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


                                   FORM 10-KSB

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF

                       THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2001



                             VERTICA SOFTWARE, INC.
               ---------------------------------------------------
             (Exact name of registrant as specified in its charter)

                                    COLORADO
                               -------------------
                 (State or Other Jurisdiction of Incorporation)

                                    000-28813
                              --------------------
                            (Commission File Number)

                                   93-1192725
                              --------------------
                     (I.R.S. Employer Identification Number)

                        106 EAST SIXTH STREET, SUITE 900
                               AUSTIN, TEXAS 78701
               --------------------------------------------------
          (Address of Principal Executive Offices, including Zip Code)

                                 (512) 322-3900
                                 --------------

<PAGE>

                (Issuer's Telephone Number, Including Area Code)

       Securities registered pursuant to Section 12 (b) of the Act: None.

          Securities registered pursuant to Section 12 (g) of the Act:

                         COMMON STOCK, $0.0001 PAR VALUE
                         -------------------------------

Check whether the Issuer filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter  period
that the Company was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [ ] No

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,   to  the  best  of  Company's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

State  Issuer's  revenues for its most recent  fiscal year:  December 31, 2001 -
$3,762.00

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates  computed by reference to the price at which the common equity
was sold,  or the average bid and asked  price of such  common  equity,  as of a
specified date within the past 60 days: $-0- .

Issuers  involved in  Bankruptcy  Proceedings  during the past five  years:  Not
Applicable

State the number of shares outstanding of each of the Issuer's classes of common
equity, as of the latest practicable date: December 31, 2001 - 15,040,323 shares
of Common Stock

Documents Incorporated By Reference

None

Transitional Small Business Issuer Format: [ ]Yes [X] No

<PAGE>

                                     PART I
Item 1. Description of Business.

Organization and General History

     In April 1997,  Perfection  Development  Corporation was incorporated under
the laws of Colorado.  We were  originally  formed for the purpose of developing
and constructing real estate properties.  On September 29, 1998, we acquired all
the  outstanding   capital  stock  of  Vertica  Software,   Inc.,  a  California
corporation  ("Vertica  California").  At the time of the  acquisition,  we were
inactive and had no significant  assets.  Vertica California was in the business
of developing  Internet  software  products serving the hazardous  materials and
hazardous  waste   industries.   We  have  continued  this  business  since  the
acquisition.  On December 31, 1998, Vertica California,  which we then held as a
subsidiary,  merged with and into us. We became the surviving corporation in the
merger  and the  separate  corporate  existence  of Vertica  California  ceased.
Concurrently with the merger, we changed our name to Vertica Software,  Inc. Our
stock  trades on the NASD OTC  Bulletin  Board  under  the  symbol  "VERI".  Our
headquarters are located in Austin, Texas.

     We are a  development-stage  company that is developing  Internet  software
products intended to serve industries that are impacted by government regulation
of hazardous  materials and hazardous  wastes and other  environmental  laws and
regulations. We are developing software products designed to provide information
about  environmental  regulations  and a  software  management  system to assist
companies with their environmental  regulation compliance and related activities
for common  industrial  applications.  We have  developed  and may  continue  to
develop software products within a software management system called " iComply".
These  products  reside in our website called  Hazweb.com,  which was previously
called Vertica.com.

     The iComply products currently include:  Communicator (which is designed to
manage efficiently a facility's environmental reporting, emergency response, and
crisis communication before, during, and after an emergency incident); Inventory
(which is designed to streamline hazardous chemical and waste inventory tracking
and assists in the  management of hazardous  materials and wastes);  Transporter
(which is designed to automate the shipping,  labeling,  transporting compliance
and invoicing of hazardous materials and wastes).

     Hazweb.com  includes the  Marketplace  (which  offers  e-commerce  business
solutions  that  streamline  the sales  process  and allow  hazardous  materials
marketers to operate more efficiently).

     All trademarks and trade names  appearing in this document are the property
of their respective holders.

<PAGE>

CURRENT STATUS OF DEVELOPMENT

     As stated earlier,  we completed the development of three products included
in the iComply  system,  and all three products have been used at Olympian,  the
largest  independent  oil  marketer  in  California.  It is  our  current  plan,
providing  we obtain  the  necessary  funding,  to sell  these  products  in the
marketplace,  which  includes  the  oil & gas,  petro-chemical,  transportation,
industrial and agricultural  chemical industries.  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 receive the necessary financing.

     As a development-stage Company, we have cumulatively,  since inception, had
revenues totaling $57,887. Our expenses to date have been incurred in connection
with the  development  of the software  products  and the Hazweb .com  (formerly
called  Vertica.com)  web site and other  marketing,  sales  and  administrative
expenses.  We have formalized our pricing models,  and have designed a licensing
agreement which we intend our customers to execute.

Industry Overview

     Companies that transport, store, or handle hazardous materials are required
by federal, state and local laws to meet current regulations.  These regulations
require  training  of  personnel,  proper  handling  and  storing  of  hazardous
materials,  filing of  appropriate  government  forms,  production  of  required
shipping  papers and  labeling and  placarding  of  hazardous  materials.  These
government  regulations  are complex and  difficult to interpret and are updated
and  revised  from time to time.  Failure to comply with  current  environmental
regulations can result in significant  criminal and civil  penalties,  including
fines, damages and injunctions. See "Government Regulations."

     The  growth of the  environmental  regulation  compliance  market is driven
primarily by the maintenance and expansion of  environmental  regulations in the
United States, including federal, state and local regulatory schemes. We believe
that continued public pressure for environmental protection in the United States
will likely result in continued and increased  environmental  regulation of many
industries.

     We believe our products can serve companies in the following industries and
the following government agencies:

     Transportation, including railroad, highway, marine and air;

     Manufacturing, including petroleum refining and related industries,chemical
and  allied  products,   rubber  and  miscellaneous   plastics,   primary  metal
industries,    fabricated    metal    products,    industrial   and   commercial
machinery,electronic,   electrical  equipment  and  components,   transportation
equipment,  measuring  and  analyzing  and  controlling  instruments,  and other
manufacturing industries;

<PAGE>

     Engineering  and  research   services,   including   petroleum,   chemical,
industrial,   sanitary,   biological,   non-commercial  biological  and  testing
laboratories;

     Utilities, including electric, gas and sanitary;

     Other industries, including mining, agricultural,  construction, insurance,
industry wholesale trade,  training agencies and industry  consulting  agencies;
and

     Government  agencies,  including the Environmental  Protection  Agency, the
Department   of   Transportation   and  the   Occupational   Health  and  Safety
Administration.

     We cannot assure you, however,  that we will be able to successfully market
our products to participants in these potential markets.

     The Vertica Solution

     We believe that many  companies hire  consultants  to insure  environmental
compliance and that other companies spend  substantial  amounts to hire in-house
information  technology groups to design and maintain  environmental  compliance
systems.  We believe we offer a solution based on a combination of a Web browser
and Microsoft SQL Servers,  and bring together a software management system with
an on-line  community.  This solution allows our software  products and Internet
web site, discussed below, to function in concert.

     We have designed our environmental software management system,  iComply, to
assist our  customers  by reducing the time and costs  required by  consultants,
internal   information   technology  and  environmental   management  staff  for
regulatory  compliance with environmental  regulations.  Our products would not,
however,  provide any check for  compliance  with  applicable  regulations  of a
customer's internal systems.

     We have also designed the Internet web site,  Hazweb.com  (formerly  called
Vertica.com) as an environmental web portal serving the hazardous  materials and
hazardous  waste  industries.  Hazweb.com  contains  extensive and  continuously
updated information relating to current environmental  regulations,  and enables
clients and vendors in the hazardous materials industry to interact on-line. The
iComply products reside within Hazweb.com.

     We believe that our customers will be able to use our systems to reduce the
labor time and resources needed to comply with hazardous waste and environmental
regulations.  A  customer  is  asked by the  software  to  respond  to a list of
relevant  questions,  the responses are linked to forms and other  documentation
used for reporting and compliance purposes. We call these lists of questions and
links  "wizards."  The data  accumulated  in the modules can be retrieved  for a
variety of purposes  through the software,  thus enabling the user to reduce the
amount of manual calculations,  hard paper information gathering and storage and
other clerical functions needed to complete required reports and notices.

<PAGE>

Our Strategy

     We derive revenues from three diversified products and services:

     Licensing of iComply products,  transaction fees for filing activities, and
e-commerce  marketplace  transaction fees on the Hazweb.com web site. We believe
that our  pricing  for the  licensing  and  training  are lower than the costs a
customer would incur in developing an in-house system due to the distribution of
our costs of development and maintenance  across our entire client base. We also
believe that iComply  modules will attract clients by lowering their capital and
labor costs associated with environmental compliance.  Some activities,  such as
plain text searches of government regulations, are offered for free, in order to
generate initial traffic to our web site.  Finally,  we have set our transaction
fees on Hazweb.com at the then current market rates for such fees.

     We  believe  that  our  Hazweb.com  web site  will be a hub for a  client's
environmental  compliance  transaction  activity, as well as the entry point for
research queries into our proposed database. We believe that eventually a steady
traffic flow through our site will result in vendors  connecting with clients in
these industries.

Products and Services

     iComply.  On  February  1, 2000,  we  released  two  products,  the iComply
Communicator  and Inventory  modules.  On July 17, 2000, we released the iComply
Transporter, and in the first quarter of 2001, we released the Hazweb e-commerce
marketplace  platform.  Over the  next  twelve  months,  the  Company's  primary
commitment is to market and sell its existing products.

     iComply Features

     We have  designed  our iComply  software  products,  comprised  of separate
Internet  accessible  software  modules as described below, to assist clients in
industries  subject to environment  and hazardous  materials and hazardous waste
regulations in  environmental  compliance,  reduce  regulatory  paper trails and
streamline the administrative  efforts  associated with hazardous  materials and
hazardous  waste  management and crisis  communications,  thus reducing costs to
those industries.

     iComply Products:

     Inventory

     The  Inventory  module,  as  part of each  of the  other  iComply  products
discussed  below,  provides  assistance  to customers  and data to other iComply
products by managing  chemical and waste information for each customer site. The
module is  designed to link

<PAGE>

material safety data sheets ("MSDS") and waste profile information directly to a
customer's  facility  inventory.  The module provides  customers with a site map
feature and the capability to track  inventory  down to the individual  building
level. A customer will be able to use the inventory and regulated chemical lists
to  facilitate   chemical  control,   emergency   compliance  and  environmental
reporting. Inventory can be updated manually by the customer or automatically by
iComply products as a customers products are received, manufactured, transported
or  released.  The  Inventory  module is complete and has been used by Olympian,
which is the largest independent oil marketer in California.

     Communicator

     The  Communicator is designed to manage a facility's  hazardous  materials,
emergency  compliance,   crisis   communications  and  environmental   reporting
information. The product includes hazardous materials plan builders,  compliance
wizards and automated document  submission.  Electronic forms and checklists are
designed to  streamline  response  efforts and minimize  reporting  errors.  The
Communicator  module is also designed to facilitate internal as well as external
communications,  allowing  continuous  control of a customer's  facility  public
image. This module also supports  compliance with EPCRA (Emergency  Planning and
Community Right to Know) and related environmental regulations. The Communicator
was released on February 1, 2000.

     Transporter

     The  Transporter  is designed to serve the  hazardous  materials  and waste
transportation needs of a customer. The product includes automated Department of
Transportation  registration  form,  bill of lading and waste manifest  software
"wizards,"  document tracking and incident and exception report capability.  The
module  automatically  updates chemical and waste inventories,  allows access to
material information and provides labeling and placard information  essential to
the  shipment of hazardous  materials.  This product  supports  compliance  with
Department of Transportation  regulations.  The Transporter was released on July
17, 2000.

     Processor

     The  Processor  will be  designed  to serve each  iComply  customer  site's
production  floor  process  mapping,  inventory,  hazardous  materials and waste
stream needs.  It will support  compliance  with TSCA (Toxic  Substance  Control
Act)and related  regulations.  The development and first release of this product
depends upon us generating revenue on our existing completed products.

     HazOSHA

     The HazOSHA product will be designed to serve each iComply  customer site's
hazardous  materials  employee safety  policies,  procedures and training needs,
including on-line training.  This module will support  compliance with hazardous
materials  related  sections  of 29 CFR OSHA  (Code of Federal  Regulations  for
Occupational  Safety  and

<PAGE>

Health  Administration).  The  development  and first  release  of this  product
depends upon us generating revenue on our existing completed products.

     Permitter

     The  Permitter  product  will be  designed to serve each  iComply  customer
site's permit  monitoring and  compliance  needs,  and will include air,  liquid
discharge and hazardous waste permit application software "wizards." This module
will support compliance with CAA (Clean Air Act), EPA (Environmental  Protection
Agency),  RCRA (Resource  Conservation and Recovery Act), CWA (Clean Water Act),
AQMD (Air Quality Management District) and related  regulations.  Programming of
permit  processors for this product has suspended,  and the completion and first
release of this  product  depends  upon us  generating  revenue on our  existing
completed products.

     Hazweb.com

     Hazweb.com  (which  was called  Vertica.com)  is our web site that has been
designed to provide updated  information on environmental  regulations and serve
as an  e-commerce  web portal in which  vendors  and  clients  in the  hazardous
materials  industry  will be able to buy and sell  products  and  services.  The
iComply products reside within Hazweb.com. The features of this system are:

     News & Analysis:  It is intended that Hazweb.com  provides current industry
news for the hazardous  materials  community,  including  stories from business,
government, energy, environment and finance. Our web site features informational
articles  written by experts in the hazardous  materials  industry and offers an
internet posting site for industry related press releases and publications.

     Marketplace: Hazweb Marketplace offers an industry-specific marketplace for
the  purchase,  sale and  exchange  of  hazardous  materials-related  goods  and
services.  It  includes  a  customizable  directory  of  industry  products  and
services,   and  features  tools  for  online  price   management  and  customer
notification. Marketplace includes customer-specific quotes and order processing
services  that  are  interfaced  with  the  iComply  Inventory  and  Transporter
products,  thereby  providing an integrated  e-commerce and hazardous  materials
management system.

     Hazinfo:  We believe that Hazweb.com  serves the  multifaceted  information
needs  of the  hazardous  materials  and the  hazardous  waste  communities.  It
features  industry-specific  glossaries,  a public contacts  database,  codified
regulations,  on-line MSDS access,  discussion  groups,  event  calendars and an
industry-related resume posting and career center.

     Sales and Marketing

     We use marketing  tools including focus groups,  public  relations,  direct
mail,  channel  distributions,  advertisement  and  telemarketing.  Based on the
evolving markets

<PAGE>

for each  product  line,  we will  modify the  marketing  program to utilize all
appropriate marketing resources. In general, the marketing for each product line
follows the following format:

1. Introductory product announcements, public relations and media coverage;

2. Promotion via trade shows, conferences and the Internet;

3. Direct sales using our sales personnel;

4. Expansion of sales channels through distributors and business partnerships;

5. Ongoing advertising through targeted media and the Internet;

6. Product demonstration and information at Hazweb.com
   (web-site), www.Hazweb.com.

     We also  promote  our  product  lines  and  web  site  through  affiliates,
individual seminars, trade shows, and in trade publications.  Direct sales using
our  subject-expert  sales personnel is also a high priority,  including  direct
calls  to our  customers.  In  addition,  we  seek  marketing  and  distribution
partnerships  with other firms that stand to benefit  from  bringing  our target
industries   on-line.   This  could   include  such   partners  in  the  on-line
infrastructure field such as computer network equipment manufacturers,  software
database  providers and other business  solutions  providers.  Additionally,  we
promote   Hazweb.com's   ability  to  provide   data  for  research  and  crisis
preparedness,  make available  information that helps companies dealing with the
hazardous materials and hazardous wastes industries'  fragmented environment and
"information overload ," and to minimize the paperwork associated with hazardous
materials and hazardous waste regulatory compliance.

     We  intend  to  develop   marketing   relationships   with  the   following
organizations:

     California Trucking Association

     American Petroleum Institute

     Petroleum Marketers Association of America

     Western States Petroleum Association

     American Electronics Association

     Other associations and marketing companies

<PAGE>

Competition

     While we are not aware of any other company that  currently  offers a suite
of software  products similar to our proposed  products,  several  environmental
management firms, with substantially  greater financial and marketing  resources
than Vertica,  have existing products and services that compete with one or more
of our iComply  modules,  as described  below.  In addition,  several firms have
established  their own Internet  web sites that may compete with our  Hazweb.com
web site and e-commerce services.

     For example,  VerticalSuites,  a  subsidiary  of  Levine-Fricke,  offers an
environmental  management system based on SAP, a database  software  application
system that performs  logistics,  finance,  sales,  human  resources and related
business functions.  Amoco Corporation offers a system based on Lotus Domino, an
integrated messaging and applications  software platform.  While these competing
systems  will  appeal  to   companies   that  already  use  the  SAP  or  Domino
applications,  the SAP and  Domino  applications  are  based on an  in-house  or
intra-company  paradigm.  We  believe,  however,  that our  system  permits  the
integration  of  regulatory  compliance  work flow  among  suppliers,  carriers,
receivers  and  governmental  agencies,  all of  which  input  or  receive  data
regarding hazardous materials activities.

     One  central  aspect  of  our  iComply  Transporter  product  is  producing
hazardous  materials  shipping  papers  that are  filed  with the  Environmental
Protection  Agency.  We have approached the California EPA to accept  electronic
filing of these  papers  and we believe  that  Sterling  Software  has a similar
initiative  in Illinois  based on their  electronic  data  interchange,  or EDI,
technology. Industrial facilities rely on CAD/CAM software that includes process
models.  Process  models  typically  track raw  materials  through  the  initial
production  process to shipment of the product.  These models can be extended to
serve  environmental  process  applications,   and  in  these  situations  these
"in-house"  models may compete with our proposed  iComply Process  module.  Most
industrial  facilities rely on a variety of consultants and training  classes to
comply with OSHA regulations and such services will compete with the services to
be offered by our proposed  iComply HazOSHA module.  Similarly,  most industrial
companies rely on  environmental  consulting firms to prepare and obtain permits
and such firms will, therefore,  offer services in competition with the services
offered by our proposed iComply Permitter product.

     We also face  competition  in  connection  with our Internet web site.  For
example,  Verticalnet is an existing web portal with an environmental  community
that offers environmental  industry news and electronic  commerce,  but does not
provide the additional resources,  including a glossary,  access to regulations,
industry contacts or MSDS  repositories,  or the software  applications that our
Hazweb.com web site will provide.  While other  Internet  sites provide  similar
resources for free, our site offers them in  combination  with industry news and
environmental management applications. Also, the Environmental Protection Agency
itself offers an assortment of on-line access to

<PAGE>

regulations  and form  completion  software,  but the software is not integrated
with the customer's environmental  information database and the applications are
maintained  at the  customer's  site,  away from access to the  regulations.  In
addition,  there are  several  sites that  offer  extensive  MSDS  repositories,
however,  our Hazweb.com  MSDS  repository is linked to our customer's  chemical
inventory,  which  facilitates  access  to  MSDS  data  used  for  a  customer's
regulatory  compliance  calculations,  emergency  planning,  hazardous materials
shipping papers, and employee hazard communication.

Patent and Intellectual Property Rights

     We  have  filed  a  patent  application  on  the  integrated  environmental
management system,  with the on-line community.  We have also filed a trade name
application for our "Hazweb" name.

Employees

     As of December 31, 2001, we had no full-time  compensated  employees and no
part-time compensated employees.

Government Regulations

     We offer software  products and services through our Internet web site that
assists  customers  to comply with a variety of federal and state  environmental
statutes and  administrative  regulations.  Consequently,  our business  will be
affected  to  a  substantial  degree  by  the  existing  and  future  government
regulatory environment.  While not anticipated,  our business would be adversely
affected  to the extent  regulatory  requirements  are  reduced  or  eliminated,
thereby reducing the demand for our products and services.

     We provide a searchable text database of published federal  regulations and
electronic   links  to  the  federal   regulations   and  each  of  the  state's
environmental  regulatory  database,  therefore,  our  customers  have access to
environmental  statutes and regulations  regarding  environmental  reporting and
compliance  requirements.  We do not believe that products and services we offer
are subject to governmental agency approval,  however, we do have to comply with
regulations  regarding  the  submission  of reports and data  electronically  to
governmental agencies.

RISK FACTORS

     OUR BUSINESS AND RESULTS OF OPERATIONS  COULD BE SERIOUSLY HARMED BY ANY OF
THE FOLLOWING  RISKS. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO
ANY OF THESE RISKS, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT:

     We are a  development-stage  company  that,  as of December 31,  2001,  had
cumulative revenues since inception of $57,887;

<PAGE>

     We were formed in 1996 and have been a  development  stage company that has
had very little in revenues to date.  Our revenue  model is evolving and we have
one customer to date.  Additional  potential customers have only been evaluating
our products;

     We  will  encounter  risks  and  difficulties   frequently  encountered  by
development-stage  companies in new and rapidly evolving markets.  Many of these
risks are  described  in more detail in this  section.  We may not  successfully
address any of these risks. If we do not  successfully  address these risks, our
business would be seriously harmed;

     WE HAVE NEW MANAGEMENT

     The Company is under new  management  as of October 22, 2001.  Although the
new management has significant business  experience,  our ability to effectively
execute  our  business  strategy  depends in large part on our new  management's
ability to become  acclimated to the  Company's  infrastructure  and  particular
business  issues.  If the new  management  is unable to do so, our  business and
results of operations may be materially and adversely affected.

     WE ARE IN THE PROCESS OF DEVELOPING A SALES AND MARKETING  FORCE, BUT IF WE
ARE UNABLE TO EFFECTIVELY DEVELOP ADEQUATE SALES AND MARKETING CAPABILITIES,  WE
MAY BE UNSUCCESSFUL IN ADEQUATELY COMMERCIALIZING OUR PRODUCTS AND SERVICES.

     Fully   developing  a  sales  and   marketing   force  is   expensive   and
time-consuming and could delay additional sales of our products and services. If
we are unable to establish  our sales and marketing  capability,  we may fail to
realize our full sales potential.

     WE ANTICIPATE WE WILL INCUR CONTINUED LOSSES FOR THE FORESEEABLE FUTURE.

     We expect to incur  significant  losses for the foreseeable  future.  As of
December 31, 2001, we generated cumulative revenues of $57,887 and have not been
profitable.  While we intend to market our products and services,  sales may not
occur. We may never be profitable or, if we become profitable,  we may be unable
to sustain profitability.

     The  anticipated  losses may result from our plan to increase our operating
expenses in order to:

     Maintain  our  Hazweb.com  web site and  iComply  products  and  developing
     additional iComply products;

     Increase our sales and marketing operations;

     Broaden our customer support and software capabilities; and

     Pursue strategic marketing and distribution alliances.

     Continued  losses may result in our inability to further develop and market
our products, which is important to our plan to generate and grow our revenues.

<PAGE>

     WE MAY HAVE DIFFICULTY  OBTAINING FUTURE FUNDING SOURCES, IF NEEDED, AND WE
MIGHT HAVE TO ACCEPT TERMS THAT WOULD ADVERSELY AFFECT SHAREHOLDERS.

     We  will  need  to  raise  funds  from  additional  financing.  We  have no
commitments  for any  financing  and any  financing  commitments  may  result in
dilution  to  our  existing  stockholders.  We  may  have  difficulty  obtaining
additional funding,  and we may have to accept terms that would adversely affect
our  stockholders.  For example,  the terms of any future  financings may impose
restrictions  on our right to  declare  dividends  or on the  manner in which we
conduct our business. Also, lending institutions or private investors may impose
restrictions  on  a  future  decision  by  us  to  make  capital   expenditures,
acquisitions or significant asset sales. We may not be able to locate additional
funding sources at all.

     If we cannot raise funds on acceptable  terms,  when needed,  we may not be
able to  enhance  our  services  to  customers,  launch new  products,  grow our
business or respond to  competitive  pressures  or  unanticipated  requirements,
which could seriously harm our business.

     WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY WITH OTHER PROVIDERS OF HAZARDOUS
MATERIALS AND ENVIRONMENTAL MANAGEMENT PRODUCTS.

     We believe  that the  strongest  potential  competition  does not come from
traditional service groups but rather from the evolution of the Internet and the
types of hazardous  materials,  hazardous  wastes and  environmental  management
service  providers  that evolution will create.  As  applications  for hazardous
materials  and  environmental  management  providers  begin to  proliferate  and
mature, we will compete with other technology  companies and traditional service
providers such as environmental  consulting firms that seek to integrate on-line
hazardous materials,  hazardous waste and environmental  management technologies
with their traditional service mix.

     Competition for Internet  products and services is intense.  We expect that
competition  will  continue to  intensify.  Barriers to entry are  minimal,  and
competitors  can launch new web sites at a relatively  low cost.  We expect that
additional companies will establish competing environmental management systems.

     Hazardous  materials and environmental  management  applications are in the
early stages of development.  As these applications  evolve,  however, we expect
that  other  entrepreneurs  and  large,  well  known  leaders  of the  hazardous
materials  and  environmental  compliance  industries  will  create  other niche
environmental services that may compete with our services.  These large industry
leaders would have better name recognition in the markets that we target.

<PAGE>

     Several environmental  consulting firms have existing products and services
that compete  with one or more of our iComply  products.  In  addition,  several
environmental  consulting  firms have  established  their own Internet web sites
that may compete with our Hazweb.com  (formerly  called  Vertica.com)  web site.
These firms have substantially greater financial and marketing resources than we
have.

     OUR COMMON STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE.

     The market  price of Vertica  Software  common stock is likely to be highly
volatile as the stock market in general, and the market for Internet-related and
technology companies in particular,  has been highly volatile.  Our shareholders
may not be able  to  resell  their  shares  of  Vertica  Software  common  stock
following periods of volatility because of the market's adverse reaction to this
volatility.   The  trading  prices  of  many  technology  and   Internet-related
companies'  stocks have  reached  historical  lows within the past 12 months and
have reflected  relative  valuations  substantially  below historical levels. We
cannot assure you that our stock will trade at the same levels of other Internet
stocks or that  Internet  stocks in general will sustain  their  current  market
prices.

Factors that could cause this volatility may include, among other things:

     actual or anticipated variations in quarterly operating results;

     announcements of technological innovations;

     new  products or services;

     changes in financial estimates by securities analysts;

     conditions  or  trends  in  the  hazardous   materials  and   environmental
     management industries, including regulatory changes;

     conditions or trends in the Internet industry;

     changes in the market valuations of other Internet companies;

     announcements  by  us  or  our  competitors  of  significant  acquisitions,
     strategic partnerships or joint ventures, changes in capital commitments;

     additions or departures of key personnel; and

     sales of Vertica Software common stock.

     Many of these factors are beyond our control.  These factors may materially
adversely  affect  the  market  price of our  common  stock,  regardless  of our
operating performance.


Item 2. Description of Property.

     We own no real  property.  Our  executive  and  administrative  offices are
located at 106 E. Sixth Street,  Suite 900, Austin,  Texas. The telephone number
is (512) 322-3900.  The Company currently occupies office space provided by W.F.
Mason & Associates,  Inc., a company owned and operated by the President and CEO
of the  Company.  There are no office lease  obligations  or rental costs to the
Company at this time.

     From January 1, 2001 through January 31, 2002, the Company's  executive and
administrative  offices  were  located  at  5801  Christie  Avenue,  Suite  390,
Emeryville,  California.  The Company leased  approximately 4,344 square feet of
office space under a 60-month  lease,  which commenced on December  1,1999.  The
monthly rent for the office space was  $10,694.57.  The lease was  terminated by
the lessor on January 31, 2002.

Item 3. Legal Proceedings.

We are not a party to any material legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders.

Not applicable.

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

     Our common stock is traded on the over-the-counter  market and is quoted on
the NASD OTC Bulletin  Board under the symbol "VERI".  The following  table sets
forth the closing  high and low bid prices of our common  stock in each  quarter
from the inception of trading through March 31, 2001.  These prices are believed
to be representative inter-dealer quotations, without retail markup, markdown or
commissions, and may not represent prices at which actual transactions occurred.

                                                         Bid
                                                         ---
                         2000                     High          Low
                         ----                     ----          ----

                      1st Quarter                $3.125       $1.03125

                      2nd Quarter                $3.50        $0.843

                      3rd Quarter                $1.625       $0.625

                      4th Quarter                $1.19        $0.32

<PAGE>

                         2001
                         ----

                      1st Quarter                $0.60        $0.343

                      2nd Quarter                $1.02        $0.72

                      3rd Quarter                $0.72        $0.15

                      4th Quarter                $0.20        $0.07

     The number of holders of record of our $0.0001 par value Common stock as of
December  31, 2001 was  approximately  600.  We have never  declared or paid any
dividends on our common stock and we do not anticipate paying any cash dividends
in the foreseeable future.

Recent Sales of Unregistered Securities

     The following  summarizes the equity securities sold by the Company in 2001
that  were  not  registered  under  the  Securities  Act  of  1933,  as  amended
(the "Securities Act").

     On February 28, 2001,  the Company  issued to William F. Mason an unsecured
convertible  promissory  note with an interest  rate of 10% and in the amount of
$200,000.

     On March 26, 2001, the Company issued to Mr. Mason an unsecured convertible
promissory note with an interest rate of 10% and in the amount of $111,000.

     On April 16, 2001, the Company issued to Mr. Mason an unsecured convertible
promissory note with an interest rate of 10% and in the amount of $60,000.

     On May 1, 2001,  the Company  issued to Mr. Mason an unsecured  convertible
promissory note with an interest rate of 10% and in the amount of $40,000.

     On May 14, 2001, the Company  issued to Mr. Mason an unsecured  convertible
promissory note with an interest rate of 10% and in the amount of $60,000.

     On June 6, 2001, the Company  issued to Mr. Mason an unsecured  convertible
promissory note with an interest rate of 10% and in the amount of $45,000.

     For each of the foregoing convertible  promissory notes, the principal note
balance plus accrued interest  converts to common stock at a conversion price of
$0.50  per  share.  As of April  12,  2002,  none of the  foregoing  convertible
promissory notes issued to Mr. Mason had been converted.

<PAGE>

     During the quarter ending  September 30, 2001, the Company issued to Paolin
50,000  shares of its common  stock with a par value of  $0.0001,  at an average
price of $0.50 per share.

     During the quarter  ending  September 30, 2001, the Company issued to Erick
Ahrens  60,000  shares of its common  stock with a par value of  $0.0001,  at an
average price of $0.56 per share in lieu of receiving cash compensation.

     On March 1, 2001,  the  Company  issued to Michael  Ager  ("Ager")  250,000
shares of the  Company's  common stock at an average price of $0.08 per share in
connection with the Consulting Agreement entered into by and between the Company
and Ager dated of even date therewith.

     On March 15, 2001, the Company issued to Stockbroker Associates Corporation
("Stockbroker") 100,000 shares of the Company's common stock at an average price
of $0.08 per share in connection with the Consulting  Agreement  entered into by
and between the Company and Stockbroker dated of even date therewith.

     During the year ended  December 31, 2001,  the Company issued 60,000 shares
of its common stock to Jack  Leutwyler  and 20,000 shares of its common stock to
Greg Mulkey,  both share issuances at an average price of $0.08 per share and in
consideration for consulting services performed for the Company.

     All of the  foregoing  convertible  promissory  notes and  shares of common
stock were issued under the exemption  under Section 4(2) of the  Securities Act
and the regulations promulgated thereunder.

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-KSB 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

<PAGE>

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, 2000 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.

     On November 1, 2000, we released our Hazweb e-commerce marketplace platform
for beta-testing. Hazweb Marketplace offers an industry-specific marketplace for
the  purchase,  sale and  exchange  of  hazardous  materials-related  goods  and
services.  It  includes  a  customizable  directory  of  industry  products  and
services,   and  features  tools  for  online  price   management  and  customer
notification. Marketplace includes customer-specific quotes and order processing
services  that  are  interfaced  with  the  iComply  Inventory  and  Transporter
products,  thereby  providing an integrated  e-commerce and hazardous  materials
management system.

Results of operations:

     The Company  realized a net loss from operations of $1,278,639 for the year
ended  December 31, 2001,  compared to a realized  net loss from  operations  of
$1,398,639 for the year ended December 31, 2000. The Company has realized, since
January 1, 1996  (inception)  to December 31,  2001, a cumulative  net loss from
operations of  $4,259,385.  The Company had $3,762 in sales from  operations for
the year ended  December  31,  2001,  and  cumulatively  $57,887  for the period
January 1, 1996 (Date of Inception) through December 31, 2001.

Plan of operation:

     Loss on operations for the Company for the years ended December 31,2001 and
2000(decreased)increased (15%) and 220%, 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.

<PAGE>

     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.

     During the year  ended  December  31,  2001,  we  received  funds  totaling
$542,700 in the form of  convertible  promissory  and demand notes.  These notes
bear  interest  at 10% and mature six months  from the date of  issuance.  As of
April 12, 2002, none of these notes have been converted.

     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:

     We have  released the following  products and modules,  which are available
for licensing to potential customers:

         iComply Inventory module (released for licensing February 2000)
         iComply Communicator (released for licensing February 2000)

<PAGE>

         iComply Transporter (released for licensing July 2000)
         Hazweb E-Commerce Marketplace

The   development  of  iComply   Processor  has  been  suspended   until  future
profitability from the existing products is obtained.

     While  marketing  these  products,  we will  also be  developing  strategic
alliances  within  our  industry  through  target  marketing  opportunities  and
advertising.  Web site  maintenance  expenses  for the next  twelve  months  are
expected to be approximately $36,000.

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.

Item 7. Financial Statements.

The consolidated  financial statements of the Company are filed under this Item,
beginning on Page F-1 of this Report

Item  8.  Changes  In and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosure.

None.

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.

The following table sets forth certain information with respect to the executive
officers and directors as of December 31, 2001:

NAME                        AGE     POSITIONS AND OFFICES HELD

William F. Mason             54     President, Chief Executive Officer,
                                    Chief Financial Officer and Sole Director

<PAGE>

William F. Mason has served as our President,  Chief  Executive  Officer,  Chief
Financial Officer,  and a director since October 2001. In 1998, Mr. Mason formed
W.F. Mason & Associates, Inc., a consulting firm with an emphasis on industrial,
chemical,  agricultural and transportation  companies, and continues to serve as
its President and Chief  Executive  Officer.  Prior to 1998, Mr. Mason served as
the President and Chief  Executive  Officer for Bolidean  Intertrade Inc. (later
called  Intertrade  Holdings  Inc.),  an  industrial,   chemical,  agricultural,
manufacturing, marketing and trading company.

Item 10. Executive Compensation.

The following table sets forth the compensation  paid by Vertica Software to its
officers and  directors for services  rendered to the company  during the fiscal
years ending December 31, 1999, December 31, 2000 and December 31, 2001:
<TABLE>
<CAPTION>
                                             SUMMARY COMPENSATION TABLE

                                                                    Long Term Compensation
                                                                    ----------------------
                             Annual Compensation                       Awards            Payouts
                    ----------------------------------- -------------------------------  --------
     (a)       (b)     (c)      (d)         (e)              (f)             (g)            (h)            (i)
------------ -----  -------- -------  ----------------  ------------   ----------------  --------     ------------
  Name and                                               Restricted       Securities       LTIP         All Other
  Principal          Salary   Bonus     Other Annual        Stock         Underlying      Payouts     Compensation
  Position    Year     ($)     ($)    Compensation ($)   Award(s) ($)  Options/SARs (#)     ($)          ($)
------------ -----  -------- -------  ----------------  ------------   ----------------  --------     ------------
<S>           <C>     <C>        <C>         <C>              <C>         <C>               <C>            <C>
William F.
Mason CEO *   2001     -0-      -0-         -0-              -0-            -0-            -0-            -0-
------------ -----  -------- -------  ----------------  ------------   ----------------  --------     ------------
Hans          2001    62,928    -0-         -0-              -0-          166,000          -0-            -0-
Nehme,        2000   105,053    -0-         -0-              -0-          164,000          -0-            -0-
CEO **        1999   112,800    -0-         -0-              -0-          164,000          -0-            -0-
</TABLE>

<TABLE>
<CAPTION>
                                          Option Grants in Last Fiscal Year

                                                  Individual Grants
--------------------------------------------------------------------------------------------------------------------
      (a)                    (b)                             (c)                         (d)               (e)
------------       -----------------------     -------------------------------    ----------------   ---------------
                    Number of Securities
                   Underlying Options/SARs     % of Total Options/SARs Granted    Exercise or Base
     Name                Granted (#)             to Employees in Fiscal Year        Price ($/Sh)     Expiration Date
------------       -----------------------     -------------------------------    ----------------   ---------------
<S>                        <C>                               <C>                     <C>                <C>
William F.                   -0-                             -0-                         -0-
Mason, CEO*
Hans Nehme,                164,000                           50%                     $0.28/share        9/29/2004
CEO **
</TABLE>

* On October 19, 2001,  William F. Mason was elected to the Board of  Directors.
On October 22, 2001, Mr. Mason was appointed to the positions of Chief Executive
Officer, President and Chief Financial Officer.

** On  October  22,  2001,  Hans  Nehme  resigned  as Chief  Executive  Officer,
President, Chief Financial Officer and Director.

<PAGE>

DIRECTOR COMPENSATION

     Our directors do not receive any cash  compensation  for their  services as
directors. It is anticipated that each non-employee director will be eligible to
participate in our stock option plan.

Item 11.  Security  Ownership of Certain  Beneficial  Owners and  Management and
Related Stockholder Matters.

The following table sets forth information with respect to beneficial  ownership
of our common stock by:

         o        each person who beneficially owns more than 5% of each class
                  of stock;

         o        each of our executive officers;

         o        each of our directors;

         o        and all executive officers and directors as a group.

     The  address  of  each  stockholder  listed  in the  table  is c/o  Vertica
Software,  Inc. 106 E. Sixth Street, Suite 900, Austin, Texas 78701.  Beneficial
ownership is  determined  in  accordance  with the rules of the  Securities  and
Exchange  Commission and includes  voting and  investment  power with respect to
shares. To our knowledge,  except under applicable  community property laws, the
persons  named in the table have sole voting and sole  investment  control  with
respect to all shares beneficially owned. The applicable percentage of ownership
for each stockholder is based on 15,040,323  shares of common stock  outstanding
on December 31, 2001.

     William F.  Mason  received  an option to  purchase  200,000  shares of the
Company's common stock at $0.60 cents per share.  Through the Company's Employee
Stock Purchase Plan, total option shares vested to Hans Nehme is 338,784;  Erick
Ahrens  87,808,  and Nalini Frush  100,000.  No stock  appreciation  rights were
granted to any of the officers or directors of the Company.

<PAGE>

<TABLE>
<CAPTION>
TITLE OF CLASS             NAME OF BENEFICIAL                       AMOUNT AND NATURE
                                                                    OF PERCENT OF
                           OWNER (2)                                BENEFICIAL OWNERSHIP
                                                                    CLASS
<S>                                                      <C>                              <C>
Common Stock               Hans Nehme                    9,151,317(1)                     60.8%
Common Stock               William F. Mason                410,000                         2.7%
Common Stock               Erick F. Ahrens                      -0-                       -0-
Common Stock               John C. Leutwyler                60,000                         0.4%
Common Stock               Susan N. Hastings             9,151,317(1)                     60.8%
Common Stock               Nalini Rajender Frush                -0-                       -0-

Common Stock               All officers and directors    9,621,317(1)                     63.9%
                           as a group (6)
</TABLE>
---------------------------------

     (1)  Includes  8,680,000  shares  owned of record by Mr.  Nehme and 471,317
shares owned of record by Ms.  Hastings.  Mr. Nehme and Ms. Hastings are husband
and wife.

     (2) Please see Item 10 regarding the  resignation  of certain  officers and
members of the Board of Directors as of October 19 and 22, 2001.

Item 12. Certain Relationships and Related Transactions.

     The Company issued six unsecured convertible promissory notes to William F.
Mason,  who is an officer and director of the Company,  during 2001 as described
under Item 5 above.

     In  addition,  the Company  issued to Mr.  Mason an  unsecured  convertible
promissory  note with an  interest  rate of 10% and in the  amount of $61,000 on
October 16, 2000; and an unsecured convertible  promissory note with an interest
rate of 10% and in the amount of $65,000 on November 2, 2000.  For each of these
notes, Mr. Mason was the note holder and the lender of the funds to the Company.
As of April 12, 2002, none of the unsecured convertible  promissory notes issued
to Mr.  Mason during 2000 and 2001 had been  converted  into common  stock.  Mr.
Mason was elected to the  Company's  Board of  Directors on October 19, 2001 and
later  appointed  its  interim  President,  Chief  Executive  Officer  and Chief
Financial Officer on October 22, 2001.

Item 13. Exhibits and Reports on Form 8-K.

(a)      Exhibits

         The following Exhibits are filed as part of this report:

<PAGE>

Exhibit No.       Description


3.1      Articles of Incorporation (1)

3.2      Articles of Amendment to the Articles of Incorporation (1)

3.3      Bylaws (1)

10.1     Lease  Agreement  dated as of  December  1, 1999  between  Company and
         Spieker Properties, L.P.(1)

10.2     Form of Convertible Promissory Note (2)

10.3     General Services  Agreement dated October 1, 2000 between W.F. Mason  &
         Associates and Vertica Software (3)

10.4     2000 Equity Incentive Plan (3)

10.5     Convertible Promissory Note for $200,000 issued to William F. Mason  on
         February 28, 2001 (4)

10.6     Convertible Promissory Note for $111,000 issued to William F. Mason  on
         March 26, 2001 (4)

10.7     Consulting  Agreement  dated  March 1, 2001  between  the  Company  and
         Michael Alger (4)

10.8     Consulting  Agreement  dated  March 15,  2001  between the Company  and
         Stockbroker Associates Corporation (4)

23.1     Consent of Randolph Scott & Company, Certified Public Accountants, Inc.

(1)      Incorporated  by reference  from the  Company's  Amendment No. 1 to the
         Form 10-SB filed on February 28, 2000.

(2)      Incorporated  by reference  from the  Company's  Amendment No. 2 to the
         Form 10-SB filed on March 9, 2000.

(3)      Incorporated  by reference  from the Company's  Form 10-KSB filed April
         17, 2001.

(4)      Incorporated  by reference  from the Company's Form 10-QSB filed on May
         15, 2001.

(b)      Reports on Form 8-K

The Company did not file any reports on Form 8-K for the year ended December 31,
2001.

<PAGE>

                                   SIGNATURES

Pursuant  to the  requirements  of  Section  13 or 15 (d) of the  Exchange  Act,
Vertica  Software,  Inc. has duly caused this annual report on Form 10-KSB to be
signed on its behalf by the undersigned, thereunto duly authorized.

                                                 VERTICA SOFTWARE, INC.

Dated:  April 12, 2002                           By: /s/ William F. Mason
                                                 ------------------------
                                                 William F. Mason, President,
                                                 Chief Executive Officer and
                                                 Chief Financial Officer

In accordance with requirements of the Exchange Act, this Annual Report has been
signed by the following person in the capacities and on the date indicated.

SIGNATURE                                        TITLE
--------------                                   --------------

/s/ William F. Mason                             Sole Director, President,
--------------------------------                 Chief Executive Officer and
                                                 Chief Financial Officer


DATE: April 12, 2002


<PAGE>
                                TABLE OF CONTENTS


INDEPENDENT AUDITORS' REPORT.................................................F-1


FINANCIAL STATEMENTS

     Balance Sheets..........................................................F-2

     Statements of Operations................................................F-3

     Statement of Changes in Stockholders' Equity............................F-4

     Statements of Cash Flows................................................F-8


NOTES TO FINANCIAL STATEMENTS................................................F-9


<PAGE>
Board of Directors
Vertica Software, Inc.
Emeryville, California



                          INDEPENDENT AUDITORS' REPORT



We have audited the  accompanying  balance sheets of Vertica  Software,  Inc., a
Colorado   corporation  (the   "Company"),   formerly   Perfection   Development
Corporation,  (a  development  stage company) as of December 31, 2001, and 2000,
and the related statements of operations,  stockholders'  equity, and cash flows
for the  period  January 1, 1996  (inception)  through  December  31,  2001.  On
December 31, 1998, the Company acquired all of the outstanding  capital stock of
Vertica Software,  Inc., a California  corporation  ("Vertica  California") in a
reverse  acquisition  merger.  The  merger has been  accounted  for as a capital
acquisition as further described in the notes to the financial statements. These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.


We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial statement  presentation.  We believe that our audits and the report of
other auditors provide a reasonable basis for our opinion.

In our opinion,  based on our audits, the financial statements referred to above
present fairly, in all material respects,  the financial position of the Company
at December 31, 2001,  and 2000,  and the results of its operations and its cash
flows for the period January 1, 1996  (inception)  through December 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America.

The accompanying  financial  statements have been prepared  assuming the Company
will continue as a going concern. As discussed in Notes 1 and 2 to the financial
statements,  the Company has incurred  significant  development stage losses and
has a limited supply of cash resources, which raises substantial doubt about its
ability to continue as a going  concern.  Management's  plans in regard to these
matters are also  described in Note 1. The  financial  statements do not include
any adjustments that might result from the outcome of this uncertainty.




Randolph Scott & Company
Certified Public Accountants, Inc.
San Anselmo, California
March 29, 2002

                                      F-1
<PAGE>
                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                   December 31,      December 31,
                                                                                           2001             2000
                                   ASSETS                                             (Audited)        (Audited)
                                                                                    -----------      -----------
<S>                                                                                 <C>              <C>
CURRENT ASSETS
    Cash and Cash Equivalents (Note 3)                                              $      --        $      --
    Prepaid Expenses                                                                       --                943
                                                                                    -----------      -----------
      TOTAL CURRENT ASSETS                                                                 --                943

EQUIPMENT, less accumulated depreciation of $81,665,
    and $ 57,130, respectively (Notes 3 and 5)                                           21,054           43,122

DEPOSITS                                                                                   --             10,000

                                                                                    -----------      -----------
         TOTAL ASSETS                                                               $    21,054      $    54,065
                                                                                    ===========      ===========

                              LIABILITIES AND
                            STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Bank Overdraft                                                                  $      --        $    20,185
    Current Portion of Capital Lease Obligations (Note 8)                                  --              4,246
    Accounts Payable and Other Accrued Expenses                                         628,054          284,438
    Wages Payable                                                                       343,967           20,414
    Payroll Taxes Payable                                                                26,757            1,562
    Stock Subscription                                                                     --             25,000
    Notes Payable (Note 6)                                                               91,300           65,300
                                                                                    -----------      -----------
      TOTAL CURRENT LIABILITIES                                                       1,090,078          421,145

CAPITAL LEASE OBLIGATIONS (Note 8)                                                         --               --

CONVERTIBLE PROMISSORY NOTES (Note 9)                                                   742,000          876,000

                                                                                    -----------      -----------
         TOTAL LIABILITIES                                                            1,832,078        1,297,145
                                                                                    -----------      -----------

COMMITMENTS (Note 13)

STOCKHOLDERS' EQUITY (DEFICIT)
    Preferred Stock, $ .001 par value, 3,000,000 shares authorized,
      -0- shares issued and outstanding                                                    --               --
    Common Stock, $ .0001 par value, 30,000,000 shares authorized;
      15,040,323 shares issued and outstanding at December 31, 2001,
      and 13,249,941 shares issued and outstanding at December 31,
      2000 respectively                                                                   1,504            1,324
    Paid in Capital                                                                   2,446,857        1,616,342
    Deficit accumulated during development stage                                     (4,259,385)      (2,860,746)
                                                                                    -----------      -----------
      TOTAL STOCKHOLDERS' EQUITY                                                     (1,811,024)      (1,243,080)
                                                                                    -----------      -----------
         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                 $    21,054      $    54,065
                                                                                    ===========      ===========
</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)
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                Cumulative
                                                                                                   From
                                                                                                January 1,
                                                                                                   1996
                                                                                                 (Date of
                                                     For the               For the              Inception)
                                                    Year Ended           Year Ended                 to
                                                   December 31,         December 31,           December 31,
                                                       2001                 2000                   2001
                                                    (Audited)             (Audited)              (Audited)
                                                 -----------------   --------------------    ------------------
<S>                                                <C>                <C>                      <C>
Total Revenue                                      $      3,762       $     54,125             $     57,887

Operating expenses:
        Product development                             411,018            579,833                1,386,826
        General and administrative                      877,850          1,069,649                2,681,037
                                                   ------------       ------------             ------------
                    Total operating expenses          1,288,868          1,649,482                4,067,863
                                                   ------------       ------------             ------------

Loss from operations                                 (1,285,106)        (1,595,357)              (4,009,976)

        Interest income                                       1                 31                    2,571
        Interest expense                               (112,984)           (61,054)                (252,174)
        Other income                                        250              3,208                    5,195
        Bad debt expense                                                      --                       (201)
                                                   ------------       ------------             ------------

Loss before income taxes                             (1,397,839)        (1,653,172)              (4,254,585)

Provision for income taxes (Note 10)                       (800)              (800)                  (4,800)
                                                   ------------       ------------             ------------

Net loss                                           $ (1,398,639)      $ (1,653,972)            $ (4,259,385)
                                                   ============       ============             ============

Net loss applicable to common stockholders         $ (1,398,639)      $ (1,653,972)            $ (4,259,385)
                                                   ============       ============             ============

Net loss per share ---basic                        $    (0.0985)      $    (0.1328)            $    (0.2999)
                                                   ============       ============             ============


Weighted average shares used in per share
        calculation---basic                          14,202,956         12,450,763               14,202,956
                                                   ============       ============             ============

</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 December 31, 2001


<TABLE>
<CAPTION>

                                                                                                            Deficit
                                                                                      Advance              Accumulated
                                                Preferred Stock     Common Stock        to                   During
                                               -----------------  ------------------  Stock-     Paid-in   Development
                                               Shares    Amount    Shares     Amount  holder     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-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 December 31, 2001
                                     Deficit
<TABLE>
<CAPTION>

                                                                                                            Deficit
                                                                                      Advance              Accumulated
                                                Preferred Stock     Common Stock        to                   During
                                               -----------------  ------------------  Stock-     Paid-in   Development
                                               Shares    Amount    Shares     Amount  holder     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-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 December 31, 2001
<TABLE>
<CAPTION>

                                                                                                            Deficit
                                                                                      Advance              Accumulated
                                                Preferred Stock     Common Stock        to                   During
                                               -----------------  ------------------  Stock-     Paid-in   Development
                                               Shares    Amount    Shares     Amount  holder     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-6
<PAGE>
                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)
                  Statement of Changes in Stockholders' Equity

              From January 1, 1996 (Inception) to December 31, 2001
                                     Deficit
<TABLE>
<CAPTION>

                                                                                                            Deficit
                                                                                      Advance              Accumulated
                                               Preferred Stock     Common Stock        to                   During
                                              -----------------  ------------------  Stock-     Paid-in   Development
                                              Shares    Amount    Shares     Amount  holder     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      --       --       330,000      33     --          3,267          --           3,300
   consulting services (Note 7)

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)
                                              ======    ====  ===========  ======   ======  ===========   ===========   ===========
</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)
                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                                                  Cumulative
                                                                                                                      From
                                                                                                                   January 1,
                                                                                                                      1996
                                                                                                                    (Date of
                                                                                For the           For the          Inception)
                                                                              Year Ended        Year Ended             to
                                                                             December 31,       December 31,       December 31,
                                                                                 2001              2000               2001
                                                                               (Audited)         (Audited)          (Audited)
                                                                             --------------   ----------------   ----------------
<S>                                                                           <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net Loss                                                                  $(1,398,639)     $(1,653,972)     $(4,259,385)

    Transactions not requiring cash:
       Depreciation                                                                24,535           33,793           81,665
    Changes in operating assets and liabilities:
       (Increase) decrease in employee advances                                      --               --               --
       (Increase) decrease in advance to stockholder                                 --             25,000             --
       (Increase) decrease in prepaid expenses                                        943            1,781             --
       (Increase) decrease in deposits                                             10,000             --               --
       Increase (decrease) in bank overdraft                                      (20,185)          20,185             --
       Increase (decrease) in wages payable                                       323,553             --            323,553
       Increase (decrease) in accounts payable and other accrued expenses         343,616          238,488          648,468
       Increase (decrease) in payroll taxes payable                                25,195            1,562           26,757
                                                                              -----------      -----------      -----------
         NET CASH (USED IN) OPERATING ACTIVITIES                                 (690,982)      (1,333,163)      (3,178,942)
                                                                              -----------      -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase/acquisition of equipment                                              (2,467)         (49,627)        (102,719)
                                                                              -----------      -----------      -----------
         NET CASH (USED IN) INVESTING ACTIVITIES                                   (2,467)         (49,627)        (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           65,300          112,700
    Net payments on unsecured notes                                                  (700)            --            (21,400)
    Proceeds, assumption on convertible debt                                      516,000          826,000        1,695,061
    Reduction of convertible promissory notes                                    (650,000)        (150,000)        (953,061)
    Conversion of convertible promissory notes into common
       stock (includes $ 86,259 of accrued interest)                              736,259          163,500        1,279,075
    Proceeds from stock subscriptions                                                --            447,500          447,500
    Redemption of stock subscriptions                                             (25,000)        (422,500)        (597,500)
    Issuance of common stock                                                       94,436          422,500        1,319,286
    Assumption of capital lease obligation                                           --               --             26,361
    Net payments on capital lease obligation                                       (4,246)          (6,000)         (26,361)
                                                                              -----------      -----------      -----------
         NET CASH PROVIDED BY FINANCING ACTIVITIES                                693,449        1,346,300        3,281,661
                                                                              -----------      -----------      -----------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                               0          (36,490)               0

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                       --             36,490             --
                                                                              -----------      -----------      -----------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                      $         0      $      --        $         0
                                                                              ===========      ===========      ===========

Supplemental Disclosure of Cash Flow Information:

    Cash paid during the period for:
       Interest                                                               $                $       776      $    18,824
       Taxes                                                                  $       800      $       800      $     4,000

NONCASH INVESTING AND FINANCING TRANSACTIONS:
    Common stock issued for consulting services                               $    34,600      $      --        $    74,600
    Common stock in lieu of compensation                                      $    33,780      $      --        $    33,780
</TABLE>

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


                                      F-8
<PAGE>

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

                          NOTES TO FINANCIAL STATEMENTS

              JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 2001


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 $4,259,385 through December 31, 2001.

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-9
<PAGE>
                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

              JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 2001


NOTE 2 - ORGANIZATION AND NATURE OF BUSINESS - Continued

Liquidity

The Company has recurring  operating  losses since inception that have continued
subsequent  to  December  31,  2001.  The  losses are  primarily  due to product
development  costs,  and  administrative  infrastructure  costs  related  to the
financing and development of the Company's business.

In January 2001 the Company received an additional $ 26,700 in bridge financing.
In  February 2001,  the  Company  received  an additional  $ 200,000  in  bridge
financing.
In March 2001, the Company received an additional $ 111,000 in bridge financing.
In April 2001, the Company received an additional $ 60,000 in bridge financing.
In May 2001, the Company received an additional $ 100,000 in bridge financing.
In June 2001, the Company received an additional $ 45,000 in bridge financing.

The Company  understands  that the proceeds  from this and similar  transactions
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-10
<PAGE>
                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

              JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 2001


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-11
<PAGE>
                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

              JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 2001


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 years ended December 31, 2001, and 2000
the impact of  convertible  debt was not  considered as their effect on Net Loss
Per Share would be anti-dilutive.

Fair Value of Financial Instruments

Cash, advances,  prepaid expenses,  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-12
<PAGE>

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

                          NOTES TO FINANCIAL STATEMENTS

              JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 2001


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 December 31:                            2001            2000
                                         --------        --------

Computer and peripheral equipment        $102,719        $100,252

Less accumulated depreciation              81,665          57,130
                                         --------        --------
                                         $ 21,054        $ 43,122
                                         ========        ========


Total  depreciation  expense  for the year ended  December  31,  2001,  and 2000
respectively was $ 24,535 and $33,793.



NOTE 6 - NOTES PAYABLE

Notes payable consisted of the following:

At December 31:                                          2001           2000
                                                       -------        -------

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-13
<PAGE>
                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

              JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 2001


NOTE 6 - NOTES PAYABLE - (Continued)

At December 31:                                         2001           2000
                                                      -------        -------

Note payable to individual, unsecured, bearing
compound interest at 12 1/2%, and payable upon
demand                                                 12,000              0

Note payable to individual, unsecured, bearing
compound interest at 12 1/2%, and payable upon
demand                                                 14,000              0
                                                      -------        -------

                                                      $91,300        $65,300
                                                      =======        =======



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-14
<PAGE>

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

                          NOTES TO FINANCIAL STATEMENTS

              JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 2001


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.


NOTE 8 - CAPITAL LEASE OBLIGATIONS

Capital lease obligations consisted of the following :

At September 30:                                         2001          2000
                                                       ------        ------

Capital lease obligation, secured by equipment,
with an effective interest rate of 14.9% and
approximate monthly payments of $ 360                  $    0        $2,529

Capital lease obligation, secured by equipment,
with an effective interest rate of 14.9% and
approximate monthly payments of $ 250                       0         1,717
                                                       ------        ------
                                                            0         4,246

Less current portion                                        0         4,246
                                                       ------        ------

                                                       $    0        $    0
                                                       ======        ======


                                      F-15
<PAGE>
                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

              JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 2001


NOTE 9 - CONVERTIBLE PROMISSORY NOTES

Convertible promissory notes consisted
of the following:

At December 31:                                         2001           2000
                                                      -------        -------

Convertible promissory note, unsecured
with interest at 10%. The agreement stipulates
the conversion rate of $ 1.60 per share of
common stock. The principal note balance
along with all accrued interest is payable
upon demand                                           $     0        $50,000

Convertible promissory note, unsecured
with interest at 10%. The agreement stipulates
the conversion rate of $ 1.60 per share of
common stock. The principal note balance
along with all accrued interest is payable
upon demand                                                 0         50,000

Convertible promissory note, unsecured
with interest at 10%. The agreement stipulates
the conversion rate of $ 1.60 per share of
common stock. The principal note balance
along with all accrued interest is payable
upon demand                                                 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 DECEMBER 31, 2001


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 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%. A separate agreement
stipulates the conversion rate of $ 1.50
per share of common stock. The principal
note balance along with all accrued interest
is payable on demand                                     0         50,000

Convertible promissory note, unsecured
with interest at 12%. A separate agreement
stipulates the conversion rate of $ 1.50
per share of common stock. The principal
note balance along with all accrued interest
is payable on demand                                     0         50,000


                                      F-17
<PAGE>

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

                          NOTES TO FINANCIAL STATEMENTS

              JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 2001


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-18
<PAGE>
                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

              JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 2001


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              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                     200,000              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                      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       $876,000
                                                         ========       ========


                                      F-19
<PAGE>
                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

              JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 2001


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 ended December 31:                     2001             2000
                                                  -------          -------

     U.S. federal statutory graduated rate          30.40%           34.00%
     State income tax rates net of federal
     benefits:
         Colorado                                    3.16%            3.18%
         California                                  6.10%            6.04%
       Net operating loss for which no tax
         benefit is currently available            (39.66%)         (43.22%)
                                                  -------          -------
                                                        0%               0%
                                                  =======          =======

         For the  year  ended  December  31,  2001  the  Company  conducted  its
operations in California, which has an annual minimum tax of $800.


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.


                                      F-20
<PAGE>
                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

              JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 2001


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.

In  consideration  of funds  received,  the  Company has issued  eight  separate
convertible promissory notes payable to a director of the Corporation.  Interest
expense incurred amounted to $51,116 and $2,321 for the years ended December 31,
2001 and 2000 respectively.


NOTE 13 - COMMITMENTS

The Company has an  operating  lease for its office  space.  This  property  was
vacated during the year ended  December 31, 2001. As such, the leaser  considers
the lease  terminated as of January 29, 2002.  Future lease  payments  under the
operating lease is summarized as follows:

     Year ending                                 Office
    December 31,                                  Space
--------------------                           -----------

       2002                                    $ 10,695
                                               ========

Total rent expense for the year ended  December 31, 2001, and 2000 was $149,394,
and $89,767, respectively.


NOTE 14 - 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.
<TABLE>
<CAPTION>
  Stock Options Outstanding Under Incentive Plan:                               Price per Share
                                                                ------------------------------------------
                                                                                                Weighted
                                                  Shares                 Range                   Average
                                            ------------------  ---------------------       --------------
<S>                                                <C>              <C>                          <C>
  Balance, December 31, 2000                       442,320          $ 0.25 - $ 0.28              $ 0.27
     Granted                                       331,250          $ 0.25 - $ 0.28              $ 0.26
     Exercised                                     (1,875)          $ 0.25 - $ 0.28              $ 0.25
     Cancelled                                           0          $ 0.25 - $ 0.28              $ 0.00
                                               -----------      ---------------------       --------------

  Balance, December 31, 2001                       771,695          $ 0.25 - $ 0.28              $ 0.26
                                               ===========      =====================       ==============
</TABLE>

                                      F-21
<PAGE>
                             VERTICA SOFTWARE, INC.
                  (FORMERLY PERFECTION DEVELOPMENT CORPORATION)
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

              JANUARY 1, 1996 (Inception) THROUGH DECEMBER 31, 2001


NOTE 14 - STOCKHOLDER EQUITY - (Continued)


    (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 December
31, 2001 was less than the warrants' prices.


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