SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM 10-Q
(Mark one)
| x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2002
OR
| o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to __________ to __________.
Commission File Number 0-19640
VERTEL CORPORATION
(Exact name of registrant as specified in its charter)
| California |
|
95-3948704 |
|
|
|
|
| 21300 Victory Boulevard, Suite 700, Woodland Hills, California |
|
91367 |
(818)
227-1400
(Registrant’s telephone number, including area code)
Indicate by check mark x whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days.
| Yes |
x |
No |
o |
Indicate by check mark x whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
| Yes |
o |
No |
x |
As of November 18, 2002 there were 34,683,783 shares of common stock outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VERTEL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
|
|
|
September 30, |
|
December 31, |
| ||||
|
|
|
|
|
|
|
|
| ||
| ASSETS |
|
|
|
|
|
|
| ||
| Current assets: |
|
|
|
|
|
|
| ||
|
|
Cash and cash equivalents |
|
$ |
755 |
|
$ |
2,851 |
| |
|
|
Trade accounts receivable (net of allowances of $218 as of September 30, 2002 and $487 as of December 31, 2001) |
|
|
1,930 |
|
|
2,316 |
| |
|
|
Prepaid expenses and other current assets |
|
|
368 |
|
|
221 |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total current assets |
|
|
3,053 |
|
|
5,388 |
| |
| Property and equipment, net |
|
|
197 |
|
|
456 |
| ||
| Investments |
|
|
5 |
|
|
75 |
| ||
| Goodwill, net |
|
|
3,751 |
|
|
8,546 |
| ||
| Other assets |
|
|
498 |
|
|
365 |
| ||
|
|
|
|
|
|
|
|
| ||
|
|
|
$ |
7,504 |
|
$ |
14,830 |
| ||
|
|
|
|
|
|
|
|
| ||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
| ||
| Current liabilities: |
|
|
|
|
|
|
| ||
|
|
Accounts payable |
|
$ |
238 |
|
$ |
439 |
| |
|
|
Accrued wages and related liabilities |
|
|
853 |
|
|
1,024 |
| |
|
|
Accrued restructuring expenses |
|
|
— |
|
|
145 |
| |
|
|
Accrued taxes payable |
|
|
363 |
|
|
374 |
| |
|
|
Other accrued liabilities |
|
|
907 |
|
|
1,340 |
| |
|
|
Accrued acquisition liabilities |
|
|
6 |
|
|
31 |
| |
|
|
Deferred revenue |
|
|
674 |
|
|
933 |
| |
|
|
Warrant obligations |
|
|
267 |
|
|
— |
| |
|
|
|
|
|
|
|
|
| ||
|
|
Total current liabilities |
|
|
3,308 |
|
|
4,286 |
| |
|
|
|
|
|
|
|
|
| ||
| Convertible notes payable, net of unamortized discount of $3,640 |
|
|
1,163 |
|
|
— |
| ||
|
|
|
|
|
|
|
|
| ||
|
|
Total liabilities |
|
|
4,471 |
|
|
4,286 |
| |
|
|
|
|
|
|
|
|
| ||
| Shareholders’ equity: |
|
|
|
|
|
|
| ||
|
|
Preferred stock, par value $.01, 2,000,000 shares authorized; none issued and outstanding |
|
|
|
|
|
|
| |
|
|
Common stock, par value $.01, 100,000,000 shares authorized; shares issued and outstanding: 2002, 34,415,128; 2001, 32,891,689 |
|
|
344 |
|
|
329 |
| |
|
|
Additional paid-in capital |
|
|
97,621 |
|
|
93,105 |
| |
|
|
Accumulated deficit |
|
|
(94,563 |
) |
|
(82,640 |
) | |
|
|
Accumulated other comprehensive loss |
|
|
(369 |
) |
|
(250 |
) | |
|
|
|
|
|
|
|
|
| ||
|
|
Total shareholders’ equity |
|
|
3,033 |
|
|
10,544 |
| |
|
|
|
|
|
|
|
|
| ||
|
|
|
$ |
7,504 |
|
$ |
14,830 |
| ||
|
|
|
|
|
|
|
|
| ||
See accompanying notes to consolidated financial statements.
2
VERTEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
(in thousands, except per share amounts)
|
|
|
Three Month Period Ended |
|
Nine Month Period Ended |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
License |
|
$ |
1,489 |
|
$ |
1,668 |
|
$ |
3,738 |
|
$ |
5,083 |
| |
|
|
Service and other |
|
|
832 |
|
|
1,666 |
|
|
2,639 |
|
|
4,365 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
Net revenues |
|
|
2,321 |
|
|
3,334 |
|
|
6,377 |
|
|
9,448 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
License |
|
|
109 |
|
|
125 |
|
|
172 |
|
|
349 |
| |
|
|
Service and other |
|
|
494 |
|
|
1,740 |
|
|
2,425 |
|
|
5,365 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
Total cost of revenues |
|
|
603 |
|
|
1,865 |
|
|
2,597 |
|
|
5,714 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Gross profit |
|
|
1,718 |
|
|
1,469 |
|
|
3,780 |
|
|
3,734 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
Research and development |
|
|
916 |
|
|
1,118 |
|
|
3,505 |
|
|
2,875 |
| |
|
|
Sales and marketing |
|
|
1,228 |
|
|
1,568 |
|
|
3,925 |
|
|
4,871 |
| |
|
|
General and administrative |
|
|
638 |
|
|
708 |
|
|
2,389 |
|
|
2,426 |
| |
|
|
Goodwill amortization |
|
|
— |
|
|
607 |
|
|
— |
|
|
1,206 |
| |
|
|
Goodwill impairment |
|
|
— |
|
|
— |
|
|
4,795 |
|
|
— |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
Total operating expenses |
|
|
2,782 |
|
|
4,001 |
|
|
14,614 |
|
|
11,378 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Operating loss |
|
|
(1,064 |
) |
|
(2,532 |
) |
|
(10,834 |
) |
|
(7,644 |
) | ||
| Other (expense) income, net |
|
|
(1,125 |
) |
|
(201 |
) |
|
(1,026 |
) |
|
94 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Loss before provision for income taxes |
|
|
(2,189 |
) |
|
(2,733 |
) |
|
(11,860 |
) |
|
(7,550 |
) | ||
| Provision (benefit) for income taxes |
|
|
19 |
|
|
20 |
|
|
63 |
|
|
(62 |
) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Net loss |
|
|
(2,208 |
) |
|
(2,753 |
) |
|
(11,923 |
) |
|
(7,488 |
) | ||
| Other comprehensive income (loss) |
|
|
(27 |
) |
|
199 |
|
|
(119 |
) |
|
(31 |
) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Comprehensive loss |
|
$ |
(2,235 |
) |
$ |
(2,554 |
) |
$ |
(12,042 |
) |
$ |
(7,519 |
) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Basic and diluted net loss per common share |
|
$ |
(0.06 |
) |
$ |
(0.08 |
) |
$ |
(0.35 |
) |
$ |
(0.25 |
) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Weighted average shares outstanding used in net loss per common share calculations - basic and diluted |
|
|
34,232 |
|
|
32,890 |
|
|
33,711 |
|
|
30,385 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
See accompanying notes to consolidated financial statements.
3
VERTEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
thousands)
|
|
|
Nine Month Period Ended |
| ||||||
|
|
|
|
|
|
|
|
| ||
|
|
|
September 30, |
|
September 30, |
| ||||
|
|
|
|
|
|
|
|
| ||
| Cash flows from operating activities: |
|
|
|
|
|
|
| ||
|
|
Net loss |
|
$ |
(11,923 |
) |
$ |
(7,488 |
) | |
|
|
Adjustments to reconcile net loss to net cash used for operating activities: |
|
|
|
|
|
|
| |
|
|
Depreciation and amortization |
|
|
381 |
|
|
2,107 |
| |
|
|
Goodwill impairment |
|
|
4,795 |
|
|
— |
| |
|
|
Provision for returns and bad debts |
|
|
(269 |
) |
|
5 |
| |
|
|
Loss on marketable securities |
|
|
— |
|
|
265 |
| |
|
|
Change in fair value of warrant obligations |
|
|
(417 |
) |
|
— |
| |
|
|
Non cash interest |
|
|
1,498 |
|
|
— |
| |
|
|
Changes in operating assets and liabilities |
|
|
(848 |
) |
|
(1,577 |
) | |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash used for operating activities |
|
|
(6,780 |
) |
|
(6,688 |
) | |
|
|
|
|
|
|
|
|
| ||
| Cash flows from investing activities: |
|
|
|
|
|
|
| ||
|
|
Net sales (purchases) of short-term investments |
|
|
— |
|
|
1,096 |
| |
|
|
Purchases of property and equipment |
|
|
(122 |
) |
|
(231 |
) | |
|
|
Cash acquired in business acquisition, net of cash paid |
|
|
— |
|
|
(226 |
) | |
|
|
Change in other assets |
|
|
(133 |
) |
|
22 | ||