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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 20-F/A
[_] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 1998
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Commission File Number 0-13967
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VERONEX TECHNOLOGIES, INC.
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(Exact name of Registrant as specified in its charter)
VERONEX TECHNOLOGIES, INC.
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(Translation of Registrant's name into English)
Province of British Columbia, Canada
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(Jurisdiction of incorporation or organization)
#701 - 475 Howe Street, Vancouver, B.C., Canada V6C 2B3
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(Address of principal executive offices)
Securities registered or to be registered pursuant to Section
12(g) of the Act:
Common Shares, no par value
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(Title of Class)
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act:
None
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(Title of Class)
Indicate the number of outstanding shares of each of the Registrant's classes of
capital or common stock as of the close of the period covered by the annual
report.
6,897,501
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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 90 days. Yes X . No .
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Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 . Item 18 X .
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PART I
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Item 1. Description of Business
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Organization
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Veronex Technologies, Inc. (formerly, International Veronex Resources Ltd.)
(hereinafter referred to as "Veronex" or the "Company") has acquired the
worldwide rights to an automated information system and application manager (the
"I|NOVA System") technology (formerly known as the "AIM System"). The
Company's name change reflects its successful transition to the computer
software industry. The Company's Common Stock is registered under the United
States Securities Exchange Act of 1934 and its stock trades on the OTC Bulletin
Board in the United States of America under the symbol "VXTK". The Company's
Common Stock was also registered with and traded on the Vancouver Stock Exchange
in Canada under its previous name, International Veronex Resources Ltd., and
symbol "IVX", until the Company applied for a voluntary delisting from the
Vancouver Stock Exchange. As of July 4, 1997, the Company's common shares were
delisted from trading on the Vancouver Stock Exchange. Prior to that time, the
Company's stock also traded on the American Stock Exchange.
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.
In 1978, Veronex began a long-term strategy aggressively to acquire and develop
diversified natural resource properties. The acquisition of these new natural
resource opportunities was usually for a combination of cash and the issuance of
new shares of common stock. Generally, the issuance of a portion of these new
shares of common stock was contingent upon the discovery and successful
production of the desired natural resource. The Company's normal business
approach was to combine its own exploration and operational expertise with the
financial strength of a major partner. In 1988 the Company entered into a
Farmout Agreement with Triton Indonesia, Inc., a wholly owned subsidiary of
Triton Energy Corporation (collectively "Triton"). Unbeknown to the Company,
Triton was being operated in a pattern of corrupt, illegal and fraudulent
activities which resulted in the Company being cheated out of its interest in
the Enim Oil Project. Since 1990 the Company has been engaged in complex
litigation with Triton and with the Company's former attorneys. The litigation
has essentially concluded as is more fully explained below under Enim Oil
Project and Related Litigation.
Veronex is a company organized under the laws of the Province of British
Columbia, Canada and was incorporated on March 8, 1974 under the name of Rockel
Mines Ltd. The Registrant changed its name to Veronex Resources Ltd. on May 1,
1979 and to International Veronex Resources Ltd. on October 21, 1992. A
subsequent name change to Veronex Technologies, Inc. was made on December 4,
1997.
Veronex, together with its wholly owned subsidiaries, Veronex Resources, Inc.,
Nordell International Resources Ltd. ("Nordell"), Bonaparte Resources Ltd.,
Richport Resources Ltd., Align Energy Inc., High River Industries Ltd., and
Mainstream Technologies, Inc., an indirect wholly-
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owned subsidiary, along with PCS Acquisition Corp. ("PCS Acq."; a California
subsidiary that merged with ProMax Conceptual Strategies, as more particularly
described below), is involved in the exploration and, as warranted, the
development of natural resource opportunities throughout the world (Veronex
Resources Ltd. and the subsidiaries are referred to collectively as "Veronex")
as well as its computer software interest.
The Company maintains its principal executive offices at 475 Howe Street, Suite
701, Vancouver, British Columbia, Canada V6C 2B3 and has offices at 18023 Sky
Park Circle, Suite E-2, Irvine, California, U.S.A. 92614 and 363 Brookhollow
Drive, Santa Ana, California, U.S.A. 92705.
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 provide for Veronex to
pay a fee of $20,000 and to issue up to 12,000,000 shares of Common Stock to
acquire the I|NOVA System. Veronex issued 100,000 shares of its Common Stock
and will issue the balance of the shares of Common Stock based on a contingent,
earn-out formula, dependant 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 by 5,500,000 the
number of shares of Common Stock to be issued based on a contingent, earn-out
formula. Of such reduction, 3,500,000 shares were reserved for contingent
issuance to ProMax Conceptual Strategies ("ProMax"), a California corporation of
which Mr. Price was the majority shareholder, which corporation was acquired by
PCS Acq.; the balance of the 2,000,000 contingent, earn-out shares were
allocated to the Company's 1997 Contingent Stock Option Plan, the options for
which also vest on the same contingent, earn-out basis. Effective as of January
14, 1997, the board of directors of ProMax approved an agreement to merge ProMax
with and into PCS Acq. 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
technologies through two additional transactions:
(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 an indirect, wholly-owned subsidiary of the Company.
As a result of these two transactions, the Company acquired additional software
technology and expertise to assist in its efforts in furthering the development
and marketing of the I|NOVA System and related software products, as is more
fully explained below.
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I|NOVA SYSTEM TECHNOLOGY
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At the beginning of 1997, the Company redirected its business focus, becoming a
computer software development and publishing company with a fully integrated
business application engineering and re-engineering system, the I|NOVA System.
Veronex's goal is to be a leading software provider for business application
systems for the New Millennium. 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 Problem or Y2k problem. The Y2k problem was
created by computer software programmers attempting to save space in computer
memory in the early days of the information age. The date was expressed 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 always to assume that
the century was 1900. The effect of this programming decision may be a massive
disruption in date-sensitive computations in computer systems worldwide at
century's end. When January 1, 2000 arrives and the YY rolls over to 00,
computers may believe that the century date is 1900 instead of 2000. Medicare
and Social Security retirement benefits are just two of the areas of date-
sensitive computations that may be affected by the Y2k problem.
The Y2k problem provides Veronex with a unique marketing opportunity for its
I|Nova System because business software systems worldwide will need to be
repaired, re-engineered or replaced. Unlike other Y2k solutions, management
believes that 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 Automated Information Management System (the "I|NOVA System") includes:
I|NOVA Approach Methodologies
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The key to accomplishing any objective is to establish the steps and method for
achieving that objective. This is true whether the objective is going to the
Moon or simply planning daily activities. In the Software Industry, the method
for accomplishing the objective of replacing, repairing, or retiring a computer
system is called the Systems Development Life Cycle ("SDLC").
The I|Nova Approach is the next generation of the SDLC process. For example, in
order to write a computer accounts payable system for an enterprise, one must
first understand the manual process in order to write the programs to automate
that process. This is true of the SDLC process as well. The Company has
automated the SDLC process. Three methodologies have been created that wrap
around the I|Nova System:
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. I|Nova Approach-2000 is a unique Year 2000 methodology wrapped around the
I|Nova DataCentric Analyzer ("DCA"), which repairs systems regardless of
the Year 2000 problem status
. I|Nova Approach is a Data Driven Systems Development Life Cycle process
wrapped around the I|Nova Rapid Application Development ("RAD") System that
replaces systems
. The I|Nova Network Approach, which establishes the steps necessary to
build an Enterprise Level Network Architecture to support those new systems
created using the I|Nova RAD System
I|Nova Approach-2000 defines the steps necessary for maintaining or fixing
systems (not just for the Year 2000). Most providers simply deliver a repair
tool that fixes code. The effort of actually changing the programs is a small
part of the overall repair project.
The I|Nova Approach-2000 methodology coupled with the I|Nova DCA provides a
beginning-to-end solution. Understanding and completing all the tasks necessary
to fix the Year 2000 problem often seems as complicated as going to the Moon.
If each step is not understood, planned, staffed, and completed in a timely
manner, the effort may fall materially short of accomplishing its goal.
The steps set forth below are necessary no matter what the problem or
enhancement to a system's portfolio and, if not executed in the proper sequence,
could result in significant problems for an organization:
. Conducting an inventory of the systems
. Assessing the impact on the business
. Determining if the programs captured are the programs running in
production
. Organizing the programs into projects
. Standardizing the data definitions/code
. Fixing the programs
. Testing the programs while ensuring all date routines have been tested
. Implementing the system back into the production environment, while
ensuring backout procedures exist, accomplishes the Year 2000 objective
I|Nova Approach defines the steps necessary to accomplish a new paradigm in
Information Systems. The I|Nova Approach has been used by one company as it
grew from a quarter of a billion dollar organization to a billion dollar
organization in just two years. Today, this company has its entire Item
Database Architecture on the Web. In another case, a major newspaper increased
circulation by 42% in the first year of operation by developing its own
Circulation/Transportation System using the I|Nova Approach. The methodology
continues to be automated, including:
. Inventorying all applications within the enterprise, extracting stored
input, output or screen data definitions using the I|Nova DCA
. Analyzing the inventory to determine whether to convert systems using the
enterprise's existing file structure and programs, to create a new
Database Architecture and programs,
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or to create a Data Warehouse for only those areas requiring immediate
information
. Conducting Joint Application Development (JAD) sessions using the file
structure selected and I|Nova RADS to build the applications using this
combination of methodology and automation
. Obtaining user sign-off
. Converting the existing file structure to the Database or Data Warehouse
Architecture
. Testing the system
. Conducting an integrated test
. Implementing the application into the production environment
I|Nova Network Approach contains the steps and methods necessary to accomplish
the construction of an Enterprise Level Network Architecture. Since I|Nova RADS
creates the ability to be platform independent, the next logical step is to
create the infrastructure to move applications and data across an Enterprise
Network Architecture by:
. Conducting an inventory of all locations
. Analyzing the results into voice, data and image requirements
. Designing the new Network Architecture using voice, data and image
protocols
. Creating Request For Proposals
. Selecting the Vendors
. Testing the equipment
. Conducting integrated tests
. Deploying the equipment
. Implementing the Network Architecture
Each phase ensures the proper tasks have been performed. Network, business,
operational, application and database strategies will have been determined.
Questions such as acquiring a new business can be determined in its integration
into the corporate structure and how applications will be deployed.
I|NOVA DataCentric Analyzer
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Background
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The I|Nova DataCentric Analyzer was developed in anticipation of the problems
that various organizations will face. Such system impacts would include the
year 2000 date problem, social security number expansion, European Monetary Unit
(EMU), and many other changes that may affect legacy systems. Since its initial
development, the DCA has been enhanced so that it can provide users with the
means to correct any problem. The primary direction of the DCA has always been
towards standardization and optimization of program code.
Computer software applications developed twenty or thirty years ago were not
designed to be easily changed or repaired. Information systems personnel
assumed that these so-called legacy applications
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would be replaced long before issues such as the Year 2000 problem would ever
occur. The Year 2000 situation that is confronting many organizations today
makes that point. Future problems may center on social security numbers, zip
codes, etc.
The DCA enables users to significantly reduce future application maintenance
efforts and associated costs by employing simple, common sense, standards and
disciplines.
Set forth below is a brief description of the DCA processes and the potential
benefits that may be achieved through its implementation.
Inventory
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The DCA automatically assesses and inventories the current application(s)
software libraries as used in an organization. This process identifies the
"what" and "where" source code is located on a given system. Then, all legacy
source code associated with the application is downloaded to an NT Workstation
for processing. The same process also gathers selected test data and verifies
any and all changes made to the existing legacy application's source code.
The application code is examined and a consolidated "application map" (the
"Map") is created. The Map pinpoints, by physical file location, where every
element of information is used throughout the application. The Map also
provides a complete cross-reference of the elements used by every program and
line of code in the legacy application. The Map allows automatic or manual
identification of any element, such as date, regardless of how many programs or
lines of code the application contains.
Standardization
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Optionally, standard data element names can be given for each element of
information used in the application, resulting in reduced future maintenance and
higher quality documentation. Organizations that require ANSI.X12 or UN/EDIFACT
standards to be employed for Electronic Data Interchange (EDI) with trading
partners may request the automatic insertion of the standard of choice during
the DCA standardization process.
During the above process, the DCA also identifies all common program functions
used throughout the entire application. A common program function is defined by
the DCA as more than three lines of program code that is used more than once by
any program(s) in the entire application.
The amount of redundant and unused program code normally found in most
applications ranges from 20% to 60%. The DCA allows the users to remove
unnecessary code, thereby reducing the cost and resources required to maintain
the application.
As an additional option, the DCA provides a library of all common program code
and scores them by activity and frequency of use. This allows for code
optimization by programmers of the most
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active code in the application, which in turn increases overall performance of
the application when placed into production.
Remediation and Test
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Repairs made to an element on the application Map, such as expanding the date
field size from two positions to four are easily and quickly made. Once all
desired element changes are complete, a final process occurs that compares all
lines of program code against the Map while repairing the program source code.
All programs are recompiled and tested with the data extracted in the inventory
phase. The test results are automatically compared to the original code for
test and verification that all repairs were made correctly with documented
certification of the test result.
For organizations that wish to reduce cost and increase performance to an even
higher level, the I|Nova Rapid Application Development System provides the
ability to remove all redundant data (as opposed to redundant code) used by an
organization and move to the next level of sophistication offered by the I|Nova.
This starts with the identification of all redundant data references found
during the analysis process and removing all redundancies in the application(s)
database architecture.
And Beyond
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The DCA prepares an enterprise's requirements for the RAD System. The RAD
System uses no program language to design, test, change and document existing or
new business application solutions. The use of the Map permits the conversion
of previously identified application functions to specifications that, in turn,
are processed by the I|Nova Application Manager. The concept is similar to
creating multiple spreadsheets that use the same program but produce totally
different results. The RAD System expands this basic concept to encompass the
entire business application, resulting in benefits and savings far beyond the
realm of any other conventional method of application development.
The I|Nova System provides an organization with the ability to use standards and
disciplines in managing their automated applications while reducing ongoing
maintenance cost and increasing their development staffs' performance. Other
companies have developed piecemeal solutions that may be capable of duplicating
portions of the functionality of the I|Nova System; however, the total
capability offered by Veronex is unparalleled.
I|NOVA Rapid Application Development System
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Features and Benefits
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The I|NOVA Rapid Application Development System is a state-of-the-art business
application analysis and development system. Management believes can analyse,
develop, document and
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implement any automated business application at least five (5) times faster than
any conventional development system in existence today. The RAD System's key
features and benefits are summarized below:
Platform independent: All applications developed with RAD have no conventional
program language, and therefore do not require a generative process before
implementation. Using a program language to create a business application makes
the application dependant on a specific computer operating system, hardware
configuration and the individual that programmed the application. Since RAD
applications do not have a "program language," none of these dependencies
exists, and the application can be made to operate on any computer platform.
Development Environment: Application analysis, design, development,
implementation, testing, documentation and user training are all performed on a
standard personal computer. Conventional languages require that application
development be performed on its intended operational platform. The use of RAD
makes conventional program coding on a specific computer platform a thing of the
past.
Analysis of the organization's functional requirements prior to implementation:
Detailed analysis and review ensures RAD-based applications will be complete,
high quality and authorized by management prior to committing expenditures for
development and implementation.
Modifications to the application are performed quickly and seamlessly: Changing
a business application requires about the same time and effort that is required
to change a large spreadsheet or word-processing document, and can be performed
by a non-programmer.
Application documentation for developers and users: RAD automatically documents
the development effort and any modifications to the application created as they
occur. No application documentation effort is required during or after its
creation. Application documentation is "on demand" and always current to
protect the organization's investment.
Applications become smart: Automatic monitoring of the organization through
"computer-initiated" messages to specific management personnel allow for
selective and ongoing supervision of the business operation.
User Interfaces: Applications developed by RAD always allow for concurrent users
and/or printers to use an application. The hardware that is used to interface
with the application is limited only by the connective restrictions imposed by
the selected computer platform.
Key Modules
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The following modules permit the creation of a custom application specific only
to the organization for which it was developed.
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. The Analysis and Design Module supplies the business analyst with an
electronic Input/Output ("I/O") matrix of information entered by the
developer. It automatically performs element conflict and redundancy
analysis during the design phase of any development effort. The I|NOVA
DataCentric Analyzer can also produce this information automatically from
an existing legacy system. Once the I/O matrix has been approved, RAD
automatically generates a default system that includes all the databases,
screens, reports and file transfers required by the application.
. The DataBase Module provides for the creation and maintenance of databases
and their elements. The Database Module incorporates the ability to define
database elements, special functions such as mathematical formulas (in
LOTUS-like structure), operating system defaults (date, time, user-defined
and application user information) and default values.
. The Editing Module provides system-wide formatting for both user screen
and report output (i.e., dollar signs, commas and periods).
. The Selection Module defines universally available selection criteria for
reports, file transfers and communication transfers.
. The Validation Module checks data entry and includes the ability to verify
the validity of an entry.
. The Screen Module provides the necessary capability to create, edit and
link user screen and windows. In addition, the Screen Module is where
screen and user interaction is defined.
. The Report Module supplies the capability necessary to create both
scrollable "real-time" and "batch" reports. The Report Module allows the
following report types: page print (read one record, print one page),
summary print (read many records and print a summary) or detail prints
(read one record, print one line).
. The File Transfer Module permits import or export of information from or
to databases in most common formats based on the selection of the business
analyst. Both "real-time" and "batch" modes are supported in the I|NOVA
Transfer Module.
. The Communications Module permits information exchange utilizing "dial-up"
or "direct" connection. The Communications Module allows exchange of
information to take place via any "real-time" or "batch" mode functions.
In addition, the Communications Module allows interactive communication
with other remote, networked, or out of area computers.
. The Duplication Module allows a business analyst to copy all or part of
any other application. The Duplication Module gives the business analyst
the ability to copy and edit one business application, thus creating an
entirely new application.
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. The Documentation Module provides both user and/or technical written
information regarding any business application. Documentation is available
at any time during, or after, the application development.
. The Test Data Module is used by the business analyst to create or change
test data for simulation of the business application.
. The Application Simulation Module provides the business analyst with the
ability to use test or live data to simulate the business application and
verify that it fulfils the application requirements.
I|NOVA Application Manager
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The I|Nova Application Manager ("App/Man") allows for applications created with
the I|Nova RAD System can be made to execute on a variety of computer platforms
without modification.
Since all applications use the same App/Man, efficiencies in performance of all
applications are realized regardless of what applications are being operated.
Should the need arise for an organization to move the application to another
computer platform, a different App/Man would be used without changing the
application. The benefits realized include not only maximum utilization of the
computer platform's processing power and capabilities, but also the removal of
any dependancy on the manufacturer of the computer hardware or operating system.
Conventional software technologies require extensive maintenance and
synchronization of hundreds and even thousands of programs to execute any
business application correctly. App/Man is a single program that removes this
burden by making available to every application executed all common functions
required. Consequently, just as multiple different spreadsheets processed by a
single program would produce different results, multiple business applications
processed by AppMan produce different results.
New features or enhancements to App/Man are immediately available to any
existing application without modification of the application or disruption of
the business operation. The business analyst's efforts are directed toward
optimizing application results rather than managing software. App/Man's
unprecedented common sense approach to application development and management
frees an organization from the subtle control imposed by individuals and
vendors.
Recent Developments
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As described above, the Company's focus is now directed to the I|NOVA System -
its newly acquired, proprietary software product that (i) provides a solution to
the Y2k Problem and Year 2000 computer incompatibilities ("Y2k Solution") and
(ii) provides non-technical personnel with the ability to analyze, design,
modify, document and implement high quality, custom software applications.
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On November 12, 1997, the Company announced the appointment of Thomas J. Price
and Pru Zerny to the Company's Board of Directors.
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 of the Company's Common Stock were issued for net
proceeds of $1,659,000.
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.
On June 1, 1998 the Company announced the execution of a second Strategic
Alliance Agreement for a five year period with AGISS Software Corp., to license
the use of the Company's complete I|Nova System. The AGISS Agreement provided
for an exclusive territory to AGISS for the Ontario and Quebec provinces of
Canada for the period up to December 31, 1999. AGISS is to pay a one-time
license fee and permit the Company to share in gross revenues generated from the
use of the I|Nova System. AGISS is a provider of automated conversion tools and
services in Canada to solve the Year 2000 computer problem across many different
platforms.
On June 4, 1998, the Company announced the execution of a third Strategic
Alliance Agreement with Kathpal Technologies, Inc. ("KATHPAL"). The terms of
this agreement provide for KATHPAL to pay a one-time license fee and permit the
Company to share in gross revenues generated from the use of the I|Nova System.
KATHPAL is a provider of leading edge services to the U.S. Government and
private industry. These services span the range of support needed to design and
implement software systems capable of effectively meeting operational
information requirements. KATHPAL has current Indefinite Delivery/Indefinite
Quantity Contracts with the Health Care Finance Administration, General Services
Administration and National Institutes of Health.
The execution of a fourth Strategic Alliance Agreement was announced on July 2,
1998 with Crest Electronics, Inc. ("Crest"). The terms of the Agreement call
for Crest to pay a one-time license fee of $2,500,000 and to permit the Company
to share in gross revenues generated from the use of the I|Nova System. Crest
provides technology solutions in the United Kingdom, India and the European
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Union, and is in the final approval phases of developing a major advanced
electronics facility in the European Union. Management believes that this
strategic relationship offers the Company the opportunity to put the I|Nova
System into use in the international market sector.
Item 2. Description of Property
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Placer Gold Mining Claims, California
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Alexander Star Claims #4 through #7
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Pursuant to an agreement dated July 12, 1995 between the Company and Martin J.
Garo, Barbara A. Garo, Daniel R. Garo and Kevin W. Garo, all of Mesa, Arizona
and Joe Jones, Damon Young and Lisa Anderson, all of Irvine, California, and
Timothy O'Connor, of 29 Palms, California (collectively the "Alexander Star
Vendors"), the Company acquired from the Alexander Star Vendors, subject to a 4%
net smelter return (the "Royalty"), all right, title and interest in and to the
Alexander Star #4, #5, #6 and #7 placer mining claims located in the Avawatz
Mining District, County of San Bernardino, California (the "Alexander Star
Property").
Consideration paid by the Registrant for the Alexander Star Property was 100,000
of its shares, issued to the Alexander Star Vendors, each as to 12,500 shares.
The Royalty is to be paid to the Alexander Star Vendors quarterly within sixty
(60) days of the end of each quarter commencing with the date of commencement of
production. The Registrant has also been granted to the right to purchase back
from the Alexander Star Vendors one-half of the Royalty, in exchange for the
payment to the Alexander Star Vendors of $500,000.
THERE ARE NO KNOWN RESERVES OF COMMERCIAL ORE ON THE PROPERTIES AND THIS PROGRAM
IS AN EXPLORATORY SEARCH FOR ORE.
Alexander Star Claim #2
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Pursuant to an agreement dated November 20, 1995 between the Company and David
A. Hite and Timothy Hite, both of Downey, California (collectively called the
"Vendors"), the Registrant acquired from the Vendors, subject to a 5% net
smelter return (the "Net Smelter Return") an option to acquire a 25% right,
title and interest in and to the Alexander Star #2 placer claim, located in the
Avawatz Mining District, County of San Bernardino, California (the "Alexander
Star #2 Claim"). The remaining 75% interest in the Alexander Star #2 claim is
owned by Martin J. Garo, Barbara A. Garo, Daniel R. Garo, Kevin W. Garo, Steve
Simone, Jr. and Richard D. Hall (the "75% interest owners"). Please refer to
Item 13 - Certain Relationships and Related Transactions.
There was no consideration paid to the Vendor to acquire this option. The Net
Smelter Return is to be paid to the Vendors quarterly within forty-five (45)
days after the end of each fiscal quarter commencing with the date of
commencement of production.
14
<PAGE>
In order to earn a 100% interest in the 25% participating interest, the
Registrant must expend $50,000.00 on exploration work on the Claim prior to
December 31, 1999.
THERE ARE NO KNOWN RESERVES OF COMMERCIAL ORE ON THE PROPERTIES AND THIS PROGRAM
IS AN EXPLORATORY SEARCH FOR ORE.
The Alexander Star Claims #91 through #98
- -----------------------------------------
Pursuant to an agreement dated November 20, 1995 between the Registrant and
David A. Hite, Donna L. Hite, Timothy W. Hite and Bradley Hite, all of Downey,
California (collectively called the "Claim Vendors"), the Registrant acquired
from the Claim Vendors, subject to a 5% net smelter return (the "NSR"), an
option to acquire a 50% right, title and interest in and to the Alexander Star
#91 through #98 placer claims, all located in the Avawatz Mining District,
County of San Bernardino, California (the "Alexander Star #91 through #98
Claims"). The remaining 50% interest in the Alexander Star #91 through #98
Claims are owned by Martin J. Garo, Barbara A. Garo, Daniel R. Garo and Kevin
Garo (the "50% interest owners"). Please refer to Item 13 - Certain
Relationships and Related Transactions.
There was no consideration paid to the Claim Vendors to acquire this option.
The NSR is to be paid to the Claim Vendors quarterly within forty-five (45) days
after the end of each fiscal quarter commencing with the date of commencement of
production.
In order to earn a 100% interest in the 50% participating interest, the
Registrant must expend $350,000.00 on exploration work on the Claims prior to
December 31, 1999.
THERE ARE NO KNOWN RESERVES OF COMMERCIAL ORE ON THE PROPERTIES AND THIS PROGRAM
IS AN EXPLORATORY SEARCH FOR ORE.
In addition to the properties involved in the Placer Gold Mining Claims in
California, Veronex maintains leased office space in Vancouver, British
Columbia, Irvine, California and Santa Ana, California.
Item 3. Legal Proceedings
-----------------
ENIM OIL PROJECT AND RELATED LITIGATION
- ---------------------------------------
Beginning in January 1990, the Company became involved in complex litigation
relating to its interest in the Enim Oil Project in Indonesia. Essentially, as
of March 1998, the litigation involving the Enim Oil Project and any exposure to
liability to the Company was completed.
The litigation involved certain matters involving the development of the Enim
Oil Project. The Company acquired the rights to a 72,000 acre oil field, the
Enim Oil Project, located in South Sumatra, Indonesia in 1982. After several
years of development, including achieving oil production
15
<PAGE>
in 1987, the Company was experiencing cash flow difficulties and sought a joint
venture partner to assist it financially with the completion of the development
of the Enim Oil Project.
Effective October 1, 1988, the Company, through Nordell International Resources
Ltd. ("Nordell"), a wholly owned subsidiary, entered into a Farmout Agreement
with Triton Indonesia Inc., a wholly owned subsidiary of Triton Energy
Corporation (NYSE:OIL), requiring Triton to invest $24 million of cash in the
Enim Oil Project in South Sumatra, Indonesia in order to acquire a 60% working
interest and to become the Operator of the Enim Oil Project. Nordell was
entitled to receive its pro rata share of the cash flow from oil sales of the
Enim Oil Project, based on invested capital as defined. Nordell retained a 40%
working interest in the Enim Oil Project and was required to bear its 40%
participating interest share of the costs and expenses of the Enim Oil Project
once Triton had invested $24 million of cash.
In November 1989, Triton claimed that its $24 million cash obligation was
satisfied as of the end of October, 1989, and that Nordell would be responsible
for bearing its 40% share of future cash expenditures for costs and expenses for
the Enim Oil Project.
Nordell disputed the operator's assertion regarding the completion of its cash
obligation and other matters, declared the operator in default and referred the
issues to arbitration, to resolve these matters, disagreements concerning
accounting procedures and other matters. Subsequently, Triton made certain
counterclaims. The arbitration was conducted in Singapore and Los Angeles in
October and November, 1990.
On December 13, 1990, an Arbitration Award, adverse to the Company, was issued.
The Arbitration Award converted Nordell's interest in the Enim Oil Project to a
5% "net profits" interest effective October 1, 1990 and awarded costs and
damages of $931,000 to Triton.
On December 26, 1990, Nordell filed a Motion to Vacate the Arbitration Award in
the United States District Court for the Central District of California in Los
Angeles (the "District Court"), seeking to vacate the Arbitration Award on
several grounds. On January 7, 1991, Triton filed a separate Motion to Confirm
the Arbitration Award in the District Court. The District Court, after
reviewing a series of legal briefs and filings, issued a Final Judgment against
both Nordell and Veronex and in favor of Triton on February 27, 1992.
On March 27, 1992, both Nordell and Veronex filed an appeal of the Final
Judgment in the United States Court of Appeals for the Ninth Circuit (the "Ninth
Circuit"). On July 23, 1993, the Ninth Circuit filed its "Memorandum" decision
affirming the Arbitration Award against Nordell, reversing the confirmation of
the Arbitration Award as to Veronex, and remanded to the District Court for
further proceedings to determine if Veronex was either a party to the
arbitration proceedings or had consented to be a party to the arbitration, and
if not, then to determine whether Veronex was in fact the alter ego of Nordell.
On February 7, 1994, the District Court ruled that Veronex was not a party to
the arbitration and had not consented to be bound by the arbitrators' decision.
The District Court also ordered the parties to brief the issue of Veronex as the
alter-ego of Nordell for submission to
16
<PAGE>
the District Court. The District Court read and considered the original and
supplemental briefs submitted, and issued its ruling on the alter-ego issue on
May 31, 1994. The District Court found that under both federal and California
law of alter ego, Veronex was not an alter ego of Nordell, and therefore the
exercise of jurisdiction by the arbitration panel over Veronex was improper.
On August 23, 1995 Triton foreclosed on the Company's remaining 5% net profits
interest in the Enim Oil Project and management believes, effectively exercised
its sole remedy for collecting and satisfying the Arbitration Award.
Subsequently, Triton was paid the remaining amount of the Arbitration Award in
full.
MALPRACTICE ACTION
- ------------------
On June 24, 1992, the Company filed a malpractice lawsuit against its former
attorneys, McDermott, Will & Emery, and Cadwalader, Wickersham & Taft, seeking
$100 million in damages. These aforementioned law firms represented Nordell in
the arbitration proceedings. These law firms filed a cross-complaint seeking
payment of certain legal bills and expenses from Nordell in the amount of
$360,000.
On November 14, 1996 Veronex entered into a settlement agreement with its former
attorneys, McDermott, Will & Emery and Cadwalader, Wickersham & Taft
(collectively, the "Law Firms") to resolve all claims and counter claims
regarding the malpractice lawsuit arising out of the arbitration between
Veronex's wholly owned subsidiary, Nordell International Resources, Ltd.
("Nordell") v. Triton Energy Corporation, Triton Indonesia Inc, and Triton Oil
(NZ) Ltd. (collectively "Triton").
The settlement agreement was entered into with none of the parties thereto
admitting any obligations or liabilities and to avoid further litigation and to
avoid the uncertainty of continued litigation. The settlement agreement
compromises and settles all claims, contentions, counter claims and disputes
either asserted or that could have been asserted arising out of or relating
either directly or indirectly to the malpractice claims against the Law Firms.
As a result of the settlement agreement Veronex recorded a one time non-
recurring gain of $5,200,000.
The financial impact of the settlement agreement was to provide Veronex with
sufficient funds to settle all outstanding liabilities and legal fees and leave
Veronex with working capital of approximately U.S. $2.3 million.
ACTION AGAINST DAVID A. HITE
- ----------------------------
Triton filed a knowingly false and spurious lawsuit against David A. Hite
personally in the State Court of Texas in an attempt to collect the Arbitration
Award directly from Mr. Hite. Triton's lawsuit against Mr. Hite was transferred
to the U.S. District Court in Dallas, Texas. This lawsuit resulted in a
judgment being issued by the U.S. District Court in Texas against Mr. Hite.
Triton filed this lawsuit against Mr. Hite as a retaliatory action because of
the fact that Mr. Hite filed a complaint
17
<PAGE>
with the U.S. Securities and Exchange Commission ("SEC") and the U.S. Department
of Justice informing these government law enforcement agencies of Triton's
pattern of illegal and corrupt activities in Indonesia. On February 27, 1997
the SEC filed two separate actions against Triton and its former management.
These two separate SEC actions are more fully described below. The judgment
issued by the U.S. District Court in Texas was appealed by Mr. Hite and on
December 6, 1996, the Fifth Circuit Court of Appeals reversed the judgment of
the lower court and rendered judgment in favor of Mr. Hite, dismissing the case.
Triton had also filed a knowingly false lawsuit against Veronex in Texas. On
February 21, 1997 the U.S. District Court for the Northern District of Texas
filed an Order of Stipulation of Voluntary Dismissal, dismissing without
prejudice, Triton's spurious lawsuit against the Company. Triton knowingly
filed this vexatious lawsuit in Texas against the Company having already lost a
similar lawsuit in California based on exactly the same evidence and facts.
NEW EVIDENCE OF TRITON'S FRAUD
- ------------------------------
The malpractice litigation, explained more fully above, 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 a
physical inventory in Indonesia in May 1991. Prior to obtaining a copy of the
KPMG October 14, 1991 management letter, the Company was not aware of the fact
that KPMG had performed a physical inventory in Indonesia as of May 31, 1991.
The KPMG management letter disclosed that KPMG had determined that there was an
inventory shortage of some $5.3 million in Indonesia as of May 31, 1991. 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 & Exchange Commission. Triton also failed to inform the arbitration
panel of this material fact. The material fact is particularly relevant to the
arbitration because the arbitration panel based its monetary calculations for
the Award on the KPMG report of September 30, 1990 which is in the same fiscal
period as the inventory shortage discovered by KPMG and the inventory shortage
would have materially changed the September 30, 1990 KPMG report.
The accounting rules and regulations, both in the accounting profession and the
Securities Act, pertaining to a difference between the inventory on the books
and the actual physical inventory which can be verified by an independent
inspection are well defined. The amount of $5.3 million is a "material item" to
the Arbitration Award, a "material item" to Triton's gross revenues for the
fiscal year in question, and a "material item" to Triton's net profits for the
fiscal year in question. The Company's Management reviewed this new information
with its legal advisors to determine what action against Triton and/or KPMG, if
any, would be appropriate. On August 22, 1997 the Company and David A. Hite
filed a Malicious Prosecution lawsuit against Triton, et al., in the Superior
Court of California. Triton has filed a Motion to Dismiss. The Company's
lawsuit alleges,
18
<PAGE>
among other issues that Triton (i) perpetrated a fraud upon the court in the
arbitration by concealing a material fact, namely the inventory shortage; (ii)
falsified the accounting records for the Enim Oil Project when computing
Nordell's 5% net profits interest; (iii) committed fraud and violated the
securities laws by failing to disclose the material fact of the inventory
shortage; and (iv) fraudulently attempted to collect a falsely obtained and
previously satisfied judgment from David A. Hite. The lawsuit is in the early
stages and the outcome of the litigation cannot be determined nor predicted at
this time.
U.S. SECURITIES & EXCHANGE COMMISSION ENFORCEMENT ACTION
- --------------------------------------------------------
On February 27, 1997 the U.S. Securities and Exchange Commission instituted
public administrative proceedings pursuant to Section 21C of the Securities
Exchange Act of 1934 against David Gore, Robert Puetz, former officers of Triton
Energy Corp., and William McClure and Robert P. Murphy, former officers of
Triton Energy's subsidiary Triton Indonesia, Inc. The Commission's Order finds
that during the years 1989 and 1990, Triton Indonesia senior officers authorized
numerous improper payments to Indonesian government employees for the purpose of
influencing their decisions affecting the business of Triton Indonesia.
The Commission's Order finds that these payments by Triton were made in
violation of the Foreign Corrupt Practices Act. The Order further 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 Order, McClure, Triton Indonesia's Commercial Manager, failed to assure that
the entries prepared by Murphy accurately reflected the underlying transactions.
The Commission'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 or denying the Commission'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, McClure and Murphy); causing any violation of
Section 30A of the Exchange Act (Gore and Puetz); and violating Exchange Act
Rule 13b2-1.
In a separate and different action on February 27, 1997, the U.S. Securities and
Exchange Commission also filed a complaint in the United States District Court
for the District of Columbia against Triton Energy Corporation, Philip W. Keever
and Richard L. McAdoo, both former senior officers of Triton Energy's subsidiary
Triton Indonesia, Inc.
The Commission's complaint alleges that during the years of 1989 and 1990,
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
19
<PAGE>
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 Indonesia employees, also concealed these payments by falsely
documenting and recording the transactions as routine business expenditures.
The Commission seeks permanent injunctions and civil monetary penalties from
each of the three defendants.
Simultaneous with the filing of the complaint, defendant Triton Energy
Corporation consented, without admitting or denying the allegations, to the
entry of a Final Judgment that permanently enjoins it from violating the books
and records and internal controls provisions of the Securities Exchange 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 Act and books and records provisions of the
Exchange Act, and orders Keever to pay a $50,000 penalty.
FORMER EMPLOYEES
- ----------------
On April 13, 1998, the Company filed a Complaint for Damages, Injunctive Relief
and Possession of Personal Property in the Superior Court for Orange County,
California, styled Veronex Technologies, Inc., v. John F. Denman, Michael R.
---------------------------------------------------------
Benson, Li C. Zha, aka Charlie Zha; and Does 1 through 50, inclusive, Case No.
- --------------------------------------------------------------------
792982. The named defendants in the action are three former employees of the
Company. The Company has alleged that the named defendants wrongfully took the
Company's intellectual property for their own use. The Company is vigorously
pursuing the return of its property. As of the date of this Report, a Temporary
Restraining Order preventing the Defendants from using or destroying any of the
Company's trade secrets in their possession has been issued by the Court pending
a hearing on an Order to Show Cause why a Preliminary Injunction should not be
issued against the Defendants. In related actions, on July 7, 1998, Messrs.
Denman and Zha filed a Demand for Arbitration with the Orange County,
California, office of JAMS/Endispute, Inc., in respect of certain employment-
related issues and the third named defendant filed a cross-complaint alleging
unfair competition in respect of the Company's intellectual property. The
Company vigorously denies the allegations contained in the Demand for
Arbitration and in the cross-complaint. The parties are presently engaged in
the discovery process, and no trial date has been set in this matter.
On or about February 20, 1998, Betty B. Lee, a former employee of the Company,
commenced an action against the Company by filing a Demand for Arbitration with
the Irvine, California, office of the American Arbitration Association, Case NO.
80 160 00047 98X. Ms. Lee alleges that she was wrongfully terminated by the
Company and is seeking monetary damages. The Company vigorously denies Ms.
Lee's allegations, has filed a counterclaim, and asserts that her termination
was the result of numerous breaches by her of her employment agreement, breaches
of her fiduciary duty to the Company, and other improper and actionable conduct
in which she engaged. The relief sought by the Company is injunctive relief and
unspecified monetary damages. The parties are presently
20
<PAGE>
engaged in the discovery process, and an arbitration date is set October 13,
1998.
On or about February 25, 1998, Edward Farber, a former employee of the Company,
commenced an action against the Company by filing a Demand for Arbitration with
the Irvine, California, office of the American Arbitration Association, Case No.
80 160 00050 98X. Mr. Farber alleged that the Company breached an employment
agreement and sought monetary damages. The Company vigorously denied Mr.
Farber's allegations. On July 30, 1998, the parties entered into a settlement
agreement and mutual general release, pursuant to which Mr. Farber dismissed,
with prejudice, the arbitration proceedings and all claims contained therein.
In conjunction therewith, the Company confirmed the cancellation of 86,342 stock
options previously granted to him and the exercisability of 13,658 remaining
options.
At the present time, Veronex is not a party to any other legal proceedings, nor
is it aware of any proceedings contemplated by any governmental authorities
against it.
Item 4. Control of Registrant
---------------------
a) The Registrant is not directly or indirectly owned or controlled by another
corporation(s) or by any foreign government.
b) To the knowledge of the Directors and Senior Officers of the company, only
the following individual holds shares carrying more that 10% of the voting
rights attached to all outstanding shares of the company as at July 8,
1998:
<TABLE>
<CAPTION>
Name of Owner Number of Shares Percentage of Issued and Outstanding
- ------------- ---------------- ------------------------------------
<S> <C> <C>
Cede & Co. 3,473,360 49%
</TABLE>
c) As at July 8, 1998, the Officers and Directors of the registrant held the
following common shares:
<TABLE>
<CAPTION>
Identity of Amount Percentage
Person or Group Owned of Class
--------------- ------ ----------
<S> <C> <C>
Directors & Officers 759,386 10.9%
</TABLE>
Item 5. Nature of Trading Market
------------------------
The Registrant has only one class of capital stock, Common Shares without par
value. Veronex's Common Stock is registered under the United States
Securities Exchange Act of 1934 and its stock trades on the OTC Bulletin Board
in the United States as of February 4, 1993. Prior to that date, the stock
traded on the American Stock Exchange. The stock also traded on the Vancouver
Stock Exchange until it applied for and was granted a voluntary delisting on
July 4, 1997.
The price range for the low and high bids of shares of Veronex's Common Stock,
on a quarterly
21
<PAGE>
basis, on the OTC Bulletin Board for 1997 and 1996 expressed in U.S. Dollars are
set out in the following table.
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997
Low High Low High
----- ------ ------ -------
<S> <C> <C> <C> <C>
1st Quarter $.875 $3.125 $0.375 $0.39
2nd Quarter $1.75 $5.4375 $0.356 $0.50
3rd Quarter $3.625 $5.875 $0.125 $0.35
4th Quarter $2.625 $5.125 $0.50 $1.625
</TABLE>
Note: The NASD quotations represent inter-dealer prices, without mark-ups or
commissions, and may not necessarily be indicative of actual sales
prices.
The following table sets forth the high and low share sales prices of shares of
Veronex's Common Stock as reported on the Vancouver Stock Exchange in Canadian
Dollars. As explained above, Veronex applied for and was granted a voluntary
delisting from the Vancouver Stock Exchange on July 4, 1997 and consequently
there are no share sales prices after the second quarter.
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997
Low High Low High
------ ------ ------ ------
<S> <C> <C> <C> <C>
1st Quarter $1.25 $4.50 $0.46 $0.75
2nd Quarter $2.25 $3.25 $0.35 $0.70
3rd Quarter N/A N/A $0.25 $0.57
4th Quarter N/A N/A $0.26 $1.55
</TABLE>
There have been no cash dividends paid on the common shares during the last two
years.
The Registrant has been informed by Montreal Trust, the Registrar and Transfer
Agent, that as at July 8, 1998 Veronex had 2,900 shareholders of record.
Item 6. Exchange Controls and Other Limitations Affecting Security Holders
------------------------------------------------------------------
There are no governmental laws, decrees or regulations in Canada relating to
restrictions on the import of capital affecting the remittance of interest,
dividends or other payments to non-resident holders of Veronex Technologies,
Inc.'s shares. Any such remittances to United States residents, however, are
subject to a 15% withholding tax pursuant to Article X of the reciprocal tax
treaty between Canada and the United States. See "Item 7. Taxation".
---------
Except as provided in the Investment Canada Act (the "Act"), there are no
limitations under the laws of Canada, the Province of British Columbia or in the
charter or any other constituent documents of Veronex Technologies, Inc. on the
right of foreigners to hold and/or vote the shares of Veronex Technologies, Inc.
22
<PAGE>
The Act requires a non-Canadian making an investment to acquire control of a
Canadian business, the gross assets of which exceed certain defined threshold
levels, to file an application for review with Investment Canada, the federal
agency created by the Act.
A Canadian business is defined in the Act as a business carried on in Canada
that has a place of business in Canada, an individual or individuals in Canada
who are employed or self-employed in connection with the business and assets in
Canada used in carrying on the business.
The following investments by a non-Canadian are subject to review by Investment
Canada:
(i) all direct acquisitions of control of Canadian businesses with assets of
$5 million or more;
(ii) all indirect acquisitions of control of Canadian businesses with assets
of $50 million or more if such assets represent less than 50% of the
value of the assets of the entities, the control of which is being
acquired; and
(iii) all indirect acquisitions of control of Canadian businesses with assets
of $5 million or more if such assets represent more than 50% of the
value of the assets of the entities, the control of which is being
acquired.
For the purposes of the Act, "direct acquisition of control" is defined as:
"a purchase of the voting interests of a corporation, partnership, joint
venture or trust carrying on a Canadian business, or any purchase of all
or substantially all of the assets used in carrying on a Canadian
business; and"
"Indirect acquisition of control" is defined as:
"a purchase of the voting interest of a corporation, partnership, joint
venture or trust, whether a Canadian or foreign entity, which controls a
corporation, partnership, joint venture or trust company on a Canadian
business in Canada."
In addition, an investment by a non-Canadian which would not otherwise be
reviewable under the Act, is reviewable, if either a Canadian business is
directly or indirectly acquired or a new Canadian business is established, or
such Canadian business engages in a specific activity that, in the opinion of
the federal cabinet is related to Canada's cultural heritage or national
identity and on the recommendation of the Minister responsible for Investment
Canada, the cabinet issues an order for review.
A non-Canadian shall not implement an investment reviewable under the Act unless
the investment has been reviewed and the Minister responsible for Investment
Canada is satisfied or is deemed to be satisfied that the investment is likely
to be of net benefit to Canada. If the Minister is not satisfied that the
investment is likely to be a net benefit to Canada, the non-Canadian shall not
implement the
23
<PAGE>
investment or, if the investment has been implemented, shall divest himself of
control of the Canadian business that is the subject of the investment.
A non-Canadian making the following investments:
(i) an investment to establish a new Canadian business; and
(ii) an investment to acquire control of a Canadian business which investment is
not subject to review under the Act,
must notify Investment Canada, within prescribed time limits, of such
investments.
Item 7. Taxation
--------
Generally, dividends paid by Canadian corporations to non-resident shareholders
are subject to a withholding tax of 25% of the gross amount of such dividends.
However, Article X of the reciprocal tax treaty between Canada and the United
States reduces to 15% the withholding tax on the gross amount of dividends paid
to residents of the United States. A further 5% reduction in the withholding
tax rate on the gross amount of dividends is applicable when a U.S. corporation
owns at least 10% of the voting stock of the Canadian corporation paying the
dividends.
Disposition of Shares by Non-Residents of Canada
- ------------------------------------------------
A non-resident of Canada who holds shares of Veronex Technologies, Inc. as
capital property will not be subject to tax on capital gains realized on the
disposition of such shares unless such shares are "taxable Canadian property"
within the meaning of the Income Tax Act (Canada) and no relief is afforded
under any applicable tax treaty. The shares of Veronex Technologies, Inc. would
be taxable Canadian property of a non-resident if at any time during the five
year period immediately preceding a disposition by the non-resident of such
shares not less than 25% of the issued shares of any class of Veronex
Technologies, Inc. belonged to the non-resident, to a person with whom the non-
resident did not deal at arm's length, or to the non-resident and any persons
with whom the non-resident did not deal at arm's length.
24
<PAGE>
Item 8. Selected Financial Data (in $000's U.S. Dollars)
------------------------------------------------
<TABLE>
<CAPTION>
Feb. 28, 1998 Feb. 28, 1997 Feb. 29, 1996 Feb. 28, 1995 Feb. 28, 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 294 $ 132 $ 1 $ 2 $ 3
- -------------------------------------------------------------------------------------------------------
Earnings (Loss) $5,140 $ (779) $(4,973) $ (763)
for Period $(1,151)
- -------------------------------------------------------------------------------------------------------
Total Assets $ 4,685 $3,494 $ 102 $ 91 $ 4,255
- -------------------------------------------------------------------------------------------------------
Working
Capital/
(Deficiency) $ 2,333 $2,394 $(3,371) $(2,629) $(2,184)
- -------------------------------------------------------------------------------------------------------
Shareholders'
Equity (Deficit) $ 4,378 $2,649 $(3,290) $(2,599) $ 1,990
- -------------------------------------------------------------------------------------------------------
</TABLE>
This selected financial data should be read in conjunction with the Consolidated
Financial Statements and notes thereto appearing elsewhere herein.
Item 9.
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations
- ----------
General
- -------
Veronex acquired, on January 14, 1997, the worldwide rights to an automated
information management system and application manager technology (the "I|NOVA
System" which was formerly known as the "AIM System"). The corporate name
change to Veronex Technologies, Inc. reflects the Company's transition to the
computer software industry. The Company's Common Stock is registered under the
United States Securities Exchange Act of 1934, and its stock trades principally
on the OTC Bulletin Board in the United States of America under the symbol
"VXTK". The Company's Common Stock was formerly registered with and traded on
the Vancouver Stock Exchange in Canada under its previous name, International
Veronex Resources Ltd., under the symbol "IVX." The Company applied for a
voluntary delisting from the Vancouver Stock Exchange, and the Company's common
shares were voluntarily delisted from trading on the Vancouver Stock Exchange on
July 4, 1997.
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. In
1978, Veronex began a long-term strategy to acquire and develop diversified
natural resource properties. The acquisition of these
25
<PAGE>
natural resource opportunities was usually for a combination of cash and the
issuance of new shares of common stock. Generally, the issuance of a portion of
these new shares of common stock was contingent upon the discovery and
successful production of the desired natural resource. The Company's normal
business approach was to combine its own exploration and operational expertise
with the financial strength of a major partner.
In 1988 the Company entered into a Farmout Agreement with Triton Indonesia,
Inc., a wholly owned subsidiary of Triton Energy Corporation (collectively
"Triton"). Unbeknown to the Company, Triton was being operated in a pattern of
corrupt, illegal and fraudulent activities which resulted in the Company being
cheated out of its interest in the Enim Oil Project. Since 1990, the Company
was engaged in complex litigation with Triton and with the Company's former
attorneys. The litigation has essentially concluded, as is more fully explained
below under Enim Oil Project and Related Litigation.
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 provide for Veronex to
pay a fee of $20,000 and to issue up to 12,000,000 shares of Common Stock to
acquire the I|NOVA System. Veronex issued 100,000 shares of its Common Stock
and will issue the balance of the shares of common stock based on a contingent
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 by 5,500,000 the
number of shares of Common Stock to be issued based on a 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
technologies through two additional transactions:
(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.
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As a result of these two transactions, the Company acquired additional software
technology and expertise to assist in its efforts in furthering the development
and marketing of the I|NOVA System and related software products, as is more
fully explained below.
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
business application engineering and re-engineering system, the I|NOVA System.
Veronex's goal is to be the leading software provider for business application
systems for the New Millennium. 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 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. The date was expressed as
six (6) digits for MM,DD,YY or 00-00-00 in stead 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 computer 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.
Medicare and Social Security retirement benefits 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. 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 Automated Information Management System (the "I|NOVA System") includes:
(i) the I|Nova Approach Methodology, which details all steps necessary to
create new systems using a data driven, reengineering 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. It automatically performs
inventory, assessment, analysis, repair, revitalization (by source
code reduction), conversion and testing of
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legacy source code at extremely high speed.
(iii) the I|NOVA Rapid Application 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 was assembled using a corporate acquisition strategy to
achieve the mission of Veronex to become the software provider of choice for the
new millennium. The first acquisition was in January 1997 of the DataCentric
Analyzer (DCA) from Thomas J. Price, a software developer; and of the Rapid
Application Development System (RADS) and the Application Manager (AppManager)
from ProMax Conceptual Strategies.
The Company then acquired the ArchiData methodology technology which is an ITAA
Y2k certified compliant method for repairing the Y2k problem and designing
Database Architectures, Data Warehouses, Application Systems Architectures and
Network Architecture. This methodology technology was over 15 years in
development and has been used as the basis for systems development and
installation at many corporations.
At the same time, the Company acquired Mainstream Technologies, Inc. a proven
software engineering and reengineering firm with a complete software service,
support, training and installation infrastructure. This complete software
service, support, training and installation infrastructure technology has been
in service for over 10 years and has proven successful.
Concurrent with these two acquisitions, the Company reengineered its system
analyzer and upgraded its capabilities to include Y2k analysis and repair. The
unique features of the DataCentric Analyzer allow it to automatically perform
inventory, assessment, analysis, repair, revitalization (by source code
reduction), conversion and testing of legacy source code at extremely high
speeds. The Company has applied for patents on the many unique features of the
DataCentric Analyzer.
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
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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 believes the I|NOVA System, with its DataCentric Analyzer solution,
has the unique ability to:
(i) inventory and assess the complete business 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.
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 critical 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
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.
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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 source code is a unique feature of the I|NOVA System that, management
believes, will be useful to all business systems even if a business's Y2k
problem were repaired by another vendor. The reduced maintenance costs from a
substantial reduction in source code provides substantial 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
be 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.
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Management believes that the company will derive revenues from license fees and
maintenance contracts from the following:
1. I|NOVA Rapid Application Development System and AppManager- A fully
integrated software analysis and development platform for designing and
developing computer systems which can then be operated on any computer
platform. Management expects that licensing fees will be based on the
computer system (mainframe computer, mini-computer or micro-computer) and
the number of terminals attached thereto. Management expects that the
licensing fee will include a five year contract for an annual maintenance
fee of 15%.
2. DataCentric Analyzer - A tool for analyzing existing computer systems for
the purpose of identifying Y2k problem exposure and quantifying the cost to
repair or replace the existing system. Management expects that the
licensing fees will be based on a rate per line of code analyzed with a
minimum fee per application. The functions which can be performed with the
DataCentric Analyzer include:
A. Standardization of existing code - A special service performed by the
I|NOVA System's DataCentric Analyzer. Management expects that
licensing fees will be based on a fee per line of code with a minimum
fee per application.
B. Revitalization of existing code - A special source code reduction
service performed by the I|NOVA System's DataCentric Analyzer.
Management expects that fees will be based on a fee per line of code
eliminated with a minimum fee per application.
In summary, management believes that the I|NOVA System has several distinct
advantages to 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 in the future.
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As of February 28, 1998 the Company had working capital of $2,333,000. 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 Consolidate Financial
Statements, contain forward-looking statements relating to the expected
capabilities of the 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. Any projections or estimates
herein made assume certain economic and industry conditions and parameters
subject to change. 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.
ENIM OIL PROJECT AND RELATED LITIGATION
- ---------------------------------------
Beginning in January 1990, the Company became involved in complex litigation
relating to its interest in the Enim Oil Project in Indonesia. Essentially, as
of March 1998, the litigation involving the Enim Oil Project and any exposure to
liability to the Company was completed.
The litigation involved certain matters involving the development of the Enim
Oil Project. The Company acquired the rights to a 72,000 acre oil field, the
Enim Oil Project, located in South Sumatra, Indonesia in 1982. After several
years of development, including achieving oil production in 1987, the Company
was experiencing cash flow difficulties and sought a joint venture partner to
assist it financially with the completion of the development of the Enim Oil
Project.
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Effective October 1, 1988, the Company, through Nordell International Resources
Ltd. ("Nordell"), a wholly owned subsidiary, entered into a Farmout Agreement
with Triton Indonesia Inc., a wholly owned subsidiary of Triton Energy
Corporation (NYSE:OIL), requiring Triton to invest $24 million of cash in the
Enim Oil Project in South Sumatra, Indonesia in order to acquire a 60% working
interest and to become the Operator of the Enim Oil Project. Nordell was
entitled to receive its pro rata share of the cash flow from oil sales of the
Enim Oil Project based on invested capital as defined. Nordell retained a 40%
working interest in the Enim Oil Project and was required to bear its 40%
participating interest share of the costs and expenses of the Enim Oil Project
once Triton had invested $24 million of cash.
In November 1989, Triton claimed that its $24 million cash obligation was
satisfied as of the end of October, 1989, and that Nordell would be responsible
for bearing its 40% share of future cash expenditures for costs and expenses for
the Enim Oil Project.
Nordell disputed the operator's assertion regarding the completion of its cash
obligation and other matters, declared the operator in default and referred the
issues to arbitration to resolve these matters, disagreements concerning
accounting procedures and other matters. Subsequently, Triton made certain
counterclaims. The arbitration was conducted in Singapore and Los Angeles in
October and November, 1990.
On December 13, 1990, an Arbitration Award, adverse to the Company, was issued.
The Arbitration Award converted Nordell's interest in the Enim Oil Project to a
5% "net profits" interest effective October 1, 1990 and awarded costs and
damages of $931,000 to Triton.
On December 26, 1990, Nordell filed a Motion to Vacate the Arbitration Award in
the United States District Court for the Central District of California in Los
Angeles (the "District Court"), seeking to vacate the Arbitration Award on
several grounds. On January 7, 1991, Triton filed a separate Motion to Confirm
the Arbitration Award in the District Court. The District Court, after
reviewing a series of legal briefs and filings, issued a Final Judgment against
both Nordell and Veronex and in favor of Triton on February 27, 1992.
On March 27, 1992, both Nordell and Veronex filed an appeal of the Final
Judgment in the United States Court of Appeals for the Ninth Circuit (the "Ninth
Circuit"). On July 23, 1993, the Ninth Circuit filed its "Memorandum" decision
affirming the Arbitration Award against Nordell, reversing the confirmation of
the Arbitration Award as to Veronex, and remanded to the District Court for
further proceedings to determine if Veronex was either a party to the
arbitration proceedings or had consented to be a party to the arbitration, and
if not, then to determine whether Veronex was in fact the alter ego of Nordell.
On February 7, 1994, the District Court ruled that Veronex was not a party to
the arbitration and had not consented to be bound by the arbitrators' decision.
The District Court also ordered the parties to brief the issue of Veronex as the
alter-ego of Nordell for submission to the District Court. The District Court
read and considered the original and supplemental briefs submitted, and issued
its ruling on the alter-ego issue on May 31, 1994. The District Court found
that under both federal and California law of alter ego, Veronex was not an
alter ego of Nordell, and
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therefore the exercise of jurisdiction by the arbitration panel over Veronex was
improper.
On August 23, 1995 Triton foreclosed on the Company's remaining 5% net profits
interest in the Enim Oil Project and management believes, effectively exercised
its sole remedy for collecting and satisfying the Arbitration Award.
Subsequently, Triton was paid the remaining amount of the Arbitration Award in
full.
MALPRACTICE ACTION
- ------------------
On June 24, 1992, the Company filed a malpractice lawsuit against its former
attorneys, McDermott, Will & Emery, and Cadwalader, Wickersham & Taft, seeking
$100 million in damages. These aforementioned law firms represented Nordell in
the arbitration proceedings. These law firms filed a cross-complaint seeking
payment of certain legal bills and expenses from Nordell in the amount of
$360,000.
On November 14, 1996 Veronex entered into a settlement agreement with its former
attorneys, McDermott, Will & Emery and Cadwalader, Wickersham & Taft
(collectively, the "Law Firms") to resolve all claims and counter claims
regarding the malpractice lawsuit arising out of the arbitration between
Veronex's wholly owned subsidiary, Nordell International Resources, Ltd.
("Nordell") v. Triton Energy Corporation, Triton Indonesia Inc, and Triton Oil
(NZ) Ltd. (collectively "Triton").
The settlement agreement was entered into with none of the parties thereto
admitting any obligations or liabilities and to avoid further litigation and to
avoid the uncertainty of continued litigation. The settlement agreement
compromises and settles all claims, contentions, counter claims and disputes
either asserted or that could have been asserted arising out of or relating
either directly or indirectly to the malpractice claims against the Law Firms.
As a result of the settlement agreement, Veronex recorded a one time non-
recurring gain of $5,200,000.
The financial impact of the settlement agreement was to provide Veronex with
sufficient funds to settle all outstanding liabilities and legal fees and leave
Veronex with working capital of approximately U. S. $2.3 million.
ACTION AGAINST DAVID A. HITE
- ----------------------------
Triton filed a knowingly false and spurious lawsuit against David A. Hite
personally in the State Court of Texas in an attempt to collect the Arbitration
Award directly from Mr. Hite. Triton's lawsuit against Mr. Hite was transferred
to the U. S. District Court in Dallas, Texas. This lawsuit resulted in a
judgment being issued by the U. S. District Court in Texas against Mr. Hite.
Triton filed this lawsuit against Mr. Hite as a retaliatory action because of
the fact that Mr. Hite filed a complaint with the U. S. Securities and Exchange
Commission ("SEC") and the U. S. Department of Justice informing these
government law enforcement agencies of Triton's pattern of illegal and corrupt
activities in Indonesia. On February 27, 1997 the SEC filed two separate
actions against
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Triton and its former management. These two separate SEC actions are more fully
described below. The judgment issued by the U. S. District Court in Texas was
appealed by Mr. Hite and on December 6, 1996, the Fifth Circuit Court of Appeals
reversed the judgment of the lower court and rendered judgment in favor of Mr.
Hite, dismissing the case.
Triton had also filed a knowingly false lawsuit against Veronex in Texas. On
February 21, 1997 the U. S. District Court for the Northern District of Texas
filed an Order of Stipulation of Voluntary Dismissal, dismissing without
prejudice, Triton's spurious lawsuit against the Company. Triton knowingly
filed this vexatious lawsuit in Texas against the Company having already lost a
similar lawsuit in California based on exactly the same evidence and facts.
NEW EVIDENCE OF TRITON'S FRAUD
- ------------------------------
The malpractice litigation, explained more fully below, 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 a
physical inventory in Indonesia in May 1991. Prior to obtaining a copy of the
KPMG October 14, 1991 management letter, the Company was not aware of the fact
that KPMG had performed a physical inventory in Indonesia as of May 31, 1991.
The KPMG management letter disclosed that KPMG had determined that there was an
inventory shortage of some $5.3 million in Indonesia as of May 31, 1991. 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 & Exchange Commission. Triton also failed to inform the arbitration
panel of this material fact. The material fact is particularly relevant to the
arbitration because the arbitration panel based its monetary calculations for
the Award on the KPMG report of September 30, 1990 which is in the same fiscal
period as the inventory shortage discovered by KPMG and the inventory shortage
would have materially changed the September 30, 1990 KPMG report.
The accounting rules and regulations, both in the accounting profession and the
Securities Act, pertaining to a difference between the inventory on the books
and the actual physical inventory which can be verified by an independent
inspection are well defined. The amount of $5.3 million is a "material item" to
the Arbitration Award, a "material item" to Triton's gross revenues for the
fiscal year in question, and a "material item" to Triton's net profits for the
fiscal year in question. The Company's Management reviewed this new information
with its legal advisors to determine what action against Triton and/or KPMG, if
any, would be appropriate. On August 22, 1997 the Company and David A. Hite
filed a Malicious Prosecution lawsuit against Triton, et. al., in the Superior
Court of California. Triton has filed a Motion to Dismiss. The Company's
lawsuit alleges, among other issues that Triton (1) perpetrated a fraud upon the
court in the arbitration by concealing a material fact, namely the inventory
shortage; (ii) falsified the accounting records for the Enim Oil Project when
computing Nordell's 5% net profits interest; (iii) committed fraud and violated
the
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securities laws by failing to disclose the material fact of the inventory
shortage; and (iv) fraudulently attempted to collect a falsely obtained and
previously satisfied judgment from David A. Hite. The lawsuit is in the early
stages and the outcome of the litigation can not be determined or predicted at
this time.
U. S. SECURITIES & EXCHANGE COMMISSION ENFORCEMENT ACTION
- ---------------------------------------------------------
On February 27, 1997 the U. S. Securities and Exchange Commission instituted
public administrative proceedings pursuant to Section 21C of the Securities
Exchange Act of 1934 against David Gore, Robert Puetz, former officers of Triton
Energy Corp., and William McClure and Robert P. Murphy, former officers of
Triton Energy's subsidiary Triton Indonesia, Inc. The Commission's Order finds
that during the years 1989 and 1990, Triton Indonesia senior officers authorized
numerous improper payments to Indonesian government employees for the purpose of
influencing their decisions affecting the business of Triton Indonesia.
The Commission's Order finds that these payments by Triton were made in
violation of the Foreign Corrupt Practices Act. The Order further 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 Order, McClure, Triton Indonesia's Commercial Manager, failed to assure that
the entries prepared by Murphy accurately reflected the underlying transactions.
The Commission'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 or denying the Commission'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, McClure and Murphy); causing any violation of
Section 30A of the Exchange Act (Gore and Puetz); and violating Exchange Act
Rule 13b2-1.
In a separate and different action on February 27, 1997, the U. S. Securities
and Exchange Commission also filed a complaint in the United States District
Court for the District of Columbia against Triton Energy Corporation, Philip W.
Keever and Richard L. McAdoo, both former senior officers of Triton Energy's
subsidiary Triton Indonesia, Inc.
The Commission's complaint alleges that during the years of 1989 and 1990,
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
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of the Foreign Corrupt Practices Act. According to the complaint, McAdoo and
Keever, together with other Triton Indonesia employees, also concealed these
payments by falsely documenting and recording the transactions as routine
business expenditures. The Commission seeks permanent injunctions and civil
monetary penalties from each of the three defendants.
Simultaneous with the filing of the complaint, defendant Triton Energy
Corporation consented, without admitting or denying the allegations, to the
entry of a Final Judgment that permanently enjoins it from violating the books
and records and internal controls provisions of the Securities Exchange 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 Judgment that permanently enjoins him from violating the
Foreign Corrupt Practices Act and books and records provisions of the Exchange
Act, and orders Keever to pay a $50,000 penalty.
RESULTS OF FISCAL 1998 COMPARED TO FISCAL 1997
- ----------------------------------------------
Veronex reported a net loss of $1,151,000 ($0.19 per share) for the fiscal year
ended February 28, 1998 and a net income of $5,140,000 ($0.99 per share) for the
fiscal year ended February 28, 1997, on revenues of $294,000 and $132,000,
respectively.
Revenues of $294,000 for the fiscal year ended February 28, 1998 were generated
from licensing fees and support of the Company's software products.
During the fiscal year ended February 28, 1997, the Company recorded a gain of
$5,200,000 as a result of a malpractice lawsuit settlement with the firms of
attorneys which represented the Company during the Arbitration proceedings in
1990. During the fiscal year ended February 28, 1997, the Company recorded
$132,000 of prior years' net profits on the Enim Oil Project. Previously, the
Company had not been accruing Enim Oil Project earnings. In addition, during
the fiscal year ended February 28, 1997, the Company recorded a gain of $38,000
on the 1995 sale, by forfeiture, of its net profits interest in the Enim Oil
Project. No such income and gain was recorded during the fiscal year ended
February 28, 1998.
During the fiscal year ended February 28, 1998, the Company recovered $1,000 in
exploration expense on its California gold properties due to a reclassification
of expenditures. The Company incurred $59,000 in exploration expenses during
the fiscal year ended February 28, 1997. The Company earned $98,000 in interest
during the fiscal year ended February 28, 1998 as a result of investing the
funds generated by the settlement of malpractice lawsuits against its former
attorneys and by a private placement of the Company's common shares.
The loss of $10,000 from investing activities during the fiscal year ended
February 28, 1998 was a result of a write-down of the Company's American
Exploration Drilling Program.
Other changes to the various elements of the Statements of Operations were an
increase of $691,000 in administration expenses as a result of the write-off
during the fiscal year ended February 28, 1997,
37
<PAGE>
of accrued legal costs and expanded operations in fiscal 1998. A portion of
administration expense incurred during the fiscal year ended February 28, 1998
has been capitalized as software integration costs. Additionally, the Company
incurred $669,000 of software marketing costs related to the sales efforts on
the I|Nova System. The decrease of $22,000 in interest expense resulted from
the payment in full of the arbitration award and the increase of $63,000 in
interest income resulted from the increase in the company's cash balances.
RESULTS OF FISCAL 1997 COMPARED TO FISCAL 1996
- ----------------------------------------------
Veronex reported net earnings of $5,140,000 ($0.99 per share) for the fiscal
year ended February 28, 1997 as compared to losses of $779,000 ($0.30 per
share) for the fiscal year ended February 28, 1996, on revenues of $132,000 and
$1,000 respectively.
The increase in revenues is the result of obtaining information of the Company's
5% net profits interest in the Enim Oil Project. Triton foreclosed on the
Company's 5% net profits interest on August 23, 1995 which resulted in a gain of
$38,000. Further, the Company no longer has any interest in the Enim Oil
Project. The increase in earnings of $5,919,000 is the result of the settlement
of the malpractice litigation as more fully described above, the total gain of
the settlement of the malpractice litigation was $5,200,000. The receipt of
these funds from the settlement resulted in an increase of interest income of
$35,000.
Other changes in the elements of Expense included a decrease in operating and
administration costs of $536,000 as a direct result of the malpractice
litigation settlement which eliminated the counterclaims by the attorneys.
There was an increase of $55,000 in exploration expenses related to the
Company's mining claims in California.
RESULTS OF FISCAL 1996 COMPARED TO FISCAL 1995
- ----------------------------------------------
Veronex reported net losses of $779,000 ($0.30 per share) for the fiscal year
ended February 28, 1996 as compared to net losses of $4,973,000 ($2.20) per
share for the fiscal year ended February 29, 1995, on revenues of $1,000 and
$2,000 respectively.
Adverse court decisions concerning the Company's Indonesian resource properties
and the operator's (Triton) resultant foreclosure on the Company's net profits
interest therein, caused the Company to fully provide for that interest by a
charge to operations of $4,085,000 during the year ended February 28, 1995. No
such charge to operations was made during the year ended February 29, 1996.
The decrease of $38,000 in income from investing activities during fiscal 1996
was a result of total depletion of the Company's investment portfolio.
Other changes to the various elements of the Statement of Loss were a decrease
of $178,000 in operating and administration expenses principally as a result of
a move toward contingency fee-
38
<PAGE>
based legal services in the ongoing legal battles with Triton, the operator of
the Indonesian resource property, combined with cost cutting measures
necessitated by the Arbitration Award, including a decrease of $34,000 in costs
associated with maintaining shareholder awareness of the Company's legal
proceedings, a one time loan fee of $22,000, an increase of $4,000 in
exploration costs associated with the Company's California mining properties,
and an increase of $3,000 in interest expense and a decrease of $1,000 in
interest income.
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 the prices of
goods, services and personnel. 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.
Item 10. Directors and Officers of Registrant
------------------------------------
The following individuals were elected as Directors at the Company's Annual
General Meeting held May 21, 1997:
39
<PAGE>
<TABLE>
<CAPTION>
Name, Age and Other Principal Occupation or Employment
Positions Held with the Company and Occupation for the Past Five Years
- ------------------------------- --------------------------------------
<S> <C>
DAVID A. HITE President, Chairman of the Board and
President, Chairman, Chief Executive Officer of
Chief Executive Officer International Veronex Resources Ltd.;
formerly Vice President and Director
Age: 55 of Investor Relations since 1984;
Director of the Company since August
21, 1987
SANDRA M. MILLIGAN Director and Executive Assistant to
Director International Veronex Resources Ltd.
and numerous other public and private
Age: 55 corporations (1980-present); Director
of Heritage American Resource Corp.,
Bomax Resource Corp., and Poplar
Resources Ltd.; Director of the
Company since May 24, 1989
J. LEWIS DILLMAN Director of International Veronex
Director Resources Ltd. and other public and
private corporations; Chairman of the
Age: 41 Board and a Director of Poplar
Resources Ltd., Director of Heritage
American Resource Corp. Director
since August 31, 1995.
</TABLE>
Subsequent to the Annual General Meeting, Thomas J. Price and Pru Zerny were
appointed to the Company's Board of Directors on November 12, 1997. At that
time Mr. Price was also appointed as President and David A. Hite remained as
Chairman of the Board, Chief Executive Officer and Chief Financial Officer.
<TABLE>
<CAPTION>
Name, Age and Other Principal Occupation or Employment and
Positions Held with the Company Occupation for the Past Five Years
- ------------------------------- --------------------------------------
<S> <C>
THOMAS J. PRICE President and Director of the Company.
Prior to President and Director November, 1997, Mr. Price was President
of ProMax Conceptual Strategies
Age: 57
</TABLE>
40
<PAGE>
<TABLE>
<S> <C>
PRU ZERNY Ms. Zerny acts as a director of the
Director Company and also acts as an executive
administrator and VP International
Trade for Canadian International
Commerce for First Altara Capital
Corporation.
Age: 50
</TABLE>
Item 11. Compensation of Directors and Officers
--------------------------------------
Compensation Table
------------------
<TABLE>
<CAPTION>
Name of Individual and Principal capacities served Cash compensation including
number of persons in group by the named individual salaries, fees, directors' fees,
commissions and bonuses
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
David A. Hite Chairman of the Board, CEO, $350,000.00 (U.S.)*
CFO and Director
- -----------------------------------------------------------------------------------------------------
Thomas J. Price President and Director $120,000.00 (U.S.)
- -----------------------------------------------------------------------------------------------------
Michael R. Benson ** Executive Vice President $ 81,000.00 (U.S.)
- -----------------------------------------------------------------------------------------------------
Executive Officers as a $551,000.00 (U.S.)
Group: (3 persons)
- -----------------------------------------------------------------------------------------------------
</TABLE>
* Mr. Hite was paid $60,000.00 (U.S.) and a total of $290,000.00 (U.S.) has
been accrued.
** On January 13, 1998, Michael R. Benson resigned as Executive Vice
President.
On January 28, 1997, the Registrant granted to David A. Hite a directors' stock
option for a total of 140,500 shares at a price of $0.84 (Cdn.) per share
exercisable until January 28, 2002. Mr. Hite exercised the 140,500 options on
August 1, 1997.
On March 29, 1996, the Registrant granted to Michael R. Benson an employee's
stock option for a total of 20,000 shares at a price of $0.60 (Cdn.) per share
exercisable until March 29, 2001. Mr. Benson exercised the 20,000 options on
August 29, 1997.
The prices of a stock option are set at the average closing market price of the
Company's shares for a ten day period prior to the date the option is granted,
and in some circumstances, the prices at which the stock options were granted
may be less than the market price of the Company's shares on the date of
granting. The closing price of the Company's shares on the Vancouver Stock
Exchange on March 29, 1996 was $0.59 (Cdn.) and on January 28, 1997 was $0.95
(Cdn.).
There is no other employment remuneration which exceeds $60,000.00 in the
aggregate in respect of Executive Officers.
41
<PAGE>
There is no arrangement for compensation with respect to termination of
executive officers in the event of a change of control of the company. There is
no arrangement for compensating directors for their services.
No pension or retirement benefit plans have been instituted by the Company and
none are proposed at this time.
Item 12. Options to Purchase Securities from Registrant or Subsidiaries
--------------------------------------------------------------
As at July 8, 1998, the following stock options to purchase the Company's shares
were outstanding to various directors and employees:
<TABLE>
<CAPTION>
Number of Exercise Expiry
Name Shares Price (Cdn.$) Date
- --------------------- --------- ------------- ------------
<S> <C> <C> <C>
Edward L. Farber 13,658 $ 3.13 Aug. 1/1999
Philippe Niemetz 25,000 $ 8.45 Nov. 11/2002
Walter DeCanio 25,000 $ 8.45 Nov. 11/2002
Sandra M. Milligan 25,000 $ 6.58 Nov. 12/2002
J. Lewis Dillman 45,000 $ 6.58 Nov. 12/2002
Pru Zerny 10,000 $ 6.58 Nov. 12/2002
Peggy Martin 40,000 $ 6.58 Nov. 12/2002
David Wooldridge 50,000 $ 6.58 Nov. 12/2002
Jay Geier 25,000 $ 6.58 Nov. 12/2002
Gerald Lamont 20,000 $ 6.58 Nov. 12/2002
Tanuja deSilva 10,000 $ 6.58 Nov. 12/2002
Theodore G. Elser 25,000 $ 6.59 Nov. 13/2002
Wayne Walters 25,000 $ 6.59 Nov. 13/2002
Edward J. Mulleady 75,000 $ 5.44 Dec. 1/2002
Michael Miller 25,000 $ 5.94 Mar. 23/2003
Rebecca Scott 10,000 $10.44 July 15/2003
</TABLE>
Contingent Options - Two-Year Term
The following contingent, earn-out options are allocated from the Company's 1997
Contingent Stock Option Plan, the options for which shall vest on the same
contingent, earn-out basis as those reserved for contingent issuance to ProMax
Conceptual Stratagies:
<TABLE>
<CAPTION>
No. of Exercise Expiry
Name of Optionee Shares Price (Cdn. $) Date
- ----------------------- -------- -------------- -------------
<S> <C> <C> <C>
Terry Goodbody 100,000 $ 3.13 Aug. 1, 1999
Tony Speed 100,000 $ 3.13 Aug. 1, 1999
David Wilson 40,000 $ 3.13 Aug. 1, 1999
</TABLE>
42
<PAGE>
<TABLE>
<S> <C> <C> <C>
Mike Schaefer 25,000 $ 3.13 Aug. 1, 1999
Gary Caltharp 50,000 $ 3.13 Aug. 1, 1999
Jeanna Cobalis 20,000 $ 3.13 Aug. 1, 1999
Constance Cannon 25,000 $ 7.89 Oct. 6, 1999
Ed Mulleady 75,000 $ 5.44 Dec. 1, 1999
Robert E. Enright 200,000 $ 5.69 Feb. 13, 2000
Desiree Peterson 20,000 $ 5.60 Dec. 10, 1999
Phillip Harrington 40,000 $ 3.85 Jan. 22, 2000
Andrew Zide 40,000 $ 5.60 Jan. 16, 2000
Millie Egerton 20,000 $ 5.45 Mar. 13, 2000
Maxine English 20,000 $ 5.45 Mar. 13, 2000
Charles E. Armstrong 40,000 $10.33 May 27, 2000
Richard Williams 30,000 $ 9.71 June 8, 2000
Gregg Puckett 30,000 $10.71 June 22, 2000
</TABLE>
Earnout Options - Two Year-Term
-------------------------------
<TABLE>
<CAPTION>
No. of Exercise Expiry
Name of Optionee Shares Price (Cdn. $) Date
- ----------------------- -------- -------------- -------------
<S> <C> <C> <C>
John C. Lazor 20,000 $0.90 Jan. 14, 1999
Beverly Lazor-Bahr 20,000 $0.90 Jan. 14, 1999
Shirley Lazor 20,000 $0.90 Jan. 14, 1999
Siamak Elghanian 20,000 $0.90 Jan. 14, 1999
Eddie Lepkowski 20,000 $0.90 Jan. 14, 1999
Ralph T. McCabe 300,000 $0.90 Jan. 14, 1999
Art Kotowitz 20,000 $0.90 Jan. 14, 1999
Pat McNiff 20,000 $0.90 Jan. 14, 1999
Lorraine DeBaca-
Rodriguez 10,000 $0.90 Jan. 14, 1999
Pravin Parmar 20,000 $0.90 Jan. 14, 1999
Chelly D. Speed 12,000 $0.90 Jan. 14, 1999
Nina Alvarez-Shumway 12,000 $0.90 Jan. 14, 1999
</TABLE>
As at July 8, 1998, there are 502,000 outstanding share purchase warrants to
purchase shares of Veronex Technologies, Inc. In addition, further to the
September 12, 1997 financing agreement with Robb, Peck, McCooey Clearing Corp.,
the Company issued 100,400 placement agent's warrants. On May 12, 1998 the
Company cancelled the placement agent's warrants at the order of the British
Columbia Securities Commission and is currently seeking a Discretionary Order
which would allow the Company to reissue these warrants.
43
<PAGE>
Item 13. Interest of Management in Certain Transactions
----------------------------------------------
None of the Directors or Senior Officers of the Company or any subsidiary
thereof, or any associates or affiliates of any of them, is or has been indebted
to the Company at any time since the beginning of the last completed financial
year of the Company.
Other than as set forth below, none of the Directors or Senior Officers of the
Company, or any associate or affiliate of such person or company, has any
material interest, direct or indirect in any transaction during the past year or
any proposed transaction which has materially affected or will materially affect
the company.
Acquisition
- -----------
Pursuant to an agreement dated November 20, 1995, as accepted by the Vancouver
Stock Exchange on November 30, 1995, between the Company and David A. Hite and
Timothy Hite, both of Downey, California, (collectively called the "Vendors"),
the Company acquired from the Vendors, subject to a 5% net smelter return, an
option to acquire a 25% right, title and interest in and to the Alexander Star
#2 placer claim, located in the Avawatz Mining District, County of San
Bernardino, California. There was no consideration paid to the Vendors to
acquire this option.
Also pursuant to an agreement dated November 20, 1995, as accepted by the
Vancouver Stock Exchange on November 30, 1995, between the Company and David A.
Hite, Donna L. Hite, Timothy W. Hite and Bradley Hite, all of Downey, California
(collectively called the "Claim Vendors"), the Company acquired from the Claim
Vendors, subject to a 5% net smelter return, an option to acquire a 50% right,
title and interest in and to the Alexander Star #91 through 98 placer claims,
all located in the Avawatz Mining District, County of San Bernardino,
California. There was no consideration paid to the Claim Vendors to acquire
this option.
PART II
-------
Item 14. Description of Securities to be Registered
------------------------------------------
Not applicable.
PART III
--------
Item 15. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 16. Changes in Securities and Changes in Security for Registered
------------------------------------------------------------
Securities.
-----------
None.
44
<PAGE>
PART IV
-------
Item 17. Financial Statements
--------------------
See "Item 18. Financial Statements."
--------------------
Item 18. Financial Statements
--------------------
Index to Financial Statements and Supplemental Information
Page
----
Independent Auditors' Report to Shareholders ................... 46
Consolidated Financial Statements:
Consolidated Balance Sheets .................................. 47
Consolidated Statements of Shareholders' Equity (Deficit)..... 48
Consolidated Statements of Income ............................ 49
Consolidated Statements of Cash Flow ......................... 50-51
Notes to Consolidated Financial Statements ................... 52-68
Supplemental Information:
N/A
45
<PAGE>
Schvaneveldt and Company
================================================================================
Certified Public Accountant
Suite 300 - 275 East South Temple
Salt Lake City, UT 84111
Tel: (801)521-2392
Darrell T. Schvaneveldt, CPA
Independent Auditors Report
- ---------------------------
Board of Directors
Veronex Technologies, Inc.
(Formerly International Veronex Resources, Ltd.)
I have audited the accompanying balance sheets of Veronex Technologies, Inc., as
of February 28, 1998, and the related statements of operations, stockholders'
equity, and cash flows for the year ended February 28, 1998. These financial
statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit. The financial statements of Veronex Technologies, Inc., for the years
ended February 28, 1997 and February 29, 1996, were audited by other auditors
whose report thereon, dated March 14, 1997, expressed an unqualified opinion.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and the significant
estimates made by management, as well as evaluating the overall financial
statements presentation. I believe that my audit provides a reasonable basis
for my opinion.
In my opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of Veronex Technologies, Inc., as of
February 28, 1998, and the results of its operations and its cash flows for the
year ended February 28, 1998, in conformity with generally accepted accounting
principles.
"Schvaneveldt & Company"
Salt Lake City, Utah
July 14, 1998
46
Except Note 14e is
July 31, 1998
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Consolidated Balance Sheets
As at February 28, 1998 and 1997
(In U.S. Dollars)
<TABLE>
<CAPTION>
February 28, February 28,
1998 1997
<S> <C> <C>
A S S E T S
Current Assets
Cash and short term deposits $ 2,493,000 $ 1,996,000
Deposit in U.S. Court 1,209,000
Accounts receivable 130,000 12,000
Prepaid expense 17,000 22,000
----------------------------
2,640,000 3,239,000
============================
Software Acquisition and Integration Costs (note 3) 1,803,000 20,000
Resource Properties and Related Deferred Costs (note 4) 66,000 66,000
Investments (note 5) 152,000 150,000
Fixed Assets & Depreciation (note 6)
net of accumulated depreciation of $102,000 (1997-$82,000) 24,000 19,000
----------------------------
TOTAL ASSETS $ 4,685,000 $ 3,494,000
============================
L I A B I L I T I E S
Current Liabilities
Accounts payable (note 7) $ 307,000 $ 845,000
S H A R E H O L D E R S ' E Q U I T Y
Share Capital (note 8)
Authorized - 100,000,000 (1997 - 100,000,000) common
shares without par value
Issued - 6,897,501 (1997 - 5,355,001) shares 50,508,000 47,628,000
Deficit (46,130,000) (44,979,000)
----------------------------
4,378,000 2,649,000
----------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,685,000 $ 3,494,000
============================
</TABLE>
APPROVED BY THE BOARD Nature of Operations (note 1)
"David A. Hite" Director Contingencies and Commitments (note 12)
"Sandra M. Milligan" Director
The accompanying notes are an integral part of these consolidated financial
statements
47
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Consolidated Statements of Shareholders' Equity
For the Years ended February 28, 1998, February 28, 1997 and February 29, 1996
(In U.S. Dollars)
<TABLE>
<CAPTION>
Shares Issued Share Capital Deficit
<S> <C> <C> <C>
Balance - February 28, 1995 2,503,774 $ 46,741,000 $ 49,340,000
Loan fee for advances from director 57,768 20,000
Issued for mineral property 100,000 66,000
Allotted but not issued for fee on loan payable 6,654 2,000
Net loss 779,000
-----------------------------------------------
Balance - February 29, 1996 2,668,196 46,829,000 50,119,000
Issued in a public offering 2,300,000 654,000
Issued in a private placement 250,000 91,000
Issued on exercise of options 136,805 54,000
Net (income) (5,140,000)
-----------------------------------------------
Balance - February 28, 1997 5,355,001 47,628,000 44,979,000
Issued in a private placement 502,000 1,614,000
Issued on the exercise of options 530,500 270,000
Issued for software technology 300,000 519,000
Issued for subsidiary company 200,000 454,000
Issued as a finder's fee 10,000 23,000
Net loss 1,151,000
-----------------------------------------------
Balance - February 28, 1998 6,897,501 $ 50,508,000 $ 46,130,000
-----------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
48
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Consolidated Statements of Income
For the Years ended February 28, 1998, February 28, 1997 and February 29, 1996
(In U.S. Dollars)
<TABLE>
<CAPTION>
Year ended Year ended Year ended
February 28, February 28, February 29,
1998 1997 1996
<S> <C> <C> <C>
Revenue
Software sales, royalties and services $ 294,000
Oil and gas revenue $ 132,000 $ 1,000
----------------------------------------------
294,000 132,000 1,000
----------------------------------------------
Expenses
Software marketing costs 669,000
Operating and administration 855,000 164,000 700,000
Depletion and depreciation 6,000 6,000 5,000
Interest expense 4,000 26,000 52,000
Loan fees 22,000
Exploration expense (1,000) 59,000 4,000
----------------------------------------------
1,533,000 255,000 783,000
Other expense (Income)
Investing activities 10,000 10,000 (3,000)
Interest (98,000) (35,000)
Sale of oil and gas interest (38,000)
Gain on settlement with former attorneys (5,200,000)
----------------------------------------------
1,445,000 (5,008,000) 780,000
----------------------------------------------
Earnings (Loss) for the Year (1,151,000) 5,140,000 (779,000)
==============================================
Earnings (Loss) per Share (0.19) 0.99 (0.30)
==============================================
Weighted Average Number of Shares 6,118,000 5,187,000 2,577,000
==============================================
Fully Diluted Earnings per Share N/A 0.94 N/A
==============================================
Fully Diluted Weighted Average Number
of Shares N/A 5,452,000 N/A
==============================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
49
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Consolidated Statements of Cash Flow
For the Years ended February 28, 1998, February 28, 1997 and February 29, 1996
(In U.S. Dollars)
<TABLE>
<CAPTION>
Year ended Year ended Year ended
February 28, February 28, February 29,
1998 1997 1996
<S> <C> <C> <C>
Cash Provided by (Used for)
Operating Activities
Earnings (loss) for the year $(1,151,000) $ 5,140,000 $ (779,000)
Items not affecting cash:
Depletion and depreciation 6,000 6,000 5,000
Investing Activities 10,000 10,000 (3,000)
Loan fees paid by issuing common shares 22,000
--------------------------------------------
(1,135,000) 5,156,000 (755,000)
Changes in non-cash working capital:
Accounts receivable and prepaid expense (113,000) (29,000) 5,000
Accounts and loans payable (538,000) (2,365,000) 580,000
--------------------------------------------
(1,786,000) 2,762,000 (170,000)
--------------------------------------------
Financing Activities
Due to related parties (182,000) 122,000
Share capital issued for cash 1,884,000 799,000
--------------------------------------------
1,884,000 617,000 122,000
--------------------------------------------
Investing Activities
Sale (acquisition) of investments (12,000) (150,000) 13,000
Software acquisition and integration costs (787,000) (20,000)
Fixed assets (11,000) (10,000)
(810,000) (180,000) 13,000
--------------------------------------------
Change in Cash and Short-Term
Deposits (712,000) 3,199,000 (35,000)
Cash and Short-term Deposits:
Beginning of Year 3,205,000 6,000 41,000
--------------------------------------------
Cash and Short-term Deposits:
End of Year $ 2,493,000 $ 3,205,000 $ 6,000
============================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
50
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Consolidated Statements of Cash Flow - Supplemental Information
For the Years ended February 28, 1998, February 28, 1997 and February 29, 1996
(In U.S. Dollars)
<TABLE>
<CAPTION>
Year ended Year ended Year ended
February 28, February 28, February 29,
1998 1997 1996
<S> <C> <C> <C>
Non-cash Financing Activities
Share capital issued for mineral property $ 66,000
Share capital issued for software systems $ 519,000
Share capital issued for subsidiary 454,000
Share capital issued as a finder's fee 23,000
---------------------------------------------
$ 996,000 $ 66,000
=============================================
Non-cash Investing Activities
Acquisition of mineral property $ (66,000)
Acquisition of software systems $ (519,000)
Acquisition subsidiary (454,000)
Finder's fee (23,000)
---------------------------------------------
$ (996,000) $ (66,000)
=============================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
51
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1998, February 28, 1997 and February 29, 1996
(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 1997, and the merger documents were filed with the California
Secretary of State in September, 1997. PCS had no assets, liabilities and
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 at
February 28, 1998 and the operations of Mainstream for the period August 1,
1997 to February 28, 1998.
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
52
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1998, February 28, 1997 and February 29, 1996
(In U.S. Dollars)
1. CORPORATE HISTORY (cont.)
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.
Effective February 1, 1998, the Company signed its first Strategic Alliance
Agreement to License the I|Nova System to VentureTech 2000, Inc.,
("VentureTech 2000"). 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 Systems and these revenues are received by Veronex. (see Note
#14 - Subsequent Events)
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.
2. SIGNIFICANT ACCOUNTING POLICIES
a. 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 the United
States. Application of Canadian generally accepted accounting principles
would not result in any material differences to the consolidated financial
statements.
53
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1998, February 28, 1997 and February 29, 1996
(In U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
b. 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.
c. 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.
d. Investments
-----------
Investments are recorded at cost unless there is a decline in market value
that is other than temporary.
e. Revenues Recognition
--------------------
The Company recognizes revenues 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.
f. 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.
54
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1998, February 28, 1997 and February 29, 1996
(In U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
g. 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.
h. Currency Translation
--------------------
The Company uses the temporal method of currently 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.
i. 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, SFAS No., 128, "Earnings Per Share" was issued effective
for periods ending after December 15, 1997. There is no impact on the
Company's financial statements from adoption of SFAS No., 128.
j. 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
equal to the straight-line amortization over the remaining estimated
economic life of the product.
k. 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. On occasion, the Company has cash in banks
in excess of federally insured amounts.
55
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1998, February 28, 1997 and February 29, 1996
(In U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
l. 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 February 28, 1998, cash on
deposit at these financial institutions exceeded federally insured amounts
by approximately $2,400,000. 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.
<TABLE>
<CAPTION>
1998 1997
---------------------
<S> <C> <C>
Costs to acquire the components:
The I|Nova System $ 86,000 $20,000
The Archidata System 454,000 0
The infrastructure (Maintream) 409,000 0
Costs to integrate the components:
Personnel 663,000 0
Office and related 191,000 0
---------------------
Total 1,803,000 20,000
=====================
</TABLE>
4. NATURAL RESOURCES & RELATED LITIGATION
a. Details of natural resource properties are as follows:
1998 1997
----- -----
Mineral Property $66,000 $66,000
56
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1998, February 28, 1997 and February 29, 1996
(In U.S. Dollars)
4. NATURAL RESOURCES & RELATED LITIGATION (cont.)
b. Litigation
----------
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 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.
57
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1998, February 28, 1997 and February 29, 1996
(In U.S. Dollars)
4. NATURAL RESOURCES & RELATED LITIGATION (cont.)
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.
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 determinable 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 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 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.
58
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1998, February 28, 1997 and February 29, 1996
(In U.S. Dollars)
4. NATURAL RESOURCES & RELATED LITIGATION (cont.)
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, former officers of Triton Energy Corporation ("Triton Energy"), and
William McClure and Robert P. Murphy, 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 government employees for
the purpose of influencing their decisions affecting the business of Triton
Indonesia. The SEC's Order finds that these payments were make 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).
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,
knowing 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.
59
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1998, February 28, 1997 and February 29, 1996
(In U.S. Dollars)
4. NATURAL RESOURCES & RELATED LITIGATION (cont.)
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
District 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 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.
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
Bernadino 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 Bernadino,
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.
60
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1998, February 28, 1997 and February 29, 1996
(In U.S. Dollars)
4. NATURAL RESOURCES & RELATED LITIGATION (cont.)
(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
Bernadino 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 February 28, 1998, the Company has incurred $59,000 in
exploration costs on these properties.
5. INVESTMENTS
<TABLE>
<CAPTION>
Number Amount Market Value
1998 1997 1998 1997 1998 1997
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EMB Corporation 50,000 50,000 150,000 150,000 150,000 150,000
Semper Resources
Ltd. 5,000 0 2,000 0 2,000 0
-------------------------------------------------------
Totals 152000 150000 152000 150000
=======================================================
</TABLE>
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 declining balance method of
depreciation.
Schedule below are the assets, costs, lives, and accumulated depreciation
at February 28, 1998 and February 28, 1997.
<TABLE>
<CAPTION>
February 28, Depreciation Accumulated
1998 1997 Expense Depreciation
Cost Cost 1998 1997 1998 1997
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Furniture, Fixture &
Computer Equipment $126,000 $101,000 $6,000 $6,000 $102,000 $82,000
--------------------------------------------------------
Total $126,000 $101,000 $6,000 $6,000 $102,000 $82,000
========================================================
</TABLE>
61
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1998, February 28, 1997 and February 29, 1996
(In U.S. Dollars)
7. ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
February February
28, 1998 28, 1997
--------------------
<S> <C> <C>
Arbitration Award (see notes #1 & #3) $ 0 $762,000
Legal Fees 0 50,000
Accrued Management Salaries 230,000 0
Trade and Other 77,000 33,000
--------------------
Totals $307,000 $845,000
====================
</TABLE>
8. SHARE CAPITAL
a. The authorized share capital of the Company is 100,000,000 without
par value.
<TABLE>
<CAPTION>
Number of Shares (issued or allotted): February February
28, 1998 28, 1997
---------------------
<S> <C> <C>
Balance - beginning of year 5,355,001 2,668,196
Issued to the public 0 2,300,000
Private Placements 502,000 250,000
Issued for exercise of stock options 530,500 136,805
Issued for software technology 300,000 0
Issued for subsidiary company 200,000 0
Issued as a finders fee 10,000 0
---------------------
Totals 6,897,501 5,355,001
=====================
</TABLE>
During the year ended February 28, 1998, the company:
(i) Issued 502,000 shares at US $4.00 per share for net proceeds of
US $1,614,800 (Cdn $2,284,984) by way of private placement
(ii) Issued 530,500 shares at an average Cdn $0.70 for proceeds of Cdn
$373,920 on the exercise of share purchase options
62
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1998, February 28, 1997 and February 29, 1996
(In U.S. Dollars)
8. SHARE CAPITAL (cont.)
b. Common share purchase options are outstanding; expiring at various
dates to December 1, 2002 for 498,658 (1997 - 530,500; 1996 - 235,377;
1995 -182,120) common shares at prices between Cdn $3.13 and Cdn $8.45
per share.
<TABLE>
<CAPTION>
<S> <C>
Outstanding stock options as of February 28, 1998:
Exercise price:
Less than Cdn $6.00 per share 93,658
Between Cdn $6.00 and Cdn $8.00 per share 355,000
Greater than Cdn $8.00 per share 50,000
-------
Totals 498,658
=======
</TABLE>
<TABLE>
Number of Options: February 35488 35123
28, 1998
-------------------------------
<S> <C> <C> <C>
Outstanding -beginning of year at average price
of Cdn. $0.70 (1997 - Cdn $0.79; 1996 - Cdn
$0.96) 530,500 235,377 182,120
Granted during the year at an average price of
Cdn $6.53 (1997 - Cdn. $0.68; 1996 - Cdn $0.65) 618,658 455,500 83,257
Exercised at an average price of Cdn $0.70 (1997
- Cdn. $0.70) (530,500) (136,805) 0
Expired or cancelled during the year at an
average price of Cdn. $6.68 (1997 - Cdn. $1.10) (120,000) (23,572) (30,000)
-------------------------------
Totals 498,658 530,500 235,377
===============================
</TABLE>
c. During the year ended February 28, 1998 the Company:
(i) granted 618,658 (1997 - 455,500; 1996 - 83,247) options at
exercise prices ranging from Cdn $3.13 to Cdn $8.45 per share,
expiring between August 7, 2002 and November 13, 2002.
(ii) amended the exercise price on Nil (1997 - 118,257; 1996 -
177,120) options
(iii) Cancelled 120,000 (1997 - 23,572; 1996 - 30,000) options
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.
63
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1998, February 28, 1997 and February 29, 1996
(In U.S. Dollars)
8. SHARE CAPITAL (cont.)
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.
These warrants may be redeemed by the Company at US $0.10 subject to
certain conditions and approvals (see Note #14 - Subsequent Events).
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 at February 28, 1997, 1,315,000 of these contingent
options have been allocated at an average exercisable price of Cdn
$2.82 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.
<TABLE>
35853 35488 35123
------------------------------------
<S> <C> <C> <C>
Tax at statutory rates $(92,000) $ 230,700 $(350,000)
Resource deductions claimed 0 (2,357,000) 0
Salary expense previously expensed for
accounting purposes, now claimed for income
tax purposes 0 (568,000) 0
Losses not recognized for income tax purposes 92,000 618,000 350,000
-----------------------------------
NIL NIL NIL
===================================
</TABLE>
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.
64
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1998, February 28, 1997 and February 29, 1996
(In U.S. Dollars)
9. INCOME TAXES (cont.)
Income tax losses of the Company and its Subsidiaries, included above,
expire as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 Cdn $275,000
2001 929,000
2002 934,000
2003 614,000
2004 1,315,000
----------
Total $4,067,000
==========
</TABLE>
10. SEGMENTED INFORMATION
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 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.
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 year ended February 28, 1998, management and secretarial
fees of $10,000 (1997 -$18,000; 1996 - $40,000) were paid to a Company
controlled by a director of the Company.
b. During the year ended February 28, 1998, accounting fees of $2,000
(1997 - $10,000; 1995 - NIL) were paid to an officer of the Company.
c. Included in accounts payable is approximately $230,000 (1997 - $NIL;
1996 - $980,000) 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)
65
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1998, February 28, 1997 and February 29, 1996
(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 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, as 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 year
ended February 28, 1998, the Company's pro forma net loss and pro
forma loss per share have been calculated to be $620,000 and $0.10,
respectively. For the year ended February 28, 1997, the Company's pro
forma net earnings and pro forma earnings per share were calculated to
be $4,998,000 and $0.97, respectively.
66
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1998, February 28, 1997 and February 29, 1996
(In U.S. Dollars)
12. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (cont.)
Pro forma fully diluted loss per share for the year ended February 28,
1998, has not been calculated as it would be anti-dilutive. Pro forma
fully diluted earnings per share for the year ended February 28, 1997,
was calculated to be $0.92.
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 $18,480
September 30, 1999 33,545
-------
Total $52,025
=======
</TABLE>
Other office facilities in California and Vancouver, Canada are rented
on a month to month basis.
67
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1998, February 28, 1997 and February 29, 1996
(In U.S. Dollars)
14. SUBSEQUENT EVENTS
a. Subsequent to the year end the Company has entered into three
Strategic Alliance Agreements to License the I|Nova System.
b. Subsequent to the year end the Company has issued 80,000 shares at a
price of Cdn $6.58 for proceeds of Cdn $526,400 on the exercise of
share purchase options.
c. Subsequent to the year end the Company has issued share purchase
options for 20,000 shares exercisable at a price of Cdn $5.94 expiring
March 23, 2003.
d. Subsequent to the year end, on May 12, 1998, the Company cancelled the
placement agent's warrants referred to in the note 7(d) at the order
of the British Columbia Securities Commission. The Company is
currently seeking a Discretionary Order which would allow the Company
to reissue these warrants. In the event the Discretionary Order is not
granted it is the Company's intention to compensate the placement
agent in an alternative manner for its services.
e. At varying dates subsequent to the year end, the Company commenced
litigation proceedings and became a party to arbitration proceedings
against certain of its former employees, one of which arbitration
proceedings was settled. 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.
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. 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 to the present and proposed products and services of the
company, (ii) the products and services may not be marketed effectively by
the Company, and (iii) potential customers may find other products and
services more suitable for the applications marketed by the Company, as
well as other risks that may cause such statements not to prove accurate.
Any projections or estimates herein may assume certain economic and
industry conditions and parameters subject to change.
68
<PAGE>
Item 19. Financial Statements and Exhibits
---------------------------------
Sequentially
Exhibit Numbered
Number Exhibit Page
------- ------- --------
3 Articles of Incorporation and By-laws of the Registrant
are incorporated by reference to Exhibit 1 to the
Registrant's Annual Report on Form 20-F for the fiscal
year ended February 28, 1985.
4 None.
9 None.
10(a) Agreement of Sale dated July 12, 1995 between the
Registrant and Martin J. Garo, Barbara A. Garo, Daniel
R. Garo, Kevin W. Garo, Joe Jones, Damon Young, Lisa
Anderson and Timothy O'Connor whereby the Registrant
acquired four placer mining claims, all situate in
Avawatz Mining District, County of San Bernardino,
State of California, United States of America is
incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended
February 28, 1995
10(b) Director's Stock Option Agreement dated January 28,
1997 between the Registrant and David A. Hite is
incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended
February 28, 1997
10(c) Director's Stock Option Agreement dated January 30,
1997 between the Registrant and Sandra M. Milligan
is incorporated by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year
ended February 28, 1997
10(d) Director's Stock Option Agreement dated November 12,
1997 between the Registrant and J. Lewis Dillman is
incorporated by reference to the Registrant's Annual
Report on Form 20-F for the fiscal year ended February
28, 1998, filed with the Securities & Exchange Commission
on July 20, 1998.
10(e) Director's Stock Option Agreement dated November 12, 1997
between the Registrant and Pru Zerny is incorporated by
reference to the Registrant's Annual Report on Form 20-F
for the fiscal year ended February 28, 1998, filed with
the Securities & Exchange Commission on July 20, 1998.
10(f) Director's Stock Option Agreement dated November 12, 1997
between the Registrant and Sandra M. Milligan is
incorporated by reference to the Registrant's Annual
Report on Form 20-F for the fiscal year ended February 28,
1998, filed with the Securities & Exchange Commission on
July 20, 1998.
10(g) Employees Stock Option Agreement dated November 12, 1997
between the Registrant and Peggy Martin is incorporated
by reference to the Registrant's Annual Report on Form
20-F for the fiscal year ended February 28, 1998, filed
with the Securities & Exchange Commission on July 20, 1998.
10(h) 1997 Contingent Stock Option Plan is incorporated by
reference to the Registrant's Annual Report on Form 20-F
for the fiscal year ended February 28, 1998, filed with
the Securities & Exchange Commission on July 20, 1998.
10(i) Agreement of Sale dated November 20, 1995 between the
Registrant and David A. Hite and Timothy Hite whereby the
Registrant acquired the Alexander Star #2 Claim, comprised
of 160 acres and located in San Bernardino, California is
incorporated by reference to the Registrant's Annual Report
on Form 10-K for the fiscal year ended February 29, 1996
69
<PAGE>
10(j) Agreement of Sale dated November 20, 1995 between the
Registrant and David A. Hite, Donna L. Hite, Timothy W.
Hite and Bradley Hite whereby the Registrant was granted
an option to acquire eight placer mining claims known as
the Alexander Star #91-98 Claims, all l,280 acres and
located in San Bernardino, California is incorporated by
reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended February 29, 1996
10(k) Amending Agreement dated April 1, 1997 to the Property
Purchase Agreement dated January 14, 1997 between the
Registrant and Thomas J. Price, extending the date for
receipt of all requisite regulatory approvals from June 30,
1997 to December 31, 1997 is incorporated by reference to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended February 28, 1997
10(l) Property Purchase Agreement dated January 14, 1997 between
the Registrant and Thomas J. Price whereby the Registrant
will acquire a 100% interest in and to certain software
technology and intellectual property created by Thomas J.
Price, known as the Automated Information Management (the
"AIM Technology") is incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended February 28, 1997
10(m) Property Purchase Agreement effective August 1, 1997
between the Registrant and Terry G. Goodbody whereby the
Registrant acquired a 100% interest in and to certain
proprietary intellectual property created by Goodbody,
known as the Archidata Technology is incorporated by
reference to the Registrant's Annual Report on Form 20-F
for the fiscal year ended February 28, 1998, filed with the
Securities & Exchange Commission on July 20, 1998.
10(n) Stock Purchase Agreement dated the August 1, 1997 between
the Registrant and Thomas A. Speed whereby the Registrant
acquired a 100% interest in and to Mainstream Technologies,
Inc., a California corporation is incorporated by
reference to the Registrant's Annual Report on Form 20-F
for the fiscal year ended February 28, 1998, filed with the
Securities & Exchange Commission on July 20, 1998.
11 For Statement re computation of share earnings, refer to
Consolidated Financial Statements for the Years ended
February 28, 1998, February 28, 1997 and February 29, 1996
for the Registrant which are incorporated by reference to
the Registrant's Annual Report on Form 20-F for the fiscal
year ended February 28, 1998, filed with the Securities &
Exchange Commission on July 20, 1998.
12 Not Applicable.
13 Forms 10-Q for the periods ended May 31, 1997, August 31,
1997 and November 30, 1997 are incorporated by reference
to filings with the Securities & Exchange Commission on
July 10, 1997, October 20, 1997 and January 5, 1998,
respectively. Additionally a Form 10-Q/A was filed for
the period ended August 31, 1997 on December 24, 1997 and
a Form 10-Q/A was filed for the period ended November 30,
1997 on January 8, 1998.
18 Letter concerning change in accounting principles from
Coopers & Lybrand dated May 28, 1990 is incorporated by
reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended February 28, 1990 filed on May 28,
1990.
19 None.
22 Subsidiaries of the registrant is incorporated by reference
to the Registrant's Annual Report on Form 20-F for the
fiscal year ended February 28, 1998, filed with the
Securities & Exchange Commission on July 20, 1998.
70
<PAGE>
23 Draft Notice of Annual General Meeting, Information
Circular and Proxy is incorporated by reference to the
Registrant's Annual Report on Form 20-F for the fiscal
year ended February 28, 1998, filed with the Securities &
Exchange Commission on July 20, 1998.
24(a) Consent Letter from Schvaneveldt and Company consenting to
the inclusion of the Auditors' Report dated July 14, 1998
of the Consolidated Financial Statements of the Registrant
for the years ended February 28, 1998, February 28, 1997
and February 29, 1996 is incorporated by reference to the
Registrant's Annual Report on Form 20-F for the fiscal year
ended February 28, 1998, filed with the Securities &
Exchange Commission on July 20, 1998.
25 None.
28(a) A Form 8-K was filed on August 26, 1997 announcing the
acquisition of Mainstream Technologies, Inc.
28(b) A Form 8-K was filed on November 20, 1997 announcing the
completion of a private placement agreement with Robb,
Peck, McCooey Clearing Corporation, a New York Stock
Exchange Member investment banking firm.
28(c) A Form 8-K was filed on June 24, 1998 announcing the
resignation of Coopers & Lybrand as the Company's auditors.
71
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this annual report to be signed on its behalf
by the undersigned, thereunto duly authorized.
VERONEX TECHNOLOGIES, INC.
Date: July 31, 1998 By: /s/ Thomas J. Price
_______________________
Thomas J. Price
President
Date: July 31, 1998 By: /s/ Peggy Martin
_______________________
Peggy Martin
Secretary
72
