respect to shares. To our knowledge, except under applicable community property
laws, the persons named in the table have sole voting and sole investment
control with respect to all shares beneficially owned. The applicable percentage
of ownership for each stockholder is based on 12,077,941 shares of common stock
outstanding on December 31, 1999.
<TABLE>
<CAPTION>
Title of Class Name of Beneficial Owner Amount and nature of Percent of
beneficial ownership class
<S> <C> <C> <C>
Common Stock Hans Nehme 10,271,000(1) 85.1%
Common Stock Erick K. F. Ahrens 1,990 *
Common Stock John C. Leutwyler -0- -0-
Common Stock Susan N. Hastings 10,271,000(1) 85.1%
Common Stock All officers and directors 10,272,990(1) 85.1%
as a group (4 persons)
- -------------------------
<FN>
* Represents less than 1%
(1) Includes 9,680,000 shares owned of record by Mr. Nehme and 591,000 shares owned of
record by Ms. Hastings. Mr. Nehme and Ms. Hastings are husband and wife.
</FN>
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth certain information with respect to the
executive officers and directors as of December 31, 1999:
Name Age Positions and Offices Held
Hans Nehme 36 President, Chief Executive Officer,
Chief Financial Officer,
Secretary and Director
Erick K. F. Ahrens 50 Vice President, Research and Development
John C. Leutwyler 66 Director
Susan N. Hastings 38 Director
The following sets forth biographical information as to the business
experience of each of our executive officers and directors:
18
<PAGE>
Hans Nehme has served as our President, Chief Executive Officer, Chief
Financial Officer, Secretary and a director since December 1998, when we merged
into our predecessor corporation, Vertica California. Mr. Nehme served in
similar capacities with Vertica California from December 1995 to December 1998.
From December 1994 to December 1995, Mr. Nehme served as the President of
InterLink Trade Management, a consulting and export firm specializing in
computer hardware and peripherals, and from July 1995 to December 1995 he was
Chairman of Knowledge Direct, Inc., a company that produced training software
products.
Erick K. F. Ahrens has served as our Vice President, Research and
Development, since December 1998. From August 1996 until December 1998, Mr.
Ahrens was Research and Development Manager of QRS, Inc., an electronic data
interchange company. Mr. Ahrens served as Vice President, Research and
Development, of Vertica California from December 1995 until August 1996.
John C. Leutwyler has served as a Director since November 1999. From
December 1994 until his retirement in April 1996, Mr. Leutwyler served as Vice
President and General Manager of Tanker Operations (Vessel and Commercial) for
Chevron Shipping Company, Chevron Corporation's marine transportation
subsidiary. He is currently the President of Canyon Consulting Company, which is
involved in worldwide marine and marine finance consulting.
Susan N. Hastings has served as a director since December 1998 and
served as a director of Vertica California from January 1996 until December
1998. From August 1995 to October 1998, she was Senior Trial Counsel for TIG
Insurance Company. From October 1995 to August 1995 she was Trial Counsel for
Home Insurance Company. Ms. Hastings is the wife of Mr. Nehme.
Number of Directors and Directors' Terms of Office
We currently have three directors. There are no committees of the
Board. All directors hold office until the next annual meeting of shareholders.
Ms. Hastings, one of our directors, is the wife of Mr. Nehme, our Chief
Executive Officer and a director. No other family relationships exist among our
officers and directors.
Director Compensation
Our directors do not receive any compensation for their services as
directors. It is anticipated that each non-employee director will be eligible to
participate in our proposed stock option plan.
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth compensation for services rendered in
all capacities during the fiscal year ended December 31, 1999 for our Chief
Executive Officer. No other executive officer received compensation in excess of
$100,000 during such fiscal year.
19
<PAGE>
<TABLE>
<CAPTION>
Long-term compensation
-------------------------------------------
Annual Compensation Awards Payouts
-------------------------------- ------------------- ------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities
All Other Restricted Underlying LTIP
</TABLE>
<TABLE>
<CAPTION>
Name and Principal Other Annual Stock Options Payouts
Position Year Salary Bonus Compensation Awards (#) ($) Compensation
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hans Nehme, Chief 1999 $112,800 -0- -0- -0- -0- -0- -0-
Executive Officer
</TABLE>
No options to purchase shares of our common stock or other securities
and no stock appreciation rights have been granted to Mr. Nehme. We maintain a
group term life insurance policy for the benefit of our employees. Such policy
insures the life of each employee, including Mr. Nehme, in the amount of
$50,000, the beneficiaries of which are designated by the employee.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On September 29, 1998, we entered into a Stock Purchase and Exchange
Agreement ("Purchase Agreement") with Vertica Software, Inc., a California
corporation ("Vertica California"), Hans Nehme and Scott M. Thornock and C.
Edward Venerable who at that time owned approximately 80% of our outstanding
common stock in the aggregate. Vertica California was in the business of
developing Internet and intranet software products serving the hazardous
materials industry. Pursuant to the Purchase Agreement, we issued to Mr. Nehme
an aggregate of 9,200,000 shares of our common stock in exchange for 4,930,000
shares of the common stock of Vertica California owned by Mr. Nehme. In
addition, Mr. Nehme purchased from the two shareholders 480,000 shares of our
common stock for a price of $25,000. As a result of this transaction, Mr. Nehme
acquired a controlling interest in us and Vertica California became our
wholly-owned subsidiary.
On December 31, 1998, Vertica California merged with and into us. We
were the surviving corporation in the merger and the separate corporate
existence of Vertica California ceased. As a result of the above describe
acquisition and the merger, we acquired and have continued the business
originally commenced and operated by Vertica California.
In connection with the merger effective as of December 31, 1998, we
advanced $25,000 to Mr. Nehme on an interest free basis for payment to the
shareholders of Perfection Development Corporation. Mr. Nehme repaid this
advance to us on January 15, 2000.
20
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES.
Our articles of incorporation authorize the issuance of up to
30,000,000 shares of common stock, par value $0.0001 per share, and 3,000,000
shares of preferred stock, par value $0.001 per share. As of December 31, 1999,
12,077,941 shares of common stock were outstanding, and no shares of preferred
stock were outstanding.
Each holder of common stock is entitled to one vote for each share on
all matters to be voted upon by the stockholders. Our Colorado articles of
incorporation provide that shareholders shall not have cumulative voting rights
in the election of directors. Nevertheless, we may be a "quasi-California
corporation" within the meaning of Chapter 21 of the California Corporations
Code. This would be the case if the average of our "property factor", "payroll
factor" and "sales factor" (as defined in the California Revenue and Taxation
Code) is more than fifty percent (50%), and more than one-half of our
outstanding voting securities are held of record by persons having addresses in
California. If a corporation is a quasi-California corporation, California law
provides that certain portions of the California Corporations Code, including
those pertaining to cumulative voting for directors, shall govern it, to the
exclusion of the law of the true jurisdiction of incorporation. Under Section
708 of the California Corporations Code, if any shareholder gives notice at a
meeting, prior to voting for directors, of his intention to cumulate his votes,
all shareholders may cumulate their votes in the election for directors; i.e.,
give one candidate a number of votes equal to the number of directors to be
elected multiplied by the number of votes to which the shareholder's shares are
normally entitled, or distribute the shareholder's votes on the same principle
among as many candidates as the shareholder thinks fit. The candidates receiving
the highest number of affirmative votes, up to the number of directors to be
elected, are elected to the Board of Directors.
Subject to preferences to which holders of any future series of
preferred stock may be entitled, holders of common stock will be entitled to
receive ratably any dividends that may be declared from time to time by the
Board of Directors out of funds legally available for that purpose. In the event
of our liquidation, dissolution or winding up, holders of common stock will be
entitled to share in our assets remaining after the payment of liabilities and
the satisfaction of any liquidation preference granted to the holders of any
outstanding shares of preferred stock. Holders of common stock have no
preemptive or conversion rights or other subscription rights and there are no
redemption or sinking fund provisions applicable to our common stock. The
rights, preferences and privileges of the holders of common stock are subject
to, and may be adversely affected by the rights of the holders of shares of any
series of preferred stock that we may designate in the future.
We have never declared or paid any dividends on our common stock. We do
not anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations and the
expansion of our business. Any future determination to pay cash dividends will
be at the discretion of the Board of Directors and will depend upon our
financial condition operating results, capital requirements and other factors
the Board of Directors deems relevant.
The Board of Directors presently has the authority by resolution to
issue up to 3,000,000 shares of preferred stock, par value $0.001 per share, and
without further action by the stockholders, to divide any and all shares of the
preferred stock into series and to fix and determine the relative rights and
preferences of the preferred stock, such as the designation of series and the
number of shares constituting such series, dividend rights, redemption and
sinking fund provisions, liquidation and dissolution preferences, conversion or
exchange rights and voting rights, if any. With respect to voting rights, if the
preferred stock were permitted to vote in the election of directors or on other
matters, each such share would be entitled to one vote, and such shares may vote
with the shares of common stock or may vote as a separate class. Issuances of
preferred stock by the Board of Directors could result in such shares having
dividend and/or liquidation preferences senior to the rights of the holders of
common stock and could dilute the voting rights of the holders of common stock.
21
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER STOCKHOLDER MATTERS.
Our common stock is traded on the over-the-counter market and is quoted
on the NASD OTC Bulletin Board under the symbol "VERI". The following table sets
forth the closing high and low bid prices of our common stock in each quarter
from the inception of trading through February 22, 2000. These prices are
believed to be representative inter-dealer quotations, without retail markup,
markdown or commissions, and may not represent prices at which actual
transactions occurred.
Bid
1998 High Low
---- ---- ---
4th Quarter $1.00 $0.75
1999
1st Quarter $4.625 $0.7500
2nd Quarter $0.875 $0.100
3rd Quarter $0.875 $0.3125
4th Quarter $1.875 $0.375
2000
1st Quarter $3.125 $1.03125
(through February 22, 2000)
The number of holders of record of our $0.0001 par value Common stock
at February 15, 1999 was approximately 350. We have never declared or paid any
dividends on our common stock and we do not anticipate paying any cash dividends
in the foreseeable future.
22
<PAGE>
ITEM 2. LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings .
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The following is a description of securities that we have sold since
our inception on April 21, 1997 without registering the securities under the
Securities Act of 1933, as amended (the "1933 Act"). We claimed an exemption
from registration for all such sales under Section 4(2) of the 1933 Act or
Regulation D promulgated thereunder.
On December 31, 1998 in connection with the reverse merger acquistion,
we issued 1,300,000 shares of our common stock in a recapitalization of the
Company. The 1,300,000 shares issued consisted of 260,000 shares of common stock
issued to approximately 30 investors at a price of $.25 per share pursuant to
Rule 504 of Regulation D and 1,040,000 shares of common stock issued to officers
of the Company for services rendered pursuant to Section 4(2) of the 1933 Act.
On September 29, 1998, we issued an aggregate of 9,200,000 shares of
our common stock to Hans Nehme in exchange for 4,930,000 shares of the
outstanding common stock of Vertica California owned by Mr. Nehme. We claimed an
exemption from registration for such issuance under Section 4(2) of the 1933
Act. See Part I, Item 7 above.
On December 4, 1998, we issued 50,000 shares of our common stock at a
price of $1.00 per share to a single investor, pursuant to Rule 504 of
Regulation D.
On December 21, 1998, we issued 50,000 shares of our common stock at a
price of $1.00 per share to a single investor pursuant to Rule 504 of Regulation
D.
On February 11, 1999, we issued 41,433 shares of our common stock
pursuant to the conversion of a convertible promissory note in the principal
amount of $25,000 and dated September 30, 1998. The note was converted at the
rate of $0.618 per share, which represented a 45% discount to market. We claimed
an exemption from registration for such issuance under Section 4(2) of the 1933
Act.
On February 11, 1999, February 24, 1999 and March 2, 1999, we issued an
aggregate of 701,500 shares of our common stock at a price of $1.00 per share in
a private placement pursuant to Rule 504 of Regulation D.
23
<PAGE>
On February 24, 1999, we issued an aggregate of 32,885 shares of our
common stock pursuant to the conversion of three convertible promissory notes in
the principal amounts of $12,000, $10,000 and $10,000, respectively, and dated
August 1, 1998, August 2, 1998 and August 14, 1998, respectively. The notes were
converted at the rate of $1.00 per share. We claimed an exemption from
registration for such issuance under Section 4(2) of the 1933 Act.
On March 25, 1999, we issued 80,802 shares of our common stock pursuant
to the conversion of a convertible promissory note in the principal amount of
$50,000 and dated September 24, 1998. The note was converted at the rate of
$0.618 per share, which represented a 45% discount to market. We claimed an
exemption from registration for such issuance under Section 4(2) of the 1933
Act.
On March 26, 1999, we issued an aggregate of 571,321 shares of our
common stock pursuant to the conversion of four convertible promissory notes in
the principal amounts of $3,000, $28,811, $10,000 and $10,000, respectively.
These notes were originally issued by Vertica California on February 27, 1997,
March 1, 1996, October 31, 1996 and September 1, 1996, respectively. The notes
were converted at the rate of $0.10 per share. We claimed an exemption from
registration for such issuance under Section 4(2) of the 1933 Act.
On March 1, 1999, we issued 40,000 shares of our common stock to a
single investor in consideration for consulting services rendered. We claimed an
exemption from registration for such issuance under Section 4(2) of the 1933
Act.
On March 24, 1999, we issued 10,000 shares of our common stock pursuant
to the conversion of a convertible promissory note in the principal amount of
$10,000. The note was converted at the rate of $1.00 per share. We claimed an
exemption from registration for such issuance under Section 4(2) of the 1933
Act.
On December 28, 1999, January 4, 2000 and January 17, 2000, we
completed a bridge financing pursuant to which we issued short-term convertible
promissory notes in the aggregate principal amount of $300,000. Interest on
these notes accrues at the rate of 12% per annum. The notes are convertible at
the option of the holder into (i) shares of common stock of the Company at a
conversion price equal to 55% of the closing sale price of the Company's common
stock on June 28, 2000, July 4, 2000 and July 17, 2000, respectively, and (ii)
warrants to purchase an aggregate of 75,000 shares of common stock of the
Company at exercise prices ranging from $1.00 to $1.31 per share. We claimed
and exemption from registration for such issuance under Seciton 4(2) of the 1933
Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our articles of incorporation provide in relevant part that we shall
indemnify any person who was or is a party or is threatened to be made a party,
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than a derivative action
by or in the right of the corporation), by reason of the fact that he is or was
a director, officer, employee or agent of us, or is or was serving at our
request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonable incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonable believed to
be in, or not opposed to, our best interests and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. With respect to derivative actions, our articles provide in relevant
part that we shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor (by reason of
his service in one of the capacities specified in the preceding sentence)
against expenses (including attorneys' fees) actually and reasonable incurred by
him in connection with the defense or settlement of such
24
<PAGE>
action or suit if he acted in good faith and in a manner he reasonable believed
to be in or not opposed to our best interests, except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to us for negligence or misconduct unless
and only to the extent that the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonable entitled to indemnification for such expenses which such court shall
deem proper.
Our articles of incorporation also provide that no director shall be
personally liable to us or any shareholder for monetary damages for breach of
fiduciary duty as a director, except for (i) any breach of the director's duty
of loyalty to us or our shareholders, (ii) acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law, (iii)
unlawful payments of dividends or unlawful stock repurchases or redemptions, or
(iv) any transaction from which the director derived an improper personal
benefit. Such limitation of liability does not apply to liabilities arising
under the federal securities laws and does not affect the availability of
equitable remedies, such as injunctive relief or rescission.
We maintain insurance on behalf of any person who is a director or
officer against any loss arising from any claim asserted against him and
incurred by him in any such capacity, subject to certain exclusions.
PART F/S
The financial statements required by Part F/S and filed as part of this
registration statement are identified in the Index to Financial Statements on
Page F-1.
PART III
ITEM 1. INDEX TO EXHIBITS
3.1 Articles of Incorporation of the Registrant*
3.2 Articles of Amendment to the Articles of Incorporation of the
Registrant*
3.3 Bylaws of the Registrant*
10.1 Convertible Promissory Note of Vertica California dated April 10, 1997
in the principal amount of $50,000*
10.2 Convertible Promissory Note of Vertica California dated April 11, 1997
in the principal amount of $50,000*
10.3 Note Purchase Agreement dated April 9, 1997 between Vertica California
and Arthur A. Gingell*
25
<PAGE>
10.4 Stock Purchase and Exchange Agreement dated September 29, 1998 by and
among the Registrant, Scott M. Thornock, Edward C. Venerable, Vertica
California and Hans Nehme*
10.5 Custom Content Agreement dated January 19, 2000 between the Registrant
and ScreamingMedia.com, Inc.*
10.6 License Agreement dated February 1, 2000 by and between the Registrant
and Stockpoint, Inc.*
10.7 Lease Agreement dated as of December 1, 1999 between the Registrant and
Spieker Properties, L.P.*
10.8 Letter of Agreement dated January 7, 2000 between the Registrant and
Pfeiffer Public Relations, Inc.*
10.9 Memo of Understanding dated November 24, 1999 between the Registrant
and Capital Investment Advisory Partners**
10.10 Form of Convertible Promissory Note**
*Filed with Amendment No. 1 to the Form 10-SB of the Registrant on February 28,
2000.
**Filed with Amendment No. 2 to the Form 10-SB of the Registrant on March 9,
2000
ITEM 2. DESCRIPTION OF EXHIBITS
The Exhibits filed herewith are identified in the Index to Exhibits set
forth in Item I of Part III of this registration statement.
26
<PAGE>
SIGNATURES
In accordance with the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
VERTICA SOFTWARE, INC.
Dated: March 20, 2000 By: /s/ Hans Nehme
----------------- ----------------------------------
Hans Nehme, President and
Chief Executive Officer
27
<PAGE>
TABLE OF CONTENTS
INDEPENDENT AUDITORS' REPORT.................................................F-1
FINANCIAL STATEMENTS
Balance Sheets..........................................................F-2
Statements of Operations................................................F-3
Statement of Changes in Stockholders' Equity............................F-4
Statements of Cash Flows................................................F-6
NOTES TO FINANCIAL STATEMENTS................................................F-7
<PAGE>
Board of Directors
Vertica Software, Inc.
Emeryville, California
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Vertica Software, Inc., a
Colorado corporation (the "Company"), formerly Perfection Development
Corporation, (a development stage company) as of December 31, 1999, 1998, 1997,
and 1996 and the related statements of operations, stockholders' equity, and
cash flows for the period January 1, 1996 (inception) through December 31, 1999.
On December 31, 1998, the Company acquired all of the outstanding capital stock
of Vertica Software, Inc., a California corporation ("Vertica California") in a
reverse acquisition merger. The merger has been accounted for as a capital
acquisition as further described in the notes to the financial statements. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
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 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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of the Company
at December 31, 1999, 1998, 1997, and 1996 and the results of its operations and
its cash flows for the period January 1, 1996 (inception) through December 31,
1999, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has incurred significant development stage losses and
has a limited supply of cash, which raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Randolph Scott & Company
San Anselmo, California
February 14, 2000
F-1
<PAGE>
<TABLE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<CAPTION>
December 31, December 31, December 31, December 31,
1999 1998 1997 1996
ASSETS (Audited) (Audited) (Audited) (Audited)
------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents (Note 3) $ 36,490 $ 59,389 $ 9,646 $ 3,574
Prepaid Expenses 2,724 3,124 4,437 4,487
---------- ---------- ---------- ----------
TOTAL CURRENT ASSETS 39,214 62,513 14,083 8,061
EQUIPMENT, less accumulated depreciation of $ 23,337,
$ 7,937, $ 4,551 and $ 0, respectively (Notes 3 and 6) 27,288 25,673 12,382 12,558
DEPOSITS 10,000 5,815 3,510 3,510
---------- ---------- ---------- ----------
TOTAL ASSETS $ 76,502 $ 94,001 $ 29,975 $ 24,129
========== ========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of Credit (Note 7) $ - $ - $ 25,067 $ 12,500
Current Portion of Capital Lease Obligations (Note 10) 6,189 5,008 4,407 4,506
Notes Payable (Note 8) - 20,700 10,000 10,000
Stock Subscription (Note 9) - 50,000 - -
Accounts Payable and Other Accrued Expenses 66,364 62,407 19,342 2,788
Payroll Taxes Payable - 6,133 1,298 -
---------- ---------- ---------- ----------
TOTAL CURRENT LIABILITIES 72,553 169,315 47,547 17,294
CAPITAL LEASE OBLIGATIONS (Note 10) 4,057 4,407 5,209
CONVERTIBLE PROMISSORY NOTES (Note 11) 200,000 303,061 196,061 43,061
---------- ---------- ---------- ----------
TOTAL LIABILITIES 276,610 472,376 248,015 65,564
---------- ---------- ---------- ----------
COMMITMENTS (Note 13)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock, $ .001 par value, 3,000,000 shares authorized,
-0- shares issued and outstanding - - - -
Common Stock, $ .0001 par value, 30,000,000 shares authorized;
12,077,941 shares issued and outstanding at December 31, 1999 ,
and 10,600,000, 9,200,000, and 9,200,000 shares issued and
outstanding at December 31, 1998, 1997, and 1996 respectively 1,207 1,060 920 920
Advance to Stockholder (Note 5) (25,000) (25,000)
Paid in Capital 1,030,459 99,790 (70) (70)
Deficit accumulated during development stage (1,206,774) (454,225) (218,890) (42,285)
TOTAL STOCKHOLDERS' EQUITY (200,108) (378,375) (218,040) (41,435)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 76,502 $ 94,001 $ 29,975 $ 24,129
========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-2
<PAGE>
<TABLE>
VERTICA SOFTWARE, INC
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<CAPTION>
Cumulative
From
January 1,
1996
(Date of
For the For the For the For the Inception)
Year Ended Year Ended Year Ended Year Ended to
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1999
(Audited) (Audited) (Audited) (Audited) (Audited)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total Revenue $ -- $ -- $ -- $ -- $ --
Operating expenses:
Product development 239,396 40,622 115,957 -- 395,975
General and administrative 492,266 165,520 38,652 37,100 733,538
------------ ------------ ------------ ------------ ------------
Total operating expenses 731,662 206,142 154,609 37,100 1,129,513
------------ ------------ ------------ ------------ ------------
Loss from operations (731,662) (206,142) (154,609) (37,100) (1,129,513)
Interest income 1,199 131 1,209 -- 2,539
Interest expense (21,379) (28,323) (24,049) (4,385) (78,136)
Other income 93 1,644 -- 1,737
Bad debt expense -- (201) -- -- (201)
------------ ------------ ------------ ------------ ------------
Loss before income taxes (751,749) (234,535) (175,805) (41,485) (1,203,574)
Provision for income taxes (Note 12) (800) (800) (800) (800) (3,200)
------------ ------------ ------------ ------------ ------------
Net loss $ (752,549) $ (235,335) $ (176,605) $ (42,285) $ (1,206,774)
============ ============ ============ ============ ============
Net loss applicable to common stockholders $ (752,549) $ (235,335) $ (176,605) $ (42,285) $ (1,206,774)
============ ============ ============ ============ ============
Net loss per share---basic $ (0.0643) $ (0.0256) $ (0.0192) $ (0.0046) $ (0.0992)
============ ============ ============ ============ ============
Weighted average shares used in per share
calculation---basic 11,696,678 9,200,000 9,200,000 9,200,000 12,167,941
============ ============ ============ ============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-3
<PAGE>
<TABLE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Statement of Changes in Stockholders' Equity
From January 1, 1996 (Inception) to December 31, 1999
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock During
----------------- ----------------- Advance to Paid-in Development
Shares Amount Shares Amount Stockholder Capital Stage Total
------- ------- -------- ------ ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 -- $ -- -- $-- $ -- $ -- $ -- $ --
January 1, 1996 (inception), shares issued at
incorporation (Note 4) -- -- 9,200,000 920 -- (70) -- 850
Net loss for the year ended December 31, 1996 -- -- -- -- -- -- (42,285) (42,285)
------- ------- ---------- ------ ----------- -------- ---------- ----------
BALANCE DECEMBER 31, 1996 -- $ -- 9,200,000 $ 920 $ -- $ (70) $ (42,285) $ (41,435)
------- ------- ---------- ------ ----------- -------- ---------- ----------
Net loss for the year ended December 31, 1997 -- -- -- -- -- -- (176,605) (176,605)
------- ------- ---------- ------ ----------- -------- ---------- ----------
BALANCE DECEMBER 31, 1997 -- $ -- 9,200,000 $ 920 $ -- $ (70) $ (218,890) $(218,040)
------- ------- ---------- ------ ----------- -------- ---------- ----------
December 31, 1998, Issuance of common stock
pursuant to a reverse merger acquistion -- -- 1,300,000 130 -- (130) -- --
December 31, 1998, sale of common stock
pursuant to a confidential subscription
agreement (Note 9) -- -- 50,000 5 -- 49,995 -- 50,000
December 31, 1998, sale of common stock
pursuant to a confidential subscription
agreement (Note 9) -- -- 50,000 5 -- 49,995 -- 50,000
Advance to Stockholder (Note 5) -- -- -- -- (25,000) -- -- (25,000)
Net loss for the year ended December 31, 1998 -- -- -- -- -- -- (235,335) (235,335)
------- ------- ---------- ------ ----------- -------- ---------- ----------
BALANCE DECEMBER 31, 1998 -- $ -- 10,600,000 $1,060 $(25,000) $ 99,790 $ (454,225) $(378,375)
------- ------- ---------- ------ ----------- -------- ---------- ----------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Statement of Changes in Stockholders' Equity
From January 1, 1996 (Inception) to December 31, 1999
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock During
--------------- ---------------- Advance to Paid-in Development
Shares Amount Shares Amount Stockholder Capital Stage Total
------ ------ ------ ------ ----------- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
February 11, 1999, sale of common stock
pursuant to a confidential subscription
agreement (Note 9) -- -- 40,000 4 -- 39,996 -- 40,000
February 11, 1999, sale of common stock
in Private Placement Transactions, net of
Offering costs of $ 1,876 (Note 9) -- -- 584,500 58 -- 584,442 -- 584,500
February 11, 1999, conversion of convertible
promissory note to common stock (Note 9) -- -- 41,433 5 -- 42,653 -- 42,658
February 24, 1999, sale of common stock
in Private Placement Transactions, net of
Offering costs of $ 75 (Note 9) -- -- 62,000 6 -- 61,994 -- 62,000
February 24, 1999, conversion of convertible
promissory notes to common stock (Note 9) -- -- 32,885 3 -- 34,693 -- 34,696
March 2, 1999, sale of common stock
in Private Placement Transactions, net of
Offering costs of $ 15 (Note 9) -- -- 15,000 1 -- 14,999 -- 15,000
March 25, 1999, conversion of convertible
promissory note to common stock (Note 9) -- -- 80,802 8 -- 55,045 -- 55,053
March 26, 1999, conversion of convertible
promissory notes to common stock (Note 9) -- -- 571,321 57 -- 86,852 -- 86,909
September 23, 1999, issuance of common
stock for services (Note 9) -- -- 40,000 4 -- (4) -- --
October 29, 1999, conversion of convertible
promissory note to common stock (Note 9) 10,000 1 -- 9,999 -- 10,000
Net loss for the year ended December 31, 1999 -- -- -- -- -- -- (752,549) (752,549)
------ ------ --------- ------- ----------- --------- --------- -------
BALANCE, DECEMBER 31, 1999 -- $ -- 12,077,941 $ 1,207 $ (25,000) $1,030,459 $(1,206,774) $(200,108)
====== ====== ========= ======= =========== ========= ========= =======
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-5
<PAGE>
<TABLE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<CAPTION>
From
January 1,
1996
Date of
For the For the For the For the Inception)
Year Ended Year Ended Year Ended Year Ended to
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1999
(Audited) (Audited) (Audited) (Audited) (Audited)
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (752,549) $ (235,335) $ (176,605) $ (42,285) $(1,206,774)
Transactions not requiring cash:
Depreciation 15,400 3,386 1,411 3,140 23,337
Noncash consulting services -- -- -- -- --
Changes in operating assets and liabilities:
(Increase) decrease in advance to stockholder -- (25,000) -- -- (25,000)
(Increase) decrease in prepaid expenses 400 1,313 50 (4,487) (2,724)
(Increase) decrease in deposits (4,185) (2,305) -- (3,510) (10,000)
Increase (decrease) in accounts payable
and other accrued expenses 3,957 40,065 16,554 2,788 63,364
Increase (decrease) in payroll taxes payable (6,133) 4,835 1,298 -- --
----------- ----------- ----------- ----------- ----------
NET CASH (USED IN) OPERATING ACTIVITIES (743,110) (213,041) (157,292) (44,354) (1,157,797)
----------- ----------- ----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase/acquisition of equipment (17,015) (16,677) (1,235) (15,698) (50,625)
----------- ----------- ----------- ----------- ----------
NET CASH (USED IN) INVESTING ACTIVITIES (17,015) (16,677) (1,235) (15,698) (50,625)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings/assumption on line of credit -- 13,800 12,500 -- 26,300
Net payments on line of credit (25,067) (1,233) -- -- (26,300)
Proceeds/assumption of unsecured notes -- 10,700 -- 10,000 20,700
Net payments on unsecured notes (20,700) -- -- -- (20,700)
Proceeds, assumption on convertible debt 50,000 110,000 153,000 43,061 356,061
Reduction of convertible promissory notes (153,061) -- -- -- (153,061)
Conversion of convertible promissory notes
into common stock (includes $ 66,255
of accrued interest) 229,316 150,000 -- -- 379,316
Redemption of stock subscriptions (50,000) (100,000) -- -- (150,000)
Issuance of common stock 701,500 100,000 -- 850 802,350
Assumption of capital lease obligation 12,566 -- -- 13,795 26,361
Net payments on capital lease obligation (7,328) (3,806) (901) (4,080) (16,115)
----------- ----------- ----------- ----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 737,226 279,461 164,599 63,626 1,244,912
----------- ----------- ----------- ----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS (22,899) 49,743 6,072 3,574 36,490
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 59,389 9,646 3,574 -- --
----------- ----------- ----------- ----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 36,490 $ 59,389 $ 9,646 $ 3,574 $ 36,490
=========== =========== =========== =========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 3,623 $ 9,410 $ 5,015 $ 1,440 $ 18,048
Taxes $ 800 $ 800 $ 800 $ 800 $ 2,400
NONCASH INVESTING AND FINANCING TRANSACTIONS:
Common stock issued for consulting services $ 40,000 $ -- $ -- $ -- $ 40,000
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-6
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 1999
NOTE 1 - LOSSES DURING THE DEVELOPMENT STAGE
Development Stage Company
The Company is in the development stage in accordance with Statement of
Financial Accounting Standard (SFAS) No. 7. All of the costs incurred to date
have been related to the development of its products, development of its
proposed Internet website, and the raising of capital to finance such
activities.
The Company, as discussed in Notes 2, 3, and 4 below, have incurred operating
losses since inception, totaling $1,206,774 through December 31, 1999.
Management plans to raise additional capital, primarily through the issuance of
common stock and convertible promissory debt until successful operations are
obtained, and the Company is no longer in the development stage.
In view of these matters, realization of a major portion of the assets in the
accompanying balance sheet is dependent upon the Company's ability to meet its
financing requirements, and the success of its future operations. Management
believes that actions presently being taken to underwrite the Company's
development stage through completion will provide the necessary financial
requirements, which in turn will provide the opportunity for the Company to
continue as a going concern.
NOTE 2 - ORGANIZATION AND NATURE OF BUSINESS
Background
Vertica Software, Inc., (the "Company"), formerly "Perfection Development
Corporation", was incorporated in Colorado on April 18, 1997. As further
discussed in Notes 3 and 4, on September 29, 1998, Perfection Development
Corporation entered into an agreement pursuant to which it would acquire all of
the outstanding capital stock of Vertica Software, Inc., a California
corporation ("Vertica California"). On December 31, 1998, Vertica California
merged with and into the Company. The Company was the surviving corporation in
the merger and the separate corporate existence of Vertica California ceased.
Concurrently with the merger, the Company changed its name from Perfection
Development Corporation to Vertica Software, Inc. The Company is developing
Internet/Intranet software products and services and an Internet web site for
the hazardous material and environmental industries.
Products
The Company's current product development includes an environmental management
computer software system called VEMS, and development of a Internet web site
called VERTICA.COM. VEMS is intended to link to VERTICA.COM for additional
content information, on-line regulations compliance and on-demand training and
services. VEMS is intended to be a set of computer software modules that are
being designed to automate environmental regulation compliance and related
activities, for common industrial applications. This will encompass activities
such as chemical inventory, transportation manifests, emergency response, permit
applications, waste streams, and occupational training. Vertica.com will be an
on-line web site that will serve the hazardous materials community and
environmental concerns of industry.
F-7
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 1999
NOTE 2 - ORGANIZATION AND NATURE OF BUSINESS - Continued
Liquidity
The Company has recurring operating losses since inception that have continued
subsequent to December 31, 1999. The losses are primarily due to product
development costs, and administrative infrastructure costs related to the
financing and development of the Company's business.
In November 1999, the Company entered into a memo of understanding with an
investment firm to obtain the necessary financing to accelerate the completion
of its products, and to assist management in the development of the Company.
In conjunction with the memo of understanding, in December 1999, the Company
received $ 50,000 in bridge financing.
In conjunction with the memo of understanding, in January 2000, the Company
received an additional $ 250,000 in bridge financing.
The Company believes that the proceeds from these transactions will provide
adequate funding to sustain the Company's operations until permanent equity
funding can be raised. However, there is no assurance that the funding will be
raised, or that it will be sufficient to sustain operations until the Company
begins generating positive cash flows.
The Company's plan to continue the development of its core products through the
year ending December 31, 2000 is solely dependent on additional funding through
the sale of equitable securities or convertible promissory notes.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
As further discussed in Note 4, the acquisition of Vertica California was
accounted for as a "reverse merger acquisition" whereby, for accounting
purposes, Perfection Development Corporation acquired the Company under the
purchase method of accounting and, due to the lack of significant prior
operations of Perfection Development Corporation, was substantially recorded as
a "recapitalization". Accordingly, the historical financial statements have been
restated after giving effect to the December 31, 1998 acquisition of the
Company. The financial statements have been prepared to give retroactive effect
to January 1, 1996 of the reverse merger acquisition completed on December 31,
1998 and represent the operations of Vertica California. Consistent with reverse
acquisition accounting: ( i ) all of Vertica California's assets, liabilities
and accumulated deficit are reflected at their combined historical cost ( as the
accounting acquirer ) and ( ii ) the preexisting outstanding shares of the
Company ( the accounting acquiree ) are reflected at their net asset value as if
issued on December 31, 1998.
Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, retained earnings, income
and expenses, and related disclosures for the reporting period. Actual results
could differ from those estimates and such differences could be material.
F-8
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 1999
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Cash and Cash Equivalents
Cash is defined as cash in demand deposit accounts as well as cash on hand. Cash
equivalents are short term, highly liquid investments that are readily
convertible to known amounts of cash and investments so near their maturity that
the risk of changes in value due to changes in interest rates is negligible.
These are generally investments with maturity dates within three months of their
acquisition date. Not included as cash equivalents are funds restricted as to
their use, regardless of liquidity or the maturity dates of investments.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of uninsured cash balances. The Company places
its cash deposits with high-credit quality financial institutions. At times,
balances in the Company's cash accounts may exceed the Federal Deposit Insurance
Company (FDIC) limit of $100,000. There were no uninsured balances at December
31, 1999, 1998, 1997, and 1996.
Prepaid Expenses
Prepaid expenses are charged to the statement of operations in the period for
which the benefit is incurred.
Equipment
As further discussed in Note 6, equipment is carried at cost. Depreciation is
provided using the straight-line method over the estimated useful lives of the
related assets, which is five years. Capitalized equipment leases are
depreciated over lesser of their estimated useful life or lease term.
Product Development
Product development expenditures are charged to operations as incurred.
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed," requires
the capitalization of certain software development costs subsequent to the
establishment of technological feasibility. The Company has determined that
technological feasibility for its products is generally achieved upon completion
of a working model. Since software development costs have not been significant,
and the working model(s) are not yet completed, all such costs have been charged
to expense for the years ended December 31, 1999, 1998 and 1997. There were no
costs incurred for the period ended December 31, 1996.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the recorded book basis and tax basis
of assets and liabilities for financial and income tax reporting. The deferred
tax assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred taxes are also recognized for
operating losses that are available to offset future taxable income and tax
credits that are available to offset future federal income taxes.
F-9
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 1999
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Net Loss Per Share
The Company reports its net loss per share using a dual presentation of basic
and diluted loss per share. Basic loss per share excludes the impact of common
stock equivalents, and is computed by dividing the net loss by the weighted
average number of shares of common stock outstanding for the period. Diluted
loss per share includes the dilutive effect from the potential exercise or
conversion of convertible debt. For the years ended December 31, 1999, 1998,
1997, and 1996 the impact of convertible debt was not considered as their effect
on Net Loss Per Share would be anti-dilutive.
Fair Value of Financial Instruments
Cash, advances, prepaid expenses, accounts payable and accrued expenses are
reflected in the accompanying financial statements at fair value due to the
short-term nature of those instruments. The carrying amount of long term debt
obligations approximate fair value at the balance sheet date.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 is effective for fiscal years
beginning after December 31, 1997. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income in a set of financial statements.
Comprehensive income is defined as the change in net assets of a business
enterprise during a period from transactions generated from non-owner sources.
It includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners. The Company had no
comprehensive income items, therefore, the adoption of SFAS No. 130 had no
impact on the financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". SFAS No.
131 applies to all public companies and is effective for fiscal years beginning
after December 15, 1997. SFAS No. 131 requires that business segment financial
information be reported in the financial statements utilizing the management
approach. The management approach is defined as the manner in which management
organizes the segments within the enterprise for making operating decisions and
assessing performance. The Company operates in one business segment; therefore,
the adoption of SFAS No. 131 had no impact on the financial statements.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The Company adopted SOP 98-1
in January 1999.
On April 3, 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued a new SOP (Statement of
Position) 98-5 entitled "Reporting on the Costs of Start-Up Activities."
Start-up costs have been broadly defined as: "those one-time activities related
to opening a new facility, introducing a new product or service, conducting
business in a new territory, commencing business with a new class of customer or
beneficiary, initiating a new process in an existing facility, or commencing
some new operation."
F-10
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 1999
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Recent Accounting Pronouncements - continued
The SOP applies to all non-governmental entities that prepare their financial
statements in conformity with generally accepted accounting principles. The SOP
is effective for financial statements for fiscal years beginning after December
15, 1998, with earlier application encouraged in fiscal years for which
financial statements previously have not been issued. Since this is the first
set of issued financial statements of the Company, application of this SOP was
made January 1, 1996.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot distinguish
twenty-first century dates from twentieth century dates. To function properly,
these date-code fields must distinguish twenty-first century dates from
twentieth century dates and, as a result, many companies' software and computer
systems may need to be upgraded or replaced in order to comply with such "Year
2000" requirements.
The Company is dependent on the operation of numerous systems that may be
adversely affected by the Year 2000 problem, including equipment, software, and
content supplied to the Company by third-party vendors that may not be Year 2000
compliant, including outside providers of Web-hosting services on which the
Company is currently dependent. In addition, the Company's future business
depends on the successful operation of the Internet following the commencement
of the year 2000. If the Internet is inaccessible for an appreciable period of
time, or if customers and users are unable to access the Company's site, the
Company's business and revenues could be adversely affected. The Company is also
subject to external forces that might generally affect industry and commerce,
such as telecommunications, utility or transportation company Year 2000
compliance failures, related service interruptions and the economic impact that
such failures have on the Company customers Year 2000 Compliance Assessment
Plans.
The Company has not incurred material costs to date in their assessment process,
and currently does not believe that the cost of additional actions will have a
material effect on its results of operations or financial condition.
NOTE 4 - ACQUISITION
The Company's current business is a continuation of the business formerly
conducted by Vertica Software, Inc., a California corporation ("Vertica
California"). On December 31, 1998, the Company acquired 100% of the outstanding
capital stock of Vertica California in a "reverse merger acquisition." The
purchase price was solely comprised of the issuance of 9,200,000 shares of the
Company's common stock, par value $ .0001, to the shareholders of Vertica
California in exchange for all 4,930,000 shares of Vertica California's common
stock, no par value. The Company was the surviving corporation in the merger and
the separate corporate existence of Vertica California ceased. Concurrently with
the merger, the Company changed its name from Perfection Development Corporation
to Vertica Software, Inc. The merger constituted a tax-free reorganization. The
acquisition of Vertica California was accounted for using the purchase method of
accounting, and due to the lack of significant prior Company operations, was
substantially recorded as a "recapitalization."
F-11
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 1999
NOTE 5 - ADVANCE TI STOCKHOLDER
At December 31, 1999 and 1998, advance to stockholder consisted of an advance to
acquire stock in the Successor Company. In the original merger documents, the
stockholder was supposed to pay the Perfection Development Corporation
Shareholders $25,000 out of his own funds. The corporation made the $25,000
payment. There were no advances at December 31, 1997 and 1996. The stockholder
paid off the advance on January 15, 2000.
<TABLE>
NOTE 6 - EQUIPMENT
Equipment consisted of the following:
<CAPTION>
At December 31: 1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Computer and peripheral equipment $ 50,625 $ 33,610 $ 16,933 $ 15,698
Less accumulated depreciation 23,337 7,937 4,551 3,140
------------- ------------- ------------- -------------
$ 27,288 $ 25,673 $ 12,382 $ 12,558
============= ============= ============= =============
</TABLE>
Total depreciation expense for the years ended December 31, 1999, 1998, 1997 and
1996 respectively was $15,400, $3,386, $1,411, and $3,140.
<TABLE>
NOTE 7 - LINE OF CREDIT
The Company has a bank line of credit for $ 25,000, which is guaranteed by the
President of the Company. The line of credit has an automatic rollover feature
with no termination date.
<CAPTION>
At December 31: 1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Amount outstanding at year end $ 0 $ 25,067 $ 12,500 $ 0
============= ============= ============= =============
Weighted average interest rate at year end 10.25% 10.75% 11.25% 0
Weighted average borrowings during the year $ 23,635 $ 12,800 $ 4,166 $ 0
============= ============= ============= =============
Maximum amount outstanding during the year $ 25,067 $ 25,100 $ 12,500 $ 0
============= ============= ============= =============
</TABLE>
F-12
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 1999
<TABLE>
NOTE 8 - NOTES PAYABLE
Notes payable consisted of the following:
<CAPTION>
At December 31: 1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Note payable to individual, unsecured, bearing
compound interest at 10%, and payable upon
demand $ 0 $ 10,700 $ 0 $ 0
Note payable to individual, unsecured, bearing
compound interest at 10%, and payable upon
demand 0 10,000 10,000 10,000
------------- ------------- ------------- -------------
$ 0 $ 20,700 $ 10,000 $ 10,000
============= ============= ============= =============
</TABLE>
NOTE 9 - SALE AND ISSUANCE OF COMMON STOCK AND SUBSCRIPTIONS
Sale and Issuance of Common Stock
On December 31, 1998, in connection with the reverse merger acquisition, the
Company issued 1,300,000 shares of its $ .0001 par value common stock in a
recapitalization of the Company. The 1,300,000 shares consisted of the
following:
260,000 shares of its $ .0001 par value common stock at $ .25 per share pursuant
to Rule 504 of Regulation D of the Securities Act of 1933, as amended (the
"Act"). The Company received net proceeds of $ 60,500 after deducting offering
costs of $ 4,500.
1,040,000 shares of $ .0001 par value common stock were issued to officers for
services. These shares are "restricted securities" and may be sold only in
compliance with Rule 144 of the Act.
During the year ended December 31, 1998, the Company issued 100,000 shares of
its $ .0001 par value common stock at $ 1.00 per share pursuant to Rule 504 of
Regulation D of the Act for net proceeds of $ 100,000.
During the year ended December 31, 1998, the Company issued 9,200,000 shares of
its $ .0001 par value common stock at $ .0001 per share to its principal
stockholders. The 9,200,000 shares are reflected as issued as of the
recapitalization date of the Company.
During the year ended December 31, 1999, the Company issued 40,000 shares of its
$ .0001 par value common stock at $ 1.00 per share pursuant to Rule 504 of
Regulation D of the Act for net proceeds of $ 40,000.
During the year ended December 31, 1999, the Company issued 661,500 shares of
its $ .0001 par value common stock at $ 1.00 per share pursuant to Rule 504 of
Regulation D of the Act for net proceeds of $ 661,500.
During the year ended December 31, 1999, the Company converted convertible
promissory notes totaling $ 229,316 (including accrued interest of $ 66,255) for
736,441 shares of its $ .0001 par value common stock at an average price of $
.31 per share.
During the year ended December 31, 1999, the Company issued 40,000 shares of its
$ .0001 par value common stock at $ 1.00 per share for outside consulting
services.
F-13
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 1999
NOTE 9 - SALE AND ISSUANCE OF COMMON STOCK AND SUBSCRIPTIONS - (Continued)
Subscriptions
At December 31, 1998, subscriptions consisted of one remaining out of three $
50,000 subscriptions issued under Rule 504 of the Securities Act of 1933 in
November and December 1998. The final subscription was converted during the year
ended December 31, 1999. The subscription funds are held in escrow until the
holder approves release and acquires the stipulated number of common shares.
There were no subscriptions outstanding at December 31, 1997 and 1996.
<TABLE>
NOTE 10 - CAPITAL LEASE OBLIGATIONS
Capital lease obligations consisted of the following :
<CAPTION>
At December 31: 1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Capital lease obligation, secured by equipment,
with an effective interest rate of 16% and
approximate monthly payments of $ 460 $ 0 $ 5,008 $ 8,814 $ 9,715
Capital lease obligation, secured by equipment,
with an effective interest rate of 14.9% and
approximate monthly payments of $ 360 6,102 0 0 0
Capital lease obligation, secured by equipment,
with an effective interest rate of 14.9% and
approximate monthly payments of $ 250 4,144 0 0 0
------------- ------------- ------------- -------------
10,246 5,008 8,814 9,715
Less current portion 6,189 5,008 4,407 4,506
------------- ------------- ------------- -------------
$ 4,057 $ 0 $ 4,407 $ 5,209
============= ============= ============= =============
</TABLE>
F-14
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 1999
<TABLE>
NOTE 11 - CONVERTIBLE PROMISSORY NOTES
Convertible promissory notes consisted of the following:
<CAPTION>
At December 31: 1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Convertible promissory note, unsecured
with interest at 10%. A separate
agreement stipulates the conversion rate
of $ .618 cents per share of common
stock. The principal note balance along
with all accrued interest became due on
December 31, 1998 $ 0 $ 25,000 $ 0 $ 0
Convertible promissory note, unsecured
with interest at 10%. A separate
agreement stipulates the conversion rate
of $ .618 cents per share of common
stock. The principal note balance along
with all accrued interest is payable on
demand 0 50,000 0 0
Convertible promissory note, unsecured
with interest at 10%. A separate
agreement stipulates the conversion rate
of $ 1.00 per share of common stock. The
principal note balance along with all
accrued interest matures on August 14,
2001 0 12,000 0 0
Convertible promissory note, unsecured
with interest at 10%. A separate
agreement stipulates the conversion rate
of $ 1.00 per share of common stock. The
principal note balance along with all
accrued interest matures on August 1,
2000 0 10,000 0 0
Convertible promissory note, unsecured
with interest at 10%. A separate
agreement stipulates the conversion rate
of $ 1.00 per share of common stock. The
principal note balance along with all
accrued interest matures on August 1,
2001 0 10,000 0 0
F-15
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 1999
NOTE 11 - CONVERTIBLE PROMISSORY NOTES - (Continued)
At December 31: 1999 1998 1997 1996
---- ---- ---- ----
Convertible promissory note, unsecured
with interest at 10%. The agreement
stipulates the conversion rate of $ 1.60
per share of common stock. The principal
note balance along with all accrued
interest is payable upon demand 50,000 50,000 50,000 0
Convertible promissory note, unsecured
with interest at 10%. The agreement
stipulates the conversion rate of $ 1.60
per share of common stock. The principal
note balance along with all accrued
interest is payable upon demand 50,000 50,000 50,000 0
Convertible promissory note, unsecured
with interest at 10%. A separate
agreement stipulates the conversion rate
of $ .10 cents per share of common stock.
The principal note balance along with all
accrued interest mature on February 27,
1999 0 3,000 3,000 0
Convertible promissory note, unsecured
with interest at 10%. A separate
agreement stipulates the conversion rate
of $ .10 cents per share of common stock.
The principal note balance along with all
accrued interest matured on October 1,
1999 0 10,000 10,000 10,000
Convertible promissory note, unsecured
with interest at 10%. A separate
agreement stipulates the conversion rate
of $ .10 cents per share of common stock.
The principal note balance along with all
accrued interest matured on October 1,
1999 0 4,250 4,250 4,250
Convertible promissory note, unsecured
with interest at 10%. The agreement
stipulates the conversion rate of $ 1.60
per share of common stock. The principal
note balance along with all accrued
interest is payable upon demand 50,000 50,000 50,000 0
F-16
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 1999
NOTE 11 - CONVERTIBLE PROMISSORY NOTES - (Continued)
At December 31: 1999 1998 1997 1996
---- ---- ---- ----
Convertible promissory note, unsecured
with interest at 10%. A separate
agreement stipulates the conversion rate
of $ .10 cents per share of common stock.
The principal note balance along with all
accrued interest matured on March 1, 1999 0 28,811 28,811 28,811
Convertible promissory note, unsecured
with interest at 12%. The principal plus
accrued interest converts to common stock
at a conversion price equal to 55% of the
closing sale price of the common stock as
reported on the OTCBB on the date of the
election to convert. The principal note
balance along with all accrued interest
matures on June 28, 2000 50,000 0 0 0
------------- ------------- ------------- -------------
$ 200,000 $ 303,061 $ 196,061 $ 43,061
============= ============= ============= =============
NOTE 12 - INCOME TAXES
A reconciliation of the U.S. statutory federal income tax rate to the effective tax rate is as follows:
At December 31: 1999 1998 1997 1996
---- ---- ---- ----
U.S. federal statutory graduated rate 34.00% 39.00% 39.00% 15.00%
State income tax rates net of federal
benefits:
Colorado 3.26% 3.04% 2.98% 4.25%
California 6.20% 5.80% 5.70% 8.20%
Net operating loss for which no tax
benefit is currently available (43.46%) (47.84%) (47.68%) (27.45%)
------------- ------------- ------------- -------------
0% 0% 0% 0%
============= ============= ============= =============
</TABLE>
The Company conducts its operations in California, which has a minimum tax of
$800.
F-17
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 1999
NOTE 12 - INCOME TAXES - (Continued)
At December 31, 1999, 1998, 1997 and 1996, deferred taxes consisted of a net tax
asset due to operating loss carryforwards of $752,549, $235,335, $176,605, and
$42,285, respectively, which was fully allowed for, in the valuation allowance
of $752,549, $235,335, $176,605, and $42,285, respectively. The valuation
allowance offsets the net deferred tax asset for which there is no assurance of
recovery. The change in valuation allowance for the years ended December 31,
1999, 1998, 1997, and 1996 were $228,937, $28,679, $57,963, and $10,201,
respectively. Net operating loss carryforwards will expire in 2011, 2012, 2013,
and 2014.
NOTE 13 - Commitments
The Company has operating leases on its office space and some of its equipment.
Future minimum lease payments under such noncancelable operating leases are
summarized as follows:
Office
Space Equipment
----------------- -----------------
Year ending
December 31,
2000 $ 98,033 $ 7,304
2001 121,106 4,261
2002 124,739 0
2003 128,481 0
2004 121,011 0
----------------- -----------------
$ 593,370 $ 11,565
================= =================
Total rent expense for the years ended December 31, 1999, 1998, 1997, and 1996
was $29,845, $14,731, $13,940, and $8,605, respectively.
The Company also made two non-cancelable commitments to an investor relations
firm and media content firm. Future minimum payments are $ 66,600 for year ended
December 31, 2000, and $ 7,320 for the year ended December 31, 2001
F-18
