SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT UNDER Section 13 or 15(d) OF THE EXCHANGE ACT
For the transition period from ___________ to _____________
Commission File No.: 0-28813
Vertica Software, Inc.
--------------------------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 93-1192725
- --------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of 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)
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 April 30, 2000, 12,077,941 shares of Common Stock,
$.0001 par value.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TABLE OF CONTENTS
FINANCIAL STATEMENTS
Balance Sheets....................................................... F-1
Statements of Operations............................................. F-2
Statement of Changes in Stockholders' Equity......................... F-3
Statements of Cash Flows............................................. F-5
NOTES TO FINANCIAL STATEMENTS............................................. F-6
<PAGE>
VERTICA SOFTWARE, INC.
----------------------
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
---------------------------------------------
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
ASSETS (Unaudited) (Unaudited)
------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents (Note 3) $ 96,306 $ 565,354
Prepaid Expenses 2,724 3,124
------------ ------------
TOTAL CURRENT ASSETS 99,030 568,478
EQUIPMENT, less accumulated depreciation of $ 29,109,
and $ 10,569, respectively (Notes 3 and 6) 71,143 22,741
DEPOSITS 10,000 5,815
------------ ------------
TOTAL ASSETS $ 180,173 $ 597,034
============ ============
LIABILITIES AND
---------------
STOCKHOLDERS' EQUITY
--------------------
CURRENT LIABILITIES
Line of Credit $ -- $ 24,580
Current Portion of Capital Lease Obligations (Note 8) 6,423 3,800
Accounts Payable and Other Accrued Expenses 163,045 67,617
------------ ------------
TOTAL CURRENT LIABILITIES 169,468 95,997
CAPITAL LEASE OBLIGATIONS (Note 8) 1,885 -
CONVERTIBLE PROMISSORY NOTES (Note 9) 550,000 150,000
------------ ------------
TOTAL LIABILITIES 721,353 245,997
------------ ------------
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 March 31, 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 (1,572,846) (645,629)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (541,180) 351,037
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 180,173 $ 597,034
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-1
<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 Inception)
March 31, to
--------------------------------- March 31,
2000 1999 2000
(Unaudited) (Unaudited) (Unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Total Revenue $ -- $ -- $ --
Operating expenses:
Product development 132,392 39,878 528,367
General and administrative 221,890 144,531 955,428
------------ ------------ ------------
Total operating expenses 354,282 184,409 1,483,795
------------ ------------ ------------
Loss from operations (354,282) (184,409) (1,483,795)
Interest income 28 688 2,567
Interest expense (13,615) (6,976) (91,751)
Other income 2,597 93 4,334
Bad debt expense -- -- (201)
------------ ------------ ------------
Loss before income taxes (365,272) (190,604) (1,568,846)
Provision for income taxes (Note 10) (800) (800) (4,000)
------------ ------------ ------------
Net loss $ (366,072) $ (191,404) $ 1,572,846)
============ ============ ============
Net loss applicable to common stockholders $ (366,072) $ (191,404) $(1,572,846)
============ ============ ============
Net loss per share---basic $ (0.0303) $ (0.0179) $ (0.1305)
============ ============ ============
Weighted average shares used in per share
calculation---basic 12,077,941 10,720,146 12,052,108
============ ============ ============
</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)
-----------------------------
Statement of Changes in Stockholders' Equity
--------------------------------------------
From January 1, 1996 (Inception) to March 31, 2000
--------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock Common Stock
----------------------- ---------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 -- $ -- -- $ --
January 1, 1996 (inception), shares issued at
incorporation (Note 4) -- -- 9,200,000 920
Net loss for the year ended December 31, 1996 -- -- -- --
------- ----------- ----------- -----------
BALANCE DECEMBER 31, 1996 (Audited) -- $ -- 9,200,000 $ 920
------- ----------- ----------- -----------
Net loss for the year ended December 31, 1997 -- -- -- --
------- ----------- ----------- -----------
BALANCE DECEMBER 31, 1997 (Audited) -- $ -- 9,200,000 $ 920
------- ----------- ----------- -----------
December 31, 1998, Issuance of common stock
pursuant to a reverse merger acquisition -- -- 1,300,000 130
December 31, 1998, sale of common stock
pursuant to a confidential subscription
agreement (Note 9) -- -- 50,000 5
December 31, 1998, sale of common stock
pursuant to a confidential subscription
agreement (Note 9) -- -- 50,000 5
Advance to Stockholder (Note 5) -- -- -- --
Net loss for the year ended December 31, 1998 -- -- -- --
------- ----------- ----------- -----------
BALANCE DECEMBER 31, 1998 (Audited) -- $ -- 10,600,000 $ 1,060
------- ----------- ----------- -----------
February 11, 1999, sale of common stock
pursuant to a confidential subscription
agreement (Note 9) -- -- 40,000 4
<CAPTION>
Deficit
Accumulated
During
Advance to Paid-in Development
Stockholder Capital Stage Total
----------- ------- ----------- -----
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $ -- $ -- $ -- $ --
January 1, 1996 (inception), shares issued at
incorporation (Note 4) -- (70) -- 850
Net loss for the year ended December 31, 1996 -- -- (42,285) (42,285)
------------ --------- ------------ ----------
BALANCE DECEMBER 31, 1996 (Audited) $ -- $ (70) $ (42,285) $ (41,435)
------------ --------- ------------ ----------
Net loss for the year ended December 31, 1997 -- -- (176,605) (176,605)
------------ --------- ------------ ----------
BALANCE DECEMBER 31, 1997 (Audited) $ -- $ (70) $ (218,890) $(218,040)
------------ --------- ------------ ----------
December 31, 1998, Issuance of common stock
pursuant to a reverse merger acquistion -- (130) -- --
December 31, 1998, sale of common stock
pursuant to a confidential subscription
agreement (Note 9) -- 49,995 -- 50,000
December 31, 1998, sale of common stock
pursuant to a confidential subscription
agreement (Note 9) -- 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 (Audited) $ (25,000) $ 99,790 $ (454,225) $ 378,375)
------------ --------- ------------ ----------
February 11, 1999, sale of common stock
pursuant to a confidential subscription
agreement (Note 9) -- 39,996 -- 40,000
</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 March 31, 2000
--------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock Common Stock
----------------------- ---------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <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
------ ------- ----------- -------
Repayment of Stockholder's Advance (Note 5) -- -- -- --
Net loss for the three months ended March 31, 2000
(Unaudited) -- -- -- --
------ ------- ----------- -------
BALANCE, MARCH 31, 2000 (Unaudited) -- $ -- 12,077,941 $1,207
====== ======= =========== =======
<CAPTION>
Accumulated
During
Advance to Paid-in Development
Stockholder Capital Stage Total
----------- ------- ----------- -----
<S> <C> <C> <C> <C>
February 11, 1999, sale of common stock
in Private Placement Transactions, net of
Offering costs of $ 1,876 (Note 9) -- 584,442 -- 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) (25,000) 1,030,459 (1,206,774) (200,108)
--------- ----------- ------------ ----------
Repayment of Stockholder's Advance (Note 5) 25,000 -- -- 25,000
Net loss for the three months ended March 31, 2000
(Unaudited) -- -- (366,072) (366,072)
--------- ----------- ------------ ----------
BALANCE, MARCH 31,2000 (Unaudited) $ -- $1,030,459 $(1,572,846) $(541,180)
========= =========== ============ ==========
</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)
-----------------------------
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Cumulative
From
January 1,
1996
(Date of
Three Months Ended Inception)
March 31, to
------------------------------- March 31,
2000 1999 2000
CASH FLOWS FROM OPERATING ACTIVITIES (Unaudited) (Unaudited) (Unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Net Loss $(366,072) $(191,404) $(1,572,846)
Transactions not requiring cash:
Depreciation 5,772 2,932 29,109
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 96,681 5,210 160,045
Increase (decrease) in payroll taxes payable -- (6,133) --
---------- ---------- ------------
NET CASH (USED IN) OPERATING ACTIVITIES (238,619) (189,395) (1,396,416)
---------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase/acquisition of equipment (49,627) -- (100,252)
---------- ---------- ------------
NET CASH (USED IN) INVESTING ACTIVITIES (49,627) -- (100,252)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings/assumption on line of credit -- -- 26,300
Net payments on line of credit -- (487) (26,300)
Proceeds/assumption of unsecured notes -- -- 20,700
Net payments on unsecured notes -- (20,700) (20,700)
Proceeds, assumption on convertible debt 350,000 -- 706,061
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 -- -- 26,361
Net payments on capital lease obligation (1,938) (1,208) (18,053)
---------- ---------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 348,062 695,360 1,592,974
---------- ---------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 59,816 505,965 96,306
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 36,490 59,389 --
---------- ---------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 96,306 $ 565,354 $ 96,306
========== ========== ============
Supplemental Disclosure of Cash Flow Information:
- ------------------------------------------------
Cash paid during the period for:
Interest -- $ 651 $ 18,048
Taxes -- $ -- $ 2,400
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-5
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
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, has incurred operating
losses since inception, totaling $1,572,846 through March 31, 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 will include Internet ASP (Application
Service Provider) software called "ICOMPLY" (formerly called "VEMS") and
business-to-business content and services intended to serve industries that are
impacted by government regulation of hazardous materials and other environmental
laws and regulations. The ICOMPLY web-based applications will include chemical
inventory listing and tracking, transportation manifests, emergency compliance,
permit applications and occupational training. The business-to-business section
content will include News & Analysis, Marketplace and Hazinfo. News & Analysis
will be selected from information gathered from agencies and industry experts by
Hazweb's environmental editors. The Marketplace will allow businesses to post a
service or product and to bid on auction items. Hazinfo will be a place to
conduct research, learn and participate in environmental information and
hazardous materials practices, including
6
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 2 - ORGANIZATION AND NATURE OF BUSINESS - Continued
Products - (Continued)
government contacts, regulations, industry calendar and selected material safety
data sheets. In April 2000, we launched our web site called Hazweb.com.
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.
The Company received an additional $250,000 in bridge financing in January 2000.
In March 2000, the Company received an additional $100,000 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 equity 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.
7
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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 March 31, 2000, the Company's results of
operations and cash flows for the three months ended March 31, 2000 and 1999,
and cumulative since inception January 1, 1996 to March 31, 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 the Company's Form
10-SB/A. It is the Company's opinion that, when the interim statements are read
in conjunction with the Company's audited financial statements for the year
ended December 31, 1999 included in the Company's 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 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 March 31,
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 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 three months ended March 31, 2000.
8
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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 three months ended March 31, 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.
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.
9
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Recent Accounting Pronouncements - continued
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."
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.
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."
10
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 5 - ADVANCE TO STOCKHOLDER
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. The stockholder paid off the
advance on January 15, 2000.
NOTE 6 - EQUIPMENT
At March 31, 2000, equipment consisted of the following:
Computer and peripheral equipment $ 74,639
Telephone system 25,613
-------
100,252
Less accumulated depreciation 29,109
-------
$ 71,143
========
Total depreciation expense for the three months ended March 31, 2000 was $5,772.
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.
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.
11
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 7 - SALE AND ISSUANCE OF COMMON STOCK AND SUBSCRIPTIONS - (Continued)
- --------------------------------------------------------------------------
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 March 31, 2000
Capital lease obligation, secured by equipment,
with an effective interest rate of 14.9% and
approximate monthly payments of $ 360 $4,948
Capital lease obligation, secured by equipment,
with an effective interest rate of 14.9% and
approximate monthly payments of $ 250 3,360
------
8,308
Less current portion 6,423
------
$1,885
======
12
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 9 - CONVERTIBLE PROMISSORY NOTES
Convertible promissory notes consisted of the following:
At March 31, 2000:
<TABLE>
<CAPTION>
<S> <C>
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 matures on June 28, 2000 50,000
</TABLE>
13
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 9 - CONVERTIBLE PROMISSORY NOTES - (Continued)
<TABLE>
<CAPTION>
<S> <C>
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 per share of common stock.
The principal note balance along with all accrued interest matures on
August 20, 2000 50,000
</TABLE>
14
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
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 per share of common stock. The
principal note balance along with all
accrued interest matures on August 20, 2000 $ 50,000
--------
$550,000
Future principal maturities on convertible debt are as follows:
December 31, 2000 $550,000
========
NOTE 10 - INCOME TAXES
A reconciliation of the U.S. statutory federal income tax rate to the effective
tax rate is as follows:
Three months ended March 31, 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 March 31, 2000, deferred taxes consisted of a net tax asset due to operating
loss carry forwards of $1,572,846, which was fully allowed for, in the valuation
allowance of $ 1,572,846. The valuation allowance offsets the net deferred tax
asset for which there is no assurance of recovery. The change in valuation
allowance for the three months ended March 31, 2000 was $ 183,036. Net operating
loss carry forwards will expire in 2011, 2012, 2013, 2014 and 2015.
15
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
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 $ 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 three months ended March 31, 2000 was $19,681.
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.
16
<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 a
portal site that will include Internet ASP (Application Service Provider)
software called "ICOMPLY" (formerly called "VEMS") and business-to-business
content and services intended to serve industries that are impacted by
government regulation of hazardous materials and other environmental laws and
regulations. The ICOMPLY web-based applications will include chemical inventory
listing and tracking, transportation manifests, emergency compliance, permit
applications and occupational training. The business-to-business section will
include News & Analysis, Marketplace, and Hazinfo. News & Analysis will be
selected from information gathered from agencies and industry experts by
Hazweb's environmental editors. The Marketplace will allow businesses to post a
service or product and to bid on auction items. Hazinfo will be a place to
conduct research, learn, and participate in environmental information and
hazardous materials practices, including government contacts, regulations,
industry calendar, and select material safety data sheets. In April 2000, we
launched our web site called Hazweb.com.
Results of Operations
The Company realized a net loss from operations of $366,072 for the quarter
ended March 31, 2000. The Company for the quarter ending March 31, 1999 had a
net loss from operations of $191,404. The Company has realized, since January 1,
1996 (inception)to March 31, 2000, a cumulative net loss from operations of
$1,572,846. The Company had no revenue from operations for the quarters ended
March 31, 2000 and 1999.
Plan of Operation
Loss on operations for the Company for the quarter ended March 31, 2000
increased 191% from the prior year for the same period. 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 and the sale of common
stock.
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 $96,000 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, 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.
In January 2000, we received $250,000 in bridge financing. The Company received
$ 100,000 in bridge financing in the form of convertible promissory notes in
March 2000. Interest accrues on these notes at the rate of 12% per annum.
17
<PAGE>
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 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:
ICOMPLY Communicator (released for licensing February 1, 2000)
ICOMPLY Inventory (released for licensing February 1, 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 October 31, 2000:
ICOMPLY Transporter
By October 31, 2000:
ICOMPLY Permitter
By December 31, 2000:
ICOMPLY HazOSHA
ICOMPLY Processor
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 35 to 40 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 10 to 15 software and Web content engineers, and
approximately 20 to 25 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.
18
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities.
On December 28, 1999, January 4, 2000 and January 17, 2000, the Company
completed a bridge financing pursuant to which the Company 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) share 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. The Company received an additional $100,000 in bridge financing in the
form of convertible promissory notes in March 2000. Interest accrues on these
notes at the rate of 12% per annum. 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.*
27.1 Financial Data Schedule.
* Filed with Amendment No. 1 to the Form 10-SB of the Registrant on February 28,
2000.
(b) Reports on Form 8-K.
None.
19
<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.
Date: May 15, 2000 By: /s/ Hans Nehme
---------------
Hans Nehme, President and Chief Executive Officer
(chief executive officer and chief financial officer)
20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 96,306 565,354
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 99,030 568,478
<PP&E> 71,143 22,741
<DEPRECIATION> 5,772 2,932
<TOTAL-ASSETS> 180,173 597,034
<CURRENT-LIABILITIES> 169,468 95,997
<BONDS> 551,885 150,000
0 0
0 0
<COMMON> 1,031,666 1,021,666
<OTHER-SE> 0 (25,000)
<TOTAL-LIABILITY-AND-EQUITY> 180,173 597,034
<SALES> 0 0
<TOTAL-REVENUES> 2,625 781
<CGS> 0 0
<TOTAL-COSTS> 354,282 184,489
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 13,615 6,976
<INCOME-PRETAX> (365,272) (190,604)
<INCOME-TAX> 800 800
<INCOME-CONTINUING> (366,072) (191,404)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (366,072) (191,404)
<EPS-BASIC> (0.303) (0.179)
<EPS-DILUTED> 0 0
</TABLE>
