UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________ to ______________
Commission file number 0-28813
Vertica Software, Inc.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 93-1192725
------------------------------ ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5801 Christie Avenue, Suite 390 Emeryville, California 94608
------------------------------------------------------------
(Address of principal executive offices)
(510) 595-3333
---------------------------
(Issuer's telephone number)
N/A
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
<PAGE>
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 12,077,941 shares of Common Stock
outstanding on June 30, 2000.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
TABLE OF CONTENTS
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
F-1
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
ASSETS (Unaudited) (Unaudited)
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents (Note 3) $ 22,587 $ 383,858
Prepaid Expenses 2,724 3,124
------------ ----------
TOTAL CURRENT ASSETS 25,311 386,982
EQUIPMENT, less accumulated depreciation of $ 38,449,
and $ 13,917, respectively (Notes 3 and 6) 61,803 26,164
DEPOSITS 10,000 5,815
------------ ----------
TOTAL ASSETS $ 97,114 $ 418,961
============ ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of Credit $ - $ 23,868
Current Portion of Capital Lease Obligations (Note 8) 6,665 2,143
Accounts Payable and Other Accrued Expenses 192,500 72,219
------------ ----------
TOTAL CURRENT LIABILITIES 199,165 98,230
CAPITAL LEASE OBLIGATIONS (Note 8) 1,035 2,939
CONVERTIBLE PROMISSORY NOTES (Note 9) 875,000 150,000
------------ ----------
TOTAL LIABILITIES 1,075,200 251,169
------------ ----------
COMMITMENTS (Note 11)
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 June 30, 2000 1,207 1,202
Advance to Stockholder (Note 5) 0 (25,000)
Paid in Capital 1,030,459 1,020,464
Deficit accumulated during development stage (2,009,752) (828,874)
------------ ----------
TOTAL STOCKHOLDERS' EQUITY (978,086) 167,792
------------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 97,114 $ 418,961
============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
From
January 1,
1996
(Date of
Three Months Ended Six Months Ended Inception)
June 30 June 30 to
--------------------------- ------------------------------ June 30,
2000 1999 2000 1999 2000
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total Revenue $ 27,063 $ - $ 27,063 $ - $ 27,063
Operating expenses:
Product development 180,003 43,472 312,395 83,350 708,370
General and administrative 265,474 135,054 487,364 279,586 1,220,902
------------ ----------- ----------- ----------- -----------
Total operating expenses 445,477 178,526 799,759 362,936 1,929,272
------------ ----------- ----------- ----------- -----------
Loss from operations (418,414) (178,526) (772,696) (362,936) (1,902,209)
Interest income - 508 28 1,196 2,567
Interest expense (18,702) (5,226) (32,317) (12,202) (110,453)
Other income 210 - 2,807 93 4,544
Bad debt expense - - - - (201)
------------ ----------- ----------- ----------- -----------
Loss before income taxes (436,906) (183,244) (802,178) (373,849) (2,005,752)
Provision for income taxes (Note 10) - - (800) (800) (4,000)
------------ ----------- ----------- ----------- -----------
Net loss $ (436,906) $ (183,244) $ (802,978) $ (374,649) $(2,009,752)
=========== =========== =========== =========== ===========
Net loss applicable to common stockholders $ (436,906) $ (183,244) $ (802,978) $ (374,649) $(2,009,752)
=========== =========== =========== =========== ===========
Net loss per share---basic $ (0.0362) $ (0.0165) $ (0.0665) $ (0.0338) $ (0.1666)
=========== =========== =========== =========== ===========
Weighted average shares used in per share
calculation---basic 12,077,941 11,077,131 12,077,941 11,077,131 12,065,441
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Statement of Changes in Stockholders' Equity
From January 1, 1996 (Inception) to June 30, 2000
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------------- ----------------------- Advance to Paid-in
Shares Amount Shares Amount Stockholder Capital
------ --------- --------- ------- ---------- ---------
<S> <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)
Net loss for the year ended December 31, 1996 - - - - - -
------ --------- ---------- ------- --------- --------
BALANCE DECEMBER 31, 1996 (Audited) - $ - 9,200,000 $ 920 $ - $ (70)
------ --------- ---------- ------- --------- --------
Net loss for the year ended December 31, 1997 - - - - - -
------ --------- ---------- ------- --------- --------
BALANCE DECEMBER 31, 1997 (Audited) - $ - 9,200,000 $ 920 $ - $ (70)
------ --------- ---------- ------- --------- --------
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
December 31, 1998, sale of common stock
pursuant to a confidential subscription
agreement (Note 9) - - 50,000 5 - 49,995
Advance to Stockholder (Note 5) - - - - (25,000) -
Net loss for the year ended December 31, 1998 - - - - - -
------ --------- ---------- ------- --------- --------
BALANCE DECEMBER 31, 1998 (Audited) - $ - 10,600,000 $ 1,060 $ (25,000) $ 99,790
------ --------- ---------- ------- --------- --------
February 11, 1999, sale of common stock
pursuant to a confidential subscription
agreement (Note 9) - - 40,000 4 - 39,996
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
During
Development
Stage Total
----------- ---------
<S> <C> <C>
BALANCE, DECEMBER 31, 1995 $ - $ -
January 1, 1996 (inception), shares issued at
incorporation (Note 4) - 850
Net loss for the year ended December 31, 1996 (42,285) (42,285)
---------- ---------
BALANCE DECEMBER 31, 1996 (Audited) $ (42,285) $ (41,435)
---------- ---------
Net loss for the year ended December 31, 1997 (176,605) (176,605)
---------- ---------
BALANCE DECEMBER 31, 1997 (Audited) $(218,890) $(218,040)
---------- ---------
December 31, 1998, Issuance of common stock
pursuant to a reverse merger acquistion - -
December 31, 1998, sale of common stock
pursuant to a confidential subscription
agreement (Note 9) - 50,000
December 31, 1998, sale of common stock
pursuant to a confidential subscription
agreement (Note 9) - 50,000
Advance to Stockholder (Note 5) - (25,000)
Net loss for the year ended December 31, 1998 (235,335) (235,335)
---------- ---------
BALANCE DECEMBER 31, 1998 (Audited) $(454,225) $(378,375)
---------- ---------
February 11, 1999, sale of common stock
pursuant to a confidential subscription
agreement (Note 9) - 40,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Statement of Changes in Stockholders' Equity
From January 1, 1996 (Inception) to June 30, 2000
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------ ------------------------ Advance to
Shares Amount Shares Amount Stockholder
------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C>
February 11, 1999, sale of common stock
in Private Placement Transactions, net of
Offering costs of $ 1,876 (Note 9) - - 584,500 58 -
February 11, 1999, conversion of convertible
promissory note to common stock (Note 9) - - 41,433 5 -
February 24, 1999, sale of common stock
in Private Placement Transactions, net of
Offering costs of $75 (Note 9) - - 62,000 6 -
February 24, 1999, conversion of convertible
promissory notes to common stock (Note 9) - - 32,885 3 -
March 2, 1999, sale of common stock
in Private Placement Transactions, net of
Offering costs of $15 (Note 9) - - 15,000 1 -
March 25, 1999, conversion of convertible
promissory note to common stock (Note 9) - - 80,802 8 -
March 26, 1999, conversion of convertible
promissory notes to common stock (Note 9) - - 571,321 57 -
September 23, 1999, issuance of common
stock for services (Note 9) - - 40,000 4 -
October 29, 1999, conversion of convertible
promissory note to common stock (Note 9) 10,000 1 -
Net loss for the year ended December 31, 1999 - - - - -
--------- --------- ---------- ------- ---------
BALANCE, DECEMBER 31, 1999 (Audited) - - 12,077,941 1,207 (25,000)
--------- --------- ---------- ------- ---------
Repayment of Stockholder's Advance (Note 5) - - - - 25,000
Net loss for the six months ended June 30, 2000
(Unaudited) - - - - -
--------- --------- ---------- ------- ---------
BALANCE, JUNE 30,2000 (Unaudited) - $ - 12,077,941 $ 1,207 $ -
========= ========= ========== ======= =========
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
During
Paid-in Development
Capital Stage Total
------- ------------- ---------
<S> <C> <C> <C>
February 11, 1999, sale of common stock
in Private Placement Transactions, net of
Offering costs of $1,876 (Note 9) 584,442 - 584,500
February 11, 1999, conversion of convertible
promissory note to common stock (Note 9) 42,653 - 42,658
February 24, 1999, sale of common stock
in Private Placement Transactions, net of
Offering costs of $75 (Note 9) 61,994 - 62,000
February 24, 1999, conversion of convertible
promissory notes to common stock (Note 9) 34,693 - 34,696
March 2, 1999, sale of common stock
in Private Placement Transactions, net of
Offering costs of $15 (Note 9) 14,999 - 15,000
March 25, 1999, conversion of convertible
promissory note to common stock (Note 9) 55,045 - 55,053
March 26, 1999, conversion of convertible
promissory notes to common stock (Note 9) 86,852 - 86,909
September 23, 1999, issuance of common
stock for services (Note 9) (4) - -
October 29, 1999, conversion of convertible
promissory note to common stock (Note 9) 9,999 - 10,000
Net loss for the year ended December 31, 1999 - (752,549) (752,549)
----------- ----------- ----------
BALANCE, DECEMBER 31, 1999 (Audited) 1,030,459 (1,206,774) (200,108)
----------- ----------- ----------
Repayment of Stockholder's Advance (Note 5) - - 25,000
Net loss for the six months ended June 30, 2000
(Unaudited) - (802,978) (802,978)
----------- ----------- ----------
BALANCE, JUNE 30,2000 (Unaudited) $ 1,030,459 $(2,009,752) $ (978,086)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
From
January 1,
1996
(Date of
Six Months Ended Inception)
June 30, to
---------------------------- June 30,
2000 1999 2000
CASH FLOWS FROM OPERATING ACTIVITIES (Unaudited) (Unaudited) (Unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Net Loss $(802,978) $ (374,649) $(2,009,752)
Transactions not requiring cash:
Depreciation 15,112 5,980 38,449
Noncash consulting services - - -
Changes in operating assets and liabilities:
(Increase) decrease in advance to stockholder 25,000 - -
(Increase) decrease in prepaid expenses - - (2,724)
(Increase) decrease in deposits - - (10,000)
Increase (decrease) in accounts payable and other accrued expenses 126,136 9,812 189,500
Increase (decrease) in payroll taxes payable - (6,133) -
--------- --------- ----------
NET CASH (USED IN) OPERATING ACTIVITIES (636,730) (364,990) (1,794,527)
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase/acquisition of equipment (49,627) (6,471) (100,252)
--------- --------- ----------
NET CASH (USED IN) INVESTING ACTIVITIES (49,627) (6,471) (100,252)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings/assumption on line of credit - - 26,300
Net payments on line of credit - (1,199) (26,300)
Proceeds/assumption of unsecured notes - - 20,700
Net payments on unsecured notes - (20,700) (20,700)
Proceeds, assumption on convertible debt 675,000 - 1,031,061
Reduction of convertible promissory notes - (153,061) (153,061)
Conversion of convertible promissory notes into common -
stock (includes $ 66,255 of accrued interest) - 219,316 379,316
Redemption of stock subscriptions - (50,000) (150,000)
Issuance of common stock - 701,500 802,350
Assumption of capital lease obligation - 5,082 26,361
Net payments on capital lease obligation (2,546) (5,008) (18,661)
--------- --------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 672,454 695,930 1,917,366
--------- --------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS (13,903) 324,469 22,587
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 36,490 59,389 -
--------- --------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 22,587 $ 383,858 $ 22,587
========= ========= ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ - $ - $ 18,048
Taxes $ 800 $ - $ 3,200
NONCASH INVESTING AND FINANCING TRANSACTIONS:
Common stock issued for consulting services $ - $ - $ 40,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
NOTE 1 - LOSSES DURING THE DEVELOPMENT STAGE
Development Stage Company
Vertica Software, Inc. (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, has incurred operating
losses since inception, totaling $2,009,752 through June 30, 2000. This raises
substantial doubt about the Company's ability to continue as a going concern.
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. The accompanying financial statements do not
include any adjustments relating to the recoverability and classification of the
recorded asset amounts or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue in existence.
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 ICOMPLY and an Internet web site called
HAZWEB.COM. ICOMPLY is planned to be a set of computer software modules designed
to automate environmental regulation compliance and related activities for
common industrial applications.
F-7
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
NOTE 2 - ORGANIZATION AND NATURE OF BUSINESS - Continued
Products - (Continued)
The related activities will include chemical inventory listings and tracking,
transportation manifests, emergency response, permit applications, waste
streams, and occupational training. HAZWEB.COM is an on-line web site that is
intended to serve the hazardous materials community and environmental concerns
of industry. The Company intends to allow ICOMPLY to link to HAZWEB.COM for
additional content information, on-line regulations compliance and on-demand
training and services.
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 January 2000, the Company received an additional $250,000 in bridge
financing.
In March 2000, the Company received an additional $100,000 in bridge financing.
In April 2000, the Company received an additional $300,000 in bridge financing.
In June 2000, the Company received an additional $25,000 in bridge financing.
The Company is expecting an additional $1,000,000 in bridge financing in August
2000. However, there is no assurance that the funding will be raised, or that it
will be sufficient to sustain operations through the end of the current year, or
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 dependent on additional funding through the
sale of equity securities, convertible promissory notes, and sales.
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.
F-8
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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.
Presentation of Interim Information:
In the opinion of the management of the Company, the accompanying unaudited
financial statements include all material adjustments, including all normal
recurring adjustments, considered necessary to present fairly the financial
position of the Company as of June 30, 2000 and the Company's results of
operations and cash flows for the six months ended June 30, 2000 and 1999 and
cumulative since inception January 1, 1996 to June 30, 2000. The financial
statements and notes are presented as permitted by Form 10-QSB and do not
contain certain information included in the Company's last Audited Financial
Statements for the year ended December 31, 1999 included in Form 10-SB/A. It is
the Company's opinion that, when the interim statements are read in conjunction
with the Audited Financial Statements for the year ended December 31, 1999
included in Form 10-SB/A, the disclosures are adequate to make the information
presented not misleading. Interim results are not necessarily indicative of
results for a full year or any future period.
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 six 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 June 30,
2000.
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 the lesser of their estimated useful life or lease term.
F-9
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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 six months ended June 30, 2000.
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.
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 six months ended June 30, 2000, 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.
F-10
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Recent Accounting Pronouncements - continued
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 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."
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.
F-11
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Unaudited
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."
NOTE 5 - ADVANCE TO STOCKHOLDER
Advance to stockholder consisted of an advance to acquire stock in the 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 Company made the $25,000 payment. The stockholder paid off the advance on
January 15, 2000.
NOTE 6 - EQUIPMENT
At June 30, 2000, equipment consisted of the following:
Computer and peripheral equipment $ 74,639
Telephone system 25,613
---------
100,252
Less accumulated depreciation 38,449
---------
$ 61,803
=========
Total depreciation expense for the six months ended June 30, 2000 was $15,112.
NOTE 7 - 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.
F-12
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
NOTE 7 - SALE AND ISSUANCE OF COMMON STOCK AND SUBSCRIPTIONS - (Continued)
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.
NOTE 8 - CAPITAL LEASE OBLIGATIONS
Capital lease obligations consisted of the following :
At June 30, 2000
Capital lease obligation, secured by equipment,
with an effective interest rate of 14.9% and
approximate monthly payments of $360 $4,327
Capital lease obligation, secured by equipment,
with an effective interest rate of 14.9% and
approximate monthly payments of $250 3,373
------
7,700
Less current portion 6,665
------
$1,035
======
F-13
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
NOTE 9 - CONVERTIBLE PROMISSORY NOTES
Convertible promissory notes consisted of the following:
At June 30, 2000:
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
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
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
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 is payable upon demand 50,000
F-14
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
NOTE 9 - CONVERTIBLE PROMISSORY NOTES - (Continued)
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 July 4, 2000 $ 100,000
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 July 17, 2000 50,000
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 July 17, 2000 100,000
Convertible promissory note, unsecured with interest at 12%.
The debt and accrued interest converts at a rate of $1.50
cents per share of common stock. The principal note balance
along with all accrued interest matured on August 20, 2000 50,000
F-15
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
NOTE 9 - CONVERTIBLE PROMISSORY NOTES - (Continued)
Convertible promissory note, unsecured with interest at 12%.
The debt and accrued interest converts at a rate of $1.50
cents per share of common stock. The principal note balance
along with all accrued interest matures on August 20, 2000 50,000
Convertible promissory note, unsecured with interest at 12%.
The debt and 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 October 21, 2000 100,000
Convertible promissory note, unsecured with interest at 12%.
The debt and 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
election to convert. The principal note balance along with all
accrued interest matures on October 24, 2000 100,000
Convertible promissory note, unsecured with interest at 12%.
The debt and 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
election to convert. The principal note balance along with all
accrued interest matures on October 25, 2000 100,000
Convertible promissory note, unsecured with interest at 12%.
The debt and accrued interest converts at a rate of $.50 cents
per share of common stock. The principal note balance along
with all accrued interest matures on December 30, 2000 25,000
--------
$875,000
========
Future principal maturities on convertible debt are as follows:
December 31, 2000 $875,000
========
F-16
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
NOTE 10 - INCOME TAXES
A reconciliation of the U.S. statutory federal income tax rate to the effective
tax rate is as follows:
Six months ended June 30, 2000:
U.S. federal statutory graduated rate 39%
State income tax rates net of federal
benefits:
Colorado 4%
California 7%
Net operating loss for which no tax
benefit is currently available (50%)
----
(0%)
====
The Company conducts its operations in California, which has a minimum tax of
$800.
At June 30, 2000, deferred taxes consisted of a net tax asset due to operating
loss carry forwards of $2,009,752, which was fully allowed for, in the valuation
allowance of $2,009,752. The valuation allowance offsets the net deferred tax
asset for which there is no assurance of recovery. The change in valuation
allowance for the six months ended June 30, 2000 was $241,170. Net operating
loss carry forwards will expire in 2011, 2012, 2013, 2014, and 2015.
NOTE 11 - 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 $ 65,354 $4,871
2001 121,106 4,261
2002 124,739 0
2003 128,481 0
2004 121,011 0
-------- ------
$560,691 $9,132
======== ======
Total rent expense for the six months ended June 30, 2000 was $ 39,359.
The Company also made two non-cancelable commitments to an investor relations
firm and media content firm. Future minimum payments are $44,400 for year ended
December 31, 2000, and $7,320 for the year ended December 31, 2001.
F-17
<PAGE>
ITEM 2. Management's Discussion and Analysis or 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. Actual results may differ
materially from those projected in the forward-looking statements. Additional
information concerning factors that may cause actual results to differ
materially from those in the forward-looking statements are in the Company's
Annual Report on form 10-SB12G for the year ended December 31, 1999 and in the
Company's other filings with the Securities and Exchange Commission. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company assumes no obligation to update
any forward-looking statements or comments on the reasons why actual results may
differ. 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.
Vertica Software, Inc. is 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 released our second software product "Transporter," part of the "ICOMPLY
Environmental Management System," in July, 2000. We are continuing the
development of other related software systems within the ICOMPlY Environmental
Management System.
In April, 2000, we launched our web site called HAZWEB.COM. The ICOMPLY
Environmental Management system's applications, when fully completed, will
include chemical inventory listing and tracking, transportation manifests,
emergency compliance, permit applications, waste streams and occupational
training.
Results of operations:
The Company realized a net loss from operations of $436,906 for the three
months ended June 30, 2000,compared to a realized net loss from operations of
$183,244 for the three months ended June 30, 1999. The Company for the six
months ended June 30, 2000 realized a net loss from operations of $802,978,
compared to a realized net loss from operations of $374,649 for the six months
ended June 30, 1999. The Company has realized, since January 1, 1996 (date of
inception) to June 30, 2000, a cumulative net loss from operations of
$2,009,752. The Company had $27,063 in sales from operations for the quarter
ended June 30, 2000, and no sales from operations for the period January 1, 1996
(date of inception) through March 31, 2000.
Plan of operation:
Loss on operations for the Company for the three and six months ended June
30, 2000 increased 238% and 214%, respectively, from the prior year for the same
periods. These losses are attributed to the Company's development, marketing and
general expenses. The Company will, over the next 12 months, rely on additional
funding through the sale of promissory notes convertible to common stock, the
sale of common stock, and sales from company products.
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 $22,500 and estimated
revenues of $150,000 from the sale of our initial products, in order to satisfy
our estimated cash requirements over the next twelve months. We cannot assure
3
<PAGE>
you however, that we will be able to reach this revenue amount. Operating
revenues are expected to be generated, 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 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.
During the six months ended June 30, 2000, we received funds totaling
$675,000 in the form of convertible promissory notes. These notes bear interest
at 12% and mature six months from the date of issuance. Conversion to common
stock must occur before the maturity date.
In the event that future equity capital cannot be raised in a timely manner
to fund our products to completion, development will be halted at that time for
all unfinished products and services. 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. We would focus
our efforts on the marketing and sales of the Communicator and Transporter
products.
Research and Development:
We have released the following products, which are available for licensing
to potential customers:
ICOMPLY Communicator (released for licensing February 1, 2000)
ICOMPLY Inventory (released for licensing February 1, 2000)
ICOMPLY Transporter (released for licensing July 17, 2000)
Over the next 12 months, we plan to complete development of the remainder
of our core products. Provided that we obtain the required funding, release of
our remaining core products is projected to be as follows:
By December 31, 2000:
ICOMPLY Processor
By December 31, 2000:
ICOMPLY Permitter
By December 31, 2000:
ICOMPLY HazOSHA
While completing the core products above, we will also be developing
community strategic alliances within our industry through target marketing
opportunities, advertising and other related e-business. Product and web site
maintenance 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
4
<PAGE>
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 $125,000.
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 is included
above under projected research and development costs.
5
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities
In April and June 2000 the Company completed a bridge financing pursuant to
which the Company issued short-term convertible promissory notes in the
aggregate principal amount of $325,000. Interest on these notes accrues at the
rate of 12% per annum. $300,000 principal amount of the notes plus accrued
interest are convertible at the option of the holder into 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 as reported on the OTCBB on the date of the election.
If a holder of part of the $300,000 principal amount of notes elects to convert
their note, the holder shall also be entitled to receive a warrant to acquire
that number of shares of the Company's common stock equal to 25% of the
principal amount of the note. The exercise price of each warrant equals the
closing sale price of the common stock as reported on the OTCBB on the date the
Company received the principal amount of the note. $25,000 principal amount of
the notes plus accrued interest are convertible at the option of the holder into
shares of common stock of the Company at a conversion rate of 50 cents per share
of common stock. The Company claimed an exemption from registration for such
issuances under Section 4(2) of the Securities Act of 1933.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit No. Exhibit Description
----------- -----------------------
3.1 Articles of Incorporation of Registrant.*
3.2 Articles of Amendment to Articles of Incorporation of
Registrant.*
3.3 Bylaws of Registrant.*
10.1 Form of Convertible Promissory Note.**
27.1 Financial Data Schedule.
-----------
* 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.
(b) Reports on Form 8-K.
None.
6
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VERTICA SOFTWARE, INC.
Dated: August 14, 2000 By: /s/ Hans Nehme
-------------------------------------
Hans Nehme, President and
Chief Executive Officer
(and principal financial officer)
7
