<PAGE>

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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

(Mark One)
[ ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                 For the quarterly period ended March 31, 2002

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

                         Commission file number 0-28813

                              Vertica Software Inc.
        (Exact name of small business issuer as specified in its charter)

             Colorado                             93-1192725
 (State or other jurisdiction of        (IRS Employer Identification No.)
  incorporation or organization)

                106 E. 6th Street, Suite 900 Austin, Texas 78701
                    (Address of principal executive offices)

                                 (512) 322-3900
                           (Issuer's telephone number)
<PAGE>

 -----------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be
filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 16,013,657 shares of common stock as
of March 31, 2002.

Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X ]


                                   SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                        /s/ William F. Mason, Director
                                        ----------------------------------
                                        Vertica Software, Inc. (Registrant)

Date: May 20, 2002


<PAGE>

                                TABLE OF CONTENTS

FINANCIAL STATEMENTS

     Balance Sheets.............................................  F-1

     Statements of Operations...................................  F-2

     Statement of Changes in Stockholders' Equity...............  F-3

     Statements of Cash Flows...................................  F-7


NOTES TO FINANCIAL STATEMENTS...................................  F-8
<PAGE>

                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                  March 31,      March 31,
                                                                                    2002            2001
                      ASSETS                                                     (Unaudited)    (Unaudited)
                                                                                 -----------    -----------
<S>                                                                             <C>            <C>
CURRENT ASSETS
     Cash and Cash Equivalents (Note 3)                                         $        --    $    17,855
     Prepaid Expenses                                                               163,475            660
                                                                                -----------    -----------
        TOTAL CURRENT ASSETS                                                        163,475         18,515

EQUIPMENT, less accumulated depreciation of $ 85,714,
     and $ 64,386, respectively (Notes 3 and 5)                                      17,005         35,866

DEPOSITS                                                                                 --         10,000
                                                                                -----------    -----------
             TOTAL ASSETS                                                       $   180,480    $    64,381
                                                                                ===========    ===========

                 LIABILITIES AND
              STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Current Portion of Capital Lease Obligations (Note 8)                      $        --    $     2,557
     Accounts Payable and Other Accrued Expenses                                    650,311        300,266
     Wages Payable                                                                  343,967             --
     Payroll Taxes Payable                                                           26,757          1,562
     Notes Payable (Note 6)                                                          91,300         91,300
                                                                                -----------    -----------
           TOTAL CURRENT LIABILITIES                                              1,112,335        395,685

CONVERTIBLE PROMISSORY NOTES (Note 9)                                               742,000      1,037,000
                                                                                -----------    -----------
             TOTAL LIABILITIES                                                    1,854,335      1,432,685
                                                                                -----------    -----------
STOCKHOLDERS' EQUITY (DEFICIT) (Note 13)
     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;
       16,013,657 shares issued and outstanding at March 31, 2002, and
       13,575,639 shares issued and outstanding at March 31, 2001, respectively       1,601          1,358
     Paid in Capital                                                              2,652,960      1,877,117
     Deficit accumulated during development stage                                (4,328,416)    (3,246,779)
                                                                                -----------    -----------
        TOTAL STOCKHOLDERS' EQUITY                                               (1,673,855)    (1,368,304)
                                                                                -----------    -----------
           TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                           $   180,480    $    64,381
                                                                                ===========    ===========

</TABLE>

The accompanying notes are an integral part of these financial statements.

                                      F-1
<PAGE>

                              VERTICA SOFTWARE, INC
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                         (A DEVELOPMENT STAGE COMPANY)
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>


                                                                                Cumulative
                                                                                   From
                                                                                January 1,
                                                                                   1996
                                                                                 (Date of
                                                    Three Months Ended          Inception)
                                                         March 31,                  to
                                               ----------------------------      March 31,
                                                   2002             2001          2002
                                               (Unaudited)      (Unaudited)    (Unaudited)
                                               -----------      -----------    -----------
<S>                                             <C>            <C>           <C>
Total Revenue                                  $         --    $         --    $     57,887

Operating expenses:
            Product development                                     154,270       1,386,826
            General and administrative               47,636         223,013       2,728,673
                                               ------------    ------------    ------------
                    Total operating expenses         47,636         377,283       4,115,499
                                               ------------    ------------    ------------
Loss from operations                                (47,636)       (377,283)     (4,057,612)

            Interest income                              --              --           2,571
            Interest expense (Note 12)              (21,395)         (8,200)       (273,569)
            Other income                                 --             250           5,195
            Bad debt expense                             --              --            (201)
                                               ------------    ------------    ------------
Loss before income taxes                            (69,031)       (385,233)     (4,323,616)

Provision for income taxes (Note 10)                     --            (800)         (4,800)
                                               ------------    ------------    ------------
Net loss                                       $    (69,031)   $   (386,033)   $ (4,328,416)
                                               ============    ============    ============
Net loss applicable to common stockholders     $    (69,031)   $   (386,033)   $ (4,328,416)
                                               ============    ============    ============
Net loss per share---basic                     $    (0.0045)   $    (0.0287)   $    (0.2839)
                                               ============    ============    ============
Weighted average shares used in per share
     calculation---basic                         15,245,990      13,449,560      15,245,990
                                               ============    ============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-2
<PAGE>

                            VERTICA SOFTWARE, INC.
                 (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                         (A DEVELOPMENT STAGE COMPANY)
                 Statement of Changes in Stockholders' Equity

              From January 1, 1996 (Inception) to March 31, 2002

<TABLE>
<CAPTION>
                                                                                                         Deficit
                                                                                                       Accumulated
                                    Preferred Stock      Common Stock                                     During
                                    ---------------     ----------------     Advance to      Paid-in   Development
                                    Shares   Amount     Shares    Amount     Stockholder     Capital      Stage         Total
                                    ------   ------     ------    ------     -----------     -------   -----------      -----
<S>                                <C>       <C>        <C>       <C>        <C>              <C>      <C>              <C>
BALANCE, DECEMBER 31, 1995               -   $   -             -  $    -     $       -       $     -    $       -     $       -

January 1, 1996 (inception), shares
 issued at incorporation (Note 4)        -       -     9,200,000     920             -           (70)           -           850

Net loss for the year ended
 December 31, 1996                       -       -             -       -             -             -       (42,285)     (42,285)
                                    ------   -----    ----------  ------     ---------       -------     ---------    ---------
BALANCE DECEMBER 31, 1996 (Audited)      -   $   -     9,200,000  $  920     $       -       $   (70)    $ (42,285)   $ (41,435)
                                    ------   -----    ----------  ------     ---------       -------     ---------    ---------
Net loss for the year ended
 December 31, 1997                       -       -             -       -             -             -      (176,605)    (176,605)
                                    ------   -----    ----------  ------     ---------       -------     ---------    ---------
BALANCE DECEMBER 31, 1997 (Audited)      -   $   -     9,200,000  $  920     $       -       $   (70)     (218,890)    (218,040)
                                    ------   -----    ----------  ------     ---------       -------     ---------    ---------
December 31, 1998, Issuance of
 common stock pursuant to a reverse
 merger acquisition                      -       -     1,300,000     130             -          (130)            -            -

December 31, 1998, sale of common
 stock pursuant to a confidential
 subscription agreement (Note 7)         -       -        50,000       5             -        49,995             -       50,000

December 31, 1998, sale of common
 stock pursuant to a confidential
 subscription agreement (Note 7)         -       -        50,000       5             -        49,995             -       50,000

 Advance to Stockholder                  -       -             -       -       (25,000)            -             -      (25,000)

Net loss for the year ended
 December 31, 1998                       -       -             -       -             -             -      (235,335)    (235,335)
                                    ------   -----    ----------  ------     ---------       -------     ---------    ---------
BALANCE DECEMBER 31, 1998 (Audited)      -   $   -    10,600,000  $1,060       (25,000)      $99,790     $(454,225)   $(378,375)
                                    ------   -----    ----------  ------     ---------       -------     ---------    ---------
February 11, 1999, sale of common
 stock pursuant to a confidential
 subscription agreement (Note 7)        -        -        40,000       4             -        39,996             -       40,000
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                      F-3


<PAGE>

                            VERTICA SOFTWARE, INC.
                 (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                         (A DEVELOPMENT STAGE COMPANY)
                 Statement of Changes in Stockholders' Equity

              From January 1, 1996 (Inception) to March 31, 2002

<TABLE>
<CAPTION>

                                                                                                         Deficit
                                                                                                       Accumulated
                                    Preferred Stock      Common Stock                                     During
                                    ---------------     ----------------     Advance to      Paid-in   Development
                                    Shares   Amount     Shares    Amount     Stockholder     Capital      Stage         Total
                                    ------   ------     ------    ------     -----------     -------   -----------      -----
<S>                                <C>       <C>       <C>       <C>         <C>             <C>       <C>            <C>
February 11, 1999, sale of common
 stock in Private Placement
 Transactions, net of Offering
 costs of $1,876 (Note 7)               -         -      584,500      58             -        584,442            -     584,500

February 11, 1999, conversion of
 convertible promissory note
 to common stock (Note 7)               -         -       41,433       5             -         42,653            -      42,658

February 24, 1999, sale of common
 stock in Private Placement
 Transactions, net of Offering
 costs of $75 (Note 7)                  -         -       62,000       6             -         61,994            -      62,000

February 24, 1999, conversion of
 convertible promissory notes to
 common stock (Note 7)                  -         -       32,885       3             -         34,693            -      34,696

March 2, 1999, sale of common
  stock in Private Placement
 Transactions, net of Offering
 costs of $15 (Note 7)                  -         -       15,000       1             -         14,999            -      15,000

March 25, 1999, conversion of
 convertible promissory note
 to common stock (Note 7)               -         -       80,802       8             -         55,045            -      55,053

March 26, 1999, conversion of
 convertible promissory notes
 to common stock (Note 7)               -          -     571,321      57             -         86,852            -      86,909

September 23, 1999, issuance of
 common stock for services (Note 7)     -         -       40,000       4             -             (4)           -           -

October 29, 1999, conversion of
 convertible promissory note to
 common stock (Note 7)                  -         -       10,000       1             -          9,999            -      10,000

Net loss for the year ended
 December 31, 1999                      -         -            -       -             -              -     (752,549)   (752,549)
                                    -----    ------   ----------  ------       -------   ------------   ----------   ---------
 BALANCE, DECEMBER 31, 1999
 (Audited)                              -    $    -   12,077,941  $1,207       (25,000)  $  1,030,459  $(1,206,774)  $(200,108)
                                    -----    ------   ----------  ------       -------   ------------   ----------   ---------

</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                      F-4
<PAGE>

                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)
                  Statement of Changes in Stockholders' Equity

               From January 1, 1996 (Inception) to March 31, 2002

<TABLE>
<CAPTION>
                                                                                                             Deficit
                                                                                                           Accumulated
                                            Preferred Stock     Common Stock                                  During
                                            ---------------  -----------------   Advance to    Paid-in     Development
                                            Shares   Amount  Shares     Amount   Stockholder   Capital        Stage         Total
                                            ------   ------  ------     ------   -----------   -------     -----------      -----
<S>                                          <C>     <C>     <C>        <C>      <C>           <C>         <C>            <C>

Repayment of Stockholder's Advance              --     --         --       --       25,000         --             --        25,000

August 11, 2000, sale of common stock
 pursuant to a confidential subscription
 agreement  (Note 7)                            --     --      400,000       40                 199,960           --       200,000

August 18, 2000, sale of common stock
 pursuant to a confidential subscription
 agreement  (Note 7)                            --     --       35,000        3         --       17,497           --        17,500

August 30, 2000, sale of common stock
 pursuant to a confidential subscription
 agreement  (Note 7)                            --     --      160,000       16         --       79,984           --        80,000

September 20, 2000, sale of common stock
 pursuant to a confidential subscription
 agreement  (Note 7)                            --     --      120,000       12         --       59,988           --        60,000

September 27, 2000, conversion of convertible
 promissory notes to common stock  (Note 7)     --     --      327,000       33         --      163,467           --       163,500

October 3, 2000, sale of common stock
 pursuant to a confidential subscription
 agreement  (Note 7)                            --     --      130,000       13         --       64,987           --        65,000

Net loss for the year ended December 31, 2000
 (Audited)                                      --     --         --       --           --           --   (1,653,972)   (1,653,972)
                                               ---    ---   ----------  -------     ------    ---------   ----------    ----------
BALANCE, DECEMBER 31, 2000 (Audited)            --     --   13,249,941    1,324         --    1,616,342   (2,860,746)   (1,243,080)
                                               ---    ---   ----------  -------     ------    ---------   ----------    ----------

</TABLE>

The accompanying notes are an integral part of these financial statements.

                                      F-5
<PAGE>

                            VERTICA SOFTWARE, INC.
                 (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                         (A DEVELOPMENT STAGE COMPANY)
                 Statement of Changes in Stockholders' Equity

              From January 1, 1996 (Inception) to March 31, 2002



<TABLE>
<CAPTION>

                                                                                                         Deficit
                                                                                                       Accumulated
                                    Preferred Stock      Common Stock                                     During
                                    ---------------     ----------------     Advance to      Paid-in   Development
                                    Shares   Amount     Shares    Amount     Stockholder     Capital      Stage         Total
                                    ------   ------     ------    ------     -----------     -------   -----------      -----
<S>                                <C>      <C>        <C>       <C>         <C>            <C>        <C>            <C>
January 12, 2001, sale of
 common stock pursuant to a
 confidential subscription
 agreement (Note 7)                     -        -         50,000       5            -       24,005             -        25,000

January 12, 2001, conversion
 of convertible promissory
 notes to common stock
 (Note 7)                               -        -        101,823      11            -      162,906             -       162,917

January 22, 2001, issuance of
 common stock in lieu of
 compensation (Note 7)                  -        -         60,000       6            -       33,774             -        33,780

January 22, 2001, issuance of
 common stock through the
 Company's Employee Equity
 Incentive Plan (Notes 7 and 14)        -        -          1,875       1            -        1,055             -         1,056

March 20, 2001, issuance of
 common stock for consulting
 services (Note 7)                      -        -        100,000      10            -       31,290             -        31,300

July 31, 2001, conversion of
 convertible promissory notes
 to common stock (Note 7)               -        -      1,146,684     114            -      573,228             -       573,342

July 1, 2001, issuance of
 common stock for consulting
 services (Note 7)                      -        -        330,000      33            -        3,267             -         3,300

Net loss for the year ended
 December 31, 2001 (Audited)            -        -              -       -            -            -    (1,398,639)   (1,398,639)
                                     ----     ----     ----------  ------    ---------   ----------   -----------   -----------
BALANCE, DECEMBER 31, 2001
 (Audited)                              -        -     15,040,323  $1,504    $       -   $2,446,857   $(4,259,385)  $(1,811,024)
                                     ----     ----     ----------  ------    ---------   ----------   -----------   -----------
February 25, 2002, issuance
 of common stock for consulting
 services (Note 7)                      -        -        390,000      39            -       31,161             -        31,200

March 22, 2002, issuance of
 common stock for consulting
 services (Note 7)                      -        -        583,334      58            -      174,942             -       175,000

Net loss for the three months
 ended March 31, 2002 (Unaudited)       -        -              -       -            -            -       (69,031)      (69,031)
                                     ----     ----     ----------  ------    ---------    ---------   -----------   -----------
BALANCE, MARCH 31, 2000
 (Unaudited)                            -     $  -     16,013,657  $1,601    $       -   $2,652,960   $(4,328,416)  $(1,673,855)
                                     ====     ====     ==========  ======    =========   ==========   ===========   ===========
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                      F-6
<PAGE>

                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                                        Cumulative
                                                                                                                           From
                                                                                                                        January 1,
                                                                                                                           1996
                                                                                                                        (Date of
                                                                                      Three Months Ended                Inception)
                                                                                           March 31,                        to
                                                                              ----------------------------------         March 31,
                                                                                 2002                   2001               2002
CASH FLOWS FROM OPERATING ACTIVITIES                                          (Unaudited)            (Unaudited)        (Unaudited)
                                                                              -----------            -----------        -----------
<S>                                                                           <C>                  <C>                  <C>
 Net Loss                                                                     $   (69,031)         $  (386,033)         $(4,328,416)

 Transactions not requiring cash:
   Depreciation                                                                     4,049                7,256               85,714
 Changes in operating assets and liabilities:
   (Increase) decrease in employee advances                                            --                   --                   --
   (Increase) decrease in advance to stockholder                                       --                   --                   --
   (Increase) decrease in prepaid expenses                                       (163,475)                 283             (163,475)
   (Increase) decrease in deposits                                                     --                   --                   --
   Increase (decrease) in bank overdraft                                               --              (20,185)                  --
   Increase (decrease) in wages payable                                                --                   --              323,553
   Increase (decrease) in accounts payable and other
    accrued expenses                                                               22,257               (4,586)             670,725
   Increase (decrease) in payroll taxes payable                                        --                   --               26,757
                                                                              -----------          -----------          -----------
     NET CASH (USED IN) OPERATING ACTIVITIES                                     (206,200)            (403,265)          (3,385,142)
                                                                              -----------          -----------          -----------
CASH FLOWS FROM INVESTING ACTIVITIES
 Purchase/acquisition of equipment                                                     --                   --             (102,719)
                                                                              -----------          -----------          -----------
     NET CASH (USED IN) INVESTING ACTIVITIES                                           --                   --             (102,719)

CASH FLOWS FROM FINANCING ACTIVITIES
 Net borrowings/assumption on line of credit                                           --                   --               26,300
 Net payments on line of credit                                                        --                   --              (26,300)
 Proceeds/assumption of unsecured notes                                                --               26,700              112,700
 Net payments on unsecured notes                                                       --                 (700)             (21,400)
 Proceeds, assumption on convertible debt                                              --              311,000            1,695,061
 Reduction of convertible promissory notes                                             --             (150,000)            (953,061)
 Conversion of convertible promissory notes into common
    stock (includes $ 86,259 of accrued interest)                                      --              162,917            1,279,075
 Proceeds from stock subscriptions                                                     --                   --              447,500
 Redemption of stock subscriptions                                                     --              (25,000)            (597,500)
 Issuance of common stock                                                         206,200               97,892            1,525,486
 Assumption of capital lease obligation                                                --                   --               26,361
 Net payments on capital lease obligation                                              --               (1,689)             (26,361)
                                                                              -----------          -----------          -----------
     NET CASH PROVIDED BY FINANCING ACTIVITIES                                    206,200              421,120            3,487,861
                                                                              -----------          -----------          -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                              --               17,855                   --

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                         --                   --                   --
                                                                              -----------          -----------          -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                      $        --          $    17,855          $        --
                                                                              ===========          ===========          ===========
Supplemental Disclosure of Cash Flow Information:
     Cash paid during the period for:
      Interest                                                                $        --          $       137          $    18,824
      Taxes                                                                   $        --          $        --          $     4,000

NONCASH INVESTING AND FINANCING TRANSACTIONS:
     Common stock issued for consulting services                              $   206,200          $    31,300          $   280,800
     Common stock in lieu of compensation                                     $        --          $        --          $

</TABLE>


The accompanying notes are an integral part of these financial statements.

                                       7
<PAGE>

                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

               JANUARY 1, 1996 (Inception) THROUGH MARCH 31, 2002

NOTE 1 - LOSSES DURING THE DEVELOPMENT STAGE

Development Stage Company

The Company is in the development stage in accordance with Statement of
Financial Accounting Standard (SFAS) No. 7. All of the costs incurred to date
have been related to the development of its products, development of its
proposed Internet website, and the raising of capital to finance such
activities.

The Company, as discussed in Notes 2, 3, and 4 below, has incurred operating
losses since inception, totaling $4,328,416 through March 31, 2002.

Management plans to raise additional capital, primarily through the issuance of
common stock and convertible promissory debt until successful operations are
obtained, and the Company is no longer in the development stage.

In view of these matters, realization of a major portion of the assets in the
accompanying balance sheet is dependent upon the Company's ability to meet its
financing requirements, and the success of its future operations. Management
believes that actions presently being taken to underwrite the Company's
development stage through completion will provide the necessary financial
requirements, which in turn will provide the opportunity for the Company to
continue as a going concern.

NOTE 2 - ORGANIZATION AND NATURE OF BUSINESS

Background

Vertica Software, Inc., (the "Company"), formerly "Perfection Development
Corporation", was incorporated in Colorado on April 18, 1997. As further
discussed in Notes 3 and 4, on September 29, 1998, Perfection Development
Corporation entered into an agreement pursuant to which it would acquire all of
the outstanding capital stock of Vertica Software, Inc., a California
corporation ("Vertica California"). On December 31, 1998, Vertica California
merged with and into the Company. The Company was the surviving corporation in
the merger and the separate corporate existence of Vertica California ceased.
Concurrently with the merger, the Company changed its name from Perfection
Development Corporation to Vertica Software, Inc. The Company is developing
Internet/Intranet software products and services and an Internet web site for
the hazardous material and environmental industries.

Products

The Company's current product development includes an environmental management
computer software system called ICOMPLY and an Internet web site called
HAZWEB.COM. ICOMPLY is planned to be a set of computer software modules designed
to automate environmental regulation compliance and related activities for
common industrial applications. The related activities will include chemical
inventory listings and tracking, transportation manifests, emergency response,
permit applications, waste streams, and occupational training. HAZWEB.COM is an
on-line web site that intended to serve the hazardous materials community and
environmental concerns of industry. The Company intends to allow ICOMPLY to link
to HAZWEB.COM for additional content information, on-line regulations compliance
and on-demand training and services.

                                      F-8
<PAGE>

                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

               JANUARY 1, 1996 (Inception) THROUGH MARCH 31, 2002

NOTE 2 - ORGANIZATION AND NATURE OF BUSINESS - Continued

Liquidity

The Company has recurring operating losses since inception that have continued
subsequent to March 31, 2002. The losses are primarily due to administrative
infrastructure costs related to the financing and development of the Company's
business.

The Company has not received any financing for the three months ended March 31,
2002.

The Company understands that the proceeds from any future bridge financing will
not provide adequate funding to sustain the Company's operations. Permanent
equity funding must be raised. There is no assurance that the funding will be
raised, or that it will be sufficient to sustain operations until the Company
begins generating positive cash flows.

The Company's plan to continue the marketing of its core products and commence
sales operations through the year ending December 31, 2002 is solely dependent
on additional funding through the sale of equitable securities or convertible
promissory notes.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

As further discussed in Note 4, the acquisition of Vertica California was
accounted for as a "reverse merger acquisition" whereby, for accounting
purposes, Perfection Development Corporation acquired the Company under the
purchase method of accounting and, due to the lack of significant prior
operations of Perfection Development Corporation, was substantially recorded as
a "recapitalization". Accordingly, the historical financial statements have been
restated after giving effect to the December 31, 1998 acquisition of the
Company. The financial statements have been prepared to give retroactive effect
to January 1, 1996 of the reverse merger acquisition completed on December 31,
1998 and represent the operations of Vertica California. Consistent with reverse
acquisition accounting: ( i ) all of Vertica California's assets, liabilities
and accumulated deficit are reflected at their combined historical cost ( as the
accounting acquirer ) and ( ii ) the preexisting outstanding shares of the
Company ( the accounting acquiree ) are reflected at their net asset value as if
issued on December 31, 1998.

Management Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, retained earnings, income
and expenses, and related disclosures for the reporting period. Actual results
could differ from those estimates and such differences could be material.

                                      F-9
<PAGE>

                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

               JANUARY 1, 1996 (Inception) THROUGH MARCH 31, 2002

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.

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 5, equipment is carried at cost. Depreciation is
provided using the straight-line method over the estimated useful lives of the
related assets, which is five years. Capitalized equipment leases are
depreciated over the lesser of their estimated useful life or lease term.

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 Period January 1, 1996 (inception) through December 31, 2001.

Income Taxes

Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the recorded book basis and tax basis
of assets and liabilities for financial and income tax reporting. The deferred
tax assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred taxes are also recognized for
operating losses that are available to offset future taxable income and tax
credits that are available to offset future federal income taxes.

                                      F-10
<PAGE>

                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

               JANUARY 1, 1996 (Inception) THROUGH MARCH 31, 2002

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Net Loss Per Share

The Company reports its net loss per share using a dual presentation of basic
and diluted loss per share. Basic loss per share excludes the impact of common
stock equivalents, and is computed by dividing the net loss by the weighted
average number of shares of common stock outstanding for the period. Diluted
loss per share includes the dilutive effect from the potential exercise or
conversion of convertible debt. For the three months ended March 31, 2002, and
2001 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, prepaid expenses, notes payable, 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 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS 142,
Goodwill and Other Intangible Assets. SFAS 141 requires business combinations
initiated after June 30, 2001 to be accounted for using the purchase method of
accounting. It also specifies the types of acquired intangible assets that are
required to be recognized and reported separately from goodwill. SFAS 142 will
required that goodwill and certain intangibles no longer be amortized, but
instead tested for impairment at least annually. SFAS 142 is required to be
applied starting with fiscal years beginning after December 15, 2001, with early
application permitted in certain circumstances. The Company plans to early adopt
SFAS 142 in 2002. The Company presently has no goodwill.

Statement of Financial Accounting Standards (SFAS) 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133, and SFAS 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, is effective for the
Company as of July 1, 2000. SFAS 133 requires that an entity recognize all
derivatives as either assets or liabilities measured at fair value. The
accounting for changes in the fair value of a derivative depends on the use of
the derivative. At December 31, 2001, the Company had no derivative instruments,
and has not engaged in any hedging activities.

The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
(SAB) 101, Revenue Recognition in Financial Statements, in December 1999. The
SAB summarizes certain of the SEC staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. In June
2000, the SEC issued SAB 101B, which delays the implementation date of SAB
101until no later than the fourth fiscal quarter of fiscal years beginning after
December 15, 1999. Adoption of this SAB had no material impact on the financial
position of the Company at December 31, 2001.

In March 2000, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation (FIN) 44, Accounting for Certain Transactions involving Stock
Compensation, which clarifies the application of APB 25 for certain issues. The
interpretation is effective July 1, 2000, except for the provisions that relate
to modifications that directly or indirectly reduce the exercise price of an
award and the definition of an employee, which are effective after December 15,
1998. Adoption of FIN 44 did not have a material impact on the financial
condition of the Company at December 31, 2001.

                                      F-11
<PAGE>

                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

               JANUARY 1, 1996 (Inception) THROUGH MARCH 31, 2002

NOTE 4 - ACQUISITION

The Company's current business is a continuation of the business formerly
conducted by Vertica Software, Inc., a California corporation ("Vertica
California"). On December 31, 1998, the Company acquired 100% of the outstanding
capital stock of Vertica California in a "reverse merger acquisition." The
purchase price was solely comprised of the issuance of 9,200,000 shares of the
Company's common stock, par value $ .0001, to the shareholders of Vertica
California in exchange for all 4,930,000 shares of Vertica California's common
stock, no par value. The Company was the surviving corporation in the merger and
the separate corporate existence of Vertica California ceased. Concurrently with
the merger, the Company changed its name from Perfection Development Corporation
to Vertica Software, Inc. The merger constituted a tax-free reorganization. The
acquisition of Vertica California was accounted for using the purchase method of
accounting, and due to the lack of significant prior Company operations, was
substantially recorded as a "recapitalization."

NOTE 5 - EQUIPMENT

Equipment consisted of the following:

At March 31:                                      2002            2001
                                                  ----            ----
Computer and peripheral equipment               $102,719        $100,252
Less accumulated depreciation                     85,714          64,386
                                                --------        --------
                                                $ 17,005        $ 35,866
                                                ========        ========

Total depreciation expense for the three months ended March 31, 2002, and 2001
respectively was $ 4,049 and $ 7,256.

NOTE 6 - NOTES PAYABLE

Notes payable consisted of the following:

At March 31:                                            2002       2001
                                                        ----       ----
Note payable to corporation, unsecured, bearing
compound interest at 12 1/2%, and payable upon
demand                                                $49,800    $49,800

Note payable to individual, unsecured, bearing
compound interest at 12 1/2%, and payable upon
demand                                                 15,500     15,500

                                      F-12
<PAGE>

                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

               JANUARY 1, 1996 (Inception) THROUGH MARCH 31, 2002

NOTE 6 - NOTES PAYABLE - (Continued)

At March 31:                                           2002       2001
                                                       ----       ----
Note payable to individual, unsecured, bearing
compound interest at 12 1/2%, and payable upon
demand                                                12,000     12,000

Note payable to individual, unsecured, bearing
compound interest at 12 1/2%, and payable upon
demand                                                14,000     14,000
                                                     -------    -------
                                                     $91,300    $91,300
                                                     =======    =======

NOTE 7 - SALE AND ISSUANCE OF COMMON STOCK

Sale and Issuance of Common Stock

On December 31, 1998, in connection with the reverse merger acquisition, the
Company issued 1,300,000 shares of its $ .0001 par value common stock in a
recapitalization of the Company. The 1,300,000 shares consisted of the
following:

     260,000 shares of its $ .0001 par value common stock at $ .25 per share
     pursuant to Rule 504 of Regulation D of the Securities Act of 1933, as
     amended (the "Act"). The Company received net proceeds of $ 60,500 after
     deducting offering costs of $ 4,500.

     1,040,000 shares of $ .0001 par value common stock were issued to officers
     for services. These shares are "restricted securities" and may be sold only
     in compliance with Rule 144 of the Act.

During the year ended December 31, 1998, the Company issued 100,000 shares of
its $ .0001 par value common stock at $ 1.00 per share pursuant to Rule 504 of
Regulation D of the Act for net proceeds of $ 100,000.

During the year ended December 31, 1998, the Company issued 9,200,000 shares of
its $ .0001 par value common stock at $ .0001 per share to its principal
stockholders. The 9,200,000 shares are reflected as issued as of the
recapitalization date of the Company.

During the year ended December 31, 1999, the Company issued 40,000 shares of its
$ .0001 par value common stock at $ 1.00 per share pursuant to Rule 504 of
Regulation D of the Act for net proceeds of $ 40,000.

During the year ended December 31, 1999, the Company issued 661,500 shares of
its $ .0001 par value common stock at $ 1.00 per share pursuant to Rule 504 of
Regulation D of the Act for net proceeds of $ 661,500.

During the year ended December 31, 1999, the Company converted convertible
promissory notes totaling $ 229,316 (including accrued interest of $ 66,255) for
736,441 shares of its $ .0001 par value common stock at an average price of
$ .31 per share.

                                      F-13
<PAGE>

                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

               JANUARY 1, 1996 (Inception) THROUGH MARCH 31, 2002

NOTE 7 - SALE AND ISSUANCE OF COMMON STOCK - (Continued)

During the year ended December 31, 1999, the Company issued 40,000 shares of its
$ .0001 par value common stock at $ 1.00 per share for outside consulting
services.

During the year ended December 31, 2000, the Company converted convertible
promissory notes totaling $ 163,500 (including accrued interest of $ 13,500) for
327,000 shares of its $ .0001 par value common stock at an average price of
$ .50 per share.

During the year ended December 31, 2000, the Company issued 715,000 shares of
its $ .0001 common stock at an average price of $ .50 per share.

During the year ended December 31, 2000, the Company issued 130,000 shares of
its $ .0001 common stock at an average price of $ .50 per share.

During the year ended December 31, 2001, the Company issued 50,000 shares of its
$ .0001 common stock at an average price of $ .50 per share.

During the year ended December 31, 2001, the Company issued 60,000 shares of its
$ .0001 par value common stock at an average price of $ .56 per share in lieu of
compensation.

During the year ended December 31, 2001, the Company issued 1,875 shares of its
$ .0001 par value common stock at an average price of $ .56 per share through
the Company's Employee Equity Incentive Plan.

During the year ended December 31, 2001, the Company converted convertible
promissory notes totaling $ 736,259 (including accrued interest of $ 67,600) for
1,248,507 shares of its $ .0001 par value common stock at an average price of
$ .59 per share.

During the year ended December 31, 2001, the Company issued 430,000 shares of
its $ .0001 par value common stock at an average price per of $ .08 per share
for consulting services.

During the three months ended March 31, 2002, the Company issued 973,334 shares
of its $ .0001 par value common stock at an average price per of $ .21 per share
for consulting services.

NOTE 8 - CAPITAL LEASE OBLIGATIONS

Capital lease obligations consisted of the following :

At March 31:                                            2002    2001
                                                        ----    ----
Capital lease obligation, secured by equipment,
with an effective interest rate of 14.9% and
approximate monthly payments of $ 360                   $ 0    $1,523

Capital lease obligation, secured by equipment,
with an effective interest rate of 14.9% and
approximate monthly payments of $ 250                     0     1,717
                                                        ---    ------
                                                          0     2,557

Less current portion                                      0     2,557
                                                        ---    ------
                                                        $ 0    $    0
                                                        ===    ======

                                      F-14
<PAGE>

                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

               JANUARY 1, 1996 (Inception) THROUGH MARCH 31, 2002

NOTE 9 - CONVERTIBLE PROMISSORY NOTES

Convertible promissory notes consisted of the following:

At March 31:                                        2002              2001
                                                    ----              ----

Convertible promissory note, unsecured
with interest at 12%. The principal plus
accrued interest converts to common
stock at a conversion price equal to 55%
of the closing sale price of the common
stock as reported on the OTCBB on the
date of the election to convert. The
principal note balance along with all
accrued interest is payable on demand              50,000            50,000

Convertible promissory note, unsecured
with interest at 12%. The principal plus
accrued interest converts to common
stock at a conversion price equal to 55%
of the closing sale price of the common
stock as reported on the OTCBB on the
date of the election to convert. The
principal note balance along with all
accrued interest is payable on demand                   0           100,000

Convertible promissory note, unsecured
with interest at 12%. The principal plus
accrued interest converts to common
stock at a conversion price equal to 55%
of the closing sale price of the common
stock as reported on the OTCBB on the
date of the election to convert. The
principal note balance along with all
accrued interest is payable on demand                   0            50,000

                                      F-15
<PAGE>

                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

               JANUARY 1, 1996 (Inception) THROUGH MARCH 31, 2002

NOTE 9 - CONVERTIBLE PROMISSORY NOTES - (Continued)

Convertible promissory note, unsecured
with interest at 12%. The principal plus
accrued interest converts to common
stock at a conversion price equal to 55%
of the closing sale price of the common
stock as reported on the OTCBB on the
date of the election to convert. The
principal note balance along with all
accrued interest is payable on demand                 0         100,000

Convertible promissory note, unsecured
with interest at 12%. The principal plus
accrued interest converts to common
stock at a conversion price equal to 55%
of the closing sale price of the common
stock as reported on the OTCBB on the
date of the election to convert. The
principal note balance along with all
accrued interest is payable on demand                 0          50,000

Convertible promissory note, unsecured
with interest at 12%. The principal plus
accrued interest converts to common
stock at a conversion price equal to 55%
of the closing sale price of the common
stock as reported on the OTCBB on the
date of the election to convert. The
principal note balance along with all
accrued interest is payable on demand            50,000          50,000

Convertible promissory note, unsecured
with interest at 12%. The principal plus
accrued interest converts to common
stock at a conversion price equal to 55%
of the closing sale price of the common
stock as reported on the OTCBB on the
date of the election to convert. The
principal note balance along with all
accrued interest is payable on demand                 0         100,000

                                      F-16
<PAGE>

                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

               JANUARY 1, 1996 (Inception) THROUGH MARCH 31, 2002

NOTE 9 - CONVERTIBLE PROMISSORY NOTES - (Continued)

Convertible promissory note, unsecured
with interest at 12%. The principal plus
accrued interest converts to common
stock at a conversion price equal to 55%
of the closing sale price of the common
stock as reported on the OTCBB on the
date of the election to convert. The
principal note balance along with all
accrued interest is payable on demand                       0          100,000

Convertible promissory note, unsecured
with interest at 10%. The principal plus
accrued interest converts to common
stock at a conversion price equal to 75%
of the closing sale price of the common
stock as reported on the OTCBB on the
date of the election to convert. The
principal note balance along with all
accrued interest is due and payable on
demand                                                 61,000           61,000

Convertible promissory note, unsecured
with interest at 10%. The principal plus
accrued interest converts to common
stock at a conversion price equal to 75%
of the closing sale price of the common
stock as reported on the OTCBB on the
date of the election to convert. The
principal note balance along with all
accrued interest is due and payable on
demand                                                 65,000           65,000

Convertible promissory note, unsecured
with interest at 10%. The principal plus
accrued interest converts to common
stock at a conversion price of $ .50 a
share. The principal note balance along
with all accrued interest is due and
payable on demand                                     111,000          111,000

                                      F-17
<PAGE>

                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

               JANUARY 1, 1996 (Inception) THROUGH MARCH 31, 2002

NOTE 9 - CONVERTIBLE PROMISSORY NOTES - (Continued)

Convertible promissory note, unsecured
with interest at 10%. The principal plus
accrued interest converts to common
stock at a conversion price of $ .50 a
share. The principal note balance along
with all accrued interest is due and
payable on demand                                        200,000        200,000

Convertible promissory note, unsecured
with interest at 10%. The principal plus
accrued interest converts to common
stock at a conversion price of $ .50 a
share. The principal note balance along
with all accrued interest is due and
payable on demand                                         60,000              0

Convertible promissory note, unsecured
with interest at 10%. The principal plus
accrued interest converts to common
stock at a conversion price of $ .50 a
share. The principal note balance along
with all accrued interest is due and
payable on demand                                         40,000              0

Convertible promissory note, unsecured
with interest at 10%. The principal plus
accrued interest converts to common
stock at a conversion price of $ .50 a
share. The principal note balance along
with all accrued interest is due and
payable on demand                                         60,000              0

Convertible promissory note, unsecured
with interest at 10%. The principal plus
accrued interest converts to common
stock at a conversion price of $ .50 a
share. The principal note balance along
with all accrued interest is due and
payable on demand                                         45,000              0
                                                        --------     ----------
                                                        $742,000     $1,037,000
                                                        ========     ==========

                                      F-18
<PAGE>

                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

               JANUARY 1, 1996 (Inception) THROUGH MARCH 31, 2002

NOTE 10 - INCOME TAXES

A reconciliation of the U.S. statutory federal income tax rate to the effective
tax rate is as follows:

For the year ending and ended, respectively, December 31:

                                                      2002              2001
                                                      ----              ----

   U.S. federal statutory graduated rate             32.90%            30.40%
   State income tax rates net of federal
   benefits:
       Colorado                                       2.72%             3.16%
       California                                     0.00%             6.10%
     Net operating loss for which no tax
       benefit is currently available               (35.62%)          (39.66%)
                                                    ------            ------
                                                         0%                0%
                                                    ======            ======

At December 31, 2001, 2000, 1999, 1998, 1997 and 1996, deferred taxes consisted
of a net tax asset due to operating loss carry forwards of $1,398,639,
$1,653,972, $752,549, $235,335, $176,605, and $42,285, respectively, which was
fully allowed for, in the valuation allowance of $1,398,639, $1,653,972,
$752,549, $235,335, $176,605, and $42,285, respectively. The valuation allowance
offsets the net deferred tax asset for which there is no assurance of recovery.
The change in valuation allowance for the years ended December 31, 2001, 2000,
1999, 1998, 1997, and 1996 were $425,186, $503,164, $228,937, $28,679, $57,963,
and $10,201, respectively. Net operating loss carry forwards will expire in
2011, 2012, 2013, 2014, 2015, and 2016.

NOTE 11 - EMPLOYEE BENEFIT PLAN

The Company established an employee benefit plan (the Benefit Plan) under
Section 401(k) of the Internal Revenue Code. The Benefit Plan is available to
all full-time U.S. employees. The Benefit Plan allows for employees to make
contributions up to a specified percentage of their compensation. Under the
Benefit Plan, the Company makes no discretionary contributions to the plan.

NOTE 12 - RELATED PARTY TRANSACTION

During the year ended December 31, 2001, the Company had a consulting and
financing agreement with a director of the Corporation. The agreement provided
for a fee for service in the amount of $10,000 per month. The value of these
services totaled $120,000 for the year ended December 31, 2001. No services were
provided for the three months ended March 31, 2002 as the agreement terminated
on December 31, 2001.

In consideration of funds received, the Company has issued eight separate
convertible promissory notes payable to a officer and director of the
Corporation. Interest expense for the three months ended March 31, 2002 and 2001
were $ 15,830 and $ 4,958, respectively.

                                      F-19
<PAGE>

                            VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

               JANUARY 1, 1996 (Inception) THROUGH MARCH 31, 2002

NOTE 13 - STOCKHOLDER EQUITY

    (a) 2000 EQUITY INCENTIVE PLAN

On December 15, 2000, the Board of Directors authorized the 2000 Employee Stock
Purchase Plan (the Employee Plan). Under the Employee Plan, the Company may
issue up to an aggregate of 3,000,000 shares of common stock to employees at 85%
of the lower of the fair market value of the common stock on the date of grant,
except for 10% shareholders who may exercise options at no less than 110% of the
fair market value of the shares on the date of grant. Under the Employee Plan,
offerings were made in December of 2000. In January of 2001, the Company issued
1,875 shares of the authorized 3,000,000 shares at an average price of $.56 per
share. The Company converted approximately $1,056 in accrued employee
contributions into Stockholders Equity as a result.

  Stock Options Outstanding Under Incentive Plan:
                                                      Price per Share
                                             -------------------------------
                                                                   Weighted
                               Shares              Range            Average
                             ---------       ---------------       ---------
  Balance, December 31, 2001   771,695       $ 0.25 - $ 0.28        $ 0.26
     Granted                         0       $ 0.00 - $ 0.00        $ 0.00
     Exercised                       0       $ 0.00 - $ 0.00        $ 0.00
     Cancelled                       0       $ 0.00 - $ 0.00        $ 0.00
                               -------       ---------------        ------
  Balance, March 31, 2002      771,695       $ 0.25 - $ 0.28        $ 0.26
                               =======       ===============        ======

    (b) STOCK OPTION PLANS

In connection with certain convertible promissory notes, the Company granted, to
the third parties, warrants to purchase 112,500 shares of common stock at a
range of approximately $ 1.00 to $ 1.50 per share. The warrants vest upon
conversion of the promissory notes. None of the notes were converted as of their
maturity date. The fair market value of the Company's common stock at March 31,
2002 was less than the warrants' prices.

                                      F-20