SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
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): September 22, 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
--------------
#701, 475 Howe Street, Vancouver, British Columbia, Canada V6C 2B3
- --------------------------------------------------------------------------------
(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
- ------------------------------------------
Three month period ended May 31, 1999 and May 31, 1998 and for the fiscal year
ended February 28, 1999 and 1998.
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 8,032,274 shares issued and outstanding as of May
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.
3
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.
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
4
3. ArchiData Systems, Inc. which had a Y2k certified compliant methodology.
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.
5
<PAGE>
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.
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 technology is the backbone of the Company. 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.
6
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.
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 May 31, 1999 the Company had working capital of $12,148,000. Further,
Veronex anticipates that it will have adequate cash for all of its planned
operations for the next twelve months.
7
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 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 MAY 31, 1999 COMPARED TO THE THREE MONTHS
ENDED MAY 31, 1998
- ----------------------------------------------------------------------------
Veronex reported net income of $3,679,000 ($0.47 per share) for the three months
ended May 31, 1999 compared to net income of $1,249,000 ($0.18 per share) for
the three months ended May 31, 1998, on revenues of $5,000,000 and $2,083,000
respectively.
During the three months ended May 31, 1999, the Company recorded revenue of
$5,000,000 from the licensing and maintenance of its software products.
Offsetting this revenue is $897,000 in software marketing costs and $61,000 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 operating and administration costs was the result of lower
professional fees which decreased $127,000 as a result of reduced legal fees and
shareholder relations costs decreased by $182,000. Office and travel costs also
increased reflecting the significantly increased infrastructure required to
market the Company's I\Nova System.
8
The Company did not incur any expenditures on its California gold properties
during the three months ended May 31, 1999. The Company incurred $17,000 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 $17,000 in net investment income.
RESULTS OF THE THREE MONTHS ENDED MAY 31, 1998 COMPARED TO THE THREE MONTHS
ENDED MAY 31, 1997
- -----------------------------------------------------------------------------
Veronex reported net income of $1,249,000 ($0.18 per share) for the three months
ended May 31, 1998 compared to a net loss of $70,000 ($0.01 per share) for the
three months ended May 31, 1997.
During the three months ended May 31, 1998, the company recorded revenue of
$2,083,000 from the licensing and maintenance of its software products.
$2,000,000 of this revenue was earned from the licensing of the I|Nova System.
Offsetting this revenue is $239,000 in software marketing costs and $2,000 in
amortization of costs previously capitalized as software acquisition and
integration costs. No software related income and costs were recorded during
the three months ended May 31, 1997.
The increase of $510,000 in operating and administration costs was a result of
several factors. Professional fees increased by $221,000 primarily as a result
of legal fees associated with the arbitration and litigation proceedings against
certain former employees. Shareholder relations costs increased by $171,000
primarily as a result of disseminating corporate information to shareholders and
potential investors. Office and travel costs increased by $73,000 and $38,000,
respectively, reflecting the significantly increased infrastructure required to
market the Company's I\Nova System.
During the three months ended May 31, 1998, the company incurred $3,000 in
expenditures on its California gold properties. No expenditures were incurred
during the three months ended May 31, 1997, however, the Company reallocated as
software acquisition and integration costs $5,000 recorded as exploration costs
during the year ended February 28, 1997.
Other changes to the various elements of Income (Loss) during the three months
were a decrease in interest income of $6,000 due to lower cash and investment
balances and a decrease of $3,000 in net interest expense.
9
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.
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.
10
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.
11
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Interim Consolidated Balance Sheets
(In U.S. Dollars)
<TABLE>
<CAPTION> May 31 May 31 February 28
1999 1998 1999
(audited) (audited) (audited)
------------------------ ------------
<S> <C> <C> <C>
ASSETS
- ------
Current Assets
- --------------
Cash and short-term deposits $ 338,000 $ 2,146,000 $ 907,000
Accounts receivable (note 3) 15,053,000 2,021,000 10,322,000
Prepaid expense and advances 76,000 12,000 13,000
------------------------ ------------
Total Current Assets 15,467,000 4,179,000 11,242,000
Software Aqcuisition and Integration
Costs (note 4)
- ------------------------------------
(net of accumulated amortization of $323,000:
1998 - $2,000) 2,031,000 2,199,000 2,091,000
Resource Properties and Related Deferred
Costs (note 5) 0 66,000 0
- -----------------------------------------
Fixed Assets and Depreciation (note 7)
- --------------------------------------
(net of accumulated depreciation of $81,000:
1998 - $105,000) 147,000 21,000 136,000
Investments (note 6) 107,000 152,000 152,000
- -------------------- ------------------------ ------------
Total Assets $17,752,000 $ 6,617,000 $13,621,000
======================== ============
LIABILITIES
-----------
Current Liabilities
- -------------------
Accounts and loans payable (note 8) $ 2,502,000 $ 631,000 $ 1,921,000
Due to a related party (note 9) 826,000 0 809,000
------------------------ ------------
Total Current Liabilities 3,328,000 631,000 2,730,000
SHAREHOLDERS' EQUITY (DEFICIT)
- ------------------------------
Share Capital (Note 10) 52,198,000 50,867,000 52,344,000
- --------------------------
Authorized - 100,000,000 (1997 - 100,000,000)
common shares without par value Issued -
8,032,274 (1998- 6,977,501 common shares
Deficit (37,774,000)(44,881,000) (41,453,000)
- ------- ------------------------ ------------
Total Shareholders' Equity 14,424,000 5,986,000 10,891,000
------------------------ ------------
Total Liabilities and Shareholders' Equity $17,752,000 $ 6,617,000 $13,621,000
======================== ============
</TABLE>
APPROVED BY THE DIRECTORS
David A. Hite Director Corporate History (note 1)
Sandra M. Milligan Director Contingencies and Commitments (note 15)
- See accompanying notes -
12
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 Capital
------------------------- ------------
<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 1,151,000
Balance - February 28, 1998 (audited) 6,897,501 - 46,130,000
- ---------------------------
Issued on exercise of options 80,000 50,508,000 -
Loss (income) for the period 0 359,000 (1,249,000)
------------------------- ------------
Balance - May 31, 1998 (audited) 6,977,501 $50,867,000 $44,881,000
- -------------------------------- ========================= ============
Balance - February 28, 1998 (audited) 6,897,501 $50,508,000 $46,130,000
Issued on exercise of options 652,273 1,836,000 -
Loss (income) for the period - - (4,677,000)
Balance - February 28, 1999 (audited) 7,549,774 52,344,000 41,453,000
- ----------------------------
Issued on exercise of options 15,500 42,000 -
Issued on exercise of warrant 40,000 80,000 -
Issued as part of a private placement 502,000 - -
Cancelled and returned to treasury (75,000) (268,000) -
Loss (income) for the period - - (3,679,000)
------------------------- ------------
Balance - May 31, 1999 (audited) 8,032,274$ 52,198,000 $37,774,000
========================= ============
</TABLE>
- See accompanying notes -
13
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Interim Consolidated Statements of Income (Loss)
(In U.S. Dollars)
<TABLE>
<CAPTION>
Three Three Year Year
Months Months Ended Ended
May May February February
31, 1999 31, 1998 28, 1999 28, 1998
------------ ------------------------ ------------
<S> <C> <C> <C> <C>
Revenue
- -------
Software sales and service $ 5,000,000 $ 2,083,000 $10,258,000 $ 294,000
------------ ------------------------ ------------
Total Revenue 5,000,000 2,083,000 10,258,000 294,000
Expenses
- --------
Software marketing costs 897,000 239,000 3,111,000 669,000
Operating and administration 353,000 615,000 2,157,000 855,000
Amortization of software acquisition
and integration costs 61,000 2,000 258,000 -
Depletion and depreciation 10,000 3,000 20,000 6,000
Interest 17,000 - 11,000 (1,000)
Exploration costs - 3,000 10,000 4,000
------------ ------------------------ ------------
Total Expenses 1,338,000 862,000 5,567,000 1,533,000
------------ ------------------------ ------------
Other Expenses (Income)
Investing activities (17,000) - - 10,000
Interest - (28,000) (52,000) (98,000)
Write-off of resource property costs - - 66,000 -
------------ ------------------------ ------------
Total Other Expenses (Income) (17,000) (28,000) 14,000 (88,000)
------------ ------------------------ ------------
Net Income (Loss) $ 3,679,000 $ 1,249,000 $ 4,677,000 $(1,151,000)
============ ======================== ============
Basic Earnings (Loss) per Share $ 0.47 $ 0.18 $ 0.67 $ (0.14)
============ ======================== ============
Weighted Average Number of
Shares 7,782,000 6,967,000 7,018,000 6,118,000
============ ======================== ============
Fully Diluted Earnings (Loss)
per Share $ 0.45 $ 0.17 $ 0.59 $ N/A
============ ======================== ============
Fully Diluted Weighted Average
Number of Shares 8,145,374 7,174,000 7,951,619 N/A
============ ======================== ============
</TABLE>
- See accompanying notes -
14
Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Interim Consolidated Statements of Cash Flows
(In U.S. Dollars)
<TABLE>
<CAPTION>
Three Three Year Year
Months Months Ended Ended
May May February February
31, 1999 31, 1998 28, 1999 28, 1998
(audited) (audited) (audited) (audited)
------------ ------------------------ ------------
<S> <C> <C> <C> <C>
Cash Provided (Used) by
Operating Activities
- ------------------------
Net income (loss) $3,679,000 $1,249,000 $4,677,000 $(1,151,000)
Items not affecting cash:
Amortization of software
acquisition & integration costs 61,000 2,000 258,000 -
Depletion and depreciation 10,000 3,000 20,000 6,000
Investing activities (17,000) - - 10,000
Write-off of resource property
costs - - 66,000 -
------------ ------------------------ ------------
3,733,000 1,254,000 5,021,000 (1,135,000)
Changes in non-cash working
capital items:
Accounts receivable (4,794,000) (1,886,000)(10,188,000) (113,000)
Accounts and loans payable 581,000 325,000 1,614,000 (538,000)
------------ ------------------------ ------------
Net Cash Provided (Used)
by Operating Activities (480,000) (307,000) (3,553,000) (1,786,000)
------------ ------------------------ ------------
Cash Provided (Used) by
Financing Activities
- -----------------------
Due to related parties 17,000 - 809,000 -
Share capital issued for cash 121,000 359,000 1,836,000 1,884,000
Share capital returned to treasury (268,000) - - -
------------ ------------------------ ------------
Net Cash Provided (Used)
by Financing Activities (130,000) 359,000 2,645,000 1,884,000
------------ ------------------------ ------------
Cash Provided (Used) by
Investing Activities
- -----------------------
Sale (acquisition) of investments 62,000 - - (12,000)
Software acquisition and
integration costs, net - (369,000) (546,000) (787,000)
Capital assets (21,000) - (132,000) (11,000)
------------ ------------------------ ------------
Net Cash Provided (Used)
by Investing Activities 41,000 (369,000) (678,000) (810,000)
- ------------------------
Changes in Cash and Short-Term
Deposits (569,000) (344,000) (1,586,000) (712,000)
Cash and Short-Term Deposits
Opening Balance 907,000 2,490,000 2,493,000 3,205,000
------------ ------------------------ ------------
Closing Balance $ 338,000 $ 2,146,000 $ 907,000 $ 2,493,000
============ ======================== ============
</TABLE> - See accompanying notes -
15
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the three Months ended May 31, 1999 and May 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.
16
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the three Months ended May 31, 1999 and May 31, 1998
(In U.S. Dollars)
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.
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.
17
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the three Months ended May 31, 1999 and May 31, 1998
(In U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (Cont.)
- -------------------------------------------
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 antidiluive 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.
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.
18
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the three Months ended May 31, 1999 and May 31, 1998
(In U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (Cont.)
- -------------------------------------------
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 May 31, 1999, cash on deposit at these
financial institutions exceeded federally insured amounts by approximately
$38,000.
At May 31, 1998, cash on deposit at these financial institutions exceeded
federally insured amounts by approximately $1,900,000. 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>
Accounts receivable are as follows: May 31, 1999 May 31, 1998
-------------------------------
<S> <C> <C>
I/Nova Licensing, Product Sales & Service $ 15,000,000 $ 2,000,000
Other Software Services - 20,000
Other Receivables 53,000 1,000
-------------------------------
$ 15,053,000 $ 2,021,000
===============================
</TABLE>
(i) 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 May 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 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:
19
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the three Months ended May 31, 1999 and May 31, 1998
(In U.S. Dollars)
4. SOFTWARE ACQUISITION AND INTEGRATION COSTS (Cont.)
- ------------------------------------------------------
<TABLE>
<CAPTION>
May 31, 1999 May 31, 1998
Costs to acquire the components: ------------- -------------
S> <C> <C>
The I/Nova System $ 86,000 $ 86,000
The Archidata System 454,000 454,000
The infrastructure (Mainstream) 409,000 409,000
Costs to integrate the components:
Personnel 895,000 895,000
Office and related 510,000 355,000
----------------------------
Less: Accumulated amortization 2,354,000 2,199,000
323,000 -
----------------------------
$ 2,031,000 $ 2,199,000
============================
</TABLE>
5. RESOURCE PROPERTIES & RELATED DEFERRED COSTS
- ------------------------------------------------
a. Details of mineral properties are as follows:
- --------------------------------------------------
<TABLE>
<CAPTION>
May 31, 1999 May 31, 1998
-----------------------------
<S> <C> <C>
Alexander Star Claims, San Bernardino, County $ Nil $ 66,000
=============================
</TABLE>
b. Litigation
---------------
As was reported in previous year-end consolidated financial statements,
Veronex and its wholly-owned subsidiary, Nordell International Resources
Ltd. "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.
20
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the three Months ended May 31, 1999 and May 31, 1998
(In U.S. Dollars)
5. RESOURCE PROPERTIES & RELATED DEFERRED COSTS (Cont.)
- --------------------------------------------------------
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 May 31, 1999, Veronex has incurred $69,000 (1998 - $62,000) in
exploration costs on these properties.
6. INVESTMENTS
- ---------------
<TABLE>
<CAPTION>
May 31, 1999 May 31, 1998
------------------------------- -----------------------------
Number Market Number Market
of Shares Cost Value of Shares Cost Value
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EMB Corporation 105,000 $105,000 $112,000 50,000 $150,000 $150,000
Semper Corporation
Ltd., 5,000 2,000 2,000 5,000 2,000 2,000
-------------------------------------------------------------
$107,000 $114,000 $152,000 $152,000
</TABLE>
21
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the three Months ended May 31, 1999 and May 31, 1998
(In U.S. Dollars)
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 May 31,
1999 and May 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 $ 76,000 $ 66,000 $ 7,000 $ 1,000 $ 41,000 $ 79,000
Computer equipment 152,000 35,000 13,000 2,000 40,000 26,000
-----------------------------------------------------
$228,000 $126,000 $ 20,000 $ 3,000 $ 81,000 $105,000
=====================================================
</TABLE>
8. ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
May 31, 1999 May 31, 1998
------------- -------------
<S> <C> <C>
Legal fees
Arbitration with former employees (Note #16) $ 150,000 $ -
Other 200,000 -
Accrued management salaries 245,000 277,000
Accrued software marketing and support costs 1,800,000 -
Trade and other 1,07000 354,000
----------------------------
$ 2,502,000 $ 631,000
============================
</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
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 May 31, 1999, Veronex has accrued interest payable in the amount of
US$25,697 on these advances. .
22
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the three Months ended May 31, 1999 and May 31, 1998
(In U.S. Dollars)
10. SHARE CAPITAL
- ------------------
a. The authorized share capital of Veronex is 100,000,000 shares without par
value.
<TABLE>
<CAPTION>
Issued or allotted: May 31, 1999 May 31, 1998
----------------------- -----------------------
<S> <C> <C> <C> <C>
Balance - beginning of period 7,548,774 $52,345,000 6,897,501 $50,508,000
Issued by private placement 502,000 - - -
Issued on exercise of options 15,000 41,000 80,000 359,000
Issued on exercise of warrants 40,000 80,000 - -
Cancelled and returned to treasury (75,000) (268,000) - -
----------------------------------------------
Balance - end of period 8,032,274 $52,198,000 6,977,501 $50,867,000
==============================================
</TABLE>
During the three months ended May 31, 1999, Veronex issued 15,000 (1998 -
80,000; 1997 -Nil) shares at an average price of Can$4.03 for proceeds of Cdn
$60,463 (1998 - Can$512,150; 1997 - Can$Nil) on the exercise of share purchase
options. During the three months ended May 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
April 1, 2004 for 624,100 (1998 - 498,658; 1997 - 530,500) common shares at
prices between Cdn $3.40 (US $2.25) and Cdn $7.19 per share.
<TABLE>
Outstanding stock options as of: May 31, 1999 May 31, 1998
------------- -------------
<S> <C> <C>
Exercise price:
Less than Cdn $6.00 per share 90,500 38,658
Between Cdn $6.00 and Cdn $8.00 per share 533,600 355,000
Greater than Can $8.00 per share - 50,000
----------------------------
624,100 443,658
============================
</TABLE>
c. During the three months ended May 31, 1999, Veronex granted 220,000 (1998
-25,000; 1997 - Nil) share purchase options at a price of Can$4.13
expiring on April 1, 2004. During the three months ended May 31, 1999,
70,000 (1998 - Nil; 1997 Nil) share purchase options were canceled
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.
23
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the three Months ended May 31, 1999 and May 31, 1998
(In U.S. Dollars)
10. SHARE CAPITAL (Cont.)
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$16,500,000 between November 7, 1997 and November 30, 1998.
Accordingly, during the three months ended May 31, 1999, Veronex issued
502,000 common shares for proceeds of US$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 three
months ended May 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
February 28, 1999, 1,364,000 (1998 - 1,315,000) 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
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.
24
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the three Months ended May 31, 1999 and May 31, 1998
(In U.S. Dollars)
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. As of May 31, 1999, Veronex's major
business effort is directed toward the development and licensing of its software
systems.
13. RELATED PARTY TRANSACTIONS
- -------------------------------
a. During the three months ended May 31, 1999, salaries of $87,000 (1998 -
$87,000) were paid or accrued to and officer and director of the Company.
b. Included in accounts payable is approximately $245,000 (1998 - $277,000)
payable to an officer of Veronex under the terms of an employment contract
and for reimbursement of services. (See Note #15 - Contingencies and
Commitments)
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.
25
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the three Months ended May 31, 1999 and May 31, 1998
(In U.S. Dollars)
14. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Cont.)
- ----------------------------------------------------------------
The fair value for options granted during the three months ended May 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 three
months ended May 31, 1999, Veronex's pro forma earnings has been calculated
to be $3,679,000. Pro forma fully diluted earnings per share for the three
months ended May 31, 1999, has been calculated to be $0.45. For the year
ended February 28, 1999, Veronex's pro forma earnings has been calculated
to be $4,677,000. Pro forma fully diluted income per share for the year
ended February 28, 1999, has been calculated to be $0.59. Pro forma fully
diluted income and earnings per share for the three months ended May 31,
1998, has been calculated to be $1,249,000 and $0.17, respectively.
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.
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.
26
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the three Months ended May 31, 1999 and May 31, 1998
(In U.S. Dollars)
15. CONTINGENCIES AND COMMITMENTS (Cont.)
- ------------------------------------------
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 $9,840.
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 May 28, 1999, Veronex has
paid and accrued legal fees of $376,000 related to these proceedings.
17. 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.
27
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: September 22, 1999 /S/ David A. Hite
- ------------------------ ------------------
David A. Hite
Chief Executive Officer
Date: September 22, 1999 /S/ Gerald D. Lamont
- ------------------------ ---------------------
Gerald D. Lamont
Chief Accounting Officer
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