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Verity predicts 40% shortfall

The search technology company takes a beating on Wall Street after announcing that revenues would fall 40 percent.

Verity (VRTY) took a beating in trading today after it announced revenues would fall 40 percent as the company transitions into its new management team.

Verity ended the day at 5-1/16, down 1-3/8, or 21 percent, from yesterday's close of 6-7/16.

The company announced it expected a revenue shortfall for its first quarter fiscal 1998, ending August 31, of about $5.3 million, down 40 percent from $8.8 million the same quarter a year ago. The company did not specify what it expected its net loss to be, except that it would "exceed significantly" the company's $6 million loss reported for the fourth quarter 1997.

Analysts were expecting a loss of 5 cents a share, according to First Call, which tracks analyst estimates.

Verity's chief financial officer, Donald McCauley, said, "We have had our share of our disruption and turnover in the last 90 days, and these issues are internal, and part of our transition," rather than product related.

In recent months the company said it has "experienced disruption and substantial turnover," including several key members of management.

Verity, which makes tools for searching and filtering information over the Internet, announced late last month that its then chairman and chief executive, Philippe Courtot, had resigned from the board of directors. Courtot's departure from the board follows the recent resignation of Dominique Trempont, former chief operating officer of Next Software.

Gary Sbona, the CEO of Regent Pacific Management, was recently named the company's CEO and president.

In June, the company posted a much larger fourth-quarter loss than Wall Street expected, as sales slowed.

Verity posted a fourth-quarter net loss of $6 million, or 55 cents a share, for the period ending May 31, compared with net profits of $350,000, or 3 cents a share, for the year-ago period.

At that time, the company's top executive said profitability might arrive in the second half of 1998. "The first half of the year will still see Verity in the red as we absorb the 50-plus individuals that came from our acquisitions," Courot said previously. "But we expect to become profitable in fiscal 1998." McCauley said that those numbers were premature, adding that the company "is not in a position to make that kind of a statement."

He added that the shortfall was not product specific. The company's quarter ended Sunday and it has not had time to do the analysis, "but it is our obligation to get bad news out right away to the investment community," he said.

The company will officially report its earnings on September 23, after the markets close.