<PAGE>
SECURITIES & EXCHANGE COMMISSION
Washington, DC
U.S.A. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
The Securities Exchange Act of 1934
Dated: October 30, 1998
Commission File Number: 0-13967
VERONEX TECHNOLOGIES, INC.
-----------------------------------------------
(Translation of Registrant's Name into English)
#701-475 Howe Street, Vancouver, British Columbia
Canada V6C 2B3
-----------------------------------------------
(Address of Principal Executive Offices)
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources, Ltd.)
Financial Statements
August 31, 1998, February 28, 1998 & 1997
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Interim Consolidated Balance Sheets
(In U.S. Dollars)
<TABLE>
<CAPTION>
August 31 August 31 February 28
1998 1997 1998
(unaudited) (unaudited) (audited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and short-term deposits $ 1,306,000 $ 1,948,000 $ 2,493,000
Accounts receivable 2,016,000 50,000 130,000
Prepaid expense and advances 12,000 12,000 17,000
-----------------------------------------------
3,334,000 2,010,000 2,640,000
Software Acquisition and Integration Costs (note 3)
(net of accumulated amortization of $2,000: 1997-$Nil) 2,199,000 1,745,000 1,803,000
Resource Properties and Related Deferred
Costs (note 4) 66,000 66,000 66,000
Fixed Assets and Depreciation (note 6)
(net of accumulated depreciation of $69,000: 1997-
$85,000) 55,000 16,000 24,000
Investments (note 5) 152,000 150,000 152,000
-----------------------------------------------
$ 5,806,000 $ 3,987,000 $ 4,685,000
===============================================
LIABILITIES
Current Liabilities
Accounts payable (note 7) $ 833,000 $ 201,000 $ 307,000
SHAREHOLDERS' EQUITY
Share Capital (note 8)
Authorized - 100,000,000 (1997 - 100,000,000)
common shares without par value
Issued - 6,996,159 (1997 - 6,395,501) common shares 50,920,000 48,894,000 50,508,000
Deficit (45,947,000) (45,108,000) (46,130,000)
-----------------------------------------------
4,973,000 3,786,000 4,378,000
-----------------------------------------------
$ 5,806,000 $ 3,987,000 $ 4,685,000
===============================================
</TABLE>
APPROVED BY THE DIRECTORS
"David A. Hite" Director Corporate History (note 1)
"Sandra M. Milligan" Director Contingencies and Commitments (note 13)
- See accompanying notes -
2
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Interim Consolidated Statements of Shareholders' Equity
(In U.S. Dollars)
<TABLE>
<CAPTION>
Number of Share
Shares Capital Deficit
<S> <C> <C> <C>
Balance - February 28, 1997 (audited) 5,355,001 $ 47,628,000 $ 44,979,000
Issued on the exercise of options 530,500 270,000
Issued for subsidiary company 200,000 454,000
Issued for software technology 300,000 519,000
Issued as a finder's fee 10,000 23,000
Loss for the period 129,000
---------------------------------------------------
Balance - August 31, 1997 (unaudited) 6,395,501 $ 48,894,000 $ 45,108,000
===================================================
Balance - February 28, 1998 (audited) 6,897,501 $ 50,508,000 $ 46,130,000
Issued on exercise of options 98,658 412,000
Loss (income) for the period (183,000)
---------------------------------------------------
Balance - August 31, 1998 (unaudited) 6,996,159 $ 50,920,000 $ 45,947,000
===================================================
</TABLE>
- See accompanying notes -
3
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Interim Consolidated Statements of Income (Loss)
(In U.S. Dollars)
<TABLE>
<CAPTION>
Three months Three months Six months Six months
ended August ended August ended August ended
31 1998 31 1997 31, 1998 August 31, 1997
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue
Software sales $ $ 40,000 $ 2,083,000 $ 40,000
-----------------------------------------------------------------------
Total Revenue 40,000 2,083,000 40,000
-----------------------------------------------------------------------
Expenses
Software marketing costs 488,000 727,000
Operating and administration 582,000 90,000 1,197,000 195,000
Amortization of software acquisition
and integration costs 2,000
Depreciation 8,000 1,000 11,000 2,000
Exploration costs 6,000 2,000 9,000 (3,000)
Interest 3,000
-----------------------------------------------------------------------
1,084,000 93,000 1,946,000 197,000
-----------------------------------------------------------------------
Other Expenses (Income)
Investing activities 10,000 10,000
Interest (18,000) (4,000) (46,000) (38,000)
-----------------------------------------------------------------------
Total Expenses 1,066,000 99,000 1,900,000 169,000
-----------------------------------------------------------------------
Earnings (Loss) for the Period $ (1,066,000) $ (59,000) $ 183,000 $ (129,000)
=======================================================================
Earnings (Loss) per Share $ (0.15) $ (0.01) $ 0.03 $ (0.02)
-----------------------------------------------------------------------
Weighted Average Number of
Shares 6,985,000 5,619,000 6,978,000 5,526,000
-----------------------------------------------------------------------
Fully Diluted Earnings (Loss) per
Share $ N/A $ N/A $ N/A $ N/A
-----------------------------------------------------------------------
Fully Diluted Weighted Average
Number of Shares N/A N/A N/A N/A
=======================================================================
</TABLE>
- See accompanying notes -
4
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Interim Consolidated Statements of Cash Flows
(In U.S. Dollars)
<TABLE>
<CAPTION>
Three months Three months Six months Six months
ended August ended August ended August ended August
31, 1998 31, 1997 31, 1998 31, 1997
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash Provided from (Used for)
Operating Activities
Earnings (loss) for the period $ (1,066,000) $ (59,000) $ 183,000 $ (129,000)
Items not affecting cash:
Amortization of software
acquisition and integration costs 2,000
Depreciation 8,000 1,000 11,000 2,000
-------------------------------------------------------------------
(1,058,000) (58,000) 196,000 (127,000)
Changes in non-cash working
capital items:
Accounts receivable and prepaid
expense 5,000 60,000 (1,881,000) (28,000)
Accounts payable 201,000 (708,000) 526,000 (643,000)
-------------------------------------------------------------------
(852,000) (706,000) (1,159,000) (798,000)
-------------------------------------------------------------------
Financing Activities
Share capital issued for cash 53,000 270,000 412,000 270,000
-------------------------------------------------------------------
53,000 270,000 412,000 270,000
-------------------------------------------------------------------
Investing Activities
Software acquisition and integration
costs, net (420,000) (396,000) (729,000)
Fixed assets (41,000) (41,000)
-------------------------------------------------------------------
(41,000) (420,000) (437,000) (729,000)
-------------------------------------------------------------------
Changes in Cash and Short-Term
Deposits (840,000) (856,000) (1,184,000) (1,257,000)
Cash and Short-Term Deposits
Opening Balance 2,146,000 2,804,000 2,490,000 3,205,000
-------------------------------------------------------------------
Closing Balance $ 1,306,000 $ 1,948,000 $ 1,306,000 $ 1,948,000
===================================================================
</TABLE>
-See accompanying notes-
5
<PAGE>
<TABLE>
<CAPTION>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Interim Consolidated Statements of Cash Flows
(In U.S. Dollars)
Three months Three month Six months Six months
ended August ended August ended August ended August
31, 1998 31, 1997 31, 1998 31, 1997
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Filing and other fees $ 4,000 $ 1,000 $ 4,000 $ 2,000
Foreign exchange 20,000 25,000 (8,000)
Management salaries 15,000 15,000 30,000 30,000
Management and secretarial fees 6,000 12,000
Office expenses 200,000 9,000 335,000 60,000
Professional fees 208,000 9,000 397,000 (22,000)
Shareholder relations 108,000 23,000 321,000 66,000
Transfer agent fees 2,000 10,000 6,000 12,000
Travel 25,000 17,000 79,000 43,000
-------------------------------------------------------------------
Total Administrative Expenses $ 582,000 $ 90,000 $ 1,197,000 $ 195,000
===================================================================
</TABLE>
6
<PAGE>
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Interim Consolidated Financial Statements
As at August 31, 1998 and 1997
(Prepared by management in U.S. Dollars)
1. CORPORATE HISTORY
On January 14, 1997, the Company entered into a Property Purchase Agreement
("the Agreement") with Thomas J. Price, a software developer, to acquire certain
software technology including, but not limited to, an automated information
manager and information management application system including a source program
analyzer (collectively referred to as the "I|Nova System").
The terms of the Agreement provide for the Company to issue up to 12,000,000
shares of its common stock to acquire the I|Nova System contingent on the future
revenues earned from I/Nova System licensing fees. Pursuant to the terms of the
Agreement, up to 6,500,000 of these shares may be issued to Mr. Price. A
further 3,500,000 shares have been reserved for contingent issue to Promax
Conceptual Strategies ("Promax"), a California company of which Mr. Price was
the majority shareholder and 2,000,000 shares have been allocated to the
Company's 1997 Contingent Stock Option Plan. These shares are to be issued on a
contingent basis. The Company paid $20,000 on signing the agreement and issued
100,000 shares of its capital stock to Mr. Price, and the remaining 6,400,000
shares will be issued to Mr. Price based on an earn-out formula contingent upon
future revenues generated from licensing sales and maintenance contracts of the
I|Nova System.
Effective January 14, 1997, the board of directors of Promax approved an
agreement to merge Promax with and into a yet to be incorporated wholly-owned
Subsidiary of the Company. On August 15, 1997, the Company incorporated in the
State of California, a wholly-owned Subsidiary, PCS Acquisition Corp., ("PCS"),
for the purpose of completing the merger with Promax. Approval of the merger by
the shareholders of Promax was obtained in August of 1997, and the merger
documents were filed with the California Secretary of State in September of
1997. PCS had no assets, liabilities or operations at February 28, 1998.
A finders fee will also be payable pursuant to the rules, policies and
guidelines of the regulatory authorities. The Company has also agreed to employ
Mr. Price for a period of five years at a salary of $120,000 per year.
By agreement dated August 1, 1997, the Company has acquired 100% of the issued
and outstanding shares of Mainstream Technologies, Inc., ("Mainstream"), a
company incorporated in the State of California. As consideration for the
acquisition of Mainstream the Company issued 200,000 of its shares at a deemed
value of US $2.26875 per share. The Company also agreed to employ the vendor
for a period of two years at a salary of $90,000 per year. The acquisition
costs of Mainstream have been included in Software Acquisition and Integration
Costs (Note #3). These consolidated financial statements include the assets and
liabilities of Mainstream as of May 31, 1998 and February 28, 1998 and the
operations of Mainstream for the periods March 1, 1998 to May 31, 1998 and
August 1, 1997 to February 28, 1998.
7
<PAGE>
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Interim Consolidated Financial Statements
As at August 31, 1998 and 1997
(Prepared by management in U.S. Dollars)
1. CORPORATE HISTORY (Cont.)
By agreement dated August 1, 1997, the Company acquired exclusive rights to
software technology known as the ArchiData System, ("ArchiData"). As
consideration for the acquisition of ArchiData the Company issued 200,000 of its
shares at a deemed value of US $2.26875 per share. The Company has also agreed
to employ the vendor for a period of two years at a salary of $90,000 per year.
The acquisition costs of the ArchiData System have been included in Software
Acquisition and Integration Costs (Note #3).
Effective December 4, 1997, the Company formally changed its name to Veronex
Technologies, Inc.
As of August 31, 1998, the Company has signed four Strategic Alliance Agreements
to license the I|Nova System. The terms of the agreements provide for license
fees of between $2,000,000 and $2,500,000 to be paid out of the revenues
generated by the use and/or sub-licensing of the I|Nova System by the Licensees
to their clients. The Licensees are also required to share all gross revenues
on a ratio ranging from 50% to 65% to Veronex, and 50% to 35% to the Licensees,
until Veronex receives the entire license fee. Thereafter, the revenues
generated by the use and/or sub-licensing of the I|Nova System by the Licensees
to their clients will be shared on a ratio of 65% of all gross revenues to the
Licensees, and the remaining 35% of all gross revenues to Veronex. As of August
31, 1998, Veronex has recorded $2,000,000 of revenue under a Strategic Alliance
Agreement with Agiss Software Corporation ("Agiss"). (See Note #13 -
Contingencies and Commitments). This revenue has been included in accounts
receivable of $2,016,000, and is secured by Agiss common stock.
During the past several years, the Company has been a party to a number of legal
actions and appeals to court decisions, all arising out of an arbitration panel
award (the Arbitration Award), that resulted in the transfer of the Company's
interest in the Enim Oil Project in Indonesia to its former joint venture
partner Triton Energy Corporation ("Triton"), and/or its affiliates. The
Company fully provided for its interest in the Enim Project during the year
ended February 28, 1995.
During the year ended February 28, 1997, the Company settled the lawsuits
against its former attorneys and received a net cash payment of $5.2 million in
complete settlement of all complaints and cross-complaints against these
attorneys. As a result of a continuing action by Triton to enforce the
remaining balance of its arbitration award claim against the Company for
approximately $765,000 in connection with the Arbitration Award, $1.2 million of
cash was lodged with the US District Court for the Central District of
California pending a determination of Nordell's, (the Company's Subsidiary),
obligation to pay the Arbitration Award. On May 16, 1997, the US District Court
approved the application of these funds to retire the remaining Triton
liability. Triton was paid and the remaining funds were returned to the Company
on June 11, 1997.
8
<PAGE>
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Interim Consolidated Financial Statements
As at August 31, 1998 and 1997
(Prepared by management in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
The Company is incorporated in the Province of British Columbia, Canada.
These consolidated financial statements have been prepared in accordance
with accounting principles and practices generally accepted in Canada.
Application of United States generally accepted accounting principles would
not result in any material differences to the consolidated financial
statements.
Principles of Consolidation
- ---------------------------
These consolidated financial statements include the accounts of the
Company, and its subsidiaries (all of which are wholly owned) which are
listed below. Intercompany transactions and balances have been eliminated
in consolidation.
Align Energy, Inc.
Bonaparte Resources, Ltd.
High River Industries, Ltd.
Mainstream Technologies Inc. ("Mainstream")
Nordell International Resources Ltd. ("Nordell")
PCS Acquisition Corp. ("PCS")
Richport Resources Ltd. ("Richport")
Veronex Resources, Inc.
Resource Properties
- -------------------
Costs related to the acquisition of mineral properties are capitalized.
Mineral exploration costs are expensed in the year incurred. If it is
determined that a prospect contains economically recoverable reserves, all
costs relating to that prospect for the current and subsequent years,
including expenses net of revenues during the start-up phase, are
capitalized until the prospect is capable of sustained operations at
commercial production levels. These capitalized costs, together with
property acquisition and ongoing development costs, are amortized on a
unit-of-production method based on the estimated life of the ore reserves.
Management reviews annually the carrying value of the interest in each
property and, where necessary, properties are written down to fair market
value.
Investments
- -----------
Investments are recorded at cost unless there is a decline in market value
that is other than temporary.
9
<PAGE>
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Interim Consolidated Financial Statements
As at August 31, 1998 and 1997
(Prepared by management in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Revenue Recognition
- -------------------
The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountant Statement of Position 97-2 for software revenue
recognition, which requires that license fee revenues are recognized upon
evidence of a license agreement and delivery of software if there are no
significant implementation or installation obligations, collection of the
receivable is probable, the license fees are fixed or determinable and the
product has been accepted by the customer.
Use of 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 and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could subsequently differ from
those estimates.
Financial Instruments
- ---------------------
Financial Instruments are classified in accordance with the substance of
the contractual arrangement. Financial liabilities, which are defined as
any contractual obligation to deliver cash or another financial asset to
another party, are classified as a liability.
Currency Translation
- --------------------
The Company uses the temporal method of currency translation, as applied to
integrated international operations, for translating the Company's Canadian
operations from Canadian dollars to US dollars. Under this method,
monetary assets and liabilities in foreign currencies have been converted
at the exchange rate prevailing at the balance sheet date. Non-monetary
assets, liabilities, and equity are translated at historical rates. Gains
and losses on foreign exchange are included in income.
Earnings (Loss) Per Share
- -------------------------
Income (loss) per share computations are based on the weighted average
number of shares outstanding during the year.
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS 128) was issued effective for periods ending
after December 15, 1997. There is no impact on the Company's financial
statements from adoption of SFAS 128.
10
<PAGE>
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Interim Consolidated Financial Statements
As at August 31, 1998 and 1997
(Prepared by management in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Depreciation Policy
- -------------------
The Company provides for depreciation on furniture and equipment at between
20% and 30% on a declining balance basis. The Company is capitalizing all
costs related to integrating the various components of its I/Nova software
system as Software Acquisition and Integration Costs and will continue to
do so until licensing sales reach commercial levels. Thereafter, all costs
associated with the production and marketing of the Company's software
system will be charged to operations. Capitalized costs will be amortized
based on current and future revenues for the product with an annual minimum
amount equal to the straight-line amortization over the remaining estimated
economic life of the product.
Cash Equivalents
- ----------------
For purposes of reporting cash flows, the Company considers as cash
equivalents all highly liquid investments with a maturity of three months
or less at the time of purchase.
Concentration of Credit Risks
- ------------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash. The Company maintains cash
accounts at two financial institutions. At August 31, 1998, cash on
deposit at these financial institutions exceeded federally insured amounts
by approximately $1,200,000. At February 28, 1998, cash on deposit at
these financial institutions exceeded federally insured amounts by
approximately $1,800,000. The Company periodically evaluates the credit
worthiness of financial institutions, and maintains cash accounts only in
large high quality financial institutions, thereby minimizing exposure for
deposits in excess of federally insured amounts.
3. SOFTWARE ACQUISITION AND INTEGRATION COSTS
Software acquisition and integration costs are capitalized when a product design
and a working model of the software product have been completed, and the
completeness of the working model and its consistency with the product design
have been confirmed by testing. The costs to integrate products into the I/Nova
System for an alternative future use are also capitalized. Software costs which
are capitalized are amortized on a product by product basis, based on the
anticipated future gross revenues compared to the gross revenues generated in
the period being reported on.
11
<PAGE>
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Interim Consolidated Financial Statements
As at August 31, 1998 and 1997
(Prepared by management in U.S. Dollars)
3. SOFTWARE ACQUISITION AND INTEGRATION COSTS (Cont.)
<TABLE>
<CAPTION>
August 31, 1998 August 31, 1997
--------------- ---------------
<S> <C> <C>
Costs to acquire the components:
The I|Nova System $ 86,000 $ 86,000
The ArchiData System 454,000 454,000
The infrastructure (Mainstream) 409,000 409,000
Costs to integrate the components:
Personnel 895,000 334,000
Office and related 355,000 191,000
---------------------------------
$2,199,000 $1,745,000
=================================
</TABLE>
4. RESOURCE PROPERTIES & RELATED DEFERRED COSTS
a. Details of mineral property are as follows:
<TABLE>
<CAPTION>
August 31, 1998 August 31, 1997
--------------- ---------------
<S> <C> <C>
Alexander Star Claims, San Bernardino County $ 66,000 $ 66,000
=================================
</TABLE>
b. Details of Oil Properties are as follows:
Through an agreement with the Indonesian State Oil and Gas Company
("Pertamina"), the terms of which extended to October 28, 1996, the Company
was granted an interest in certain oil and gas properties known as the Enim
Oil Project on the Island of Sumatra, Indonesia.
By an agreement dated October 7, 1988, effective for the period October 1,
1988, the Company farmed out 60% of its interest in the Enim Oil Project to
Triton Indonesia, Inc., ("Triton") and Triton Oil ("NZ") Limited. Under
the terms of the Farmout Agreement, the Company was required, after
Triton's investment of $24 million cash, to bear its participating share of
costs and expenses.
In November 1989, Triton claimed that its obligation to fund $24 million of
cash contributions had been satisfied and that the Company would be
responsible for bearing its share of future costs and expenses to maintain
its 40% working interest in the Enim Oil Project. The Company disputed the
operator's assertion regarding its cash obligation and other matters and
demanded an arbitration
12
<PAGE>
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Interim Consolidated Financial Statements
As at August 31, 1998 and 1997
(Prepared by management in U.S. Dollars)
4. RESOURCE PROPERTIES & RELATED DEFERRED COSTS (Cont.)
hearing to resolve the dispute. While the arbitration proceedings were
pending, certain additional information came to the Company's attention
which caused the Company to refuse to make further cash payments
commencing June 1990.
On December 13, 1990, the Arbitration Panel rendered its decision on the
dispute between the Company and Triton regarding the Enim Oil Project
("the Arbitration Award"). The Arbitration Award reduced the Company's
interest in the Enim Oil Project, effective October 1, 1990, to a 5% net
profits interest as defined, and awarded costs and expenses of
approximately $931,000 to Triton. Payment of the awarded costs and
expenses was due on January 31, 1991. The Company filed a motion before
the US District Court to vacate the award. However, on February 27, 1992,
the US District Court entered a final judgement in favor of Triton.
Veronex and Nordell appealed the Arbitration Award to the United States
Court of Appeals for the Ninth Circuit. On July 23, 1993, the United
States Court of Appeals affirmed the Arbitration Award against the
Company's subsidiary, Nordell International Resources, Ltd., reversed the
Arbitration Award against the Company's subsidiary, Nordell International
Resources, Ltd., reversed the Arbitration Award against the Company and
remanded certain issues to the U.S. District Court for further
proceedings to determine if the Company had either consented to the
arbitration panel determining its status as Nordell's alter ego or had
acted, in fact, as Nordell's alter ego.
On May 31, 1994, the US District Court ruled that the Company was not the
alter ego of Nordell and, thus, the Company is not liable for the
approximately $931,000 awarded against Nordell.
On May 3, 1996, the Ninth Circuit Court of Appeals issued an Order
affirming the US District Court Order of May 31, 1994, which found that
the Company is not the alter ego of Nordell and that the Company is not
bound by the Arbitration Award. However, Triton attempted to pursue its
litigation against the Company in US District Court in Texas as noted
below.
On June 15, 1994, Triton filed a malicious and vindictive lawsuit against
Veronex in Texas. The lawsuit sought to have Veronex held responsible for
Nordell's performance under the Farmout Agreement pursuant to an alleged
guarantee by Veronex and claims, among other things, that Veronex should
be held liable for the Arbitration Award. The Company defended the
lawsuit based on the findings in the May 31, 1994 Order of the US
District Court in California which found that Veronex was not a party to
the arbitration, was not an alter ego of Nordell and was not liable to
pay for the Arbitration Award. On December 6, 1996, the US Court of
Appeals for the Fifth Circuit issued an Order which specifically found
that the document which Triton alleged to be a guarantee was not a
guarantee.
13
<PAGE>
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Interim Consolidated Financial Statements
As at August 31, 1998 and 1997
(Prepared by Management in U.S. Dollars)
4. RESOURCE PROPERTIES & RELATED DEFERRED COSTS (Cont.)
On February 21, 1997, the US District Court for the Northern District of
Texas filed an Order of Stipulation of Voluntary Dismissal, dismissing
without prejudice, Triton's lawsuit against the Company. Triton knowingly
filed this lawsuit in Texas against the Company having already lost a
lawsuit in California based on similar evidence and facts. Further, as
noted below, Triton lost its lawsuit against a director of the Company.
Triton commenced a separate lawsuit in Texas State Court, against a
director of the Company to collect the Arbitration Award from that
director. On August 9, 1995, the US District Court issued a judgement
against the director. The judgement was appealed to the Fifth Circuit
Court of Appeals.
The Company agreed to fully indemnify the director against any losses
incurred with respect to that action. On December 6, 1996, the Fifth
Circuit Court of Appeals issued an Order reversing the judgement against
the director, thereby relieving the director of any liability for the
Arbitration Award.
On August 22, 1997, Veronex, Nordell and David A. Hite, filed a malicious
prosecution lawsuit against Triton et al. The outcome of this lawsuit is
not determined at this time.
On June 24, 1992, the Company filed a malpractice lawsuit against its
former attorneys seeking $100 million in damages. These law firms, which
represented Nordell in the Arbitration proceeding, filed cross-complaints
seeking payment of certain legal bills and expenses in the amount of
approximately $360,000. These law firms entered into settlement agreements
with the Company and subsequently dropped their cross-complaints against
the Company for unpaid legal bills. The Company recorded the net proceeds
from these settlement agreements as a gain of $5,200,000 during the year
ended February 28, 1997.
The malpractice litigation provided the Company with the opportunity to
obtain certain documents from KPMG Peat Marwick (KPMG) relating to KPMG's
resignation as Triton's independent auditors. Specifically, the Company
was able to obtain a copy of KPMG's management letter dated October 14,
1991, which disclosed that KPMG had performed an independent inspection of
the physical inventory in Indonesia in May 1991.
The KPMG management letter disclosed that KPMG had discovered an inventory
shortage of approximately $5.3 million, which existed in Indonesia as of
May 31, 1991. Management believes that this $5.3 million of inventory
shortage is a material amount in relation to the Arbitration Award, the
arbitration calculations, Triton's revenues for fiscal 1991, and Triton's
net income for fiscal 1991. Triton failed to disclose this material fact
of the inventory shortage in its Form 10-K filed with the Securities and
Exchange Commission. Triton also failed to inform the Arbitration Panel of
this material fact. The fact is particularly relevant to the arbitration
because the arbitration panel
14
<PAGE>
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Interim Consolidated Financial Statements
As at August 31, 1998 and 1997
(Prepared by Management in U.S. Dollars)
4. RESOURCE PROPERTIES & RELATED DEFERRED COSTS (Cont.)
based its monetary calculations for the Arbitration Award on the KPMG
report of September 30, 1990, which is in the same fiscal period as the
inventory shortage discovered by KPMG. In management's view, the
accounting rules and regulations, both in the accounting profession and in
the Securities Act, pertaining to a difference between the inventory on the
books and the actual physical inventory that can be verified by an
independent inspection are well defined. In the opinion of management, the
inventory shortage as of May 31, 1991 of $5.3 million is material to the
Arbitration Award, material to Triton's gross revenues and Triton's net
profits and should have been disclosed to the Arbitration Panel and in
Triton's financial statements in its annual report of Form 10K.
c. US Securities and Exchange Commission Enforcement Action Against Triton
The following information is extracted from a US Securities and Exchange
Commission (SEC) Enforcement Section Release dated February 27, 1997.
The SEC instituted administrative proceedings against David Gore, Robert
Puetz, both former officers of Triton Energy Corporation ("Triton Energy"),
and William McClure and Robert P. Murphy, both former officers of Triton
Energy's subsidiary, Triton Indonesia, Inc., ("Triton Indonesia"). The
SEC's Order finds that during the years 1989 and 1990, Triton Indonesia
senior officers authorized numerous improper payments to Indonesia's
government employees for the purpose of influencing their decisions
affecting the business of Triton Indonesia. The SEC's Order finds that
these payments were made in violation of the Foreign Corrupt Practices Act.
The Order finds that Murphy, Triton Indonesia's controller, knowingly
participated in creating and recording false entries in Triton Indonesia's
books and records. According to the SEC's Order, McClure, Triton
Indonesia's commercial manager, failed to assure that the entries prepared
by Murphy accurately reflected the underlying transactions. The SEC's
Order also finds that Gore, formerly Triton Energy's president and a
director, and Puetz, formerly Triton Energy's senior vice president of
finance and chief financial officer, each received information indicating
that Triton Indonesia was engaged in conduct that was potentially unlawful,
but took no action to initiate an investigation of the serious issues
raised by Triton Energy's internal auditor.
Without admitting to or denying the SEC's findings, the respondents
consented to cease and desist from: causing any violation of Section 13 (b)
(2)(A) of the Exchange Act (Gore, Puetz, Murphy and McClure); causing any
violation of Section 30A of the Exchange Act (Gore and Puetz); and
violating Exchange Act Rule 13b2-1 (McClure and Murphy).
15
<PAGE>
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Interim Consolidated Financial Statements
As at August 31, 1998 and 1997
(Prepared by Management in U.S. Dollars)
4. RESOURCE PROPERTIES & RELATED DEFERRED COSTS (Cont.)
On February 27, 1997, the SEC filed a complaint in the United States
District Court for the District of Columbia against Triton Energy, Keever
and McAdoo, both former senior officers of Triton Indonesia. The SEC's
complaint alleges that McAdoo and Keever authorized numerous improper
payments to Roland Siouffi, Triton Indonesia's business agent acting as an
intermediary between Triton Indonesia and Indonesian government agencies,
knowingly or recklessly disregarding the high probability that Siouffi
either had or would pass such payments along to Indonesian government
employees for the purpose of influencing their decisions affecting the
business of Triton Indonesia. The complaint alleges that these payments
were made in violation of the Foreign Corrupt Practices Act. According to
the complaint, McAdoo and Keever together with other Triton Indonesian
employees, also concealed these transactions as routine business
expenditures. The SEC seeks permanent injunctions and civil monetary
penalties from each of the three defendants.
Simultaneous with the filing of the complaint, defendant Triton Energy
consented, without admitting to or denying the allegations, to the entry of
a Final Judgement that permanently enjoins it from violating the books and
records and internal controls provisions of the Securities Act of 1934
(Exchange Act), and orders Triton Energy to pay a $300,000 penalty.
Defendant Keever also consented, without admitting or denying the
allegations, to the entry of a Final Judgement that permanently enjoins him
from violating the foreign corrupt practices and books and records
provisions of the Exchange Act, and orders Keever to pay a $50,000 penalty.
On August 22, 1997, Veronex, Nordell and David A. Hite filed a malicious
prosecution lawsuit against Triton et al., in the Superior Court for
California in Los Angeles, California, alleging, among other things, abuse
of process, wrongful attachment, breach of fiduciary duty and fraud, the
lawsuit seeks damages, punitive and exemplary damages, specific performance
of the Arbitration Award and an accounting of the Enim Oil Project joint
venture. This lawsuit has been removed to the US District Court, Central
Division of California and is awaiting further instruction from the court.
The outcome of this litigation cannot be predicted at this time.
d. The Congress Property in British Columbia, Canada.
The Company has sold its 50% interest in the Congress Gold Property to
Yucca Gold, Inc., ("Yucca Gold"), in exchange for 3.4 million shares in
Yucca Gold. All costs associated with the Congress Gold Property, have
been written off in previous years. Yucca Gold is a private company whose
shares have no market value. Accordingly no value has been assigned to
this transaction. The Company will retain a 5% net smelter interest in the
Congress Gold Property.
16
<PAGE>
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Interim Consolidated Financial Statements
As at August 31, 1998 and 1997
(Prepared by Management in U.S. Dollars)
4. RESOURCE PROPERTIES & RELATED DEFERRED COSTS (Cont.)
e. The Alexander Star Claims in California, USA
(i) On July 12, 1995, the Company entered into an agreement to acquire a
100% interest in four placer mining claims, known as the Alexander Star
Claims, in Avawatz Mining District, San Bernardino County, California,
subject to a 4% net smelter return. The Company has issued 100,000 common
shares at a value of $66,000 as consideration for the acquisition. The
Company has the right to acquire one-half of the net smelter return, which
is a 2% smelter return, for $500,000.
(ii) On November 20, 1995, the Company entered into an Agreement with a
group, including a director of the Company and others related to the
director, to acquire a 50% interest in eight placer mining claims in the
Avawatz Mining District, San Bernardino, California, subject to a 5% net
smelter return. To earn this interest, the Company must expend $350,000 on
exploration work by December 31, 1999.
(iii) Also on November 20, 1995, the Company entered into an agreement
with a group, including a director of the company and others relating to
the director, to acquire a 25% interest in one placer mining claim in the
Avawatz Mining District, San Bernardino County, California, subject to a 5%
net smelter return. To earn this interest, the Company must expend $50,000
on exploration work by December 31, 1999.
(iv) As of August 31, 1998, the Company has incurred $68,000 (1997 -
$54,000) in exploration costs on these properties.
5. INVESTMENTS
<TABLE>
<CAPTION>
August 31, 1998 August 31, 1997
--------------- ---------------
Number Market Number Market
of Shares Cost Value of Shares Cost Value
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EMB Corporation 50,000 150,000 150,000 50,000 150,000 150,000
Semper Resources Ltd. 5,000 2,000 2,000
-----------------------------------------------------------------
152,000 152,000 150,000 150,000
=================================================================
</TABLE>
17
<PAGE>
6. DEPRECIATION
The Company capitalized the purchase of equipment and fixtures for major
purchases in excess of $1,000 per item. Capitalized amounts are depreciated
over the useful life of the assets using the straight-line method of
depreciation.
The assets, costs, depreciation expense, and accumulated depreciation at August
31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation Expense Depreciation
1998 1997 1998 1997 1998 1997
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Furniture and equipment $ 59,000 $ 66,000 $ 3,000 $1,000 $40,000 $61,000
Computer equipment 65,000 35,000 8,000 1,000 29,000 24,000
----------------------------------------------------------------
$124,000 $101,000 $11,000 $2,000 $69,000 $85,000
================================================================
</TABLE>
7. ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
August 31, 1998 August 31, 1997
-------------------------------------
<S> <C> <C>
Legal fees
Arbitration with former employees (Note #14) $ 300,000
Other $ 60,000
Accrued management salaries 350,000 72,000
Trade and other 183,000 69,000
-------------------------------------
$ 833,000 $ 201,000
=====================================
</TABLE>
18
<PAGE>
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Interim Consolidated Financial Statements
As at August 31, 1998 and 1997
(Prepared by management in U.S. Dollars)
8. SHARE CAPITAL
a. The authorized share capital of the Company is 100,000,000 shares without
par value.
<TABLE>
<CAPTION>
Issued or allotted: August 31, 1998 August 31, 1997
-------------------------------------------------------
<S> <C> <C> <C> <C>
Balance - beginning of period 6,897,501 $50,508,000 5,355,001 $47,628,000
Issued on exercise of options 98,658 412000 530,500 270,000
Issued for software technology 300,000 519,000
Issued for subsidiary company 200,000 454,000
Issued as a finders fee 10,000 23,000
-------------------------------------------------------
Balance - end of period 6,996,159 $50,920,000 6,395,501 $48,894,000
=======================================================
</TABLE>
During the six month period ended August 31, 1998, the Company issued 98,658
shares at an average price of Cdn$6.01 for proceeds of Cdn $593,297 on the
exercise of share purchase options.
During the six month period ended August 31, 1997, the Company issued 530,500
shares on the exercise of options at an average price of Cdn $0.70 for total
proceeds of Cdn $373,920.
b. Common share purchase options are outstanding expiring at various dates to
August 13, 2003 for 450,000 (1997-5,000) common shares at prices between Cdn
$3.73 and Cdn $10.44 per share.
<TABLE>
<CAPTION>
Outstanding stock options as of: August 31, 1998 August 31, 1997
-------------------------------------
Exercise price:
<S> <C> <C>
Less than Cdn$6.00 per share 100,000 5,000
Between Cdn$6.00 and Cdn$8.00 per share 275,000
Between Cdn$8.00 and Cdn$10.00 per share 65,000
Greater than Cdn$10.00 per share 10,000
------------------------------------
450,000 5,000
====================================
</TABLE>
c. During the six month period ended August 31, 1998, the Company granted 50,000
share purchase options (1997 - 5,000) at prices ranging between Cdn$5.94 and
Cdn$10.44 expiring on various dates to August 13, 2003. During the six month
period ended August 31, 1998, 98,658 (1997 - 530,500) share purchase options
were exercised.
19
<PAGE>
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Interim Consolidated Financial Statements
As at August 31, 1998 and 1997
(Prepared by management in U.S. Dollars)
8. SHARE CAPITAL (Cont.)
d. On September 12, 1997, the Company entered into a financing agreement with
Robb, Peck McCooey Clearing Corp, ("Robb Peck"). The agreement allowed Robb,
Peck and/or its clients to invest up to $15.4 million in Veronex. Veronex
agreed to pay Robb, Peck certain fees and expenses. On November 7, 1997, as a
result of the agreement, 502,000 shares were issued at a price of US$4.00 per
share, for net proceeds of $1,614,000.
Attached to the shares are 502,000 transferable share purchase warrants
exercisable at a price of US $8.00 per share for a five year period
commencing after the final closing of the offering These warrants may be
redeemed by the Company at US $0.10 per warrant subject to certain conditions
and approvals.
In addition the Company has issued 100,400 placement agent's share purchase
warrants exercisable at a price of US $4.00 per share for a five year period
commencing after the final closing of the offering. On May 12, 1998, the
Company cancelled the placement agent's warrants at the order of the British
Columbia Securities Commission. The Company sought a Discretionary Order
which would allow the Company to reissue these warrants. The Discretionary
Order has been granted and it is the Company's intention to compensate the
placement agent by re-issuing the placement agent's share purchase warrants.
e. As mentioned in Note #1, 2,000,000 shares of the 12,000,000 shares to be
issued contingent on revenue, for the acquisition of the I|Nova System have
been allocated to the Company's 1997 Contingent Stock Option Plan. As of
August 31, 1998, 1,449,000 of these contingent options have been allocated at
an average exercisable price of Cdn $3.73 to personnel involved in the
integration and marketing of the I|Nova System.
9. INCOME TAXES
The Company has adopted the provisions of SFAS No., 109, "Accounting for Income
Taxes". SFAS 109 requires recognition of deferred tax liabilities and assets
for the expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
The Company has fully reserved the tax benefits of these operating losses
because the likelihood of realization of the tax benefits cannot be determined.
Temporary differences between the time of reporting certain items for financial
and tax reporting purposes consist primarily of compensation expense related to
the issuance of stock options.
20
<PAGE>
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Interim Consolidated Financial Statements
As at August 31, 1998 and 1997
(Prepared by management in U.S. Dollars)
9. INCOME TAXES (Cont.)
No income taxes are currently payable. The Company and its Subsidiaries have
approximately $18,500,000 of Canadian and foreign resource property expenditures
and reported losses available to reduce taxable income in future years. Future
tax benefits relating to these amounts have been eliminated by the application
of a valuation allowance.
10. SEGMENTED INFORMATION
During the year ended February 29, 1996, the Company entered into three
agreements to acquire interests in 13 placer mining claims. All of the claims
are located in the Avawatz Mining District, San Bernadino County, California,
USA.
Prior to January 14, 1997, the Company's principal asset was its interest in the
Enim Oil Project on the Island of Sumatra, Indonesia, which was fully provided
for as of February 28, 1995, by a charge to operations (see Note #4).
During the year ended February 28, 1997, the Company entered into an agreement
to acquire certain software technology ("the I|Nova System") as explained in
Note #1.
During the year ended February 28, 1998, the Company entered into an agreement
to acquire additional software technology ("the ArchiData System"). In
addition, during the year ended February 28, 1998, the Company entered into an
agreement to acquire a software development company ("Mainstream Technologies,
Inc."), both acquisitions are explained in Note #1. As of February 28, 1998,
the Company's major business effort is directed toward the development and
licensing of its software systems.
11. RELATED PARTY TRANSACTIONS
a. During the six month period ended August 31, 1998, management and secretarial
fees of $Nil (1997-$12,000) were paid to a company controlled by a director
of the Company.
b. During the six month period ended August 31, 1998, accounting fees of $Nil
(1997-$2,000) were paid to an officer of the Company.
c. During the six month period ended August 31, 1998, salaries of $11,000
(1997 - $Nil) were paid to an officer of the Company.
d. Included in accounts payable is approximately $387,000 (1997 - $72,000)
payable to an officer of the Company under the terms of an employment
contract and for reimbursement of services. (See Note #13-Contingencies and
Commitments)
21
<PAGE>
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Interim Consolidated Financial Statements
As at August 31, 1998 and 1997
(Prepared by management in U.S. Dollars)
12. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
a. Statement of Financial Accounting Standards No., 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" (SFAS 121), was made effective for the period beginning after December
15, 1995. Under this standard, management of the Company must review the
net carrying value of each mineral property for impairment whenever events
or changes in circumstances indicate that the carrying value may not be
recoverable.
Since the Company has not yet completed a feasibility study with respect to
its mineral property, information required to calculate the estimated
future cash flows as required under SFAS 121, is not yet available.
However, management reviews the carrying value of the property through its
ongoing program of exploration for commercially viable mineral reserves.
b. The Company has elected to follow Accounting Principles Board Opinion No.,
25, "Accounting for Stock Issued to Employees" (APB 225) and related
interpretations in accounting for its stock options because, as discussed
below, the alternative fair value accounting under SFAS 123, "Accounting
for Stock-Based Compensation", requires the use of option valuation models
that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals that of the market price of the underlying stock at the date of
grant, no compensation expense is recognized.
The fair value for options granted during the year ended February 28, 1998,
is estimated at the date of grant using a Black-Scholes option pricing
model with the following assumptions for 1998:
- risk-free interest rates of between 5.42% and 5.93%
- dividend yield of 0%
- volatility factors of the expected market price of the Company's stock
of 80%
- an expected life of the option of one and one-half years
Because the Company's stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
inputs assumptions can materially affect the fair value estimate, the existing
models do not necessarily provide a reliable single measure of the fair value
of its employee stock options.
For pro forma disclosure, the estimated fair value of the option is amortized
to expense in the period the option is granted. For the six month period ended
August 31, 1998, the Company's pro forma net loss has been calculated to be
$121,000. Pro forma fully diluted loss per share for the six month periods
ended August 31, 1998, and August 31, 1997, have not been calculated as they
would be anti-dilutive.
22
<PAGE>
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Interim Consolidated Financial Statements
As at August 31, 1998 and 1997
(Prepared by management in U.S. Dollars)
12. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Cont.)
c. New Technical Pronouncements
In February 1997, SFAS No., 129, "Disclosure of Information about Capital
Structure" was issued effective for periods ending after December 15, 1997.
The Company has adopted the disclosure provisions of SFAS No., 129 effective
with the fiscal year ended February 28, 1998.
In June 1997, SFAS No., 130, "Reporting Comprehensive Income" was issued
effective for fiscal years beginning after December 31, 1997, with earlier
application permitted. The Company has elected to adopt SFAS No., 130
effective with the fiscal year ended February 28, 1998. Adoption of SFAS
No., 130 is not expected to have a material impact on the Company's
financial statements.
In June 1997, SFAS No., 131, "Disclosures about Segments of an Enterprise
and Related Information" was issued effective for fiscal year beginning
after December 31, 1997, with earlier application permitted. The Company has
elected to adopt SFAS No., 131, effective with the fiscal years ended
February 28, 1998. Adoption of SFAS No., 131 is not expected to have a
material impact on the Company's financial statements.
13. CONTINGENCIES AND COMMITMENTS
a. The Company has an employment contract with an officer and director for
$350,000 per annum that extends to December 15, 2002.
b. The Company has employment contracts, including those referred to in Note
#1, totaling $1,148,000 with personnel involved in the development,
integration and marketing of the I|Nova System.
c. The Company leases office facilities in Santa Ana, California under
operating leases expiring in September 1999. Minimum future rental payments
under the lease are:
<TABLE>
<CAPTION>
Year Ending Amount
----------- ------
<S> <C>
September 30, 1998 $ 2,640
September 30, 1999 33,545
-------
Total $36,185
=======
</TABLE>
Other office facilities in California and Vancouver, Canada are rented on a
month to month basis.
23
<PAGE>
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Interim Consolidated Financial Statements
As at August 31, 1998 and 1997
(Prepared by management in U.S. Dollars)
14. LITIGATION AND ARBITRATION PROCEEDINGS WITH FORMER EMPLOYEES
The Company has commenced litigation proceedings and become a party to
arbitration proceedings against certain of its former employees. In the
litigation, the Company has alleged, among other causes of action, that the
party defendants misappropriated the Company's intellectual property. In such
litigation, the Company was granted a temporary restraining order against the
party defendants. Further, the Company believes that the issues raised in the
arbitration proceedings are inextricably intertwined with the matters that are
the subject of the litigation. Subsequent to August 31, 1998, all of such
litigation and arbitration proceedings were resolved. The Company is also a
collateral defendant in certain litigation proceedings brought by a former
minority shareholder of a company acquired by Veronex in 1997.
15. RISKS AND UNCERTAINTIES
"Safe Harbor" statement under the Private Securities Litigation Reform Act of
1995: This report contains forward-looking statements relating to the expected
capabilities of Veronex Technologies, Inc., (the "Company") discussed herein.
Such forward-looking statements include expressions of belief, expectation,
contemplation estimation and other expression not relating to historical facts
and circumstances.
24
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations
- ----------
General
- -------
Veronex Technologies, Inc. (hereinafter referred to as "Veronex" or the
"Company" and formerly known as International Veronex Resources Ltd.) was
founded in 1974 in the Province of British Columbia, Canada. Veronex is a
Canadian company with operations in Canada and the United States of America.
Veronex began as a diversified natural resource company; however, through a
series of acquisitions explained below, the Company has evolved into a computer
software company. Veronex designs, develops, licenses and supports enterprise
wide software for complete "business systems" application development and
implementation. The Company's I|NOVA System is a fully integrated business
application development system for enterprise resource planning. The entire
I|NOVA SYSTEM has been ITAA *2000 Certified.
On January 14, 1997, Veronex acquired the worldwide rights to an automated
information management system and application manager technology (a portion of
which was formerly known as the "M-5 System"). On December 4, 1997, the Company
changed its name to Veronex Technologies, Inc. to reflect the Company's
transition to the computer software industry.
On January 14, 1997, the Company entered into a Property Purchase Agreement (the
"Agreement") with Thomas J. Price, a software developer, to acquire certain
software technology including, but not limited to, an information management
application system, including a source program analyzer (collectively referred
to as the "I|NOVA System"). The terms of the Agreement initially provided for
Veronex to pay a fee of $20,000 and to issue up to twelve million (12,000,000)
shares of Common Stock to acquire the I|NOVA System. Veronex issued 100,000
shares of its common stock and was to issue the balance of the shares of common
stock based on an earn-out formula, contingent upon future revenues generated
from licensing sales and maintenance contracts of the I|NOVA System. A finder's
fee will be payable pursuant to the rules, policies and guidelines of the
regulatory authorities.
Effective the same date, the Agreement was amended to reduce to 5,500,000 the
number of shares of Common Stock to be issued based on the contingent earn-out
formula. Of such reduction, 3,500,000 shares were reserved for contingent
issuance to ProMax Conceptual Strategies, a California corporation of which Mr.
Price was the majority shareholder; the balance of the 2,000,000 contingent
earn-out shares were allocated to the Company's 1997 Contingent Stock Option
Plan, which shares are also to be issued on a contingent basis. Effective as of
January 14, 1997, the board of directors of ProMax approved an agreement to
merge ProMax with and into PCS Acquisition Corp., a California corporation and
wholly-owned subsidiary of the Company. Approval by the ProMax shareholders was
obtained in August of 1997, and the merger documents were filed with the
California Secretary of State's office in September of 1997.
Effective August 1, 1997, the Company acquired additional, complementary
software technologies through two additional transaction:
(i) a Property Purchase Agreement with Terry G. Goodbody, a software
developer; and
(ii) a Stock Purchase Agreement with Thomas A. Speed, pursuant to which
Mainstream Technologies, Inc., a California corporation owned by Mr. Speed,
became a wholly-owned subsidiary of the Company.
25
<PAGE>
As a result of these transactions, the Company acquired the I|NOVA System
computer software technology. Subsequently, the Company spent several months
integrating the system for the alternative future use of solving the Year 2000
computer problem. The software technology for the Year 2000 solution is very
unique and a patent application was filed in August 1997 to protect its unique
capabilities.
I|NOVA SYSTEM TECHNOLOGY
- ------------------------
At the beginning of 1997, the Company redirected its business focus, becoming a
computer software development and publishing company with a fully integrated
enterprise wide business application development system, the I|NOVA System.
The Company's goal is to establish Veronex as the enterprise wide software
supplier of choice for business applications. Management believes that the
I|NOVA System's unique features provide users of mainframe, mini and micro-
computers with greater application programming flexibility and responsiveness
than any other computer business application software currently available.
Computer systems worldwide are presently faced with a software crisis commonly
referred to as the Year 2000 computer problem or Y2k problem. The Y2k problem
was created by computer software programmers attempting to save space in
computer memory in the very early days of the information age. Programmers
expressed the date as six (6) digits for MM,DD,YY or 00-00-00 instead of eight
(8) digits for MM,DD,YYYY or 00-00-0000. Consequently, computers were programmed
to always assume the century was 1900. The effect of this programming decision
will be a complete disruption in all date sensitive computations in business
application systems worldwide at century's end. When January 1, 2000 arrives and
the YY rolls over to 00, computers will believe that the century date is 1900
instead of 2000. The impact will be to cause all date sensitive computations to
be off by 100 years. Medicare and Social Security retirement benefit payments
are just two of the areas of date sensitive computations that will be affected
by the Y2k problem.
The Y2k problem provides Veronex with a unique marketing opportunity for its
I|NOVA System because all business software systems worldwide will need to be
repaired, re-engineered or replaced to fix the Y2k problem. Unlike other Y2k
solutions, Veronex's I|NOVA System goes one step further - fully upgrading the
business application system, providing an actual return on an investment made by
a business to solve its Y2k problem.
The I|NOVA System includes:
(i) the I|NOVA Approach Methodology, which details all steps necessary to
create new systems using a data driven, re-engineering approach. Following
this planned approach, Database Architectures, Data Warehouses, Application
Systems Architectures and Network Architecture may be rapidly created and
put into production in less than 60 days.
(ii) the I|NOVA DataCentric Analyzer, which was designed to solve COBOL-
based legacy code problems, including Y2k. The DataCentric Analyzer
automates the process of performing inventory, assessment, analysis,
repair, revitalization (by source code reduction), conversion and testing
of legacy source code at extremely high speed.
26
<PAGE>
(iii) the I|NOVA RapidApplication Development System, a "NoCode"
application software development system (the "Rapid Application Development
System") with a capability that takes the first step in software
development beyond legacy source code problems, including Y2k. The Rapid
Application Development System offers users the opportunity to create and
migrate the enterprise to a new generation of codeless software technology.
(iv) an I|NOVA Application Manager (the "AppManager"), which has the
capability to turn functional business applications into operational
applications, on any platform from mainframe to PC.
The I|NOVA System technology was over 20 years in development and has been
successfully installed at many corporations.
Effective February 1, 1998, the Company signed its first Strategic Alliance
Agreement to License the I|NOVA System to VentureTech 2000, Inc. The terms of
the agreement provide for a license fee of $2,500,000 to be paid out of the
revenues generated by the use and/or sub-licensing of the I|NOVA System by
VentureTech 2000 to its clients. VentureTech 2000 is also required to share all
gross revenues on a ratio of 65% to Veronex and 35% to VentureTech 2000 until
Veronex receives the entire $2,500,000 license fee, thereafter, the revenues
generated by the use and/or sub-licensing of the I|NOVA System by VentureTech
2000 to its clients will be shared on a ratio of 65% of all gross revenues to
VentureTech 2000 and the remaining 35% to Veronex. Veronex has elected to treat
this transaction as a non-revenue event until such time as there are actual
revenues generated by VentureTech 2000 by the use and/or sub-licensing of the
I|NOVA System and these revenues are received by Veronex.
As of February 28, 1998, the Company has commenced commercial sales and/or
applications of the I|NOVA System. The Company has elected to defer the revenue
from this first Strategic Alliance until such time as VentureTech 2000 begins to
make payments on the license fee. Accordingly, the Company will not commence to
amortize the deferred development costs until that time.
The Company has now signed several additional strategic alliances. The first
revenues from strategic alliances were reported in the first quarter and
signalled the commencement of commercial sales of the I|NOVA System.
The Company believes the I|NOVA SYSTEM, with its DataCentric Analyzer, has the
unique ability to:
(i) inventory and assess the complete business application system
directly from the mainframe computer;
(ii) standardize data definitions and source code within COBOL based
legacy source code systems ;
(iii) revitalize, by code reduction, COBOL based legacy source code
systems;
(iv) locate and repair Year 2000 problems in COBOL based legacy source
code systems;
(v) test and verify the changes to the complete system; and/or
(vi) re-engineer business applications without the need for programming
or programmers.
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The benefits of the I|NOVA System include (i) identification of the Y2k
occurrences and correction thereof; (ii) analysis of the cost and time required
for Y2k Problem correction and/or conversion; (iii) standardization and
documentation of outdated legacy source code; (iv) revitalization (reduction) of
existing source code with corresponding reduction of source code maintenance
costs; (v) conversion and upgrade of legacy business application systems to the
Rapid Application Development System; and (vi) reduction of time required to
write new business application programs and systems.
The I|NOVA System AppManager is complementary to any computer operating system,
and will operate on any platform including mainframe, mini and micro-computers.
The DataCentric Analyzer is structured to permit analysis of most business
program languages currently in use. Initially, the DataCentric Analyzer applies
to the COBOL computer programming language, which is estimated to represent
approximately eighty-five percent (85%) of the market.
The DataCentric Analyzer reads the source code of all programs used in a
business application system, applying highly sophisticated algorithms to
determine and capture all information related to a system's procedural flow,
input/output functions, data definitions, screen displays and conditional logic.
The DataCentric Analyzer then produces an "Application Map" that completely
describes the procedural flows and databases used by the business application
system. This feature allows the DataCentric Analyzer to interrogate all
databases for storage areas containing date information (hence "DataCentric").
The DataCentric Analyzer then produces a Management Project Analysis Report.
The Management Project Analysis Report details the cost necessary to accomplish
(i) the repair of the source code in the same language; (ii) to repair and
standardize the data definitions of the source code; (iii) to repair,
standardize the data definitions and revitalize the source code; (iv) to rewrite
the system in a similar language; (v) to rewrite the system in a fourth
generation language (ie., Oracle); (vi) to convert the system to the I|NOVA
Rapid Application Development System; or (vii) to write a new system using the
I|NOVA Rapid Application Development System.
The Management Project Analysis Report allows business application system users
the opportunity to create "what if" scenarios using criteria which applies to
their specific application. The Management Project Analysis Report provides
management with the information necessary to thoroughly evaluate the costs of
repairing or replacing existing systems relative to the specific needs of their
company.
The DataCentric Analyzer is capable of analyzing and identifying all occurrences
where a selected element, such as "date", is used by the system being analyzed.
The DataCentric Analyzer can identify all program instructions, including the
line number locations, that use the selected element, such as "date". The
DataCentric Analyzer's capabilities make it possible to pinpoint all of the
source code instructions where specific element definitions, including synonyms
or abbreviations, occur.
The DataCentric Analyzer can standardize a company's existing business
application system's source code. Standardization of existing source code allows
a business to reduce maintenance costs for existing systems and thereby achieve
substantial cost savings each and every year subsequent to the standardization.
Standardization simply means that a common term is used for specific source code
definitions such as "date".
In addition, the DataCentric Analyzer can revitalize a company's existing
business application system's source code by removing redundancies and reducing
the amount of source code. Revitalization of existing source code also allows a
business to reduce maintenance costs for existing systems. This revitalization
of
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source code is a unique feature of the I|Nova System. Management believes
this feature will be useful to all business systems even if a business's Y2k
problem were repaired by another vendor. The reduced maintenance costs
resulting from a substantial reduction in source code provides continuous cost
savings for years to come.
In combination, the DataCentric Analyzer's standardization and revitalization
features offer a complete re-engineering solution to a company's existing
business application system. This re-engineering feature is often the only
answer to solving certain problems in existing source code that cannot otherwise
to saved due to obsolescence or other factors.
The I|NOVA Rapid Application Development System allows customers to design,
create, document and implement "NoCode" application software solutions. The
Rapid Application Development System offers users the opportunity to convert
outdated legacy systems to current state-of-the-art technology. The I|NOVA
Rapid Application Development System is a software product which has benefits
and applications which are useful after the Y2k crisis passes.
Management anticipates that the Company will derive revenues from license fees,
revenue sharing with strategic alliances and maintenance fees from the I|Nova
System.
In summary, management believes that the I|Nova System has several distinct
advantages for users. The I|Nova System provides (i) added value and a return
on the investment required to repair the Y2k problem; (ii) updated business
applications software technology; (iii) a return of control of the information
system department to senior management; and, (iv) perhaps most importantly,
substantial cost savings and more flexibility for the information system
department by reducing program source code size and maintenance costs by up to
60%, by reducing the information system department size by up to 50%, and by
reducing systems application development time by up to 50%. The cost savings
expected to be provided by Veronex's technology should continue to provide a
return on the investment necessary to fix the Y2k problem for years to come.
LIQUIDITY AND CAPITAL REQUIREMENTS
- ----------------------------------
Veronex's financial performance is dependent on many external factors which are
not controllable by management nor predictable as to future fluctuations.
Additionally, in the current period of worldwide economic uncertainty, the
availability and cost of funds have become increasingly hard to project.
Changes and new events in the social, monetary and economic marketplace could
materially affect the financial performance of Veronex.
As of August 31, 1998 the Company had working capital of $2,501,000. Further,
the Company anticipates that it will have adequate cash for all of its planned
operations for the next twelve months.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
- ---------------------------------------------------------
"Safe Harbor" statement under the Private Securities Litigation Reform Act of
1995: Certain statements in this report, including statements of the Company and
management's expectations, intentions, plans and beliefs, including those
contained in or implied by "Managements Discussion and Analysis of Financial
Condition and Results of Operations" and the Notes to Consolidated Financial
Statements, contain forward-looking statements relating to the expected
capabilities of the
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<PAGE>
company, as defined in Section 21D of the Securities Exchange Act of 1934, that
are dependent on certain events, risks and uncertainties that are outside the
Company's and/or management's control. Such forward-looking statements include
expressions of belief, expectation, contemplation, estimation and other
expressions not relating to historical facts and circumstances. These forward-
looking statements are subject to numerous risks and uncertainties, including
the risk that (i) other companies will develop products and services perceived
to be superior than the present and proposed products and services of the
Company; (ii) the products and services may not be marketed effectively by the
Company; (iii) potential customers may find other products and services more
suitable for the applications marketed by the Company; (iv) the future outcome
of regulatory and litigation matters are not determinable; (v) the assumptions
described in this report underlying such forward-looking statements as well as
other risks that may cause such statements not to prove accurate. Any
projections or estimates herein made assume certain economic and industry
conditions and parameters subject to change. Any opinions and/or projections
expressed herein are solely those of Veronex Technologies, Inc. and are subject
to change without notice. Actual results and developments could differ
materially from those expressed in or implied by such statements due to a number
of factors including those described in the context of such forward-looking
statements.
RESULTS OF THE THREE MONTHS ENDED AUGUST 31, 1998 COMPARED
- ----------------------------------------------------------
TO THE THREE MONTHS ENDED AUGUST 31, 1997
- -----------------------------------------
Veronex reported a net loss of $1,066,000 ($0.15 per share) for the three months
ended August 31, 1998 compared to a net loss of $59,000 ($0.01 per share) for
the three months ended August 31, 1997, on revenues of $0.00 and 40,000,
respectively.
Revenues of $40,000 for the three months ended August 31, 1997 were generated
from licensing fees and support of the Company's software products while there
were no such revenues in the three months ended August 31, 1998.
Changes to the various elements of the Statements of Operations were an increase
of $492,000 in administration expenses as a result of the increase in operations
in the software development business. A portion of administration expense
incurred during the three months ended August 31, 1997 have been capitalized as
software integration costs. Additionally, the Company incurred $488,000 of
software marketing costs related to the sales efforts on the I|Nova System.
The Company expended $6,000 in 1998 as compared to only $2,000 in exploration
expense on its California gold properties in 1997. The increase of $7,000 in
depreciation expense resulted from the additional property and equipment
acquired by the Company this past year.
RESULTS OF THE SIX MONTHS ENDED AUGUST 31, 1998 COMPARED
- --------------------------------------------------------
TO THE SIX MONTHS ENDED AUGUST 31, 1997
- ---------------------------------------
Veronex reported net earnings of $183,000 ($0.03 per share) for the six months
ended August 31, 1998 as compared to a net loss of $129,000 ($0.03 per share)
for the six months ended August 31, 1997, on revenues of $2,083,000 and $40,000
respectively.
The increase in revenues is the result of the strategic license agreement with
AGISS Corporation in the first quarter of fiscal 1998.
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Changes to the various elements of the Statements of Operations were an increase
of $1,002,000 in administration expenses as a result of the increase in
operations in the software development business. A portion of administration
expense incurred during the six months ended August 31, 1997 have been
capitalized as software integration costs. Additionally, the Company incurred
$727,000 of software marketing costs related to the sales efforts on the I|Nova
System.
The Company expended $9,000 in 1998 as compared to a recovery of $3,000 in
exploration expense on its California gold properties in the same period of
1997. The increase of $9,000 in depreciation expense resulted from the
additional property and equipment acquired by the Company this past year.
YEAR 2000 CONSIDERATIONS
- ------------------------
Veronex is in the computer software business and the I|Nova System offers a Y2k
solution which management believes to be the best Y2k solution available at this
time. All of the Company's internally developed products have been designed and
tested to be year 2000 compliant. The Company has established a formal program
to address potential year 2000 compliance issues relating to its (i) internal
operating systems, (ii) products, and (iii) distributors, resellers and vendors.
The Company has completed an assessment of all of its internal operating systems
which operate on personal computers and were just completely updated in 1997.
The Company plans to update its internal operating systems again in 1998 or 1999
and anticipates that these systems will be year 2000 compliant. The cost of the
Company's year 2000 compliance program has not had and is not expected to have a
material adverse effect on the Company's results of operations or liquidity.
However, there can be no assurance that the Company will not experience material
adverse consequences in the event that the Company's year 2000 compliance
program is not successful or its distributors, resellers or vendors are unable
to resolve their year 2000 compliance issues in a timely manner.
IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS
- ---------------------------------------------
Inflation may affect the operations of Veronex by its effect on prices of goods
and services. Veronex's current operations span two countries: Canada and the
United States of America. The strength or weakness of the Canadian dollar
versus the United States dollar could affect the long-term value and/or
operations and planning of the Company.
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
/s/ THOMAS J. PRICE
Date: October 30, 1998 By: ___________________________
Thomas J. Price, President
/s/ PEGGY MARTIN
Date: October 30, 1998 By: ___________________________
Peggy Martin, Secretary
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