<PAGE>





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

                                   FORM 10-QSB

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

                 For the quarterly period ended June 30, 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)


 -----------------------------------------------------------------------------
              (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 befiled
by Section l2, 13 or 15(d) of the Exchange Act after the distribution
ofsecurities 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
commonequity, as of the latest practicable date: 17,909,492 shares ofcommon
stock asof June 30, 2002.

Transitional Small Business Disclosure Format (Check one): Yes { } No {X}



<PAGE>



                                   SIGNATURES

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

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

(Registrant)

Date: August 19, 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>


Item 6. Management's Discussion and Analysis or Plan of Operation.

     Some of the statements contained in this Form 10-KSB are forward-looking
statements, including but not limited to those specifically identified as such,
that involve risks and uncertainties. The statements contained in this Form
10-QSB that are not purely historical are forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), including, without
limitation, statements regarding our expectations, beliefs, intentions or
strategies regarding the future. All forward-looking statements included in this
Form 10-KSB are based on information available to us on the date hereof, and we
assume no obligation to update any such forward-looking statements. These
statements involve known and unknown risks, uncertainties and other factors,
which may cause our actual results to differ materially from those implied by
the forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," or "continue"
or the negative of these terms or other comparable terminology. Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Important factors that may cause actual results to differ from
expectations include those discussed in "Risk Factors" under Item 1 above.
Additional information concerning factors that may cause actual results to
differ materially from those in the forward-looking statements are in the
Company's Registration Statement on form 10-SB, with amendments, for the year
ended December 31, 2001 and in the Company's other filings with the Securities
and Exchange Commission.

     Vertica Software, Inc. is a development-stage company that is developing
Internet-based software products, e-commerce marketplace, and online resources
intended to serve industries that are impacted by government regulation of
hazardous materials, hazardous wastes and other environmental laws and
regulations. We are developing software products designed to assist companies
with their environmental regulation compliance and related activities for common
industrial applications.

Results of operations:

     The Company realized a net loss from operations of $120,231 and $ 189,262
for the three and six months ended June 30, 2002, compared to a realized net
loss from operations of $332,278 and $ 718,311. The Company has realized, since
January 1, 1996 (inception) to June 30, 2002, a cumulative net loss from
operations of $4,4,448,647. The Company had $0 in sales from operations for the
three and six months

<PAGE>


ended June 30, 2002, and cumulatively $57,887 for the period January 1, 1996
(Date of Inception) through June 30, 2002.

Plan of operation:

     Loss on operations for the Company for the three and six months ended
June 30, 2002(decreased)increased (276%) and (216%), respectively, from the
prior years for the same periods. These losses are attributed to the Company's
development, marketing and general expenses. The Company will, over the next 12
months, rely on additional funding through the sale of promissory notes
convertible to common stock, the sale of common stock, and sales from company
products.

     The Company has reduced its monthly operating expenses by eliminating
salaries and overhead related to the development stage of its products. The
Company also moved its Application Service Provider hardware and software
platform to a lower cost, higher performance computer co-location facility.

     The resulting efforts has allowed the Company to focus more on marketing
the products and developing strategic alliances with similar companies, and
companies desiring to add Vertica's products to their business line.

Liquidity and Capital Resources:

     To date, our activities have been financed primarily through the sale of
our common stock and promissory notes convertible into our common stock. We
currently estimate that we will need approximately $500,000 in funds, in order
to satisfy our estimated cash requirements over the next twelve months. We
cannot assure you however, that we will be able to raise the necessary capital
to fund the next twelve months of operations.

     Operating revenues are expected to be generated, but such revenues may not
be substantial or in the amounts we expect. We anticipate that we will need
these additional funds to implement our sales strategies, and to establish
strategic alliances with other companies. We intend to raise such funds
primarily through the sale of our equity or debt securities. There can be no
assurance that we will be able to obtain such additional financing due to the
recent downturn in the financial market, or whether the terms of such financing
will be favorable to us. Failure to obtain such financing or failure to generate
sufficient operating revenues from the sale of our initial products would have a
material adverse effect on our business, financial condition and results of
operations.

<PAGE>

     During the six months ended June 30, 2002, we received funds totaling
$52,175 in the form of cash contributions in consideration of stock issued for
consulting services and general support.

     We are currently recasting the Company's personnel structure in order to
enter the marketing phase of operations. The Company anticipates hiring one key
employee familiar with its products to implement marketing plan. The Company
plans to outsource all other technical support required.

Research and Development:

     The Company has suspended all research and development at this time to
focus on marketing existing products.

Purchase of Significant Equipment:

     The Company does not expect to expend any funds for the purchase of
equipment over the next twelve months.

Significant Change in Number of Employees

     If we are successful in obtaining additional funding, we intend to hire,
during the next twelve months, one additional employee and outsource our
marketing expenses which we have budgeted at $75,000.

<PAGE>


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

<TABLE>
<CAPTION>

                                                                                 June 30       June 30
                                                                                  2002           2001
                                     ASSETS                                    (Unaudited)   (Unaudited)
                                     ------                                    -----------   -----------
<S>                                    <C>                                    <C>            <C>
CURRENT ASSETS
       Cash and Cash Equivalents (Note 3)                                     $     3,725    $        --
       Employee Advances                                                               --          5,800
       Prepaid Expenses                                                           159,279            377
                                                                              -----------    -----------
         TOTAL CURRENT ASSETS                                                     163,004          6,177
EQUIPMENT, less accumulated depreciation of $87,118,
       and $71,608, respectively (Notes 3 and 5)                                   15,601         31,111
DEPOSITS                                                                                          10,000
                                                                              -----------    -----------
           TOTAL ASSETS                                                       $   178,605    $    47,288
                                                                              ===========    ===========
                       LIABILITIES AND STOCKHOLDERS' EQUITY
                       ------------------------------------
CURRENT LIABILITIES
       Current Portion of Capital Lease Obligations (Note 8)                  $        --    $       806
       Bank Overdraft                                                                  --          6,727
       Notes Payable (Note 6)                                                      91,300         91,300
       Accounts Payable and Other Accrued Expenses                                683,761        305,271
       Wages Payable                                                              343,967         93,083
       Payroll Taxes Payable                                                       26,757          8,683
                                                                              -----------    -----------
         TOTAL CURRENT LIABILITIES                                              1,145,785        505,870
CAPITAL LEASE OBLIGATIONS (Note 8)                                                     --             --
CONVERTIBLE PROMISSORY NOTES (Note 9)                                             742,000      1,242,000
                                                                              -----------    -----------
           TOTAL LIABILITIES                                                    1,887,785      1,747,870
                                                                              -----------    -----------
COMMITMENTS (Note 11)
STOCKHOLDERS' EQUITY (DEFICIT) (Note 12)
       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;
           17,909,492 shares issued and outstanding at June 30, 2002,
           and 13,575,639 shares issued and outstanding at
           June 30, 2001, respectively                                              1,791          1,358
       Paid in Capital                                                          2,737,676      1,877,117
       Deficit accumulated during development stage                            (4,448,647)    (3,579,057)
                                                                              -----------    -----------
         TOTAL STOCKHOLDERS' EQUITY                                            (1,709,180)    (1,700,582)
                                                                              -----------    -----------
           TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $   178,605    $    47,288
                                                                              ===========    ===========
</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
                                         Three Months Ended              Six Months Ended            (Date of
                                               June 30                        June 30              Inception to
                                   ----------------------------     --------------------------       June 30,
                                       2002             2001            2002           2001            2002
                                   (Unaudited)      (Unaudited)     (Unaudited)    (Unaudited)     (Unaudited)
                                   -----------      -----------     -----------    -----------    -------------
<S>                               <C>             <C>             <C>             <C>             <C>
Total Revenue                     $         --    $         --    $         --    $         --    $     57,887

Operating expenses:
   Product development                      --         139,650              --         293,920       1,386,826
   General and administrative           98,755         178,949         146,391         401,962       2,827,428
                                  ------------    ------------    ------------    ------------    ------------
     Total operating expenses           98,755         318,599         146,391         695,882       4,214,254
                                  ------------    ------------    ------------    ------------    ------------
Loss from operations                   (98,755)       (318,599)       (146,391)       (695,882)     (4,156,367)

   Interest income                          --               1              --               1           2,571
   Interest expense                    (21,476)        (13,680)        (42,871)        (21,880)       (295,045)
   Other income                             --              --              --             250           5,195
   Bad debt expense                         --              --              --              --            (201)
                                  ------------    ------------    ------------    ------------    ------------
Loss before income taxes              (120,231)       (332,278)       (189,262)       (717,511)     (4,443,847)

Provision for income taxes
 (Note 10)                                  --              --              --            (800)         (4,800)
                                  ------------    ------------    ------------    ------------
Net loss                          $   (120,231)   $   (332,278)   $   (189,262)   $   (718,311)   $ (4,448,647)
                                  ============    ============    ============    ============    ============
Net loss applicable to common
 stockholders                     $   (120,231)   $   (332,278)   $   (189,262)   $   (718,311)   $ (4,448,647)
                                  ============    ============    ============    ============    ============
Net loss per share--basic         $    (0.0069)   $    (0.0245)   $    (0.0108)   $    (0.0532)   $    (0.2537)
                                  ============    ============    ============    ============    ============
Weighted average shares used in
 per share calculation--basic       17,532,202      13,575,639      17,532,202      13,512,948      17,532,202
                                  ============    ============    ============    ============    ============
</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 June 30, 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 June 30, 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 June 30, 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 June 30, 2002
                                    Deficit

<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       -         24,995            -        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

April 18, 2002, issuance of common stock for
  consulting services (Note 7)                   -        -   1,687,500     169       -         59,737            -        59,906

April 19, 2002, issuance of common stock for
  legal services (Note 7)                        -        -     208,335      21       -         24,979            -        25,000

Net loss for the six months ended June 30,
    2002 (Unaudited)                             -        -           -       -       -              -    (189,262)     (189,262)
                                               ---      ---  ----------  ------     ---    ----------- -----------   -----------
BALANCE, JUNE 30, 2002 (Unaudited)               -      $ -  17,909,492  $1,791     $ -    $ 2,737,676 $(4,448,647)  $(1,709,180)
                                               ===      ===  ==========  ======     ===    =========== ===========   ===========
</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
                                                             Six Months Ended to                   (Date of
                                                                   June 30,                      Inception to)
                                                       --------------------------------            March 31,
                                                           2002                2001                  2002
CASH FLOWS FROM OPERATING ACTIVITIES                   (Unaudited)          (Unaudited)          (Unaudited)
                                                       -----------          -----------         -------------
<S>                                                    <C>                     <C>                    <C>
Net Loss                                              $  (189,262)         $  (718,311)         $(4,448,647)
Transactions not requiring cash:
  Depreciation                                              5,453               14,478               87,118
Changes in operating assets and liabilities:
  (Increase) decrease in employee advances                   --                 (5,800)                --
  (Increase) decrease in advance to stockholder              --                   --                   --
  (Increase) decrease in prepaid expenses                (159,279)                 566             (159,279)
  (Increase) decrease in deposits                            --                   --                   --
  Increase (decrease) in bank overdraft                      --                (13,458)                --
  Increase (decrease) in wages payable                       --                 93,083              323,553
  Increase (decrease) in accounts payable and
   other accrued expenses                                  55,707                  419              704,175
  Increase (decrease) in payroll taxes payable               --                  7,121               26,757
                                                      -----------          -----------          -----------
    NET CASH (USED IN) OPERATING ACTIVITIES              (287,381)            (621,902)          (3,466,323)
                                                      -----------          -----------          -----------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase/acquisition of equipment                          --                 (2,467)            (102,719)
                                                      -----------          -----------          -----------
    NET CASH (USED IN) INVESTING ACTIVITIES                  --                 (2,467)            (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                   --                516,000            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                                291,106               97,892            1,610,392
  Assumption of capital lease obligation                     --                   --                 26,361
  Net payments on capital lease obligation                   --                 (3,440)             (26,361)
                                                      -----------          -----------          -----------
    NET CASH PROVIDED BY FINANCING ACTIVITIES             291,106              624,369            3,572,767
                                                      -----------          -----------          -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS                   3,725                 --                  3,725

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD               --                   --                   --
                                                      -----------          -----------          -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD              $     3,725          $      --            $     3,725
                                                      ===========          ===========          ===========
Supplemental Disclosure of Cash Flow Information:

 Cash paid during the period for:
  Interest                                            $      --            $        87          $    18,824
  Taxes                                               $      --            $       800          $     4,000

NONCASH INVESTING AND FINANCING TRANSACTIONS:
 Common stock issued for consulting services          $   266,941          $    31,300          $   341,541
 Common stock in lieu of compensation                 $      --            $      --            $      --

</TABLE>

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

                                       F-7


<PAGE>



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

                          NOTES TO FINANCIAL STATEMENTS

                JANUARY 1, 1996 (Inception) THROUGH JUNE 30, 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 $4,448,647 through June 30, 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 JUNE 30, 2002

NOTE 2 - ORGANIZATION AND NATURE OF BUSINESS - Continued

Liquidity

The Company has recurring operating losses since inception that have continued
subsequent to June 30, 2002. The losses are primarily due to administrative
infrastructure costs related to the financing and development of the Company's
business.

The Company has received $ 24,165 in financing for the six months ended June 30,
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 JUNE 30, 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 six months of their
acquisition date. Not included as cash equivalents are funds restricted as to
their use, regardless of liquidity or the maturity dates of investments.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of uninsured cash balances. The Company places
its cash deposits with high-credit quality financial institutions. At times,
balances in the Company's cash accounts may exceed the Federal Deposit Insurance
Company (FDIC) limit of $100,000.

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 June 30, 2002.

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 JUNE 30, 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 six months ended June 30, 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 June 30, 2002, 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 101
until 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.

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.


                                       F-11

<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS

                JANUARY 1, 1996 (Inception) THROUGH JUNE 30, 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 June 30:                                           2002              2001
                                                      ----              ----

Computer and peripheral equipment                 $ 102,719          $ 102,719

Less accumulated depreciation                        87,118             71,608
                                                  ----------         ---------
                                                  $  15,601          $  31,111
                                                  =========          =========


Total depreciation expense for the six months ended June 30, 2002, and 2001
respectively was $5,453 and $14,478.

NOTE 6 - NOTES PAYABLE

Notes payable consisted of the following:

At June 30:                                                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 JUNE 30, 2002

NOTE 6 - NOTES PAYABLE - (Continued)

At June 30:                                               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 JUNE 30, 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.

During the three months ended June 30, 2002, the Company issued 1,895,835 shares
of its $.0001 par value common stock at an average price per of $.045 per
share for consulting and legal services.


                                       F-14

<PAGE>



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

                          NOTES TO FINANCIAL STATEMENTS

                JANUARY 1, 1996 (Inception) THROUGH JUNE 30, 2002

NOTE 8 - CAPITAL LEASE OBLIGATIONS

Capital lease obligations consisted of the following :

At June 30:                                             2002              2001
                                                        ----              ----
Capital lease obligation, secured by equipment,
with an effective interest rate of 14.9% and
approximate monthly payments of $ 360                    $    0         $   479

Capital lease obligation, secured by equipment,
with an effective interest rate of 14.9% and
approximate monthly payments of $ 250                         0             325
                                                         ------         -------
                                                              0             806

Less current portion                                          0             806
                                                         ------         -------
                                                         $    0         $     0
                                                         ======         =======

NOTE 9 - CONVERTIBLE PROMISSORY NOTES

Convertible promissory notes consisted of the following:

At June 30:                                    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


                                       F-15

<PAGE>



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

                          NOTES TO FINANCIAL STATEMENTS

                JANUARY 1, 1996 (Inception) THROUGH JUNE 30, 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             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


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



                                       F-16

<PAGE>



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

                          NOTES TO FINANCIAL STATEMENTS

                JANUARY 1, 1996 (Inception) THROUGH JUNE 30, 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            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



                                       F-17

<PAGE>


                             VERTICA SOFTWARE, INC.

                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)

                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

                JANUARY 1, 1996 (Inception) THROUGH JUNE 30, 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                   111,000           111,000

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                   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            60,000

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                    40,000            40,000

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           60,000

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                    45,000           45,000
                                        -----------       ----------
                                        $   742,000       $1,242,000
                                        ===========       ==========


                                       F-18

<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS

                JANUARY 1, 1996 (Inception) THROUGH JUNE 30, 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 six months ended June 30, 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 six months ended June 30, 2002 and 2001
were $18,323 and $18,105, respectively.


                                       F-19

<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS

                JANUARY 1, 1996 (Inception) THROUGH JUNE 30, 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, June 30, 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 June 30,
2002 was less than the warrants' prices.

                                       F-20