<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM 10-Q
(Mark one)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________to _______.
Commission File Number 0-19640
-----------------
VERTEL CORPORATION
(Exact name of Registrant as specified in its charter)
California 95-3948704
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21300 Victory Boulevard, Suite 700, Woodland Hills, California 91367
(Address of principal executive offices) (Zip code)
(818) 227-1400
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period as the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days.
Yes X No
---- ----
As of April 30, 2000 there were 27,575,765 shares of common stock outstanding.
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VERTEL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................... $ 11,459 $ 3,974
Short-term investments........................................ -- 5,677
Trade accounts receivable (net of allowances of $488 as of
March 31, 2000 and $486 as of December 31, 1999)......... 6,028 6,289
Prepaid expenses and other current assets..................... 387 519
-------- --------
Total current assets..................................... 17,874 16,459
Property and equipment, net........................................ 1,337 1,638
Investments........................................................ 1,437 1,437
Goodwill, net...................................................... 3,749 3,987
Other assets....................................................... 305 306
-------- --------
$ 24,702 $ 23,827
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................. $ 249 $ 931
Accrued wages and related liabilities......................... 1,562 1,672
Capital lease obligations..................................... -- 26
Accrued restructuring expenses................................ 108 439
Accrued taxes payable......................................... 560 483
Other accrued liabilities..................................... 2,085 1,773
Deferred revenue.............................................. 1,301 1,621
-------- --------
Total liabilities........................................ 5,865 6,945
-------- --------
Shareholders' equity:
Preferred stock, par value $.01, 2,000,000 shares authorized;
none issued and outstanding
Common stock, par value $.01, 50,000,000 shares authorized;
shares issued and outstanding: 2000, 27,570,690;
1999, 26,246,531........................................ 276 262
Additional paid-in capital.................................... 85,043 82,049
Accumulated deficit........................................... (66,282) (65,242)
Accumulated comprehensive loss................................ (200) (187)
-------- --------
Total shareholders' equity............................... 18,837 16,882
-------- --------
$ 24,702 $ 23,827
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
VERTEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Month Period Ended
-------------------------------------------------
March 31, March 31,
2000 1999
-------------------- ---------------------
<S> <C> <C>
Net revenues:
License........................................................ $ 2,911 $ 3,162
Service and other.............................................. 2,100 1,360
------- -------
Net revenues............................................. 5,011 4,522
------- -------
Cost of revenues:
License........................................................ 223 570
Service and other.............................................. 1,414 1,414
------- -------
Total cost of revenues................................... 1,637 1,984
------- -------
Gross profit....................................................... 3,374 2,538
------- -------
Operating expenses:
Research and development....................................... 1,453 1,636
Sales and marketing............................................ 1,578 1,557
General and administrative..................................... 1,096 820
General and administrative - non-cash stock compensation....... 259 192
Goodwill amortization.......................................... 238 40
------- -------
Total..................................................... 4,624 4,245
------- -------
Operating loss..................................................... (1,250) (1,707)
Other income, net.................................................. 250 249
------- -------
Loss before provision for income taxes............................. (1,000) (1,458)
Provision for income taxes......................................... 40 --
------- -------
Net loss........................................................... (1,040) (1,458)
Other comprehensive expense........................................ (13) (30)
------- -------
Comprehensive loss................................................. $(1,053) $(1,488)
======= =======
Basic and diluted net loss per common share........................ ($0.04) ($0.06)
======= =======
Weighted average shares outstanding used in
net loss per common share calculations - basic and diluted... 26,992 25,016
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
VERTEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Month Period Ended
--------------------------------------------------
March 31, March 31,
2000 1999
-------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss from operations......................................... $(1,040) $(1,458)
Adjustments to reconcile net loss from operations to net
cash provided by (used for) operating activities:
Depreciation and amortization.................................. 630 313
Reserve for returns and bad debts.............................. 2 65
Non-cash stock compensation.................................... 259 192
Changes in operating assets and liabilities.................... (658) (976)
------- -------
Net cash used for operating activities......................... (807) (1,864)
------- -------
Cash flows from investing activities:
Net sales (purchases) of short-term investments.................. 5,677 (6,790)
Purchases of property and equipment.............................. (91) (249)
Cash paid for business acquisition, net of cash acquired......... (5) (408)
Changes in other assets.......................................... 1 34
------- -------
Net cash provided by (used for) investing activities........... 5,582 (7,413)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock........................... 2,749 137
Payments on capital lease obligations............................ (26) (284)
------- -------
Net cash provided by (used for) financing activities........... 2,723 (147)
------- -------
Effect of exchange rate changes on cash............................ (13) (30)
------- -------
Net increase (decrease) in cash and cash equivalents............... 7,485 (9,454)
Cash and cash equivalents, beginning of period..................... 3,974 19,495
------- -------
Cash and cash equivalents, end of period........................... $11,459 $10,041
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
VERTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
The consolidated financial statements include the accounts of Vertel
Corporation and its subsidiaries (the "Company"). Intercompany balances and
transactions have been eliminated in consolidation. The interim consolidated
financial statements are unaudited. In the opinion of management, the interim
financial statements include all adjustments, consisting of only normal,
recurring adjustments, necessary for a fair presentation of the Company's
financial position, results of operations and cash flows.
It is suggested that these consolidated financial statements and the
accompanying notes be read in conjunction with the audited consolidated
financial statements and the accompanying notes for the year ended December 31,
1999 included in the Company's Annual Report on Form 10-K. The results of
operations for the period ended March 31, 2000 are not necessarily indicative of
results that may be expected for the full year.
Certain reclassifications have been made to the 1999 consolidated financial
statements to conform to the 2000 consolidated financial statement presentation.
2. Statement of Cash Flows
Increases (decreases) in operating cash flows arising from changes in assets
and liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
Three Month Period Ended
-----------------------------------
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Trade accounts receivable............................... 259 $(528)
Prepaid expenses and other current assets............... 132 9
Accounts payable........................................ (682) 186
Accrued wages and related liabilities................... (110) (99)
Cash payments for restructuring expenses ............... (331) --
Other accrued liabilities............................... 317 (83)
Accrued taxes payable................................... 77 (161)
Deferred revenue........................................ (320) (300)
----- -----
$(658) $(976)
===== =====
</TABLE>
3. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which the Company is required to
adopt beginning in fiscal year 2001. SFAS No. 133 will require the Company to
record all derivatives on the balance sheet at fair value. Changes in
derivative fair values will either be recognized in earnings as offsets to the
changes in fair value of related hedged assets, liabilities and firm
commitments, or, for forecasted transactions, deferred and recorded as a
component of other comprehensive income until the hedge transactions occur and
are recognized in earnings. The ineffective portion of a hedging derivative's
change in fair value will be immediately recognized in earnings. The Company
does not believe the effect of adopting SFAS No. 133 will be material to its
financial position.
In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-9, which provides certain amendments
to SOP No. 97-2, and is effective for transactions entered into by the Company
beginning January 1, 2000. The Company does not believe the effect of adopting
SOP No. 98-9 will be material to its financial position.
5
<PAGE>
VERTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Acquisition of Expersoft Corporation
Effective March 12, 1999, the Company acquired Expersoft Corporation
("Expersoft"). Expersoft develops and markets standards-based, high
performance Common Object Request Broker Architecture (CORBA) software
technology. The acquisition price was approximately $3,225,000 and consisted of
cash of $3,000,000 and acquisition costs of $225,000. At March 31, 2000 the
Company had paid $3,187,000 of the cash consideration and acquisition costs.
The acquisition was accounted for as a purchase.
The purchase resulted in goodwill of $4,742,000, which is being amortized
using the straight-line method over its estimated useful life of five years.
The operating results of Expersoft are included in the Company's consolidated
financial statements from the date of acquisition. The unaudited pro forma
consolidated information set forth below presents the consolidated results of
operations as if the acquisition had occurred at the beginning of the period
presented.
These pro forma consolidated results have been prepared for comparative
purposes only and do not purport to be indicative of what would have occurred if
the acquisition had taken place at the beginning of the period presented or the
results that may occur in the future.
Pro forma consolidated results for the period ended March 31, 1999 is as
follows (in thousands):
<TABLE>
<CAPTION>
Three Month
Period Ended
March 31, 1999
------------------
<S> <C>
Revenues.......................................................... $ 4,939
Net loss.......................................................... (1,757)
Basic and diluted net loss per common share....................... $ (0.07)
Weighted average shares outstanding used in net loss per
common share calculations - basic and diluted.................. 25,016
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION AND SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. In addition, forward-looking statements may be made orally or in press
releases, conferences, reports, on the Company's web site or otherwise, in the
future by or on behalf of the Company. Statements that are not historical are
forward-looking. When used by or on behalf of the Company, the words "expect,"
"anticipate," "estimate," "believe," "intend," and similar expressions generally
identify forward-looking statements.
Forward-looking statements involve risks and uncertainties. These
uncertainties include factors that affect all businesses operating in a global
market, as well as matters specific to the Company and the markets it serves.
Particular risks and uncertainties facing the Company at the present include the
timely and successful development of new products and technologies; successful
introduction and customer acceptance of new and enhanced products and
technologies in existing and new markets; the possible development and
introduction of competitive products and new and alternative technologies; loss
of key customer, partner and alliance relationships; pricing, currency and
exchange risks; governmental and regulatory developments affecting the Company
and its customers; the ability to identify, conclude, and integrate acquisitions
on a timely basis; the ability to attract and/or retain essential technical or
other personnel; the length of the Company's sales cycle; size and timing of
license fees closed during the quarter; the likely continued significant
percentage of quarterly revenues
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
recorded in the last month of the quarter which makes forecasting difficult and
subject to a substantial risk of variance from actual results; economic
uncertainties associated with conducting business on a worldwide basis; and the
Company's ability to control expenditures at a level consistent with revenues.
Additional risks inherent in the Company's business are listed under "Risk
Factors" in Part I, Item I of Vertel's Annual Report on From 10-K for the fiscal
year ended December 31, 1999 which is incorporated by reference.
Readers are cautioned not to place undue reliance on any forward-looking
statement and to recognize that the statements are not predictions of actual
future results. Actual results could differ materially from those anticipated
in the forward-looking statements and from historical results, due to the risk
and uncertainties referred to above, as well as others not now anticipated. The
foregoing statements and Risk Factors are not exclusive and further information
concerning the Company and its business, including factors that potentially
could materially affect the Company's financial results, may emerge from time to
time. It is not possible for management to predict all risk factors or to
assess the impact of such risk factors on the Company's business. The Company
undertakes no obligation to revise or publicly release the results of any
revision to the forward-looking statements.
The following discussion should be read in conjunction with the unaudited
consolidated financial statements and accompanying notes, included in Part I -
Item 1 of this Quarterly Report, and the audited consolidated financial
statements and accompanying notes and Management's Discussion and Analysis of
Financial Condition and Results of Operations for the year ended December 31,
1999 contained in the Company's Annual Report on Form 10-K.
Results of Operations
Net Revenues. Net revenues increased $489,000, or 11%, to $5,011,000 for the
three months ended March 31, 2000 (the "first quarter of 2000") compared to
$4,522,000 for the three month period ended March 31, 1999 (the "first quarter
of 1999").
License revenues consist primarily of license fees and royalties derived from
the Company's software solutions and development platforms. License revenues
decreased $251,000, or 8%, to $2,911,000 during the first quarter of 2000 from
$3,162,000 during the first quarter of 1999, primarily as a result of lower
demand in the European markets for the Company's software products in the first
quarter of 2000. The Company's products are complex and generally involve
significant investment decisions after extended evaluation by prospective
customers. Accordingly, the Company's sales cycle is usually lengthy and results
in fluctuations between markets and between quarters.
Service and other revenues, which consist primarily of fees from professional
service projects, software maintenance, and custom software engineering,
increased $740,000, or 54%, to $2,100,000 during the first quarter of 2000 from
$1,360,000 during the first quarter of 1999. The increase was the result of
higher professional service revenues due to a greater number of projects
($690,000) and increased software maintenance revenues ($50,000). The increase
in software maintenance revenue reflects Expersoft maintenance revenues for the
entire first quarter in 2000 versus the period from acquisition (March 12) in
the first quarter of 1999 ($112,000), which was partially offset by lower
maintenance revenues as a result of non-renewals of maintenance contracts on
certain discontinued Telecommunications Management Network (TMN) products.
Sales to customers outside of the United States comprised approximately 23% of
net revenues in the first quarter of 2000 compared to approximately 38% in the
same period of 1999. The Company has historically reported a high percentage of
sales to customers outside of the United States and the Company expects that
international sales will continue to be significant. Any economic turmoil in
foreign markets could impact future sales in the affected regions.
Revenues from Alcatel USA and Nortel Networks comprised approximately 31% and
19% of net revenues respectively, in the first quarter of 2000. No other single
customer accounted for more than 10% of the Company's revenues for the first
quarter of 2000 or for the first quarter of 1999.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Gross Profit. Cost of revenues consists primarily of professional
engineering services and warranty and technical support, all primarily comprised
of payroll and related costs, facility costs and royalties paid under software
licensing agreements. Gross margin increased to 67% for the first quarter of
2000, compared to 56% in the first quarter of 1999, primarily due to improved
professional services unit margins and a first quarter of 1999 license
transaction of Expersoft valued at $402,000, of which $385,000 in costs and
estimated earnings had accrued to Expersoft prior to the acquisition as a result
of Expersoft completing substantially all of the related software development.
Research and Development. The Company has historically invested heavily in
research and development to expand its expertise in TMN-based software
solutions, TMN-based applications and technologies and to continue sustaining
support of its product offerings. Through its Expersoft acquisition, the
Company added CORBA technology to its network management solutions and is
developing embedded telecom specific implementations of this technology. The
major components of R&D expenses are engineering salaries, employee benefits and
associated overhead, fees to outside contractors, the cost of facilities and
depreciation of capital equipment, which consists primarily of computer and test
equipment. Costs related to R&D in certain cases are offset by customer
reimbursement of non-recurring engineering efforts.
Total R&D expenses decreased $183,000, or 11%, to $1,453,000 in the first
quarter of 2000 from $1,636,000 in the first quarter of 1999. This decrease was
primarily the result of the reduced payroll, consulting and related costs of TMN
product development ($1,066,000), which was partially offset by the cost of
Expersoft's product development organization for a full quarter in 2000 compared
to a partial quarter in 1999 ($883,000).
In October 1999, the Company announced a restructuring plan designed to reduce
operating costs, and reduced its overall workforce by approximately 20%. The TMN
product development staff in Woodland Hills, California accounted for
approximately half of the reduction in personnel. The Company intends to
transition future TMN product development to its Poland operations, where its
costs are lower. The Company expects to continue to make investments at the
current level in the development of new products and feature enhancements to
existing product lines but changes in net revenues of future quarters could
influence expenditures in future periods. Since the restructuring, the Company's
R&D expenditures are concentrated on CORBA product development.
Sales and Marketing. Sales and marketing expenses consist primarily of
personnel and associated costs and selling and marketing programs such as trade
shows and other promotional costs. The Company believes that substantial sales
and marketing expenditures are essential to develop the opportunities for
revenue growth and to sustain the Company's competitive position. Sales and
marketing expenses are expected to continue to comprise a significant percentage
of the Company's total expenses because of costs associated with supporting the
worldwide sales and marketing functions necessary to meet the needs of the
Company's customer base and respond to the opportunities in the CORBA and TMN
marketplaces.
Sales and marketing expenses increased $21,000, or 1%, to $1,578,000 in the
first quarter of 2000 from $1,557,000 in the first quarter of 1999. The
increase in the first quarter of 2000 was primarily due to increased
communications costs.
General and Administrative. General and administrative expenses consist
primarily of salaries, rent and other related expenses of administrative,
executive and financial personnel as well as professional fees and investor
relations costs. General and administrative expenses increased $276,000, or
34%, to $1,096,000 in the first quarter of 2000 as compared to $820,000 in the
first quarter of 1999. The increase in the first quarter of 2000 was primarily
the result of increased professional fees relating to the Company's merger and
acquisition activities ($74,000), other professional fees ($103,000), and
shareholder expenses ($38,000), primarily due to the increased number of
shareholders at the end of the first quarter of 2000 as compared to the first
quarter of 1999.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
General and Administrative - Non-Cash Stock Compensation. Non-cash stock
compensation was $259,000 in the first quarter of 2000 as compared to $192,000
in the first quarter of 1999. The charge in the first quarter of 2000 relates
to the value of certain stock options granted to non-employee directors which
vested during the quarter, while the charge in the first quarter of 1999 was a
non-recurring charge related to the value of stock options granted to three
former officers in January of 1999.
Goodwill Amortization. Goodwill amortization for the first quarter of 2000 was
$238,000 compared to $40,000 for the first quarter of 1999. The goodwill results
from the purchase of Expersoft in March of 1999 and is being amortized over five
years at approximately $238,000 per quarter. The increase in the first quarter
of 2000 represents the charge for the full quarterly period in 2000 as compared
to a charge for a partial quarterly period in 1999 (from the March 12, 1999
acquisition date through March 31, 1999).
Operating Loss. The Company incurred an operating loss of $1,250,000 in the
first quarter of 2000 compared to an operating loss of $1,707,000 in the first
quarter of 1999. The decrease in operating loss in the first quarter of 2000 as
compared to the first quarter of 1999 was due to increased services revenues
combined with higher margins and lower research and development expenses, which
were partially offset by higher general and administrative expenses and higher
goodwill amortization, as discussed above.
Other Income, Net. Other income, net increased $1,000 to $250,000 in the
first quarter of 2000 as compared to $249,000 for the first quarter of 1999.
Other income, net in the first quarter of 2000 consists primarily of interest
income ($157,000), gain on termination of capital lease ($55,000) and sub-lease
income ($40,000). Other income, net in the first quarter of 1999 was primarily
interest income.
Provision for Income Taxes. The Company recorded a provision for income
taxes of $40,000 in the first quarter of 2000 compared to zero in the first
quarter of 1999. The provision for income taxes is primarily for non-U.S.
taxes, as the Company anticipates utilizing net operating losses to offset any
pre-tax income.
Liquidity and Capital Resources
Net cash used for operating activities during the first quarter of 2000 was
$807,000 compared to $1,864,000 during the first quarter of 1999. The negative
cash flow from operations in the first quarter of 2000 was primarily the result
of the operating loss from continuing operations ($1,040,000), a decrease in
accounts payable ($682,000), payments for restructuring expenses ($331,000), a
decrease in deferred revenues ($320,000) and a decrease in accrued wages and
related liabilities ($110,000). These amounts were partially offset by an
increase in other accrued liabilities ($317,000), an increase in accrued taxes
payable ($77,000), a decrease in accounts receivable ($259,000), a decrease in
prepaid expenses and other current assets ($132,000), non-cash stock
compensation ($259,000) and non-cash depreciation and amortization ($630,000).
Net cash provided by investing activities during the first quarter of 2000 was
$5,582,000 compared to net cash used by investing activities during the first
quarter of 1999 of $7,413,000. The net cash provided in the first quarter of
2000 primarily resulted from sales of short-term investments ($5,677,000), which
was partially offset by purchases of property and equipment ($91,000).
Net cash provided by financing activities in the first quarter of 2000 was
$2,723,000 as compared to net cash used for financing activities in the first
quarter of 1999 of $147,000. The net cash provided in the first quarter of 2000
was due to the exercise of stock options under the employee stock option plans
($2,749,000), which was partially offset by payments of capital lease
obligations ($26,000).
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
The Company believes that its cash balance of $11,459,000 at March 31, 2000
will be sufficient to meet its liquidity requirements for the next twelve
months. From time to time, the Company may also consider the acquisitions of,
or evaluate investments in, certain products and businesses complementary to its
business. Any such acquisitions or investments may require additional capital
resources. There can be no assurance that such additional financing will be
available, if needed, or, if available, will be on terms satisfactory to the
Company.
At March 31, 2000, the Company's long-term liquidity needs consisted
principally of operating lease commitments related to facilities and office
equipment.
European Monetary Union
In January 1999, eleven European countries, including France, Germany and the
Netherlands, where the Company maintains operations, implemented a single
currency (the ''Euro'') to replace their separate currencies. While
transactions may still be consummated in the individual currencies of the member
countries, the Company will be required to, and is currently in the process of,
implementing modifications to its payroll and benefits systems as well as its
contracts and other obligations in order to accommodate the Euro. The Company
does not currently believe that it will incur a material financial expense in
connection with such modifications. The introduction of the Euro presents
certain risks for the Company including risks associated with its reduced
ability to adjust pricing of its products based on local currencies,
fluctuations in the Euro based on economic turmoil in countries in the Union and
other risks normally associated with doing business in international currencies,
any of which could have an adverse effect on the Company's business, financial
condition and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(a) Quantitative Information About Market Risk.
The Company's exposure to market risk for changes in interest rates relate
primarily to the Company's investment portfolio. The Company maintains an
investment policy that ensures the safety and preservation of its invested
funds by limiting default risk, market risk and investment risk. As of March
31, 2000, the Company had $11,459,000 of cash and cash equivalents with a
weighted average variable rate of 5.82% and no short-term investments.
The Company mitigates default risk by investing in high credit quality
securities and by constantly positioning its portfolio to respond
appropriately to a significant reduction in a credit rating of any investment
issuer or guarantor and by placing its portfolio under the management of
professional money managers who invest within specified parameters established
by the Board of Directors. The portfolio includes only marketable securities
with active secondary or resale markets to ensure portfolio liquidity and
maintains a prudent amount of diversification.
The Company currently has no short or long-term debt.
(b) Qualitative Information About Market Risk
While the Company's consolidated financial statements are prepared in
United States dollars, a portion of the Company's worldwide operations have a
functional currency other than the United States dollar. In particular, the
Company maintains operations in France, Germany, Japan, Korea, the
Netherlands, Poland and the United Kingdom, where the functional currencies
are: French Franc, Deutschemark, Yen, Won, Dutch Guilder, Zloty and British
Pound, respectively. Most of the Company's revenues are denominated in the
United States Dollar. Fluctuations in exchange rates may have a material
adverse effect on the Company's results of operations and could also result in
exchange losses. The impact of future exchange rate fluctuations cannot be
predicted adequately. To date, exchange fluctuations have not had a material
impact on the Company's earnings and the Company has not sought to hedge the
risks associated with fluctuations in exchange rates, but may undertake such
transactions in the future. The Company does not have a policy
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
relating to hedging. There can be no assurance that any hedging techniques
implemented by the Company would be successful or that the Company's results
of operations will not be materially adversely affected by exchange rate
fluctuations. The Company's foreign assets are not material.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to, nor is its
property the subject of, any material pending legal proceeding. The Company
may, from time to time, become a party to various legal proceedings arising in
the normal course of its business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial Data Schedule.
(b) REPORTS ON FORM 8-K
None.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VERTEL CORPORATION
(Registrant)
Date: May 15, 2000 /s/ Gordon L. Almquist
----------------------------------
Gordon L. Almquist
Vice President, Finance and Administration,
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
12
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule for the three months ended March 31, 2000:
filed electronically.
13
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2000 AND THE RELATED CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 11,459
<SECURITIES> 0
<RECEIVABLES> 6,028
<ALLOWANCES> 488
<INVENTORY> 0
<CURRENT-ASSETS> 17,874
<PP&E> 1,337<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,702<F2>
<CURRENT-LIABILITIES> 5,865
<BONDS> 276
0
0
<COMMON> 276
<OTHER-SE> 18,561
<TOTAL-LIABILITY-AND-EQUITY> 24,702
<SALES> 5,011
<TOTAL-REVENUES> 5,011
<CGS> 1,637
<TOTAL-COSTS> 1,637
<OTHER-EXPENSES> (250)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,000)
<INCOME-TAX> 40
<INCOME-CONTINUING> (1,040)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,040)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
<FN>
<F1>PP&E IS NET OF ACCUMULATED DEPRECIATION OF $4,348.
<F2>TOTAL ASSETS INCLUDE $305 OF OTHER ASSETS, INVESTMENTS OF $1,437 AND GOODWILL
OF $3,749.
</FN>
</TABLE>
