SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark one)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2003
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 0-19640
VERTEL CORPORATION
(Exact name of Registrant as specified in its charter)
| California (State or other jurisdiction of incorporation or organization) |
95-3948704 (I.R.S. Employer Identification No.) | |
| 21300 Victory Boulevard, Suite 700, Woodland Hills, California (Address of principal executive offices) |
91367 (zip code) |
(818) 227-1400
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period 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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of March 31, 2003 there were 34,534,253 common shares outstanding with a par value of $0.01 per share.
| Part I – Financial Information |
||||
| Item 1. |
Financial Statements |
|||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operation |
13 | ||
| Item 3. |
21 | |||
| Item 4. |
21 | |||
| Part II – Other Information |
||||
| Item 1. |
22 | |||
| Item 2. |
22 | |||
| Item 3. |
22 | |||
| Item 4. |
22 | |||
| Item 5. |
22 | |||
| Item 6. |
22 | |||
| Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
||||
Forward-Looking Statements
This document includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in global, political, economic, business, competitive, market and regulatory factors.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VERTEL CORPORATION
(in thousands, except share amounts)
| March 31, 2003 |
December 31, 2002 |
|||||||
| ASSETS |
||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ |
472 |
|
$ |
881 |
| ||
| Accounts receivable (net of allowances of $216 for 2003 and $216 for 2002 |
|
941 |
|
|
1,847 |
| ||
| Prepaid expenses and other current assets |
|
211 |
|
|
132 |
| ||
| Total current assets |
$ |
1,624 |
|
$ |
2,860 |
| ||
| Fixed and Other Assets: |
||||||||
| Property and equipment, net |
$ |
109 |
|
$ |
148 |
| ||
| Investments |
|
21 |
|
|
16 |
| ||
| Goodwill |
|
754 |
|
|
754 |
| ||
| Other assets |
|
415 |
|
|
466 |
| ||
| Total Assets |
$ |
2,923 |
|
$ |
4,244 |
| ||
| LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) |
||||||||
| Current Liabilities: |
||||||||
| Accounts payable |
$ |
176 |
|
$ |
95 |
| ||
| Accrued wages and related liabilities |
|
505 |
|
|
680 |
| ||
| Accrued taxes payable |
|
344 |
|
|
338 |
| ||
| Other accrued liabilities |
|
1,130 |
|
|
1,187 |
| ||
| Notes payable |
|
2,448 |
|
|
1,761 |
| ||
| Warrant obligation |
|
268 |
|
|
372 |
| ||
| Deferred revenues |
|
531 |
|
|
433 |
| ||
| Total current liabilities |
$ |
5,402 |
|
$ |
4,866 |
| ||
| Commitments (Note 8) |
||||||||
| Shareholders’ Equity (Deficit): |
||||||||
| Preferred stock, par value $0.01, 2,000,000 shares authorized; none issued and outstanding |
|
— |
|
|
— |
| ||
| Common stock, par value $0.01, 100,000,000 shares authorized; shares issued and outstanding: 2003: 34,534,253; 2002: 34,534,253 |
|
345 |
|
|
345 |
| ||
| Additional paid-in capital |
|
96,982 |
|
|
96,982 |
| ||
| Accumulated deficit |
|
(99,458 |
) |
|
(97,599 |
) | ||
| Accumulated other comprehensive loss |
|
(348 |
) |
|
(350 |
) | ||
| Total shareholders’ equity (deficit) |
$ |
(2,479 |
) |
$ |
(622 |
) | ||
| Total liabilities and shareholders’ equity (deficit) |
$ |
2,923 |
|
$ |
4,244 |
| ||
See accompanying notes to consolidated financial statements.
3
VERTEL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share amounts)
| Three Month Period Ended March 31 |
||||||||
| 2003 |
2002 |
|||||||
| Net revenues: |
||||||||
| Licenses |
$ |
510 |
|
$ |
1,259 |
| ||
| Service and other |
|
401 |
|
|
743 |
| ||
| Total net revenues |
$ |
911 |
|
$ |
2,002 |
| ||
| Cost of revenues: |
||||||||
| Licenses |
$ |
24 |
|
$ |
39 |
| ||
| Service and other |
|
346 |
|
|
1,039 |
| ||
| Total cost of Revenues |
$ |
370 |
|
$ |
1,078 |
| ||
| Gross profit |
$ |
541 |
|
$ |
924 |
| ||
| Operating expenses: |
||||||||
| Research and development |
$ |
674 |
|
$ |
1,289 |
| ||
| Sales and marketing |
|
896 |
|
|
1,273 |
| ||
| General and administrative |
|
660 |
|
|
791 |
| ||
| Goodwill amortization |
|
— |
|
|
— |
| ||
| Goodwill impairment |
|
— |
|
|
— |
| ||
| Total operating expenses |
$ |
2,230 |
|
$ |
3,353 |
| ||
| Operating Loss |
$ |
(1,689 |
) |
$ |
(2,429 |
) | ||
| Other income (expense), net |
|
(140 |
) |
|
47 |
| ||
| Loss before provision for income taxes |
$ |
(1,829 |
) |
$ |
(2,382 |
) | ||
| Provision (benefit) for income taxes |
|
(30 |
) |
|
(23 |
) | ||
| Net Loss |
$ |
(1,859 |
) |
$ |
(2,405 |
) | ||
| Other comprehensive income (loss) |
|
(65 |
) |
|
(38 |
) | ||
| Comprehensive loss |
$ |
(1,924 |
) |
$ |
(2,443 |
) | ||
| Basic and diliuted net loss per common share |
$ |
(0.06 |
) |
$ |
(0.07 |
) | ||
| Weighted average shares outstanding used in net loss per common share calculations—basic and diluted |
|
34,534 |
|
|
33,130 |
| ||
See accompanying notes to consolidated financial statements.
4
VERTEL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
| Three Month Period Ended March 31 |
||||||||
| 2003 |
2002 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net Loss |
$ |
(1,859 |
) |
$ |
(2,405 |
) | ||
| Adjustments to reconcile net loss to net cash provided by (used for) operating activities: |
||||||||
| Depreciation and amortization |
|
40 |
|
$ |
146 |
| ||
| Reserve for returns and bad debts |
|
— |
|
|
(26 |
) | ||
| Change in fair value of warrant obligation |
|
(104 |
) |
|
(160 |
) | ||
| Non-cash interest expense |
|
187 |
|
|
155 |
| ||
| Changes in operating assets and liabilities |
|
780 |
|
|
(283 |
) | ||
| Net cash used for operating activities |
$ |
(956 |
) |
$ |
(2,573 |
) | ||
| Cash flows from investing activities |
||||||||
| Purchases of property and equipment |
$ |
(1 |
) |
$ |
(22 |
) | ||
| Changes in other assets |
|
46 |
|
|
(59 |
) | ||
| Net cash provided by (used for) investing activities |
$ |
45 |
|
$ |
(81 |
) | ||
| Cash flows from financing activities |
||||||||
| Proceeds from issuance of convertible promissory note |
$ |
— |
|
$ |
3,395 |
| ||
| Proceeds from issuance of non-convertible promissory note |
|
500 |
|
|
— |
| ||
| Net cash provided by (used for) financing activities |
$ |
500 |
|
$ |
3,395 |
| ||
| Effect of exchange rate changes on cash |
$ |
2 |
|
$ |
(4 |
) | ||