UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
VERTICA SOFTWARE, INC.
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(Name of Small Business Issuer in its Charter)
Colorado
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(State or Other Jurisdiction of Incorporation or Organization)
93-1192725
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(I.R.S. Employer Identification Number)
5801 Christie Avenue, Suite 390
Emeryville, California 94608
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(Address of Principal Executive Offices, including Zip Code)
(510) 595-3333
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(Issuer's Telephone Number, Including Area Code)
Securities to be registered pursuant to Section 12(b) of the Act: None.
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $0.0001 par value
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(Title of class)
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TABLE OF CONTENTS
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PART I
ITEM 1. DESCRIPTION OF BUSINESS..............................................................................................3
SPECIAL NOTICE REGARDING FORWARD-LOOKING STATEMENTS.......................................................................3
OUR COMPANY...............................................................................................................3
ITEM 2. PLAN OF OPERATION....................................................................................................8
ITEM 3. DESCRIPTION OF PROPERTY..............................................................................................9
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................................................9
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS....................................................................................10
ITEM 6. EXECUTIVE COMPENSATION..............................................................................................10
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................................................11
ITEM 8. DESCRIPTION OF SECURITIES...........................................................................................11
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER SHAREHOLDER MATTERS......................12
ITEM 2. LEGAL PROCEEDINGS...................................................................................................12
ITEM 3. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.............................................................12
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.............................................................................13
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS...........................................................................13
PART F/S....................................................................................................................13
PART III
ITEM 1. INDEX TO EXHIBITS...................................................................................................14
ITEM 2. DESCRIPTION OF EXHIBITS............................................................................................14
SIGNATURES..................................................................................................................15
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ITEM 1. BUSINESS
SPECIAL NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain information in this Registration Statement includes
forward-looking statements within the meaning of applicable securities laws that
involve substantial risks and uncertainties including, but not limited to,
market acceptance of our products and new technologies, the sufficiency of
financial resources available to us, economic, competitive, governmental and
technological factors affecting our operations, markets, services, and prices,
and other factors described in this Registration Statement. Our actual results
could differ materially from those suggested or implied by any forward-looking
statements as a result of such risks.
All trademarks and trade names appearing in this document are the
property of their respective holders.
OUR COMPANY
We are an independent provider of Internet and intranet software
products serving the hazardous materials industry. Our products are designed to
provide information about environmental regulations and automate environmental
regulation compliance and related activities, for common industrial applications
such as chemical inventory, transportation manifests, emergency compliance,
permit applications, waste streams, and occupational training. Our headquarters
are located in Emeryville, California.
We were organized as a Colorado corporation in April 1997 under the
name Perfection Development Corporation. We were originally formed for the
purpose of developing and constructing real estate properties. On September 29,
1998, we acquired all of the outstanding capital stock of Vertica Software,
Inc., a California corporation ("Vertica California"). At that time, we were
inactive and had no significant assets. Vertica California was in the business
of developing Internet and intranet software products serving the hazardous
materials industry and we have continued this business since the acquisition. On
December 31, 1998, Vertica California merged with and into us. We were the
surviving corporation in the merger and the separate corporate existence of
Vertica California ceased. Concurrently with the merger, we changed our name to
Vertica Software, Inc. Our stock trades on the NASDAQ OTC Bulletin Board under
the symbol "VERI".
Industry Overview
Companies that transport, store, or handle hazardous materials are
required by federal, state and local laws to meet current regulations. These
regulations require training of personnel, proper handling and storing of
hazardous materials, filing of appropriate government forms, production of
required shipping papers, and labeling and placarding of hazardous materials.
These government regulations are complex and difficult to interpret and are
updated and revised on a quarterly basis. Failure to comply with current
environmental regulations can result in significant criminal and civil
penalties, including fines, damages and injunctions. See "Government
Regulation."
The growth of the environmental regulation compliance market is driven
primarily by the maintenance and expansion of environmental regulations in the
United States, including federal, state and local regulatory schemes. We believe
that continued public pressure for environmental protection in the United States
will likely result in continued and increased environmental regulation of many
industries.
We believe our potential markets include companies in the following
industries:
o Transportation, including railroad, highway, marine and air;
o Manufacturing, including petroleum refining and related industries,
chemical and allied products, rubber and miscellaneous plastics,
primary metal industries, fabricated metal products, industrial and
commercial machinery, electronic, electrical equipment and components,
transportation equipment, measuring and analyzing and controlling
instruments, and other manufacturing industries;
o Engineering and research services, including petroleum, chemical,
industrial, sanitary, biological, non-commercial biological, and
testing laboratories;
o Utilities, including electric, gas and sanitary;
o Other industries, including mining, construction, insurance, industry
wholesale trade, training agencies and industry consulting agencies;
and
o Government agencies.
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The Vertica Solution
Many companies hire consultants to insure environmental compliance;
other companies spend millions of dollars on hiring in-house information
technology groups to design and maintain environmental compliance systems, and
may nevertheless be required to shut down plants for extended periods up to
several days per year for manual, paper-based compliance activities. We seek to
offer a solution based on a combination of a Web browser and Microsoft SQL
Servers, and bring together a value-added management system with an on-line
community. This solution is intended to allow our proposed software products and
Internet web site, discussed below, to function in concert. We are also seeking
patent protection for this combination of the management system with an on-line
community. A patent application is also in progress for our Internet/Intranet
safety back-up for crisis communications and emergency notification.
Our proposed environmental software management system, VEMS, will be
designed to automate the compliance systems of our customers to reduce the time
and costs required for compliance with environmental regulations applicable to
activities such as chemical inventory, transportation manifests, emergency
compliance, permit applications, waste streams, and occupational training.
We are also designing an Internet web site, Vertica.com, which will be
an environmental web portal serving the hazardous materials community.
Vertica.com will contain extensive and continuously updated information relating
to current environmental regulations, and will also bring together clients and
environmental compliance vendors on-line. Vertica.com will be designed to be an
on-line activities hub for hazardous materials professionals and clients.
VEMS will link to Vertica.com for additional content information,
on-line regulations compliance and on-demand training and services.
Our Strategy
We intend to derive revenues from three diversified products and
services: Licensing of VEMS modules, transaction fees for filing activities, and
advertising and e-commerce referral and transaction fees on the Vertica.com web
site. We believe that our pricing for the licensing and training will be lower
than the costs a customer would incur in developing an in-house system due to
the distribution of our costs of development and maintenance across our entire
client base. Thus, VEMS modules will attract clients by lowering their capital
and labor costs associated with environmental compliance. We intend to price our
filing activities at a point lower than the paper-based equivalents, and some
activities such as plain text searches of government regulations will be offered
for free, in order to generate initial traffic to our web site. Finally, we
intend to set our advertising, referral and transaction fees on Vertica.com at
the then current market rates for such fees.
We believe that our Vertica.com web site will be a hub for a client's
environmental compliance transaction activity, as well as the entry point for
research queries into our proposed database. We believe that this will create a
steady traffic through our site, where relevant vendors may be able to connect
with clients.
Products and Services
VEMS. We are currently developing and intend to release at various
times over the next twelve months, a series of software products or modules
comprising our VEMS product line. VEMS is intended to be an automated
environmental management system that will provide up-to-date government
regulations and guide the user to track, review, interpret, share and comply
with those regulations.
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VEMS Features
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VEMS Our proposed VEMS software products and services will be
composed of separate Internet accessible software modules, as
described below, and are intended to enable clients to
automate environmental compliance, reduce regulatory paper
trails and streamline the administrative efforts associated
with hazardous materials management and crisis communications,
thus reducing cost to industry and bringing order to the
hazardous materials' chaotic environment and "information
overload".
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VEMS Modules
Inventory
It is intended that the Inventory module will be provided as part of each of
the other VEMS modules discussed below and provide assistance to customers
and data to other VEMS modules by managing chemical and waste information for
each customer site. The module is designed to link material safety data
sheets ("MSDS") and waste profile information directly to a customer's
facility inventory. The module will include a site map feature and inventory
tracking down to the individual building level. Inventory and regulated
chemical lists will be used to facilitate chemical control, emergency
compliance, and environmental reporting. Inventory will be updated manually
by the customer or automatically by VEMS modules as products are received,
manufactured, transported, or released. The Inventory module is complete and
is currently being beta tested by a regional petroleum distribution company,
and at a local refinery of a national petroleum company.
Communicator
The Communicator module will manage a facility's crisis communications,
emergency compliance, and environmental reporting information. The module
includes plan builders, compliance wizards, and automated document
submission. Electronic forms and checklists work to streamline response
efforts and eliminate reporting errors. Discussion groups and web press rooms
handle internal as well as external communications allowing continuous
control of a customer's facility image. This module supports compliance with
EPCRA (Emergency Planning and Community Right to Know) and related
environmental regulations. The Communicator module is complete and is
currently being beta tested at a local refinery of a national petroleum
company, and by a regional petroleum distribution company.
Transporter
The Transporter module is being designed to serve the hazardous material and
waste transportation needs of a customer's facility. The module will include
automated Department of Transportation ("DOT") registration form, bill of
lading and waste manifest software "wizards," and will provide document
tracking and incident and exception report capability. The module will
provide automatic updates to chemical and waste inventories, will allow
access to material information and will provide labeling and placard
information essential to the shipment of hazardous materials. This module
supports compliance with 49 CFR DOT (Code of Federal Regulations for
Department of Transportation) and related regulations. The Transporter module
planned completion date is March 31, 2000, and beta testing by a regional
petroleum distribution company is planned to begin by the end of January
2000.
Processor
The Processor module will be designed to serve each VEMS customer site's
production floor process mapping, inventory, hazardous materials, and waste
stream needs. It will support compliance with TSCA (Toxic Substance Control
Act) and related regulations. The first release of this module is planned for
September 30, 2000.
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HazOSHA
The HazOSHA module will be designed to serve each VEMS customer site's
hazardous materials employee safety policies, procedures, and training
communication needs, including on-line training. This module will support
compliance with hazardous materials related sections of 29CFR OSHA (Code of
Federal Regulations for Occupational Safety and Health Administration). The
first release of this module is planned for September 30, 2000.
Permitter
The Permitter module will be designed to serve each VEMS customer site's
permit monitoring and compliance needs, and will include air, liquid
discharge, and hazardous waste permit application software "wizards." This
module will support compliance with CAA (Clean Air Act), EPA (Environmental
Protection Agency), RCRA (Resource Conservation and Recovery Act), CWA (Clean
Water Act), AQMD (Air Quality Management District), and related regulations.
Programming of permit processors for this module has begun, and the first
release of this module is planned for June 30, 2000.
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Vertica.com. Vertica.com is our proposed web site that will be designed
to provide updated information on environmental regulations and serve as an
e-commerce web portal in which environmental compliance vendors and clients will
be able to buy and sell products and services.
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Vertica.com
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News & It is intended that Vertica.com will provide current industry
Analysis news for the hazardous materials community including stories
from business, government, energy, environment and finance.
Our web site will feature informational articles written by
experts in the hazardous materials industry and will offer an
internet posting site for industry related press releases and
publications.
------------------------ ----------------------------------------------------
E-Business Vertica.com will also offer an industry specific marketplace
for the purchase, sale and exchange of hazardous materials
related goods and services. It is intended to include an
up-to-date directory of products, services and suppliers and
feature an online auction site for interactive bidding and
sales.
------------------------ ----------------------------------------------------
Community It is intended that Vertica.com will serve the multifaceted
information needs of the hazardous materials community. It
will feature industry specific glossaries, a public contacts
database, codified regulations, online MSDS access, discussion
groups, event calendars and an industry related resume posting
and career center.
------------------------ ----------------------------------------------------
Beta-testing of the VEMS Communicator and Inventory modules on a test
web site (www.verticasoftware.com) began in October 1999. The system features
made available for test include chemical and waste inventory tracking, emergency
compliance and resource planning, regulatory compliance wizards, public affairs
communications management and automated environmental report preparation. Select
features of the Community section were also made available for testing and
include Press Room, Glossary, Contacts, Regulations and MSDS.
Customer Support
Vertica's environmental and computer science support staff will be
available to assist Vertica.com and VEMS users during regular business hours.
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Training
We intend to offer fee-based seminars and training on the use of our
proposed Vertica.com web site and VEMS modules.
Sales and Marketing
We intend to use marketing tools including focus groups, public
relations, direct mail, channel distributions, advertisement, and telemarketing.
Based on the evolving markets for each product line, we will modify the
marketing program to utilize all appropriate marketing resources. In general,
the marketing for each product line will follow the following format:
1. Introductory product announcements, public relations, and media coverage.
2. Promotion via trade shows, conferences, and the Internet.
3. Direct sales using our sales personnel.
4. Expansion of sales channels through distributors and business partnerships.
5. Ongoing advertising through targeted media and the Internet.
6. Product demonstration and information at Vertica.com.
We also intend to promote our product lines and web site through
affiliates, individual seminars, trade shows, and in trade publications. Direct
sales using our subject-expert sales personnel will also be a high priority,
including direct calls to our customers. In addition, we intend to seek
marketing and distribution partnerships with other firms that would stand to
benefit from bringing our target industries on-line. This could include partners
in the on-line infrastructure field such as computer network equipment
manufacturers, software database providers and other business solutions
providers. Additionally, we will promote Vertica.com's ability to provide data
for research and crisis preparedness, make available information that help
companies dealing with the industry's fragmented environment and "information
overload", and to minimize the paperwork associated with hazardous materials
regulations compliance.
We intend to develop marketing relationships with the following
organizations:
o California Trucking Association
o American Petroleum Institute
o Petroleum Marketers Association of America
o Western States Petroleum Association
o American Electronics Association
o Other associations and marketing companies
Competition
While we are not aware of any other company that currently offers a
suite of software products similar to our proposed products, several
environmental management firms, with substantially greater financial and
marketing resources than us, have existing products and services that will
compete with one or more of our proposed VEMS modules. In addition, several
firms have established their own Internet web sites that could compete with our
proposed Vertica.com web site.
GreenSuites, a subsidiary of Levine-Fricke, offers an environmental
management system based on SAP. Amoco Corporation offers a system based on Lotus
Domino. These systems will appeal to companies that already use SAP or Domino.
We believe, however, that our product development using Microsoft and Internet
technologies will be a more broadly accepted platform. A central aspect of our
proposed VEMS Transport module is producing hazardous materials shipping papers
that are filed with the EPA. We have approached the California EPA to accept
electronic filing of these papers and we believe that Sterling Software has a
similar initiative in Illinois based on their EDI technology. Major industrial
facilities are designed with CAD/CAM software that includes process models.
These models can be extended to serve environmental process applications, and in
these situations such models will compete with our proposed VEMS Process module.
Most industrial facilities rely on a variety of consultants and training classes
to comply with OSHA regulations and such services will compete with the services
to be offered by our proposed VEMS HazOSHA module. Similarly, most industrial
companies rely on environmental engineering firms to prepare and obtain permits
and such firms will, therefore, offer services in competition with the services
offered by our proposed VEMS Permitter Module.
We will also face competition in connection with our proposed Internet
web site. Verticalnet is an existing web portal with an environmental community
that will be in competition with our proposed Vertica.com web site. The
University of Vermont offers
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an MSDS repository, but it is our intention that our proposed MSDS repository
will be linked to a customer's chemical inventory. The EPA offers an assortment
of regulations and form completion software on their web site.
Employees
As of December 31, 1999, we have eight full-time employees and one
part-time employee.
Government Regulation
We intend to offer software products and services through our proposed
Internet web site that will assist customers to comply with a variety of federal
and state environmental statutes and administrative regulations. Consequently,
our business will be affected to a substantial degree by the existing and future
government regulatory environment. While not anticipated, our business would be
adversely affected to the extent regulatory requirements are reduced or
eliminated, thereby reducing the demand for our proposed products and services.
We will need to continuously monitor and respond to changes in environmental
statutes and regulations in order to provide our customers with current
information regarding reporting and compliance requirements. Our business would
be adversely affected if we are unable to respond to such changes in a timely
manner.
ITEM 2. PLAN OF OPERATION
Certain statements contained in the following Plan of Operation,
including, without limitation, statements containing the words "believe,"
"anticipate," "estimate," "expect," and words of similar meaning, constitute
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward looking
statements as a result of certain factors set forth in other parts of this
document.
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 $42,000 and estimated
revenues from the sale of our initial products, in order to satisfy our
estimated cash requirements over the next twelve months. Operating revenues are
expected to be generated following the release of VEMS Communicator but such
revenues may not be substantial or in the amounts we expect. We anticipate that
we will need these additional funds to complete the development of the remainder
of our initial product line and our proposed Internet web site and to establish
strategic alliances with other companies. We intend to raise such funds
primarily through the sale of our equity or debt securities. There can be no
assurance that we will be able to obtain such additional financing, or whether
the terms of such financing will be favorable to us. Failure to obtain such
financing or our failure to generate sufficient operating revenues from the sale
of our initial products would have a material adverse affect on our business,
financial condition and results of operations.
RESEARCH AND DEVELOPMENT
Over the next twelve months, we plan to complete development of the
remainder of our core products and our Internet web site. Provided that we
obtain the required funding, release of our remaining core products is projected
to be as follows:
By February 1, 2000:
VEMS Communicator
VEMS Inventory
By March 31, 2000:
VEMS Transport
By June 30, 2000:
VEMS Permitter
By September 30, 2000:
VEMS HazOSHA
VEMS Processor
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While completing the core products above, we also intend to develop our
Internet web site and web community strategic alliances within our industry
through target marketing opportunities, advertising, and other related
E-business. Product and initial web site development expenses for the next
twelve months are expected to be approximately $1,700,000.
PURCHASE OF SIGNIFICANT EQUIPMENT
Depending on the number of new employees we hire over the next twelve
months, we intend to purchase twenty-five to thirty additional desktop
computers, two servers, and related peripheral equipment. The total cost for the
acquisition of this equipment is estimated at approximately $86,500. We entered
into an office lease agreement in December 1999 for new office space totaling
approximately 4,350 square feet. In connection with this lease, we acquired the
predecessor tenant's workstation modules, telephone system, and other related
telephone and network equipment. The total purchase price for the furniture and
equipment was $3,000. Office lease payments for the next twelve months will be
approximately $98,000.
SIGNIFICANT CHANGE IN NUMBER OF EMPLOYEES
If we are successful in obtaining additional funding, we intend to hire
over the next twelve months between twelve to seventeen software and Web content
engineers, and approximately ten additional sales, marketing, and administrative
employees. We anticipate that such additional employees will be required in
order to meet the projected release dates of our initial products described
above. Total projected personnel costs for the next twelve months are estimated
to be approximately $2,100,000, of which approximately $1,700,000 of this
projected amount is included above under projected research and development
costs.
ITEM 3. DESCRIPTION OF PROPERTY
We presently occupy approximately 4,350 square feet of office space at
5801 Christie Avenue, Suite 390, Emeryville, California, pursuant to a lease
that expires at the end of December 2004. The lease provides for rent of $9,774
per month, commencing on March 1, 2000, fully serviced.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information with respect to beneficial
ownership of our common stock by:
o each person who beneficially owns more than 5% of each class
of stock;
o each of our executive officers;
o each of our directors; and
o all executive officers and directors as a group.
<TABLE>
The address of each stockholder listed in the table is c/o Vertica
Software, Inc., 5801 Christie Avenue, Suite 390, Emeryville, California 94608.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power with
respect to shares. To our knowledge, except under applicable community property
laws, the persons named in the table have sole voting and sole investment
control with respect to all shares beneficially owned. The applicable percentage
of ownership for each stockholder is based on 12,067,941shares of common stock
outstanding on December 31, 1999.
<CAPTION>
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(1) (2) (3) (4)
Title of Class Name of Beneficial Owner Amount and nature of beneficial Percent of class
ownership
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<S> <C> <C> <C>
Common Stock Hans Nehme 10,271,000(1) 85.1%
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Common Stock Erick K. F. Ahrens 1,990 *
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Common Stock John C. Leutwyler -0- -0-
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Common Stock Susan N. Hastings 10,271,000(1) 85.1%
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Common Stock All officers and directors as 10,272,990(1) 85.1%
a group ( 4 persons)
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<FN>
* Represents less than 1%
(1) Includes 9,680,000 shares owned of record by Mr. Nehme and 591,000 shares owned of record by Ms. Hastings.
Mr. Nehme and Ms. Hastings are husband and wife.
</FN>
</TABLE>
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ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth certain information with respect to the
executive officers and directors as of December 31, 1999:
Name Age Positions and Offices Held
- ---- --- --------------------------
Hans Nehme 36 President, Chief Executive Officer,
Chief Financial Officer,
Secretary and Director
Erick K. F. Ahrens 50 Vice President, Research and Development
John C. Leutwyler 66 Director
Susan N. Hastings 38 Director
The following sets forth biographical information as to the business
experience of each or our executive officers and directors:
Hans Nehme has served as our President, Chief Executive Officer, Chief
Financial Officer, Secretary and a director since December 1998, when we merged
into our predecessor corporation, Vertica Software, Inc., a California
corporation ("Vertica California"). Mr. Nehme served in similar capacities with
Vertica California from December 1995 to December 1998. From December 1994 to
December 1995, Mr. Nehme served as the President of InterLink Trade Management,
a consulting and export firm specializing in computer hardware and peripherals,
and from July 1995 to December 1995 he was Chairman of Knowledge Direct, Inc., a
company that produced training software products.
Erick K. F. Ahrens has served as our Vice President, Research and
Development since December 1998. From August 1996 until December 1998, Mr.
Ahrens was Research and Development Manager of QRS, Inc., an electronic data
interchange company. Mr. Ahrens served as Vice President, Research and
Development of Vertica California from December 1995 until August 1996.
John C. Leutwyler has served as a Director since November 1999. From
December 1994 until his retirement in April 1996, Mr. Leutwyler served as Vice
President and General Manager of Tanker Operations (Vessel and Commercial) for
Chevron Shipping Company, Chevron Corporation's marine transportation
subsidiary. He is currently the President of Canyon Consulting Company, which is
involved in worldwide marine and marine finance consulting.
Susan N. Hastings has served as a director since December 1998 and
served as a director of Vertica California from January 1996 until December
1998. From August 1995 to October 1998, she was Senior Trial Counsel for TIG
Insurance Company. From October 1995 to August 1995 she was Trial Counsel for
Home Insurance Company. Ms. Hastings is the wife of Mr. Nehme.
Number of Directors and Directors' Terms of Office
We currently have three directors. There are no committees of the
Board. All directors hold office until the next annual meeting of shareholders.
Ms. Hastings, one of our directors, is the wife of Mr. Nehme, our Chief
Executive Officer and a director. No other family relationships exist among our
officers and directors.
Director Compensation
Our directors do not receive any compensation for their services as
directors. It is anticipated that each non- employee director will be eligible
to participate in our proposed stock option plan.
ITEM 6. EXECUTIVE COMPENSATION.
<TABLE>
The following table sets forth compensation for services rendered in
all capacities during the fiscal year ended December 31, 1999 for our Chief
Executive Officer. No other executive officer received compensation in excess of
$100,000 during such fiscal year.
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<CAPTION>
- ------------------------- ----------------------------------------------------------------------------------------------------------
Long-term compensation
- ------------------------- ------------------------------------------------------------------------------- --------------------------
Annual Compensation Awards Payouts
- ------------------------- ------------------------------------------------------------------------------- --------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ------------------------- ------------------ -------------- ---------------------------- ---------------- ----------- --------------
Restricted Securities LTIP All Other
Name and Principal Other Annual Stock Underlying Payouts Compensation
Position Year Salary Bonus Compensation Awards Options ($)
(#)
- ------------------------- ------------------ -------------- ---------------------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hans Nehme, Chief 1999 $112,800 -0- -0- -0- -0- -0- -0-
Executive Officer
- ------------------------- ------------------ -------------- ---------------------------- ---------------- ----------- --------------
</TABLE>
No options to purchase shares of our common stock or other securities
and no stock appreciation rights have been granted to Mr. Nehme. We maintain a
group term life insurance policy for the benefit of our employees. Such policy
insures the life of each employee, including Mr. Nehme, in the amount of
$50,000, the beneficiaries of which are designated by the employee.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On September 29, 1998, we entered into a Stock Purchase and Exchange
Agreement ("Purchase Agreement") with Vertica Software, Inc., a California
corporation ("Vertica California"), Hans Nehme and two individuals who at that
time owned approximately 80% of our outstanding common stock. Vertica California
was in the business of developing Internet and intranet software products
serving the hazardous materials industry. Pursuant to the Purchase Agreement, we
issued to Mr. Nehme an aggregate of 9,200,000 shares of our common stock in
exchange for 4,930,000 shares of the common stock of Vertica California owned by
Mr. Nehme. In addition, Mr. Nehme purchased from the two shareholders 480,000
shares of our common stock for a price of $25,000. As a result of this
transaction, Mr. Nehme acquired a controlling interest in us and Vertica
California became our wholly-owned subsidiary.
On December 30, 1998, Vertica California merged with and into us. We
were the surviving corporation in the merger and the separate corporate
existence of Vertica California ceased. As a result of the above describe
acquisition and the merger, we acquired and have continued the business
originally commenced and operated by Vertica California.
ITEM 8. DESCRIPTION OF SECURITIES.
Our articles of incorporation authorize the issuance of up to
30,000,000 shares of common stock, par value $0.0001 per share, and 3,000,000
shares of preferred stock, par value $0.001 per share. As of December 31, 1999,
12,067,941 shares of common stock were outstanding, and no shares of preferred
stock were outstanding.
Each holder of common stock is entitled to one vote for each share on
all matters to be voted upon by the stockholders. Our Colorado articles of
incorporation provide that shareholders shall not have cumulative voting rights
in the election of directors. Nevertheless, we may be a "quasi-California
corporation" within the meaning of Chapter 21 of the California Corporations
Code. This would be the case if the average of our "property factor", "payroll
factor" and "sales factor" (as defined in the California Revenue and Taxation
Code) is more than fifty percent (50%), and more than one-half of our
outstanding voting securities are held of record by persons having addresses in
California. If a corporation is a quasi-California corporation, California law
provides that certain portions of the California Corporations Code, including
those pertaining to cumulative voting for directors, shall govern it, to the
exclusion of the law of the true jurisdiction of incorporation. Under Section
708 of the California Corporations Code, if any shareholder gives notice at a
meeting, prior to voting for directors, of his intention to cumulate his votes,
all shareholders may cumulate their votes in the election for directors; i.e.,
give one candidate a number of votes equal to the number of directors to be
elected multiplied by the number of votes to which the shareholder's shares are
normally entitled, or distribute the shareholder's votes on the same principle
among as many candidates as the shareholder thinks fit. The candidates receiving
the highest number of affirmative votes, up to the number of directors to be
elected, are elected to the Board of Directors.
Subject to preferences to which holders of any future series of
preferred stock may be entitled, holders of common stock will be entitled to
receive ratably any dividends that may be declared from time to time by the
Board of Directors out of funds legally available for that purpose. In the event
of our liquidation, dissolution or winding up, holders of common stock will be
entitled to share in our assets remaining after the payment of liabilities and
the satisfaction of any liquidation preference granted to the holders of any
outstanding shares of preferred stock. Holders of common stock have no
preemptive or conversion rights or other subscription rights and there are no
redemption or sinking fund provisions applicable to our common stock. All
outstanding shares of common
11
<PAGE>
stock are fully paid and nonassessable. The rights, preferences and privileges
of the holders of common stock are subject to, and may be adversely affected by
the rights of the holders of shares of any series of preferred stock that we may
designate in the future.
We have never declared or paid any dividends on our common stock. We do
not anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations and the
expansion of our business. Any future determination to pay cash dividends will
be at the discretion of the Board of Directors and will depend upon our
financial condition, operating results, capital requirements and other factors
the Board of Directors deems relevant.
The Board of Directors presently has the authority by resolution to
issue up to 3,000,000 shares of preferred stock, par value $0.001 per share, and
without further action by the stockholders, to divide any and all shares of the
preferred stock into series and to fix and determine the relative rights and
preferences of the preferred stock, such as the designation of series and the
number of shares constituting such series, dividend rights, redemption and
sinking fund provisions, liquidation and dissolution preferences, conversion or
exchange rights and voting rights, if any. With respect to voting rights, if the
preferred stock were permitted to vote in the election of directors or on other
matters, each such share would be entitled to one vote, and such shares may vote
with the shares of common stock or may vote as a separate class. Issuances of
preferred stock by the Board of Directors could result in such shares having
dividend and/or liquidation preferences senior to the rights of the holders of
common stock and could dilute the voting rights of the holders of common stock.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER STOCKHOLDER MATTERS.
Our common stock is traded on the over-the-counter market and is quoted
on the NASD's OTC Bulletin Board under the symbol "VERI". The following table
sets forth the closing high and low bid prices of our common stock from the
inception of trading through the fourth quarter of 1999. These prices are
believed to be representative inter-dealer quotations, without retail markup,
markdown or commissions, and may not represent prices at which actual
transactions occurred.
Bid
---
1998 High Low
---- ---- ---
4th Quarter $1.00 $0.75
1999
----
1st Quarter $4.625 $0.7500
2nd Quarter $0.875 $0.100
3rd Quarter $0.875 $0.3125
4th Quarter * *
[*to be provided by amendment]
Source: The NASDAQ Stock Market, Inc.
The number of holders of record of our $0.0001 par value Common stock
at December 15, 1999 was approximately 355. We have never declared or paid any
dividends on our common stock and we do not anticipate paying any cash dividends
in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
We have no material legal proceedings against us or in process nor are
we aware of any other legal proceedings or claims that we believe will have,
individually or in the aggregate, a material adverse effect.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
On July 14, 1999, we notified our former independent auditors,
Cordovano and Harvey, P.C., of our decision to dismiss such firm as our
independent auditors in connection with our acquisition of Vertica California.
Our decision was approved by our Board of Directors. The independent auditor's
report of Cordovano and Harvey, P.C. for the fiscal year ended December 31, 1997
stated
12
<PAGE>
that we had incurred significant operating losses and had a limited supply of
cash, which in such auditors view raised a substantial doubt about our ability
to continue as a going concern. During fiscal year 1997 and through the date of
dismissal, there were no disagreements between us and Corovano and Harvey, P.C.
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
On July 14, 1999, we engaged Randolph Scott & Company as our
independent auditors. During the fiscal years and any subsequent interim periods
through the date of engagement, neither us nor anyone acting on our behalf
consulted Randolph Scott & Company regarding the application of accounting
principles to any specified proposed or completed transaction or the type of
audit opinion that might be rendered on our financial statements. Randolph Scott
& Company subsequently audited our balance sheet as of December 31, 1998 and the
statements of operations, stockholders' equity and cash flows for the fiscal
year ended December 31, 1998.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The following is a description of securities that we have sold since
our inception on April 21, 1997 without registering the securities under the
Securities Act of 1933, as amended (the "1933 Act"). We claimed an exemption
from registration for all such sales under Section 4(2) of the 1933 Act and
Regulation D promulgated thereunder.
In connection with our organization in April 1997, we issued an
aggregate of 1,040,000 shares of our common stock to our two founding
shareholders in consideration for services rendered.
On October 8, 1997 we issued 260,000 shares of our common stock to
approximately 30 investors at a price of $0.25 per share.
On September 29, 1998, we issued an aggregate of 9,200,000 shares of
our common stock to Hans Nehme in exchange for 4,930,000 shares of the
outstanding common stock of Vertica California owned by Mr. Nehme. We claimed an
exemption from registration for such issuance under Section 4(2) of the 1933
Act. See Part I, Item 7 above.
On December 4, 1998, we issued 50,000 shares of our common stock at a
price of $1.00 per share to a single investor.
On December 21, 1998, we issued 50,000 shares of our common stock at a
price of $1.00 per share to a single investor.
On February 11, 1999, we issued 41,433 shares of our common stock
pursuant to the conversion of a convertible promissory note in the principal
amount of $25,000 and dated September 30, 1998. The note was converted at the
rate of $0.618 per share.
On February 11, 1999, February 24, 1999 and March 2, 1999, we issued an
aggregate of 701,500 shares of our common stock at a price of $1.00 per share in
a private placement pursuant to Rule 504 of Regulation D.
On February 24, 1999, we issued an aggregate of 32,885 shares of our
common stock pursuant to the conversion of three convertible promissory notes in
the principal amounts of $12,000, $10,000 and $10,000, respectively, and dated
August 1, 1998, August 2, 1998 and August 14, 1998, respectively. The notes were
converted at the rate of $1.00 per share.
On March 25, 1999, we issued 80,802 shares of our common stock pursuant
to the conversion of a convertible promissory note in the principal amount of
$50,000 and dated September 24, 1998. The note was converted at the rate of
$0.618 per share.
On March 26, 1999, we issued an aggregate of 571,321 shares of our
common stock pursuant to the conversion of four convertible promissory notes in
the principal amounts of $3,000, $28,811, $10,000 and $10,000, respectively.
These notes were originally issued by Vertica California on February 27, 1997,
March 1, 1996, October 31, 1996 and September 1, 1996, respectively. The notes
were converted at the rate of $0.10 per share.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our articles of incorporation provide in relevant part that we shall
indemnify any person who was or is a party or is threatened to be made a party,
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than a derivative action
by or in the right of the corporation), by reason of the fact that he is or was
a director, officer, employee or agent of us, or is or was serving at our
request as a director, officer, employee or agent of another corporation,
13
<PAGE>
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonable incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonable believed to
be in, or not opposed to, our best interests and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. With respect to derivative actions, our articles provide in relevant
part that we shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor (by reason of
his service in one of the capacities specified in the preceding sentence)
against expenses (including attorneys' fees) actually and reasonable incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonable believed to be in or not
opposed to our best interests, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to us unless and only to the extent that the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonable entitled to indemnification for
such expenses which such court shall deem proper.
Our articles of incorporation also provide that no director shall be
personally liable to us or any shareholder for monetary damages for breach of
fiduciary duty as a director, except for (i) any breach of the director's duty
of loyalty to us or our shareholders, (ii) acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law, (iii)
unlawful payments of dividends or unlawful stock repurchases or redemptions, or
(iv) any transaction from which the director derived an improper personal
benefit. Such limitation of liability does not apply to liabilities arising
under the federal securities laws and does not affect the availability of
equitable remedies, such as injunctive relief or rescission.
We maintain insurance on behalf of any person who is a director or
officer against any loss arising from any claim asserted against him and
incurred by him in any such capacity, subject to certain exclusions.
PART F/S
The financial statements required by Part F/S and filed as part of this
registration statement are identified in the Index to Financial Statements.
PART III
ITEM 1. INDEX TO EXHIBITS
2.1 Articles of Incorporation of the registrant
2.2 Articles of Amendment to the Articles of Incorporation of the
registrant
2.3 Bylaws of the registrant (6) Material Contracts (to be filed
by amendment to this registration statement)
ITEM 2. DESCRIPTION OF EXHIBITS
The Exhibits filed herewith are identified in the Index to Exhibits set forth in
Item I of Part III of this registration statement.
14
<PAGE>
SIGNATURES
In accordance with the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
VERTICA SOFTWARE, INC.
Dated: January 7, 2000 By: /s/ Hans Nehme
-----------------------------------------
Hans Nehme, President and
Chief Executive Officer
15
<PAGE>
TABLE OF CONTENTS
INDEPENDENT AUDITORS' REPORT ............................................. F-1
FINANCIAL STATEMENTS
Balance Sheets ...................................................... F-2
Statements of Operations ............................................ F-3
Statement of Changes in Stockholders' Equity ........................ F-4
Statements of Cash Flows ............................................ F-6
NOTES TO FINANCIAL STATEMENTS ............................................ F-7
<PAGE>
Board of Directors
Vertica Software, Inc.
Emeryville, California
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Vertica Software, Inc., a
Colorado corporation (the "Company"), formerly Perfection Development
Corporation, (a development stage company) as of December 31, 1998 and 1997, and
the related statements of operations, stockholders' equity, and cash flows for
the period April 18, 1997 (inception) through December 31, 1998. On September
29, 1999, the Company acquired all of the outstanding capital stock of Vertica
Software, Inc., a California corporation ("Vertica California"). On December 30,
1998, Vertica Software, Inc. ("Vertica California") merged with and into the
Company, with the Company being the surviving corporation.. The merger has been
accounted for as a purchase and, accordingly, the operating results of Vertica
California have been included in the Company's financial statements since the
date of acquisition as further described in the notes to the financial
statements. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. We did not audit the Company's 1997 financial
statements. These statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to data included
for the Company, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of the Company at December 31, 1998 and 1997, and the
results of its operations and its cash flows for the period April 18, 1997
(inception) through December 31, 1998, in conformity with generally accepted
accounting principles.
Randolph Scott & Company
San Anselmo, CA
October 29, 1999
F-1
<PAGE>
<TABLE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<CAPTION>
September 30, December 31, December 31,
1999 1998 1997
ASSETS (Unaudited) (Audited) (Audited)
----------- --------- ---------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents (Note 3) $ 210,493 $ 59,389 $ 18,386
Advance to Stockholder (Note 5) 25,000 25,000 --
Prepaid Expenses 3,436 3,124 --
----------- ----------- -----------
TOTAL CURRENT ASSETS 238,929 87,513 18,386
EQUIPMENT, less accumulated depreciation
of $18,068 (Unaudited), $7,937 and $0, respectively (Notes 3 and 6) 32,557 25,673 --
DEPOSITS 2,305 5,815 --
INTANGIBLE COSTS, less accumulated amortization
of $25,783 (Unaudited), $6,668 and $182, respectively (Notes 4 and 7) 395,293 414,408 858
----------- ----------- -----------
TOTAL ASSETS $ 669,084 $ 533,409 $ 19,244
=========== =========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of Credit (Note 8) $ 22,781 $ 25,067 $ --
Current Portion of Capital Lease Obligation (Note 11) 5,964 5,008 --
Note Payable (Note 9) -- 20,700 --
Stock Subscription (Note 10) -- 50,000 --
Accounts Payable and Other Accrued Expenses 74,563 62,408 350
Payroll Taxes Payable -- 6,133 --
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 103,308 169,316 350
CAPITAL LEASE OBLIGATION (Note 11) 5,692 -- --
CONVERTIBLE PROMISSORY NOTES (Note 12) 150,000 303,061 --
----------- ----------- -----------
TOTAL LIABILITIES 259,000 472,377 350
----------- ----------- -----------
COMMITMENTS (Note 14)
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;
12,067,941 shares issued and outstanding at September 30, 1999 (unaudited),
and 10,600,000, and 1,300,000 shares issued and outstanding at
December 31, 1998, and 1997, respectively 1,206 1,060 130
Paid in Capital 1,082,070 161,400 61,410
Deficit accumulated during development stage (673,192) (101,428) (42,646)
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 410,084 61,032 18,894
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 669,084 $ 533,409 $ 19,244
=========== =========== ===========
<FN>
The accompanying notes are an integral part of these financial statements
</FN>
</TABLE>
F-2
<PAGE>
<TABLE>
VERTICA SOFTWARE, INC
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<CAPTION>
Cumulative
From From
April 18, April 18,
1997 1997
For the (Date of (Date of
Nine Months For the Inception) Inception)
Ended Year Ended to to
September 30, December 31, December 31, September 30,
1999 1998 1997 1999
(Unaudited) (Audited) (Audited) (Unaudited)
----------- --------- --------- -----------
<S> <C> <C> <C> <C>
Total Revenue $ $ $ $
Operating expenses:
Product development 215,412 -- 0 215,412
General and administrative 320,924 46,446 42,464 409,834
Amortization of intangibles 19,114 2,056 182 21,352
------------ ------------ ------------ ------------
Total operating expenses 555,450 48,502 42,646 646,598
------------ ------------ ------------ ------------
Loss from operations (555,450) (48,502) (42,646) (646,598)
Interest income 1,290 131 0 1,421
Interest expense (16,804) (9,410) 0 (26,214)
Bad debt expense -- (201) 0 (201)
------------ ------------ ------------ ------------
Loss before income taxes (570,964) (57,982) (42,646) (671,592)
Provision for income taxes (Note 13) (800) (800) -- (1,600)
------------ ------------ ------------ ------------
Net loss $ (571,764) $ (58,782) $ (42,646) $ (673,192)
============ ============ ============ ============
Net loss applicable to common stockholders $ (571,764) $ (58,782) $ (42,646) $ (673,192)
============ ============ ============ ============
Net loss per share--basic $ (0.0489) $ (0.0062) $ (0.0400) $ (0.0553)
============ ============ ============ ============
Weighted average shares used in per share
calculation--basic 11,696,678 9,531,250 1,131,765 12,167,941
============ ============ ============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-3
<PAGE>
<TABLE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Statement of Changes in Stockholders' Equity
From April 21, 1997 (Inception) to December 31, 1998 and September 30, 1999 (Unaudited)
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock During
--------------- ------------------- Paid-in Development
Shares Amount Shares Amount Capital Stage Total
------ ------ ------ ------ ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, APRIL 18, 1997 (inception) -- $ -- -- $ -- $ -- $ -- $ --
April 21, 1997, shares issued for
services (Note 10) -- -- 1,040,000 104 936 -- 1,040
October 8, 1997 sale of common stock
pursuant to confidential offering
memorandum, net of $4,500 in offering
costs (Note 10) -- -- 260,000 26 60,474 -- 60,500
Net loss for the period ended
December 31, 1997 -- -- -- -- -- (42,646) (42,646)
-- ------ ---------- ----------- ----------- ----------- -----------
BALANCE DECEMBER 31, 1997 -- $ -- 1,300,000 $ 130 $ 61,410 $ (42,646) $ 18,894
-- ------ ---------- ----------- ----------- ----------- -----------
September 29, 1998, sale of common
stock pursuant to a
Stock Purchase and
Exchange Agreement (Note 4) -- -- 9,200,000 920 -- -- 920
December 4, 1998, sale of common stock
pursuant to a confidential
subscription agreement (Note 10) -- -- 50,000 5 49,995 -- 50,000
December 21, 1998, sale of common stock
pursuant to a confidential
subscription agreement (Note 10) -- -- 50,000 5 49,995 -- 50,000
Net loss for the year ended
December 31, 1998 -- -- -- -- -- (58,782) (58,782)
-- ------ ---------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1998 -- $ -- 10,600,000 $ 1,060 $ 161,400 $ (101,428) $ 61,032
== ====== ========== =========== =========== =========== ===========
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
Deficit
Accumulated
During
Preferred Stock Common Stock Paid-in Development
Shares Amount Shares Amount Capital Stage Total
------ ------ ------ ------ ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
February 11, 1999, sale of common stock
pursuant to a confidential
subscription
agreement (unaudited) (Note 10) -- -- 50,000 5 49,995 -- 50,000
February 11, 1999, sale of common stock
in Private Placement Transactions,
net of Offering costs of
$1,876 (unaudited) (Note 10) -- -- 584,500 58 584,442 -- 584,500
February 11, 1999, conversion of
convertible promissory note to
common stock (unaudited) (Note 10) -- -- 41,433 5 42,653 -- 42,658
February 24, 1999, sale of common stock
in Private Placement Transactions,
net of Offering costs of
$75 (unaudited) (Note 10) -- -- 52,000 5 51,995 -- 52,000
February 24, 1999, conversion of
convertible promissory notes to
common stock (unaudited) (Note 10) -- -- 32,885 3 34,693 -- 34,696
March 2, 1999, sale of common stock
in Private Placement Transactions,
net of Offering costs of
$15 (unaudited) (Note 10) -- -- 15,000 1 14,999 -- 15,000
March 25, 1999, conversion of convertible
promissory note to common stock
(unaudited) (Note 10) -- -- 80,802 8 55,045 -- 55,053
March 26, 1999, conversion of convertible
promissory notes to common stock
(unaudited) (Note 10) -- -- 571,321 57 86,852 -- 86,909
September 23, 1999, issuance of common
stock for services (unaudited) (Note 10) -- -- 40,000 4 (4) -- --
Net loss for the nine months ended
September 30, 1999 (unaudited) -- -- -- -- -- (571,764) (571,764)
-- ------ ---------- ----------- ----------- ----------- -----------
BALANCE, September 30, 1999 (unaudited) -- $ -- 12,067,941 $ 1,206 $ 1,082,070 $ (673,192) $ 410,084
== ====== ========== =========== =========== =========== ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-5
<PAGE>
<TABLE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<CAPTION>
From From
April 18, April 18,
1997 1997
For the (Date of (Date of
Nine Months For the Inception) Inception)
Ended Year Ended to to
September 30, December 31, December 31, September 30,
1999 1998 1997 1999
(Unaudited) (Audited) (Audited) (Unaudited)
----------- -------- --------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (571,764) $ (58,782) $ (42,646) $ (673,192)
Transactions not requiring cash:
Depreciation and amortization 28,742 7,333 182 36,257
Noncash consulting services 40,000 -- -- 40,000
Changes in operating assets and liabilities:
(Increase) decrease in advance to stockholder -- (25,000) -- (25,000)
(Increase) decrease in prepaid expenses (312) (3,124) -- (3,436)
(Increase) decrease in deposits 3,510 (5,815) -- (2,305)
Increase (decrease) in accounts payable and
other accrued expenses 12,155 62,058 350 74,563
Increase (decrease) in payroll taxes payable (6,133) 6,133 -- --
----------- ----------- ----------- -----------
NET CASH (USED IN) OPERATING ACTIVITIES (493,802) (17,197) (42,114) (553,113)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Excess cost over net assets of business acquired (419,116) -- (419,116)
Purchase/acquisition of equipment (17,015) (26,520) -- (43,535)
----------- ----------- ----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES (17,015) (445,636) -- (462,651)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings/assumption on line of credit -- 26,300 -- 26,300
Net payments on line of credit (2,286) (1,233) -- (3,519)
Proceeds/assumption of unsecured notes -- 21,700 -- 21,700
Net payments on unsecured notes (20,700) (1,000) -- (21,700)
Proceeds, assumption on convertible debt -- 328,061 -- 328,061
Conversion of convertible promissory notes into common stock (153,061) -- -- (153,061)
Net payments on convertible debt -- (25,000) -- (25,000)
Proceeds from stock subscriptions -- 150,000 -- 150,000
Redemption of stock subscriptions (50,000) (100,000) -- (150,000)
Proceeds from sale of common stock less offering costs 880,816 100,000 60,500 1,041,316
Assumption of capital lease obligation 11,656 6,172 -- 17,828
Net payments on capital lease obligation (4,504) (1,164) -- (5,668)
----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 661,921 503,836 60,500 1,226,257
----------- ----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 151,104 41,003 18,386 210,493
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 59,389 18,386 -- --
=========== =========== =========== ===========
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 210,493 $ 59,389 $ 18,386 $ 210,493
=========== =========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 307 $ 1,121 $ -- $ 1,428
Taxes $ $ 800 $ -- $ 800
NONCASH INVESTING AND FINANCING TRANSACTIONS:
Common stock issued for organizational costs $ -- $ -- $ 1,040 $ 1,040
Common stock issued for consulting services $ 40,000 $ -- $ -- $ 40,000
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-6
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND
APRIL 18, 1997 (inception) THROUGH DECEMBER 31, 1997
(Unaudited for the Nine Months Ended September 30, 1999)
NOTE 1 - LOSSES DURING THE DEVELOPMENT STAGE
Development Stage Company
The Company is in the development stage in accordance with Statement of
Financial Accounting Standard (SFAS) No. 7. All of the costs incurred to date
have been related to the development of its products; development of its
proposed Internet website, and the raising of capital to finance such
activities.
The Company and its predecessor corporation, Vertica California, discussed in
Notes 2, 3, and 4 below, have recorded operating losses since inception,
totaling $101,428 through December 31, 1998.
Management plans to raise additional capital, primarily through the issuance of
common stock, until successful operations are obtained and the Company is no
longer in the development stage.
In view of these matters, realization of a major portion of the assets in the
accompanying balance sheet is dependent upon the Company's ability to meet its
financing requirements, and the success of its future operations. Management
believes that actions presently being taken to underwrite the Company's
development stage through completion will provide the necessary financial
requirements, which in turn will provide the opportunity for the Company to
continue as a going concern.
NOTE 2 - ORGANIZATION AND NATURE OF BUSINESS
Background
Vertica Software, Inc., (the "Company"), formerly "Perfection Development
Corporation", was incorporated in Colorado on April 18, 1997. As further
discussed in Notes 3 and 4, on September 29, 1998, Perfection Development
Corporation entered into an agreement pursuant to which it acquired all of the
outstanding capital stock of Vertica Software, Inc., a California corporation
("Vertica California"). On December 30, 1998, Vertica California merged with and
into the Company. The Company was the surviving corporation in the merger and
the separate corporate existence of Vertica California ceased. Concurrently with
the merger, the Company changed its name from Perfection Development Corporation
to Vertica Software, Inc. The Company is developing Internet/Intranet software
products and services and an Internet web site for the hazardous material and
environmental industries.
Products
The Company's current product development includes an environmental management
computer software system called VEMS, and development of a an Internet web site
called VERTICA.COM. VEMS is intended to link to VERTICA.COM for additional
content information, on-line regulations compliance and on-demand training and
services. VEMS is intended to be a set of computer software modules that are
being designed to automate environmental regulation compliance and related
activities, for common industrial applications. This will encompass activities
such as chemical inventory, transportation manifests, emergency response, permit
applications, waste streams, and occupational training. Vertica.com will be an
on-line web site that will serve the hazardous materials community and
environmental concerns of industry.
F-7
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND
APRIL 18, 1997 (inception) THROUGH DECEMBER 31, 1997
(Unaudited for the Nine Months Ended September 30, 1999)
NOTE 2 - ORGANIZATION AND NATURE OF BUSINESS - Continued
Liquidity
The Company has recurring operating losses since inception that have continued
subsequent to December 31, 1998. The losses are primarily due to product
development costs, and administrative infrastructure costs related to the
financing and development of the Company's business.
On January 4, 1999, the Company issued 50,000 shares of common stock at a price
of $1.00 per share for $50,000 in cash.
On February 12, 1999, the Company issued 602,500 shares of common stock at a
price of $1.00 per share for $602,500 in cash.
On February 23, 1999, the Company issued 7,000 shares of common stock at a price
of $1.00 per share for $7,000 in cash.
On March 2, 1999, the Company issued 42,000 shares of common stock at a price of
$1.00 per share for $42,000 in cash.
The Company believes that the proceeds from these transactions will provide
adequate funding to sustain the Company's operations through 1999. However,
there is no assurance that the funding will be sufficient to sustain operations
until the Company begins generating positive cash flows.
The Company's plan to continue the development of its core products through the
year ending December 31, 2000 is solely dependent on additional funding through
the sale of equitable securities or convertible promissory notes.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Acquisitions
As further discussed in Note 4, the acquisition of Vertica California was
accounted for using the purchase method of accounting pursuant to APB 16. Excess
purchase price over the fair market value of the underlying assets was allocated
to goodwill. Goodwill is being amortized using the straight-line method over
forty years. Operating results of the acquired company have been included in the
statement of operations from the Pro Forma Financial Information. As further
discussed in Note 4, the unaudited pro forma information assumes that the
acquisition of Vertica California had occurred on April 18, 1997 (Inception of
the Company).
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, retained earnings, income
and expenses, and related disclosures for the reporting period. Actual results
could differ from those estimates and such differences could be material.
F-8
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND
APRIL 18, 1997 (inception) THROUGH DECEMBER 31, 1997
(Unaudited for the Nine Months Ended September 30, 1999)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Cash and Cash Equivalents
Cash is defined as cash in demand deposit accounts as well as cash on hand. Cash
equivalents are short term, highly liquid investments that are readily
convertible to known amounts of cash and investments so near their maturity that
the risk of changes in value due to changes in interest rates is negligible.
These are generally investments with maturity dates within three months of their
acquisition date. Not included as cash equivalents are funds restricted as to
their use, regardless of liquidity or the maturity dates of investments.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of uninsured cash balances. The Company places
its cash deposits with high-credit quality financial institutions. At times,
balances in the Company's cash accounts may exceed the Federal Deposit Insurance
Company (FDIC) limit of $100,000. There were no uninsured balances at December
31, 1998 and 1997, and September 30, 1999 had an uninsured balance of $27,413
(unaudited).
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.
Excess Cost Over Net Assets of Acquired Company
As further discussed in Note 7, this asset is being amortized on a straight-line
basis over forty years. $19,094 was charged to expense for the nine months
ended September 30, 1999 (unaudited), and $ 2,056 of amortization was charged to
expense for the year ended December 31, 1998. There were no costs for the period
ended December 31, 1997. When events and circumstances so indicate, all long
term assets, including the excess cost over net assets of acquired company, are
reassessed for recoverability based upon cash flow forecasts. No impairment
losses have been recognized in the financial statements for the periods
presented.
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 year ended December 31, 1998. There were no costs incurred
for the period ended December 31, 1997.
F-9
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND
APRIL 18, 1997 (inception) THROUGH DECEMBER 31, 1997
(Unaudited for the Nine Months Ended September 30, 1999)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Organizational Costs
As further discussed in Note 7, organizational costs are recorded at cost.
Amortization is provided for using the straight-line method over a period of
sixty months.
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 years and periods ended December 31,
1998 and 1997, 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
DECEMBER 31, 1998 AND
APRIL 18, 1997 (inception) THROUGH DECEMBER 31, 1997
(Unaudited for the Nine Months Ended September 30, 1999)
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, therefore, the adoption had no effect on the financial
statements for the year ended December 31, 1998.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot distinguish
twenty-first century dates from twentieth century dates. To function properly,
these date-code fields must distinguish twenty-first century dates from
twentieth century dates and, as a result, many companies' software and computer
systems may need to be upgraded or replaced in order to comply with such "Year
2000" requirements.
The Company is dependent on the operation of numerous systems that may be
adversely affected by the Year 2000 problem, including equipment, software, and
content supplied to the Company by third-party vendors that may not be Year 2000
compliant, including outside providers of Web-hosting services on which the
Company is currently dependent. In addition, the Company's future business
depends on the successful operation of the Internet following the commencement
of the year 2000. If the Internet is inaccessible for an appreciable period of
time, or if customers and users are unable to access the Company's site, the
Company's business and revenues could be adversely affected. The Company is also
subject to external forces that might generally affect industry and commerce,
such as telecommunications, utility or transportation company Year 2000
compliance failures, related service interruptions and the economic impact that
such failures have on the Company customers Year 2000 Compliance Assessment
Plans.
The Company has not incurred material costs to date in their assessment process,
and currently does not believe that the cost of additional actions will have a
material effect on its results of operations or financial condition.
F-11
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
APRIL 18, 1997 (inception) THROUGH DECEMBER 31, 1997
(Unaudited for the Nine Months Ended September 30, 1999)
NOTE 4 - ACQUISITION
The Company's current business is a continuation of the business formerly
conducted by Vertica Sofware, Inc., a California corporation ("Vertica
California"). On September 29, 1998, the Company acquired 100% of the
outstanding capital stock of Vertica California. 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. On December
30, 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
merger constituted a tax-free reorganization.
The acquisition of Vertica California was accounted for using the purchase
method of accounting. The excess purchase price over the fair market value of
the underlying assets was allocated to goodwill. Goodwill is being amortized
using the straight-line method over forty years. Operating results of Vertica
California have been included in the statement of operations from the date of
acquisition. The unaudited pro forma results below assume the acquisition
occurred at the beginning at each of the calendar years and periods ending
December 31, 1998 and 1997:
1998 1997
---- ----
Operating loss $134,942 $200,818
Net loss $173,662 $201,424
- --------------------------------------------------------------------------------
Net loss per common share:
Basic $ 0.018 $ 0.030
In management's opinion, the unaudited pro forma combined results of operations
are not indicative of the actual results that would have occurred had the
acquisition been consummated at the beginning of the period ended December 31,
1997.
NOTE 5 - Advance to stockholder
At December 31, 1998, advance to stockholder consisted of an advance to acquire
stock in the Successor Company. In the original merger documents, the
stockholder was supposed to pay the Perfection Development Corporation
Shareholders $25,000 out of his own funds. The corporation ended up making the
$25,000 payment. There were no advances at December 31, 1997.
F-12
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND
APRIL 18, 1997 (inception) THROUGH DECEMBER 31, 1997
(Unaudited for the Nine Months Ended September 30, 1999)
NOTE 6 - Equipment
At December 31, 1998, equipment consisted of the following (there was no
equipment at December 31, 1997):
Computers and related peripheral equipment $33,610
Less: Accumulated depreciation 7,937
-------
$25,673
=======
Total depreciation expense for the year and period ended December 31, 1998 and
1997 was $847 and $-0-.
NOTE 7 - Intangible Costs
At December 31, 1998 and 1997, intangible costs consisted of the following:
1998 1997
---- ----
Costs in excess of net assets acquired $382,323 $ -0-
Merger costs 37,713 -0-
Organizational costs 1,040 1,040
-------- --------
421,076 1,040
Less accumulated amortization 6,668 182
-------- --------
$414,408 $ 858
======== ========
Costs in excess of net assets acquired are being amortized on a straight-line
basis over forty years. Merger and organizational costs are being amortized on a
straight-line basis over sixty months. Total amortization for the years ended
December 31, 1998 and 1997 was $6,486 and $182, respectively. When events and
circumstances so indicate, all long-term assets, including costs in excess of
net assets acquired, are assessed for recoverability based upon cash flow
forecasts. No impairment losses have been recognized in these financial
statements.
NOTE 8 - Line of Credit
The Company has a bank line of credit for $25,000, which is guaranteed by the
President of the Company. At December 31, 1998, the line carried an interest
rate of 10.75%. There was no line of credit for 1997.
Amount outstanding at year end $25,067
=======
Weighted average interest rate at year end 10.75%
Weighted average borrowings during the year $12,800
=======
Maximum amount outstanding during the year $25,100
=======
F-13
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND
APRIL 18, 1997 (inception) THROUGH DECEMBER 31, 1997
(Unaudited for the Nine Months Ended September 30, 1999)
NOTE 9 - Notes Payable
At December 31, 1998 notes payable consisted of the following (there were no
notes outstanding for the period ended December 31, 1997):
Note payable to individual, unsecured, bearing
compound interest at 10%, and payable upon
demand $ 10,700
Note payable to individual, unsecured, bearing
compound interest at 10%, and payable upon
demand 10,000
-------------
$ 20,700
=============
NOTE 10 - Sale and Issuance of Common Stock and Subscriptions
During the period ended December 31, 1997, the Company sold 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.
An additional 1,040,000 shares of $.0001 par value common stock were issued to
officers for services on April 21, 1997. These shares are "restricted
securities" and may be sold only in compliance with Rule 144 of the Act.
During the period 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 period ended September 30, 1999 (unaudited), 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 $50,000.
During the period ended September 30, 1999 (unaudited), the Company issued
651,500 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 $651,500.
During the period ended September 30, 1999 (unaudited), the Company converted
convertible promissory notes totaling $175,227 (including accrued interest of
$20,166) for 726,441 shares of its $.0001 par value common stock at an average
price of $.25 per share.
During the period ended September 30, 1999 (unaudited), the Company issued
40,000 shares of its $.0001 par value common stock at $1.00 per share for
outside consulting services.
F-14
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND
APRIL 18, 1997 (inception) THROUGH DECEMBER 31, 1997
(Unaudited for the Nine Months Ended September 30, 1999)
NOTE 10 - Sale and Issuance of Common Stock and Subscriptions - (Continued)
Subscriptions
At December 31, 1998, subscriptions consisted
of one remaining out of three $50,000
subscriptions issued under Rule 504 of the
Securities Act of 1933 in November and December
1998. The final subscription was converted
during the nine months ended September 30, 1999
(unaudited). The subscription funds are held in
escrow until the holder approves release and
acquires the stipulated number of common
shares. There were no subscriptions outstanding $ 50,000
at December 31, 1997. ===============
NOTE 11 - Capital Lease Obligation
At December 31, 1998 capital lease obligation consisted of the following (there
were no obligations outstanding for the period ended December 31, 1997):
Capital lease obligation, secured by equipment,
with an effective interest rate of 16% and
approximate monthly payments of $460 $ 5,008
Less current portion 5,008
----------------
$ 0
================
Total 1998 depreciation expense on assets under capital lease was $785.
NOTE 12 - Convertible Promissory Notes
At December 31, 1998, convertible promissory
notes consisted of the following (there were no
convertible promissory notes outstanding at
December 31, 1997):
Convertible promissory note, unsecured with
interest at 10%. A separate agreement
stipulates the conversion rate of $.618 cents
per share of common stock. The principal note
balance along with all accrued interest became
due on December 31, 1998 $25,000
Convertible promissory note, unsecured with
interest at 10%. A separate agreement
stipulates the conversion rate of $.618 cents
per share of common stock. The principal note
balance along with all accrued interest is
payable on demand 50,000
F-15
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND
APRIL 18, 1997 (inception) THROUGH DECEMBER 31, 1997
(Unaudited for the Nine Months Ended September 30, 1999)
NOTE 12 - Convertible Promissory Notes - Continued
Convertible promissory note, unsecured with
interest at 10%. A separate agreement stipulates the
conversion rate of $1.00 per share of common stock. The
principal note balance along with all accrued interest
matures on August 14, 2001 12,000
Convertible promissory note, unsecured with
interest at 10%. A separate agreement stipulates the
conversion rate of $1.00 per share of common stock. The
principal note balance along with all accrued interest
matures on August 1, 2000 10,000
Convertible promissory note, unsecured with
interest at 10%. A separate agreement stipulates the
conversion rate of $1.00 per share of common stock. The
principal note balance along with all accrued interest
matures on August 1, 2000 10,000
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 10%. A separate agreement stipulates the
conversion rate of $.10 cents per share of common stock.
The principal note balance along with all accrued interest
mature on February 27, 1999 3,000
Convertible promissory note, unsecured with
interest at 10%. A separate agreement stipulates the
conversion rate of $.10 cents per share of common stock.
The principal note balance along with all accrued interest
matured on October 1, 1999 10,000
F-16
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND
APRIL 18, 1997 (inception) THROUGH DECEMBER 31, 1997
(Unaudited for the Nine Months Ended September 30, 1999)
NOTE 12 - Convertible Promissory Notes - Continued
Convertible promissory note, unsecured with interest at 10%.
A separate agreement stipulates the conversion rate of $.10
cents per share of common stock. The principal note balance
along with all accrued interest matured on September 1, 1999 4,250
Convertible promissory note, unsecured with interest at 10%.
The agreement stipulates the conversion rate of $1.60 per
share of common stock. The principal note balance along with
all accrued interest payable upon demand. 50,000
Convertible promissory note, unsecured with interest at 10%.
A separate agreement stipulates the conversion rate of $.10 28,811
cents per share of common stock. The principal note balance ----------
along with all accrued interest matured on March 1, 1999 $ 303,061
==========
During the nine months ended September 30, 1999 (Unaudited),
$153,061 of the $303,061 convertible promissory notes above
were converted into common stock.
NOTE 13 - Income Taxes
A reconciliation of the U.S. statutory federal income tax rate to the effective
tax rate is as follows:
1998 1997
---- ----
U.S. federal statutory graduated rate 25.00% 15.00%
State income tax rates net of federal
Benefits:
Colorado 4.25% 4.25%
California 7.00% 0.00%
Net operating loss for which no tax
benefit is currently available (36.25%) (19.25%)
-------- --------
-0-% -0-%
======== ========
The Company conducts its operations in California, which has a minimum tax of
$800. The Company began operations during 1998 and paid the minimum tax of $800.
F-17
<PAGE>
VERTICA SOFTWARE, INC.
(FORMERLY PERFECTION DEVELOPMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND
APRIL 18, 1997 (inception) THROUGH DECEMBER 31, 1997
(Unaudited for the Nine Months Ended September 30, 1999)
NOTE 13 - Income Taxes - Continued
At December 31, 1998 and 1997, deferred taxes consisted of a net tax asset due
to operating loss carryforwards of $101,428 and $42,646, respectively, which was
fully allowed for, in the valuation allowance of $101,428, $42,646,
respectively. The valuation allowance offsets the net deferred tax asset for
which there is no assurance of recovery. The change in valuation allowance for
the year and period ended December 31, 1998 and 1997 were $8,760 and $6,077,
respectively. Net operating loss carryforwards will expire in 2012 and 2013.
NOTE 14 - Commitment
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, 1999 $24,201 $ 5,887
======= =======
Rent expense was $3,683 for the year and period ended December 31, 1998. There
were no commitments or expense for the period ended December 31, 1997.
NOTE 15 - Subsequent Event (unaudited) [add conversion of promissory notes?]
During the nine months ended September 30, 1999, the Company entered into one
office space lease, and two equipment leases. 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
======== ========
F-18
