SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K/A
REPORT OF FOREIGN ISSUER
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 19, 1999
--------------------
VERONEX TECHNOLOGIES, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
British Columbia, Canada #0-13967 95-4235375
- ---------------------------------------------------------------------------
(State of other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
#1505 - 800 West Pender Street,
Vancouver, British Columbia, Canada V6C 2V6
- ---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (604) 647-2225
---------------
N/A
-------------------------------------------------------------------------
(Former name or former address, if changed since last report)
Item 1 - Changes in Control of Registrant
- ------ --------------------------------
N/A.
Item 2 - Acquisition or Disposition of Assets
- ------ ------------------------------------
N/A.
Item 3 - Bankruptcy or Receivership
- ------ --------------------------
N/A.
Item 4 - Changes in Registrant's Certifying Accountant
- ------ ---------------------------------------------
N/A.
Item 5 - Other Events
- ------ ------------
N/A.
Item 6 - Resignations of Registrant's Directors
- ------ --------------------------------------
N/A.
Item 7 - Financial Statements and Exhibits
- ------ ---------------------------------
Six month period ended August 31, 1999 and August 31, 1998.
2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- --------------------------------------------------------------------------
General
- -------
Veronex Technologies, Inc.(the Company) (OTCBB:VXTK) is a public company
whose stock trades on the NASD over the counter electronic bulletin board
under the symbol VXTK. The Company had 8,374,766 shares issued and
outstanding as of August 31, 1999 with the potential for 25.5 million
shares to be outstanding on a fully diluted basis.
Veronex is utilizing its assets and strategic planning resources to focus
on building a business application software company. The Company's strategy
is to focus on providing the most flexible business application development
software which can substantially reduce the costs of an enterprise's
software application development and maintenance.
In a series of planned acquisitions, Veronex has orchestrated the creation
and integration of unique niche, patent pending, technologies designed to
reduce the impact of enormous industry dependence on legacy software
applications in mainframe computers by eliminating source code redundancy.
A fortuitous benefit of Veronex's I/Nova System technology is a built-in
solution to the Year 2000 problem in COBOL based applications. The possible
effect and extent of the Y2k problem is feared by industry and government
organizations worldwide as is expected to impact applications system into
the foreseeable future. Veronex has now established relationships with 9
strategic partners, 6 teaming partners, 2 European distributors, 3
technical alliances and selected end-user customers and is poised for
success.
Company Background
- ------------------
Founded in 1974 in the Province of British Columbia, Canada, Veronex is a
Canadian company with operations in Canada, the United States of America
and the Philippines. As a publicly traded corporation, Veronex is a fully
registered and reporting company in the United States. In late 1996,
Veronex initiated an aggressive strategy to transition to a software
application development company. The growing and lucrative business
application software industry offers unlimited opportunities as we move
into the new millennium. Impetus for this transition has been fuelled by
global concerns and opportunities surrounding the Year 2000 rollover impact
on antiquated legacy software systems.
New Opportunity Strategy
- ------------------------
As part of an on-going program to analyze alternative investment
strategies, Veronex management and consultants identified several emerging
opportunities in the business application software industry. Following a
period of investigation and due diligence, Veronex elected to move into the
software industry. In 1996, Veronex management began implementing a long-
term strategy to acquire and develop a software application development
company focused on acquiring the most flexible business application
software available. Management believes that an added advantage of flexible
application development software would be the ability to reduce the long-
term maintenance costs of legacy business software systems. Currently, the
highest cost of software is not in its development or purchase but rather
in its continued maintenance.
3
So-called "Legacy Software Systems" were developed using first and second
generation languages which lacked flexibility. Further, these legacy
systems were developed using what have become outdated, obsolete
proprietary software programming languages which have never been updated.
While business applications involved in legacy software systems are still
valid and functional, there exists a real need for a new generation of non-
technical business application software which is not bound to any
"programming language." Veronex's I/Nova System is the best answer to this
multi-billion dollar problem.
At the same time Veronex was making the transition to a software
application company, the Year 2000 ("Y2k") Problem (a problem which is
indicative of the larger legacy software systems maintenance issues) began
to dominate the software industry marketplace. Veronex believes that the
Y2k problem can easily be resolved by the I/Nova System and this solution
can be leveraged to bring attention to the Company's flexible software and
to its overall approach to lowering software maintenance costs.
The Company identified three essential elements for the successful
implementation of its strategic business plan:
1. A flexible business application software which is not language
dependent;
2. An automated software migration tool (analyzer) capable of identifying
and eliminating code redundancy which can be adapted to a workstation
and supporting tool-set to implement the analyzer and repair
capability; and
3. A database interface compatible with all popular database solutions
including Oracle, Sybase and DB2.
A thorough evaluation of existing firms and technology resulted in the
identification of three software tools that collectively would satisfy the
desired elements:
1. Pro-Max Conceptual Strategies, Inc. which had an automated information
management system (I/Nova System);
2. Mainstream Technologies, Inc. which had an established customer base
and technical support infrastructure; and
3. ArchiData Systems, Inc. which had a Y2k certified compliant
methodology.
4
Using profits from concluded natural resource investments, the Company paid
off all debt in 1996. In January 1997 Veronex made its first, planned
technology acquisition by entering into a Property Purchase Agreement to
acquire software technology including an automated information manager, an
information management application system, and a source program analyzer.
This technology became the heart of the I/Nova System, a fully integrated
business application software and analysis tool-set capable of solving the
Y2k Problem, repairing legacy computer programs and/or migrating existing
COBOL legacy system to the I/Nova System.
After acquiring the I/Nova System technology, Veronex extensively further
developed the migration analyzer to transition it into a Y2k solution
tool. Veronex has applied for a patent on the developed source program
analyzer, named the DataCentric Analyzer.
The second Veronex acquisition in business software occurred in August 1997
when the Company purchased Mainstream Technologies, Inc. Mainstream
provides specialized software development and publishing capabilities and
extends the Veronex client set to include industry leaders such as BASF
Corporation. The addition of Mainstream Technologies significantly enhanced
Veronex's technical and facility resources in preparation for the launch of
the I/Nova System.
The I/Nova System tool-set offers COBOL legacy source code analysis,
repair, standardization and reduction to the Y2k marketplace and beyond.
The Veronex tool-set delivers its clients a return on their software
investment by streamlining information system maintenance budgets and
positioning a business to address future application requirements.
The third acquisition, in August 1997, was the purchase of ArchiData
Systems, Inc.'s technology. ArchiData Systems' technology is compatible
with all popular database solutions. Coupled with the I/Nova Data Centric
Analyzer, Veronex's business software products and services enable
companies to standardize and revitalize their COBOL legacy systems.
Revitalization or reduction in the volume of source code and data
substantially reduces the cost of information system maintenance.
Veronex has now concluded the merging and integration of these
technologies. The Company is offering select clients an early opportunity
to experiment with the I/Nova System on a trial basis. Contracts in place
and in negotiation with major industry and government organizations
anticipate a rapid expansion of Veronex's products and services worldwide
as global industries move toward the new millennium.
Strategic Objectives
- --------------------
Veronex's mission is to establish the Company as the business software
tools provider of choice for the new millennium. Since a by-product of the
Veronex software cost reduction tool-set (I/Nova System) is a ready
solution to the Y2k problem, one of the Company's strategic objectives is
to emphasize the I/Nova System tool-set's Y2k solution capabilities. By
introducing Veronex's I/Nova tool-set as the next generation software for
reducing software maintenance costs and solving the Y2k legacy source code
problems, Veronex has been able to leverage into the full capabilities
available with this product.
5
Concurrently, Veronex initiated an end-user sales effort to establish the
I/Nova System's unique application development capabilities in a manner
consistent with its objective to establish the I/Nova System as the
business software tool-set of choice for the new millennium. In May 1999
the Company entered into an agreement to develop an e-commerce system for a
consortium of banks in the Asian Pacific Region. The e-commerce system is a
trade point system for businesses in the entire Asian Pacific Region which
will initially include approximately 6,000 banks in 33 countries with more
than 10,000,000 business enterprises as clients.
I/Nova System
The I/Nova System provides a legacy application modernizing tool, an
application migration tool and a code-less application development tool.
Collectively this tool-set boosts the competitive ability of its users by
radically simplifying the development, integration, deployment, and
management of their enterprise applications.
The I|Nova System technology consists of three (3) separate tools which are
seamlessly integrated:
1. The DataCentric Analyzer - Legacy Modernizing Tool (also Y2k solution
tool)
2. The Rapid Application Development System - Code-less RAD Tool
3. The Application Manager - Platform Independent Deployment Tool
These three tools can be used as a set or individually to accomplish the
goals of the enterprise's information network. More importantly, to the
enterprise seeking to achieve a distributed network application, the
DataCentric Analyzer can be used in conjunction with the Rapid Application
Development System and Application Manager(s) to seamlessly migrate
existing proven legacy applications to a client/server environment allowing
developers to adopt distributed applications without being hampered by
"legacy" management ideas. The I/Nova Application Manager allows the IT
professional to port a single application to a wide variety of platforms
thus obviating application integration.
The I/Nova DataCentric Analyzer is able to optimize existing applications
by eliminating redundant source code and by standardizing source code
definitions, which facilitates application integration and migration. The
I/Nova DataCentric Analyzer can seamlessly migrate existing mainframe MVS-
COBOL applications to a client/server platform. Unique in its data-centric
approach to application management, I/Nova provides the capabilities that
organizations need to successfully deploy and manage distributed
applications.
The I/Nova System allows developers to transfer their detailed
understanding of the applications to a production environment, ensuring
that their applications, once running, will provide the competitive
advantage that their business requires. With ongoing and pro-active
monitoring - based on the information needs management defines as critical
to the application - management can be sure that their applications are
always under control regardless of the stresses and strains placed upon
them. Finally, as applications change over time to answer the changing
demands of business enterprises, I/Nova provides an efficient and effective
means to manage that change and maintain the control necessary for a
competitive advantage.
6
The I/Nova System can read existing legacy applications and automate
management tasks by leveraging the information that has been modeled into
them. Pro-active measures can be taken in response to real-time business
environment changes. The I/Nova System architecture provides a repository
for application configuration and performance information, and methods to
capture that information from your application. Through a unique series of
modules and interfaces, I/Nova also provides critical status information
and empowers management with the capability to change applications on
demand, thereby ensuring their business is taking maximum advantage of its
applications.
The I/Nova System's many dynamic features created by its unique approach to
modernizing and/or migrating existing applications and to developing new
applications make it a very usable software tool-set. The I/Nova System's
DataCentric Analyzer provides an automated modernization and migration
solution for existing "legacy" applications allowing users the opportunity
to modernize and then migrate existing proven applications to a
client/server environment.
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.
As of August 31, 1999 the Company had working capital of $14,182,000.
Further, Veronex 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 Veronex
Technologies, Inc. (the "Company") and management's expectations,
intentions, plans and beliefs, including those contained in or implied by
"Management's Discussion and Analysis of Financial Conditions and Results
of Operations" and the Notes to Consolidated 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 Veronex'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 Veronex; (ii) the products and services
may not be marketed effectively by Veronex; (iii) potential customers may
find other products and services more suitable for the applications
marketed by Veronex; (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
7
</Page>
solely those of Veronex Technologies, Inc. and are subject to change
without notice. Actual results could differ materially from those
expressed in or implied by such statements due to a number of factors
including those described in the context of such forward-looking
statements.
RESULTS OF THE THREE MONTHS ENDED AUGUST 31, 1999 COMPARED TO THE THREE
MONTHS ENDED AUGUST 31, 1998
- ------------------------------------------------------------------------
Veronex reported net income of $1,501,000 ($0.18 per share) and a net loss
of $1,066,000 ($0.15 per share) for the three months ended August 31, 1999
and 1998, respectively on revenues of $2,201,000 and $Nil, respectively.
During the three months ended August 31, 1999, the Company recorded revenue
of $2,000,000 from the licensing and maintenance of its software products.
An additional $201,000 of revenue was generated by the Company's e-commerce
system. Offsetting this revenue is $456,000 in software marketing costs
and $24,000 in amortization of costs previously capitalized as software
acquisition and integration costs.
The decrease in administration costs was the result of lower professional
fees which decreased $198,000 as a result of reduced legal fees and
shareholder relations costs decreased by $67,000. Office and travel costs
decreased by $37,000 and $11,000, respectively reflecting the Company's
established position in the software industry.
The Company did not incur any expenditures on its California gold
properties during the three months ended August 31, 1999. The Company
incurred $18,000 in interest expense related to the $800,000 loan from a
related company. Other changes to the various elements of the Statements
of Income (Loss) were an increase of $81,000 in net investment income.
RESULTS OF THE SIX MONTHS ENDED AUGUST 31, 1999 COMPARED TO THE SIX MONTHS
ENDED AUGUST 31, 1998
- ---------------------------------------------------------------------------
Veronex reported net income of $5,180,000 ($0.65 per share) and $183,000
($0.03 per share) for the six months ended August 31, 1999 and 1998,
respectively on revenues of $7,201,000 and $2,083,000, respectively.
During the six months ended August 31, 1999, the Company recorded revenues
of $7,000,000 from the licensing and maintenance of its software products.
An additional $201,000 of revenue was generated by the Company's e-commerce
system. Offsetting this revenue is $1,353,000 in software marketing costs
and $85,000 in amortization of costs previously capitalized as software
acquisition and integration costs. The increase in marketing expenses was
the result of increased marketing and sales staff levels.
The decrease in administration costs was the result of lower professional
fees which decreased by $325,000 as a result of reduced legal fees and
shareholder relations costs decreased by $248,000. Office costs increased
by $11,000, however travel costs decreased by $15,000 reflecting the
Company's established position in the software industry.
The Company did not incur any expenditures on its California gold
properties during the three months ended August 31, 1999. The Company
incurred $35,000 in interest expense related to the $800,000 loan from a
related company. Other changes to the various elements of the Statements
of Income (Loss) were an increase of $98,000 in net investment income.
8
</Page>
RESULTS OF FISCAL 1999 COMPARED TO FISCAL 1998
- ----------------------------------------------
Veronex reported net income of $4,677,000 ($0.67 per share) for the fiscal
year ended February 28, 1999 and a net loss of $1,151,000 ($0.19 per share)
for the fiscal year ended February 28, 1998, on revenues of $10,258,000 and
$294,000, respectively.
The revenues of $10,258,000 for the fiscal year ended February 28, 1999
were generated from licensing fees and support of the Company's software
products. Costs offsetting these revenues included $3,111,000 in software
marketing costs and $258,000 in amortization of software acquisition and
integration costs.
The increase of $1,302,000 in operating and administration costs is a
result of several factors. Professional fees increased by $624,000
primarily as a result of legal fees associated with the arbitration and
litigation proceedings against certain former employees. Shareholder
relations costs increased by $297,000 primarily as a result of
disseminating corporate information to shareholders and investors. Office
expenses and travel costs increased by $225,000 and $129,000, respectively,
reflecting the significantly increased infrastructure and staff required to
market Veronex's I/Nova System.
During the fiscal year ended February 28, 1998, the Company expended
$10,000 in exploration expense on its California gold properties. The
Company earned $52,000 in interest during the fiscal year ended
February 28, 1999 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. The Company wrote off its investment in
resource property costs during the fiscal year ended February 28, 1999.
9
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. The Company plans to update its internal operating
systems again in late 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 three
countries: Canada, the Philippines and the United States of America. The
strength or weakness of the Canadian dollar versus the Philippine peso
versus the United States dollar could affect the long-term value and/or
operations and planning of the Company.
10
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Interim Consolidated Balance Sheets
(In U.S. Dollars)
<TABLE>
<CAPTION>
August 31 August 31 February 28
1999 1998 1999
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
- ------
Current Assets $ 463,000 $ 1,306,000 $ 907,000
Cash and short-term deposits 17,054,000 2,106,000 10,322,000
Accounts receivable (note 3)
Prepaid expense 88,000 12,000 13,000
----------------------------------------
Total Current Assets 17,605,000 3,334,000 11,242,000
Software Acquisition and Integration Costs
(note 4)
(net of accumulated amortization of
$348,000: 1998 - $2000) 2,390,000 2,199,000 2,091,000
Resource Properties and Related Deferred
Costs (note 5) - 66,000 -
Fixed Assets and Depreciation (note 7)
(net of accumulated depreciation of
$96,000: 1998 - $69,000) 178,000 55,000 136,000
Investments (note 6) 2,000 152,000 152,000
----------------------------------------
Total Assets $20,175,000 $ 5,806,000 $ 13,621,000
========================================
LIABILITIES
- -----------
Current Liabilities
Accounts and loans payable (note 8) $ 2,579,000 $ 833,000 $ 136,000
Due to a related party (note 9) 2,000 152,000 152,000
----------------------------------------
Total Current Liabilities 3,423,000 833,000 2,730,000
SHAREHOLDERS' EQUITY
- --------------------
Share Capital (note 10)
Authorized - 100,000,000
(1998 - 100,000,000)
common shares without par value
Issued and allotted- 8,374,766
(1998- 6,996,159 common shares) 53,025,000 50,920,000 52,344,000
Deficit (36,273,000) ( 45,947,000) ( 41,453,000)
----------------------------------------
Total Shareholders' Equity 16,752,000 4,973,000 10,891,000
----------------------------------------
Total Liabilities and Shareholders' Equity $20,175,000 $ 5,806,000 $ 13,621,000
========================================
APPROVED BY THE DIRECTORS
"David A. Hite" Director Corporate History (note 1)
"Sandra M. Milligan" Director Contingencies and Commitments (note 15)
</TABLE>
-See accompanying notes-
Veronex Technologies, Inc.
(Formerly International Veronex Resources, Ltd.)
Interim Consolidated Statement of Shareholders' Equity
(In U.S. Dollars)
<TABLE>
<CAPTION>
Number of Share
Shares Capital Deficit
<S> <C> <C> <C>
Balance - February 28, 1997 (audited) 5,355,001 $ 47,628,000 $ 44,979,000
- ---------------------------
Issued by private placement 502,000 - -
Issued on the exercise of options 530,500 1,614,000 -
Issued for subsidiary company 200,000 270,000 -
Issued for software technology 300,000 454,000 -
Issued as a finder's fee 10,000 519,000 -
Net loss - 23,000 -
Balance - February 28, 1998 (audited) 6,897,501 - 46,130,000
- ---------------------------
Issued on exercise of options 98,658 - -
Loss (income) for the period - 412,000 (183,000)
-----------------------------------------
Balance - August 31, 1998 (unaudited) 6,996,159 $ 50,920,000 $ 45,947,000
- ------------------------- =========================================
Balance - February 28, 1998 (audited) 6,897,501 $ 50,508,000 $ 46,130,000
- ---------------------------
Issued on exercise of options 652,273 1,836,000 -
Loss (income) - - (4,677,000)
Balance - February 28, 1999 (audited) 7,549,774 52,344,000 41,453,000
- ---------------------------
Issued on exercise of options 30,500 79,000 -
Issued on exercise of warrant 249,492 487,000 -
Issued as part of a private placement 502,000 - -
Cancelled and returned to treasury (75,000) (268,000) -
Earnout shares allotted 118,000 383,000 -
Loss (income) - - (5,180,000)
-----------------------------------------
Balance - August 31, 1999 (unaudited) 8,374,766 $ 53,025,000 $ 36,273,000
- ------------------------- =========================================
</TABLE>
- See accompanying notes -
Veronex Technologies, Inc.
(Formerly International Veronex Resources, Ltd.)
Interim Consolidated Statements of Income (Loss)
(In U.S. Dollars)
<TABLE>
<CAPTION>
Three Three Six Six
Months Months Months Months
ended ended ended ended
August August August August
31, 1999 31, 1998 31, 1999 31, 1998
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues
- --------
Software sales and service $2,000,000 $ - $7,000,000 $ 2,083,000
Development fees 201,000 - 201,000 -
-------------------------------------------------
Total Revenues 2,201,000 - 7,201,000 2,083,000
-------------------------------------------------
Expenses
- --------
Software marketing costs 456,000 488,000 1,353,000 727,000
Operating and administration 268,000 582,000 621,000 1,197,000
Amortization of software acquisition
and integration costs 24,000 - 85,000 2,000
Depreciation 15,000 8,000 25,000 11,000
Interest 18,000 - 35,000 -
Exploration costs - 6,000 - 9,000
-------------------------------------------------
Total Expenses 781,000 1,084,000 2,119,000 1,946,000
-------------------------------------------------
Other Expenses (Income)
Investing activities (81,000) - (98,000) -
Interest - (18,000) - (46,000)
-------------------------------------------------
Total Other Expenses (Income) (81,000) (18,000) (98,000) (46,000)
-------------------------------------------------
Net Income (Loss) $1,501,000 $(1,066,000) $5,180,000 $ 183,000
=================================================
Basic Earnings (Loss) per Share $ 0.18 $ (0.15) $ 0.65 $ 0.03
=================================================
Weighted Average Number of
Shares 8,206,000 6,985,000 7,994,000 6,978,000
=================================================
Fully Diluted Earnings (Loss)
per Share $ 0.17 $ N/A $ 0.61 $ N/A
Fully Diluted Weighted Average
Number of Shares 8,687,000 NA 8,475,000 N/A
</TABLE>
- See accompanying notes -
Veronex Technologies, Inc.
(Formerly International Veronex Resources, Ltd.)
Interim Consolidated Statements of Cash Flows
(In U.S. Dollars)
<TABLE>
<CAPTION>
Three Three Six Six
Months Months Months Months
ended ended ended ended
August August August August
31, 1999 31, 1998 31, 1999 31, 1999
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash Provided (Used) by
Operating Activities
- -----------------------
Net income (loss) $1,501,000 $ (1,066,000) $ 518,000 $ 183,000
Items not affecting cash:
Amortization of software
acquisition & integration costs 24,000 - 85,000 2,000
Depreciation 15,000 8,000 25,000 11,000
Investing activities (81,000) - (98,000)
------------ ------------ ------------ ------------
Changes in non-cash working
capital items:
Accounts receivable and prepaid
expense (2,013,000) 5,000 (6,807,000) ( 1,881,000)
Accounts and loans payable 76,000 201,000 657,000 526,000
------------ ------------ ------------ ------------
Net Cash Provided (Used) by
Operating Activities (478,000) (852,000) (958,000) (1,159,000)
------------ ------------ ----------- ------------
Cash Provided (Used) by
Financing Activities
- ------------------------
Due to a related party 18,000 - 35,000 -
Share capital issued for cash 445,000 53,000 566,000 412,000
Share capital returned to
treasury - - (268,000) -
------------ ------------ ------------ ------------
Net Cash Provided (Used) by
Financing Activities 463,000 53,000 333,000 412,000
Cash Provided (Used) by
Investing Activities
- -----------------------
Sale of investments 186,000 - 248,000 -
Software acquisition &
integration costs, net - - - (396,000)
Fixed assets (46,000) (41,000) (67,000) (41,000)
------------ ------------ ----------- ------------
Net Cash Provided (Used)
by Investing Activities 140,000 (41,000) 181,000 (437,000)
Changes in Cash and
Short-Term Deposits 125,000 (840,000) (444,000) (1,184,000)
------------ ------------ ----------- ------------
Cash and Short-Term Deposits
Opening Balance 338,000 2,146,000 907,000 2,490,000
Closing Balance $ 463,000 $ 1,306,000 $ 463,000 $ 1,306,000
============ ============ ============ ============
</TABLE> -See accompanying notes -
Veronex Technologies, Inc.
(Formerly International Veronex Resources, Ltd.)
Notes to Financial Statements
For the Six Months ended August 31, 1999 and August 31, 1998
(In U.S. Dollars)
1. CORPORATE HISTORY
- ---------------------
Veronex Technologies, Inc. (hereinafter referred to as "Veronex"), through
a series of acquisitions explained below, designs, develops, licenses and
supports computer software products for complete enterprise-wide management
application developments and implementation for competitive, innovative and
flexible business solutions. Veronex's I/Nova System is a fully integrated
business application development, modernization and migration tool-set
which has been ITAA *2000 Certified.
Veronex acquired three separate complementary software technologies through
agreements which include:
(i) a Stock Purchase Agreement with Thomas J. Price, pursuant to
which Promax Conceptual Strategies, Inc., a California
corporation, became a wholly-owned subsidiary of Veronex;
(ii) a Property Purchase Agreement with Terry G. Goodbody, a
software developer, and;
(iii) 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
Veronex.
Under the terms of the Agreement with Thomas J. Price, Veronex is to issue
up to 12,000,000 shares of its common stock contingent on future revenues
earned from I/Nova System licensing fees. 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, Inc. and 2,000,000 shares
have been allocated to Veronex's Contingent Stock Option Plan.
Under the terms of the Agreement with Terry G. Goodbody, Veronex issued
200,000 shares at a deemed price of US$2.26875 per share to Mr. Goodbody.
Under the terms of the Agreement with Thomas A. Speed, Veronex issued
200,000 shares at a deemed price of US$2.26875 per share to Mr. Speed.
2. SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------
Basis of Presentation
- ----------------------
Veronex is incorporated in the Province of British Columbia, Canada.
These consolidated financial statements have been prepared in
accordance with accounting principles and practices generally accepted
in Canada. Application of United States generally accepted accounting
principles would not result in any material differences to the
consolidated financial statements.
Principles of Consolidation
- ---------------------------
These consolidated financial statements include the accounts of
Veronex, and its subsidiaries (all of which are wholly owned) which
are listed below. Intercompany transactions and balances have been
eliminated in consolidation.
Veronex Technologies, Inc.
(Formerly International Veronex Resources, Ltd.)
Notes to Consolidated Financial Statements
For the Six Months ended August 31, 1999 and August 31, 1998
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
- --------------------------------------------
Align Energy, Inc.
Bonaparte Resources, Ltd.
High River Industries, Ltd.
Mainstream Technologies Inc. ("Mainstream")
Nordell International Resources Ltd. ("Nordell")
PCS Acquisition Corp. ("PCS")
Richport Resources Ltd. ("Richport")
Veronex Resources, Inc.
Resource Properties
- -------------------
Costs related to the acquisition of mineral properties are
capitalized. Mineral exploration costs are expensed in the year
incurred. If it is determined that a prospect contains economically
recoverable reserves, all costs relating to that prospect for the
current and subsequent years, including expenses net of revenues
during the start-up phase, are capitalized until the prospect is
capable of sustained operations at commercial production levels.
These capitalized costs, together with property acquisition and
ongoing development costs, are amortized on a unit-of-production
method based on the estimated life of the ore reserves.
Management reviews annually the carrying value of the interest in each
property and, where necessary, properties are written down to fair
market value.
Investments
- -----------
Investments are recorded at cost unless there is a decline in market
value that is other than temporary.
Revenue Recognition
- -------------------
Veronex recognizes revenue in accordance with the American Institute
of Certified Public Accountant Statement of Position 97-2 for software
revenue recognition, which requires that license fee revenues are
recognized upon evidence of a license agreement and delivery of
software if there are no significant implementation or installation
obligations, collection of the receivable is probable, the license
fees are fixed or determinable and the product has been accepted by
the customer.
Veronex structures its strategic alliance agreements with an initial
licensing fee plus a revenue sharing feature. Veronex records the
initial licensing fee as a receivable and anticipates that each
strategic alliance partner will generate revenues and cash flow in the
future. The I/Nova System's template driven application development
process distinguishes it as the best of breed solution for enterprise-
wide business application software problems and development projects.
Veronex Technologies, Inc.
(Formerly International Veronex Resources, Ltd.)
Notes to Consolidated Financial Statements
For the Six Months ended August 31, 1999 and August 31, 1998
2. SIGNIFICANT ACCOUNTING POLICIES (Cont.)
- --------------------------------------------
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
subsequently differ from those estimates.
Financial Instruments
- ---------------------
Financial Instruments are classified in accordance with the substance
of the contractual arrangement. Financial liabilities, which are
defined as any contractual obligation to deliver cash or another
financial asset to another party, are classified as a liability.
Currency Translation
- --------------------
Veronex uses the temporal method of currency translation, as applied
to integrated international operations, for translating the Company's
Canadian operations from Canadian dollars to US dollars. Under this
method, monetary assets and liabilities in foreign currencies have
been converted at the exchange rate prevailing at the balance sheet
date. Non-monetary assets, liabilities, and equity are translated at
historical rates. Gains and losses on foreign exchange are included
in income.
Earnings (Loss) Per Share
- -------------------------
Basic Earnings Per Share are computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding during the period. Diluted Earnings Per Share shall be
computed by including contingently issuable shares with the weighted
average shares outstanding during the period. When inclusion of the
contingently issuable shares would have an antidilutive effect upon
earnings per share no diluted earnings per share shall be presented.
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS No. 128) was issued effective for periods
ending after December 15, 1997. There is no impact on Veronex's
financial statements from adoption of SFAS No. 128.
Depreciation Policy
- -------------------
Veronex provides for depreciation on furniture and equipment at
between 20% and 30% on a declining balance basis. Veronex 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 I/Nova software system will be charged
to operations. Capitalized costs will be amortized based on current
and future revenues for the product with an annual minimum amount
equal to the straight-line amortization over the remaining estimated
economic life of the product.
Veronex Technologies, Inc.
(Formerly International Veronex Resources, Ltd.)
Notes to Consolidated Financial Statements
For the Six Months ended August 31, 1999 and August 31, 1998
2. SIGNIFICANT ACCOUNTING POLICIES (Cont.)
- --------------------------------------------
Cash Equivalents
- -----------------
For purposes of reporting cash flows, Veronex considers as cash
equivalents all highly liquid investments with a maturity of three
months or less at the time of purchase.
Concentration of Credit Risks
- -----------------------------
Financial instruments which potentially subject Veronex to
concentrations of credit risk consist of cash. Veronex maintains cash
accounts at two financial institutions. At August 31, 1999, cash on
deposit at these financial institutions exceeded federally insured
amounts by approximately $70,000.
At August 31, 1998, cash on deposit at these financial institutions
exceeded federally insured amounts by approximately $1,200,000.
Veronex 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. ACCOUNTS RECEIVABLE
- ------------------------
<TABLE>
<CAPTION>
August August
31, 1999 31, 1998
---------------------------
<S> <C> <C>
Accounts receivable are as follows;
- -----------------------------------
I/Nova Licensing, Product Sales
and Services (1) $ 17,000,000 $ 2,000,000
Other Software Services - 10,000
Other receivables 54,000 6,000
---------------------------
$ 17,054,000 $ 2,016,000
===========================
</TABLE>
(1) In November 1998, Veronex entered into contracts which guarantee gross
revenues of $11,750,000 from two distribution partners. Under the terms of
these agreements, Veronex must provide these distribution partners with an
allowance for software distribution as well as incur certain software
distribution costs. These allowances and costs have been netted against the
gross revenues and accounts receivable from the distribution partners as
only the net amounts will be received directly by Veronex. The amount for
sales and accounts receivable were not included in the February 28, 1999
financial statements and are not included in these August 31, 1999
financial statements.
4. 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
Veronex Technologies, Inc.
(Formerly International Veronex Resources, Ltd.)
Notes to Consolidated Financial Statements
For the Six Months ended August 31, 1999 and August 31, 1998
4. SOFTWARE ACQUISITION AND INTEGRATION COSTS (Cont.)
- -------------------------------------------------------
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.
As a result of the three acquisitions mentioned in Note #1, Veronex
acquired what it renamed the I/Nova System computer technology. Subsequent
to these acquisitions, Veronex spent several months integrating the
complete system for the alternative future uses of solving the Year 2000
problem. The costs of acquiring and integrating the components of the
I/Nova System are as follows:
<TABLE>
<CAPTION>
August August
31, 1999 31, 1998
------------- -------------
<S> <C> <C>
Costs to acquire the components:
The I/Nova System (i) $ 469,000 $ 86,000
The Archidata System 454,000 454,000
The infrastructure (Mainstream( 409,000 409,000
Costs to integrate the components:
Personnel 895,000 895,000
Office and related 511,000 355,000
--------------------------
2,738,000 2,199,000
Less: accumulated amortization 348,000 2,000
--------------------------
$ 2,390,000 $ 2,197,000
==========================
</TABLE>
(i) Under the terms of the Share Purchase Agreement with Thomas J. Price,
Veronex is to issue to Mr. Price one earnout share for each US$2.00 of
cash generated by I/Nova System licensing fees. As at August 31, 1999,
a total of $236,000.in cash has been generated by I/Nova System
licensing fees. Accordingly, Veronex has allotted, for issue
subsequent to August 31, 1999, 118,000 earnout shares to Mr. Price at
a deemed value of US$383,000 (US$3.25 per share, being the closing
trading price of Veronex shares on August 31, 1999) and has included
this amount in the capitalized acquisition costs of the I/Nova System.
5. RESOURCE PROPERTIES & RELATED DEFERRED COSTS
- -------------------------------------------------
a. Details of mineral properties are as follows:
---------------------------------------------
<TABLE>
<CAPTION>
August August
31, 1999 31, 1998
----------- -----------
<S> <C> <C>
Alexander Star Claims, San Bernandino, County $ Nil $ 66,000
========================
</TABLE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources, Ltd.)
Notes to Consolidated Financial Statements
For the Six Months ended August 31, 1999 and August 31, 1998
5. RESOURCE PROPERTIES & RELATED DEFERRED COSTS (Cont.)
- ---------------------------------------------------------
b. Litigation
----------
As was reported in previous year-end consolidated financial
statements, Veronex and its wholly-owned subsidiary, Nordell
International Resources Lrd. ("Nordell") were involved in a number of
adversarial lawsuits with Triton Energy Corp. ("Triton"). These
lawsuits arose from the Enim Oil Project joint venture agreement
between Nordell and Triton, a subsequent arbitration and an
Arbitration Award that was adverse to Nordell. Several of the lawsuits
initiated by Triton were of a malicious or vindictive nature aimed at
both Veronex and one of Veronex's directors, David A. Hite ("Hite").
As a result, Veronex, Nordell and Hite filed a malicious prosecution
lawsuit against Triton in the Superior Court for California in Los
Angeles, California, alleging, among other things, abuse of process,
wrongful attachment, breach of fiduciary duty and fraud. The lawsuit
seeks damages, punitive and exemplary damages, specific performance of
the Arbitration Award and an accounting of the Enim Oil Project joint
venture. This lawsuit has been removed to the US District Court,
Central Division of California. A trial date has been set for
September 14, 1999. (See Note #17 - Subsequent Event)
c. The Congress Property in British Columbia, Canada
-------------------------------------------------
During the year ended February 28, 1998, Veronex sold its 50% interest
in the Congress Gold Property to Yucca Gold, Inc., ("Yucca Gold"), in
exchange for 3.4 million shares in Yucca Gold. All costs associated
with the Congress Gold Property, were written off in previous years.
Yucca Gold is a private company whose shares have no market value.
Accordingly, no value was assigned to this transaction. Veronex
retains a 5% net smelter interest in the Congress Gold Property.
d. The Alexander Star Claims in California, USA
--------------------------------------------
(i) On July 12, 1995, Veronex entered into an agreement to acquire a
100% interest in four placer mining claims, known as the Alexander
Star Claims, in Avawatz Mining District, San Bernardino County,
California, subject to a 4% net smelter return. Veronex issued 100,000
common shares at a value of $66,000 as consideration for the
acquisition and has the right to acquire one-half of the net smelter
return, which is a 2% smelter return, for $500,000. The acquisition
costs of these claims were written-off during the year ended February
28, 1999.
(ii) On November 20, 1995, Veronex entered into an Agreement with a
group, including a director of Veronex and others related to the
director, to acquire a 50% interest in eight placer mining claims in
the Avawatz Mining District, San Bernardino, California, subject to a
5% net smelter return. To earn this interest, Veronex must expend
$350,000 on exploration work by December 31, 1999.
(iii) Also on November 20, 1995, Veronex entered into an agreement
with a group, including a director of Veronex and others related to
the director, to acquire a 25% interest in one placer mining claim in
the Avawatz Mining District, San Bernardino County, California,
subject to a 5% net smelter return. To earn this interest, Veronex
must expend $50,000 on exploration work by December 31, 1999.
(iv) As of August 31, 1999, Veronex has incurred $69,000 (1998 -
$68,000) in exploration costs on these properties.
Veronex Technologies, Inc.
(Formerly International Veronex Resources, Ltd.)
Notes to Consolidated Financial Statements
For the Six Months ended August 31, 1999 and August 31, 1998
6. INVESTMENTS
- ----------------
<TABLE>
<CAPTION> Number Number
of Market of Market
Shares Cost Value Shares Cost Value
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EMB Corporation - $ - $ - 50,000 $150,000 $150,000
Semper Resources Ltd. 5,000 2,000 2,000 5,000 2,000 2,000
-----------------------------------------------------------
$ 2,000 $ 2,000 $152,000 $152,000
===========================================================
</TABLE>
7. DEPRECIATION
- -----------------
Veronex capitalizes 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 method
of depreciation.
The assets, costs, depreciation expense, and accumulated depreciation at
August 31, 1999 and August 31, 1998 are as follows:
<TABLE>
<CAPTION>
Depreciation Accumulated
Cost Expense Depreciation
1999 1998 1999 1998 1999 1998
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Furniture & Equipment $ 90,000 $ 59,000 $ 11,000 $ 3,000 $ 44,000 $ 40,000
Computer Equipment 184,000 65,000 24,000 8,000 52,000 29,000
------------------------------------------------------------
$274,000 $124,000 $ 35,000 $ 11,000 $ 96,000 $ 69,000
============================================================
</TABLE>
8. ACCOUNTS PAYABLE
- ---------------------
<TABLE>
<CAPTION>
August August
31, 1999 31, 1998
----------- -----------
<S> <C> <C>
Legal Fees
Arbitration with former employees (Note #16) $ 125,000 $ 300,000
Other 200,000 -
Accrued management salaries 323,000 350,000
Accrued software marketing & support costs 1,800,000 -
Trade and other 131,000 183,000
--------------------------
$2,579,000 $ 833,000
==========================
</TABLE>
9. DUE TO A RELATED PARTY
- --------------------------
During the year ended February 28, 1999, D'Oro Ventures Ltd. ("D'Oro"), a
company with directors in common, loaned Veronex a total of US$800,000 in a
Veronex Technologies, Inc.
(Formerly International Veronex Resources, Ltd.)
Notes to Consolidated Financial Statements
For the Six Months ended August 31, 1999 and August 31, 1998
9. DUE TO A RELATED PARTY (Cont.)
- ----------------------------------
series of six advances in varying amounts between December 17, 1998 and
February 8, 1999. Each advance is secured by a promissory note which
provides for interest calculated at the prime rate plus two percent (2%)
per annum. Under the terms of each promissory note, interest payable during
the first three months of each advance is to be repaid by the issuance of
Veronex common shares and thereafter in cash. Veronex may issue, subject to
regulatory approval, share capital in an amount up to five percent (5%) of
each advance.
As of August 31, 1999, Veronex has accrued interest payable in the amount
of US$43,657 on these advances.
10. SHARE CAPITAL
- ------------------
a. The authorized share capital of Veronex is 100,000,000 shares without
par value.
<TABLE>
<CAPTION>
August 31, 1999 August 31, 1998
------------------------- -------------------------
<S> <C> <C> <C> <C>
Balance-beginning of period 7,549,774 $52,344,000 6,897,501 $50,508,000
Issued by private placement 502,000 - - -
Issued on exercise of options 30,500 79,000 98,658 412,000
Issued on exercise of warrants 249,492 487,000 - -
Canceled and returned to
treasury (75,000) (268,000) - -
------------------------- -------------------------
Total issued 8,256,766 52,642,000 6,996,159 50,920,000
Earnout shares allotted
(Note #4) 118,000 383,000 - -
------------------------- -------------------------
Balance - end of period 8,374,766 $53,025,000 6,996,159 $40,920,000
========================= =========================
</TABLE>
During the six months ended August 31, 1999, Veronex issued 30,500 (1998 -
98,658; 1997 -530,500) shares at an average price of Can$4.03 for proceeds
of Cdn $117,005 (1998 - Can$593,297; 1997 - Can$373,290) on the exercise of
share purchase options. During the six months ended August 31, 1999, 75,000
shares issued on the exercise of options prior to February 28, 1999 were
canceled and returned to treasury.
b. Common share purchase options are outstanding expiring at various
dates to August 5, 2004 for 825,600 (1998 - 450,000; 1997 - 5,000)
common shares at prices between Cdn $3.69 and Cdn $4.22 per share.
<TABLE>
<CAPTION>
August August
31, 1999 31, 1998
-------------------------
<S> <C> <C>
Outstanding stock options as of:
Exercise price:
Less than Cdn$6.00 per share 825,000 100,000
Between Cdn $6.000 and Cdn $8.00 per share - 275,000
Between Can $8.00 and Cdn$10.00 per share - 65,000
Greater than $Cdn$10.00 per share - 10,000
</TABLE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources, Ltd.)
Notes to Consolidated Financial Statements
For the Six Months ended August 31, 1999 and August 31, 1998
10. SHARE CAPITAL (Cont.)
- --------------------------
c. During the six months ended ended August 31, 1999, Veronex granted
567,000 (1998 -50,000; 1997 - 5,000) share purchase options at
prices ranging between Can$4.13 and Cdn$4.22 per share expiring on
various dates to August 5, 2004. During the six months ended August
31, 1999, 120,500 (1998 - Nil; 1997 Nil) share purchase options were
canceled. During the six months ended August 31, 1999, the exercise
price on 303,600 (1998 - Nil; 1997 - Nil) was amended.
d. On September 12, 1997, Veronex entered into a financing agreement with
Robb, Peck McCooey
Clearing Corp, ("Robb Peck"). allowing 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 Veronex at
US $0.10 per warrant subject to certain conditions and approvals.
Under the terms of the private placement agreement, Veronex agreed to
issue up to an additional 1,506,000 common shares should Veronex
generate less than US$24,000,000 in gross revenues between November 7,
1997 and November 30, 1998, the number of shares being issued to each
placee varying from .5 common share issued per 1 share placed if gross
revenues were less than US$24,000,000 and greater than US$20,000,000,
to 3 shares per 1 share placed if gross revenues were US$3,000,000 or
less. Veronex recorded gross revenues of US$16,500,000 between
November 7, 1997 and November 30, 1998. Accordingly, during the six
months ended August 31, 1999, Veronex issued 502,000 common shares for
proceeds of US$Nil. Attached to each share is a warrant entitling
each holder to purchase an additional common share at a price of
US$2.00. The effect of this share issue is a dilution of the issued
share capital of Veronex of 6.56%.
In addition the Company 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.
During the six months ended August 31, 1999, Veronex issued an
additional 100,400 placement agent warrants exercisable at US $1.00
per share until November 7, 2002.
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 Veronex's 1997 Contingent Stock Option
Plan. As of August 31, 1999, 1,199,000 (1998 - 1,449,000) of these
contingent options have been allocated at an average exercisable price
of Cdn $2.70 to personnel involved in the integration and marketing of
the I/Nova System.
11. INCOME TAXES
- -----------------
Veronex has adopted the provisions of SFAS No. 109, "Accounting for Income
Taxes". SFAS No. 109 requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been
Veronex Technologies, Inc.
(Formerly International Veronex Resources, Ltd.)
Notes to Consolidated Financial Statements
For the Six Months ended August 31, 1999 and August 31, 1998
11. INCOME TAXES (Cont.)
- -------------------------
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.
Veronex 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.
No income taxes are currently payable. Veronex and its subsidiaries have
Canadian and foreign resource property expenditures and reported losses of
approximately $ 6,900,000 and $905,000, repectively, 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.
12. SEGMENTED INFORMATION
- --------------------------
Prior to January 14, 1997, Veronex'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.
During the year ended February 28, 1997, Veronex 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, Veronex entered into an agreement
to acquire additional software technology ("the ArchiData System"). In
addition, during the year ended February 28, 1998, Veronex entered into an
agreement to acquire a software development company ("Mainstream
Technologies, Inc."). Both acquisitions are explained in Note #1. During
the six months ended August 31, 1999, Veronex commenced development and
installation of an E-Commerce Service Network ("E-Commerce System"). As of
August 31, 1999, Veronex's major business effort is directed toward the
licensing of its software systems and installation of the E-Commerce
System.
13. RELATED PARTY TRANSACTIONS
- -------------------------------
a. During the six months ended August 31, 1999, salaries of $175,000
(1998 - $175,000) were accrued to an officer and director of the
Company.
b. Included in accounts payable is approximately $323,000 (1998 -
$387,000) payable to an officer of Veronex under the terms of an
employment contract and for reimbursement of services. (See Note #15
- Contingencies and Commitments)
Veronex Technologies, Inc.
(Formerly International Veronex Resources, Ltd.)
Notes to Consolidated Financial Statements
For the Six Months ended August 31, 1999 and August 31, 1998
14. 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 No. 121), was made effective for the period
beginning after December 15, 1995. Under this standard, Veronex's
management 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 Veronex 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 No. 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. Veronex has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock
Issued to Employees" (APB No. 25) and related interpretations in
accounting for its stock options because, as discussed below, the
alternative fair value accounting under SFAS No. 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
No. 25, because the exercise price of Veronex's employee stock options
equals that of the market price of the underlying stock at the date of
grant, no compensation expense is recognized.
The fair value for options granted during the six months ended August
31, 1999 and the year ended February 28, 1999, is estimated at the
date of grant using a Black-Scholes option pricing model with the
following assumptions:
- risk-free interest rates of between 5.42% and 5.93%
- dividend yield of 0%
- volatility factors of the expected market price of Veronex's
stock of 80%
- an expected life of the option of one and one-half years
Because Veronex's stock options have characteristics significantly
different from those of traded options, and because changes in the
subjective inputs assumptions can materially affect the fair value
estimate, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For pro forma disclosure, the estimated fair value of the option is
amortized to expense in the period the option is granted. For the six
months ended August 31, 1999, Veronex's pro forma earnings and pro
forma fully diluted earnings per share have been calculated to be
$5,180,000 and $0.61, respectively. For the year ended February 28,
1999, Veronex's pro forma earnings and pro forma fully diluted income
per share have been calculated to be $4,677,000 and $0.59,
respectively. Pro forma fully diluted income and earnings per share
for the six months ended August 31, 1998, have not been calculated as
they would be antidilutive.
c. In February 1997, SFAS No. 129, "Disclosure of Information about
Capital Structure" was issued effective for periods ending after
December 15, 1997. Veronex has adopted the disclosure provisions of
SFAS No. 129 effective with the fiscal year ended February 28, 1998.
Veronex Technologies, Inc.
(Formerly International Veronex Resources, Ltd.)
Notes to Consolidated Financial Statements
For the Six Months ended August 31, 1999 and August 31, 1998
14. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Cont.)
- ----------------------------------------------------------------
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was
issued effective for fiscal years beginning after December 31, 1997,
with earlier application permitted. Veronex 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
Veronex'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. Veronex 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 Veronex's financial
statements.
15. CONTINGENCIES AND COMMITMENTS
- ----------------------------------
a. Veronex has an employment contract with an officer and director for
$350,000 per annum that extends to December 15, 2002.
b. Veronex has employment contracts totaling approximately $1,200,000
per annum with personnel involved in the development, integration and
marketing of the I/Nova System.
c. Veronex leases office facilities in Santa Ana, California under
operating leases expiring in September 1999. Minimum future rental
payments under the lease amount to $2,460.
Other office facilities in California and Vancouver, Canada are rented
on a month to month basis.
16. LITIGATION AND ARBITRATION PROCEEDINGS WITH FORMER EMPLOYEES
- -----------------------------------------------------------------
Veronex commenced litigation proceedings and become a party to arbitration
proceedings against certain of its former employees. In the litigation,
Veronex alleged, among other causes of action, that the party defendants
misappropriated Veronex's intellectual property. All of these legal and
arbitrations proceedings have been settled to Veronex's satisfaction. As
of August 31, 1999, Veronex has paid and accrued legal fees of $376,000
related to these proceedings.
17. SUBSEQUENT EVENT
- ---------------------
The malicious prosecution lawsuit referred to in Note #5 was tried by jury.
Subsequent to August 31, 1999, the Jury found in favor of Veronex and David
A. Hite ("Hite) and assessed compensatory damages against Triton in the
amount of approximately $700,000 and punitive damages in the amount of
approximately $11,000,000.
The Jury found that Triton had maliciously prosecuted Mr. Hite, awarding
him compensatory damages and punitive damages. The Jury also awarded
Veronex compensatory damages, but no punitive damages.
Veronex Technologies, Inc.
(Formerly International Veronex Resources, Ltd.)
Notes to Consolidated Financial Statements
For the Six Months ended August 31, 1999 and August 31, 1998
18. 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 discussed herein. 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; 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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VERONEX TECHNOLOGIES, INC.
Date: October 19, 1999 /S/ "David A. Hite"
---------------------
David A. Hite
Chief Executive Officer
Date: October 19, 1999 /S/ "Gerald D. Lamont"
----------------------
Gerald D. Lamont
Chief Accounting Officer
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