SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 1999
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Commission File Number 0-13967
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VERONEX TECHNOLOGIES, INC.
--------------------------
(Exact name of Registrant as specified in its charter)
VERONEX TECHNOLOGIES, INC.
---------------------------
(Translation of Registrant's name into English)
Province of British Columbia, Canada
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(Jurisdiction of incorporation or organization)
#1505-800 West Pender Street, Vancouver, B.C., Canada V6C 2V6
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(Address of principal executive offices)
Securities registered or to be registered pursuant to Section
12(g) of the Act:
Common Shares, no par value
----------------------------
(Title of Class)
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act:
None
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(Title of Class)
Indicate the number of outstanding shares of each of the Registrant's classes of
capital or common stock as of the close of the period covered by the annual
report.
7,549,774
-----------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
--- ---
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 . Item 18 X .
--- ----
PART I
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Item 1. Description of Business
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Organization
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Veronex Technologies, Inc. (formerly, International Veronex Resources Ltd.)
(hereinafter referred to as "Veronex" or the "Company") has acquired the
worldwide rights to an automated information system and application manager (the
"I/Nova System") technology (formerly known as the "AIM System"). The
Company's name change reflects its successful transition to the computer
software industry. The Company's Common Stock is registered under the United
States Securities Exchange Act of 1934 and its stock trades on the OTC Bulletin
Board in the United States of America under the symbol "VXTK". The Company's
Common Stock was also registered with and traded on the Vancouver Stock Exchange
in Canada under its previous name, International Veronex Resources Ltd., and
symbol "IVX", until the Company applied for a voluntary delisting from the
Vancouver Stock Exchange. As of July 4, 1997, the Company's common shares were
delisted from trading on the Vancouver Stock Exchange. Prior to that time, the
Company's stock also traded on the American Stock Exchange.
Founded in 1974, in the Province of British Columbia, Canada, Veronex is a
Canadian company with operations in Canada, and the United States of America.
In 1978, Veronex began a long-term strategy aggressively to acquire and develop
diversified natural resource properties. The acquisition of these new natural
resource opportunities was usually for a combination of cash and the issuance of
new shares of common stock. Generally, the issuance of a portion of these new
shares of common stock was contingent upon the discovery and successful
production of the desired natural resource. The Company's normal business
approach was to combine its own exploration and operational expertise with the
financial strength of a major partner. In 1988 the Company entered into a
Farmout Agreement with Triton Indonesia, Inc., a wholly owned subsidiary of
Triton Energy Corporation (collectively "Triton"). Unbeknown to the Company,
Triton was being operated in a pattern of corrupt, illegal and fraudulent
activities which resulted in the Company being cheated out of its interest in
the Enim Oil Project. Since 1990 the Company has been engaged in complex
litigation with Triton and with the Company's former attorneys. The litigation
has essentially concluded as is more fully explained below under Enim Oil
Project and Related Litigation.
Veronex is a company organized under the laws of the Province of British
Columbia, Canada and was incorporated on March 8, 1974 under the name of Rockel
Mines Ltd. The Registrant changed its name to Veronex Resources Ltd. on May 1,
1979 and to International Veronex Resources Ltd. on October 21, 1992. A
subsequent name change to Veronex Technologies, Inc. was made on December 4,
1997.
Veronex, together with its wholly owned subsidiaries, Veronex Resources, Inc.,
Nordell International Resources Ltd. ("Nordell"), Bonaparte Resources Ltd.,
Richport Resources Ltd., Align Energy Inc., High River Industries Ltd., and
Mainstream Technologies, Inc., an indirect wholly-owned subsidiary, along with
PCS Acquisition Corp. ("PCS Acq."; a California subsidiary that merged with
ProMax Conceptual Strategies, as more particularly described below), designs,
develops, licenses and supports computer software products for complete
enterprise wide management application development and implementation for
competitive, innovative and flexible business solutions. In addition, Veronex
is involved in the acquisition and, as warranted, exploration and development of
natural resource opportunities (Veronex Technologies, Inc. and the subsidiaries
are referred to collectively as "Veronex").
The Company maintains its principal executive offices at 800 West Pender Street,
Suite 1505, Vancouver, British Columbia, Canada V6C 2V6 and has offices at 18023
Sky Park Circle, Suite E-2, Irvine, California, U.S.A. 92614 and 363 Brookhollow
Drive, Santa Ana, California, U.S.A. 92705.
On January 14, 1997 the Company entered into a Property Purchase Agreement (the
"Agreement") with Thomas J. Price, a software developer, to acquire certain
software technology including, but not limited to, an information management
application system, including a source program analyzer (collectively referred
to as the "I/Nova System"). The terms of the Agreement provide for Veronex to
pay a fee of $20,000 and to issue up to 12,000,000 shares of Common Stock to
acquire the I/Nova System. Veronex issued 100,000 shares of its Common Stock
and will issue the balance of the shares of Common Stock based on a contingent,
earn-out formula, dependant upon future revenues generated from licensing sales
and maintenance contracts of the I/Nova System. A finder's fee will be payable
pursuant to the rules, policies and guidelines of the regulatory authorities.
Effective the same date, the Agreement was amended to reduce by 5,500,000 the
number of shares of Common Stock to be issued based on a contingent, earn-out
formula. Of such reduction, 3,500,000 shares were reserved for contingent
issuance to ProMax Conceptual Strategies ("ProMax"), a California corporation of
which Mr. Price was the majority shareholder, which corporation was acquired by
PCS Acq.; the balance of the 2,000,000 contingent, earn-out shares were
allocated to the Company's 1997 Contingent Stock Option Plan, the options for
which also vest on the same contingent, earn-out basis. Effective as of
January 14, 1997, the board of directors of ProMax approved an agreement to
merge ProMax with and into PCS Acq. Approval by the ProMax shareholders was
obtained in August of 1997, and the merger documents were filed with the
California Secretary of State's office in September of 1997.
Effective August 1, 1997, Veronex acquired additional complimentary software
technologies through two additional transactions:
(i) a Property Purchase Agreement with Terry G. Goodbody, a software developer;
and
(ii) a Stock Purchase Agreement with Thomas A. Speed, pursuant to which
Mainstream Technologies, Inc., a California corporation owned by
Mr. Speed, became a wholly-owned subsidiary of Veronex.
As a result of the three transactions described above, Veronex acquired the
I/Nova System computer software technology, as more particularly described in
Item 9, Management's Discussion and Analysis of Financial Condition and Results
of Operations. Subsequent ot the acquisitions, Veronex spent several months
integrating these methodologies and technologies into a complete system for the
alternative future use of solving the Year 2000 computer problem. The software
technology for the Year 2000 solution is very unique and a patent application
was filed in August 1997 to protect its unique capabilities.
Recent Developments
- --------------------
On February 1, 1999, the Company announced the appointment of W. Gennen McDowall
to the Company's Board of Directors.
On September 12, 1997, the Company entered into a financing agreement with Robb,
Peck, McCooey Clearing Corp. ("Robb, Peck"). The agreement allowed Robb, Peck
and/or its clients to invest up to $15.4 million in Veronex. Veronex agreed to
pay Robb, Peck certain fees and expenses. On November 7, 1997, as a result of
the agreement, 502,000 shares of the Company's Common Stock were issued for net
proceeds of $1,659,000. As part of this transaction and subsequent to the
Company's year end, the Company issued 502,000 additional Units to the investors
and 100,400 additional placement agents' warrants. As of September 7, 1999,
there remains outstanding 763,500 warrants and 180,808 placement agents'
warrants.
On April 7, 1999, Veronex announced the execution of a fifth Strategic Alliance
Agreement with Microtron, Inc., a private company headquartered in Mexico City,
Mexico, allowing Veronex the opportunity to introduce its I/Nova System into
the Mexican market.
Additionally, on April 20, 1999, Veronex announced the execution of a Strategic
Alliance Agreement with Luoma Energy Services, Corp., a private company
headquartered in Las Vegas, Nevada, formed for the express purpose of
introducing the best of breed enterprise solution services to the electric and
gas utility industry.
On April 22, 1999, Veronex announced the execution of a seventh Strategic
Alliance Agreement with Global Telephone Communications, Inc., an established
supplier of Internet services and high technology services to the People's
Republic of China and the Asian-Pacific Basin. Through its wholly-owned
subsidiary, Regent Luck Holdings, Global operates under an exclusive
agency/licensing agreement with China Telecom's wholly owned subsidiary,
Newsnet, to provide basic and advanced Internet services.
On April 27, 1999, Veronex announced the execution of an eighth Strategic
Alliance Agreement with Consolidated International Technologies, Inc., a
wholly-owned subsidiary of World Wide Ventures Partners, LLC., a Delaware
corporation, to license the use of Veronex's I/Nova system.
Execution of another Strategic Alliance Agreement was announced on May 25, 1999
pursuant to which Veronex was selected to develop and deploy an online
Electronic Commerce Service Network (the "E-Commerce System") in the Asian
Pacific Region. The agreement with East-West Electronic Commerce and Trade
Center, Ltd. is to develop the E-Commerce System for a consortium of
approximately 6,000 banks and their branches in the Asia-Pacific Region. The
banks are located throughout more than 30 countries and collectively have in
excess of 10,000,000 enterprises as customers. The terms of the Agreement call
for a $2,000,000 license fee plus a $3,000,000 development fee for the E-
Commerce System. Additionally, Veronex will share in a portion of the
transaction fee generated by the E-Commerce System.
Company Reorganization
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Background Information
- ----------------------
Pursuant to the terms of a January 14, 1997 agreement between the Company and
Thomas J. Price, a director and officer of the Company (the "Price Agreement"),
the Company acquired a 100% interest in and to certain software technology and
intellectual property created by Mr. Price. This technology and property,
formerly known as the "AIM Technology" was subsequently renamed the "I/Nova
System". Consideration for the I/Nova System was the issuance to Mr. Price of
100,000 shares of the Company and the issuance of up to a further 11,900 ,000
"earn out" shares of the Company to be issued to Mr. Price on the basis of one
(1) share for each US $2.00 of gross cash revenues generated from the I/Nova
System (the "Earn Out Shares"). Initially, the Earn Out Shares were to have
been issued to Mr. Price by not later than November 30, 1998, but this date was
extended to November 30, 1999 after approval for this extension was received
from the Company's Members at the Annual General Meeting held September 21,
1998.
Earn Out Shares
- ---------------
At the Company's Annual General Meeting schedule to be held October 21, 1999,
Management is seeking shareholder approval to pass a resolution extending the
expiry date from November 30, 1999 to November 30, 2000.
Memorandum of Understanding
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Management of the Company has recently been approached by persons interested in
working with the Company to further develop and exploit the I/Nova System. In
furtherance thereof, a Confidential Memorandum of Understanding was executed on
August 27, 1999 by David A. Hite, Thomas J. Price and Thomas A. Speed (the
"Memorandum"). The Memorandum contemplates the reorganization of the Company's
affairs and the potential disposition of some or all of the Company's assets.
Essentially, the concept behind the Memorandum (the "Reorganization") provides
for:
- - involvement of corporate entity(ies) into which certain of the Company's
current assets will be vended, specifically the I/Nova System and the
Company's mineral resource properties;
- - the Company will retain certain of its current assets, specifically the
e-commerce system;
- - consideration to be paid to the Company for the above assets would be based
upon a value established by a valuation report(s), payable by way of a
combination of cash and stock;
- - distribution of a portion of the above shares to the Company's Members.
- - concurrently, upon the sale of the I/Nova System, the Company would be
obligated to proceed with the issuance to Thomas J. Price of those
11,900,000 common shares due to be issued to Price as set out above and in
consideration for the acquisition of the I/Nova System further to that
agreement dated January 14, 1997 between Price and the Company.
Shareholder approval to the issuance of these shares and the resulting
change in control upon the issuance of the 11,900,000 common shares was
sought and obtained at the Company's Annual General Meeting held May 21,
1997;
The resulting new Veronex company would retain the E-Commerce System in the
Asian Pacific Region which calls for a $2,000,000 licensing fee and a $3,000,000
development fee, as well share in a portion of each transaction fee generated by
the use of the E-Commerce System. According to the Company's Planned Phase
Development Plan, Phase I is expected to be completed by December 31, 1999 and
would result in the installation and operation of the E-Commerce System in
5 countries, 5 banks per country and 10 business enterprises per bank. Phase II
is expected to be operational by April 30, 1999 for 80 banks, each with 100
business enterprises per bank in 33 countries through the Association of
Development Financial Institutions in Asian-Pacific (ADFIAP). Phase III is
expected to be operational by April 30, 2000 as well, in 5,680 banks with 1,000+
business enterprises per bank through the Asia Pacific Banking Association.
Thomas J. Price would be appointed President and CEO of the Company upon
completion of the reorganization. Veronex would receive sufficient cash from
the corporate entity(ies) to continue operations until such time as the revenues
from every transaction processed by the use of the E-Commerce System are
received, as well as an undetermined number of shares of the corporate
entity(ies), the number of which are to be based on the Evaluation Report.
This would allow the Company to totally focus its efforts on the E-Commerce
System. Upon completion of the reorganization, David A. Hite would resign as
Chairman of the Board, CEO, CFO and director of Veronex and become CEO and
director of the corporate entity(ies), thus ensuring the best interests of
Veronex shareholders who would be receiving a pro-rata distribution of the
shares in said corporate entity(ies), if approved by the members. As a result,
each Veronex shareholder would have the chance to participate in the business
opportunities sustained by two reporting companies.
At the Company's Annual General Meeting scheduled to be held October 21, 1999,
Management will seek Member approval in principle for the Reorganization.
Potential Disposition of the Company's Undertaking and Assets
- --------------------------------------------------------------
At any time when a company seeks to dispose of all or substantially all of its
assets and undertaking, Member approval is required. Implementation of the
Reorganization, amended or otherwise, may result in the distribution of the
Company's assets and undertaking. As a result, Members must approve the
transaction by way of special resolution. The Reorganization Special Resolution
must be approved by 75% of the shares eligible to vote at the Meeting in order
to comply with applicable statutory requirements of the Company Act (British
Columbia). Member approval will be sought for the potential disposition of the
I/Nova System and the Company's Mineral Claims, located in Avawatz Mining
District, County of San Bernadino, California.
Item 2. Description of Property
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Placer Gold Mining Claims, California
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During fiscal year 1996, the Company acquired certain interests in placer mining
claims known as the Alexander Star #2, Alexander Star #4 through 7 and Alexander
Star #91 through 98 Claims, all located in the Avawatz Mining District, County
of San Bernardino, California (the "Alexander Star Property"). The Company is
maintaining these claims in good standing until such time as the price of gold
is of sufficient value to warrant further exploration and/or development.
THERE ARE NO KNOWN RESERVES OF COMMERCIAL ORE ON THE PROPERTIES AND THIS PROGRAM
IS AN EXPLORATORY SEARCH FOR ORE.
In addition to the properties involved in the Placer Gold Mining Claims in
California, Veronex maintains leased office space in Vancouver, British
Columbia, Irvine, California and Santa Ana, California.
Item 3. Legal Proceedings
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ENIM OIL PROJECT AND RELATED LITIGATION
- ---------------------------------------
Beginning in January 1990, the Company became involved in complex litigation
relating to its interest in the Enim Oil Project in Indonesia. Essentially, as
of March 1998, the litigation involving the Enim Oil Project and any exposure to
liability to the Company was completed.
The litigation involved certain matters involving the development of the Enim
Oil Project. The Company acquired the rights to a 72,000 acre oil field, the
Enim Oil Project, located in South Sumatra, Indonesia in 1982. After several
years of development, including achieving oil production in 1987, the Company
was experiencing cash flow difficulties and sought a joint venture partner to
assist it financially with the completion of the development of the Enim Oil
Project.
Effective October 1, 1988, the Company, through Nordell International Resources
Ltd. ("Nordell"), a wholly owned subsidiary, entered into a Farmout Agreement
with Triton Indonesia Inc., a wholly owned subsidiary of Triton Energy
Corporation (NYSE:OIL), requiring Triton to invest $24 million of cash in the
Enim Oil Project in South Sumatra, Indonesia in order to acquire a 60% working
interest and to become the Operator of the Enim Oil Project. Nordell was
entitled to receive its pro rata share of the cash flow from oil sales of the
Enim Oil Project, based on invested capital as defined. Nordell retained a 40%
working interest in the Enim Oil Project and was required to bear its 40%
participating interest share of the costs and expenses of the Enim Oil Project
once Triton had invested $24 million of cash.
In November 1989, Triton claimed that its $24 million cash obligation was
satisfied as of the end of October, 1989, and that Nordell would be responsible
for bearing its 40% share of future cash expenditures for costs and expenses for
the Enim Oil Project.
Nordell disputed the operator's assertion regarding the completion of its cash
obligation and other matters, declared the operator in default and referred the
issues to arbitration, to resolve these matters, disagreements concerning
accounting procedures and other matters. Subsequently, Triton made certain
counterclaims. The arbitration was conducted in Singapore and Los Angeles in
October and November, 1990.
On December 13, 1990, an Arbitration Award, adverse to the Company, was issued.
The Arbitration Award converted Nordell's interest in the Enim Oil Project to a
5% "net profits" interest effective October 1, 1990 and awarded costs and
damages of $931,000 to Triton.
This Arbitration Award ultimately led to a number of adversarial lawsuits with
Triton, as well as the settlement of a malpractice lawsuit against the Company's
former attorneys, McDermott, Will & Emery and Cadwalder, Wickersham & Taft, who
represented Nordell in the arbitration proceedings. As a result of the
settlement agreement, Veronex recorded a one-time non-recurring gain of
$5,200,000.
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. 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 both punitive and exemplary
damages, specific performance of the Arbitration Award and an accounting of the
Enim Oil Project joint venture. This lawsuit was removed to the US District
Court, Central Division of California. The trial commenced September 14, 1999
and resulted in a favorable decision for Mr. Hite and Veronex. The decision was
rendered on September 17, 1999. The Court found that the letter agreement was
not a guarantee and that Triton had maliciously prosecuted Mr. Hite, awarding
him compensatory damages and punitive damages. The Court also awarded Veronex
compensatory damages, but no punitive damages. The damage portion of the trial
was continued until October 5, 1999.
FORMER EMPLOYEES
- -----------------
The Company was involved in litigation proceedings and became a party to
arbitration proceedings against certain of its former employees. In the
litigation, the company alleged, among other causes of action, that the party
defendants misappropriated the Company's intellectual property; and was granted
a temporary restraining order against the party defendants. Further, the
Company maintained that the issues raised in the arbitration proceedings were
inextricably intertwined with the matters that were the subject of the litiga
tion. During the period ended November 30, 1998, the litigation with its former
employees was settled in full.
SHELLEY LAWSUIT
- ---------------
Between June 26, 1998 and June 14, 1999, Gerald N. Shelley (and his law corpora
tion) and PCS Acquisition Corp., a wholly-owned subsidiary of the Company, and
the Company (as well as certain related individuals) filed a series of com
plaints and cross complaints against each other in the Superior Court for Orange
County, California. On April 16, 1999, the parties reached a comprehensive
settlement of the disputes among them. At the present time, Veronex is not a
party to any other legal proceedings, nor is it aware of any proceedings
contemplated by any governmental authorities against it.
Item 4. Control of Registrant
- -------------------------------------
a) The Registrant is not directly or indirectly owned or controlled by
another corporation(s) or by any foreign government.
b) To the knowledge of the Directors and Senior Officers of the Company, only
the following individual holds shares carrying more that 10% of the voting
rights attached to all outstanding shares of the company as at September 7,
1999:
<TABLE>
<CAPTION>
Name of Owner Number of Shares Percentage of Issued and Outstanding
- ------------- ------------------- ------------------------------------
<S> <C> <C>
Cede & Co. 4,394,838 53%
CDS & Co. 827,189 10%
</TABLE>
c) As at September 7, 1999, the Officers and Directors of the registrant held
the following common shares:
<TABLE>
<CAPTION>
Identity of Person or Group Amount Owned Percentage of Class
- -------------------------- ------------ -------------------
<S> <C> <C>
Directors & Officers 791,801 9.58%
</TABLE>
Item 5. Nature of Trading Market
- ----------------------------------
The Registrant has only one class of capital stock, Common Shares without par
value. Veronex's Common Stock is registered under the United States Securi
ties Exchange Act of 1934 and its stock trades on the OTC Bulletin Board in the
United States as of February 4, 1993. Prior to that date, the stock traded on
the American Stock Exchange. The stock also traded on the Vancouver Stock
Exchange until it applied for and was granted a voluntary delisting on July 4,
1997.
The price range for the low and high bids of shares of Veronex's Common Stock,
on a quarterly basis, on the OTC Bulletin Board for 1998 and 1997 expressed in
U.S. Dollars are set out in the following table:
<TABLE>
<CAPTION>
Fiscal 1999 Fiscal 1998
Low High Low High
--- ---- --- ----
<S> <C> <C> <C> <C>
1st Quarter $3.64 $ 16.75 $ .88 $3.13
2nd Quarter $3.31 $ 9.94 $1.75 $5.44
3rd Quarter $1.50 $ 5.25 $3.63 $5.88
4th Quarter $1.28 $ 6.38 $2.63 $5.13
</TABLE>
Note: The NASD quotations represent inter-dealer prices, without mark-ups or
commissions, and may not necessarily be indicative of actual sales
prices.
There have been no cash dividends paid on the common shares during the last two
years.
The Registrant has been informed by Montreal Trust, the Registrar and Transfer
Agent, that as at September 7, 1999 Veronex had 3,379 shareholders of record.
Item 6. Exchange Controls and Other Limitations Affecting Security Holders
- ----------------------------------------------------------------------------
There are no governmental laws, decrees or regulations in Canada relating to
restrictions on the import of capital affecting the remittance of interest,
dividends or other payments to non-resident holders of Veronex Technologies,
Inc.'s shares. Any such remittances to United States residents, however, are
subject to a 15% withholding tax pursuant to Article X of the reciprocal tax
treaty between Canada and the United States. See "Item 7. Taxation".
----------
Except as provided in the Investment Canada Act (the "Act"), there are no
limitations under the laws of Canada, the Province of British Columbia or in the
charter or any other constituent documents of Veronex Technologies, Inc. on the
right of foreigners to hold and/or vote the shares of Veronex Technologies, Inc.
The Act requires a non-Canadian making an investment to acquire control of a
Canadian business, the gross assets of which exceed certain defined threshold
levels, to file an application for review with Investment Canada, the federal
agency created by the Act.
A Canadian business is defined in the Act as a business carried on in Canada
that has a place of business in Canada, an individual or individuals in Canada
who are employed or self-employed in connection with the business and assets in
Canada used in carrying on the business.
The following investments by a non-Canadian are subject to review by Investment
Canada:
(i) all direct acquisitions of control of Canadian businesses with assets of
$5 million or more;
(ii) all indirect acquisitions of control of Canadian businesses with assets of
$50 million or more if such assets represent less than 50% of the value of
the assets of the entities, the control of which is being acquired; and
(iii) all indirect acquisitions of control of Canadian businesses with assets of
$5 million or more if such assets represent more than 50% of the value of
the assets of the entities, the control of which is being acquired.
For the purposes of the Act, "direct acquisition of control" is defined as:
"a purchase of the voting interests of a corporation, partnership, joint
venture or trust carrying on a Canadian business, or any purchase of all or
substantially all of the assets used in carrying on a Canadian business;
and"
"Indirect acquisition of control" is defined as:
"a purchase of the voting interest of a corporation, partnership, joint
venture or trust, whether a Canadian or foreign entity, which controls a
corporation, partnership, joint venture or trust company on a Canadian
business in Canada."
In addition, an investment by a non-Canadian which would not otherwise be
reviewable under the Act, is reviewable, if either a Canadian business is
directly or indirectly acquired or a new Canadian business is established, or
such Canadian business engages in a specific activity that, in the opinion of
the federal cabinet is related to Canada's cultural heritage or national
identity and on the recommendation of the Minister responsible for Investment
Canada, the cabinet issues an order for review.
A non-Canadian shall not implement an investment reviewable under the Act unless
the investment has been reviewed and the Minister responsible for Investment
Canada is satisfied or is deemed to be satisfied that the investment is likely
to be of net benefit to Canada. If the Minister is not satisfied that the
investment is likely to be a net benefit to Canada, the non-Canadian shall not
implement the investment or, if the investment has been implemented, shall
divest himself of control of the Canadian business that is the subject of the
investment.
A non-Canadian making the following investments:
(i) an investment to establish a new Canadian business; and
(ii) an investment to acquire control of a Canadian business which investment is
not subject to review under the Act,
must notify Investment Canada, within prescribed time limits, of such
investments.
Item 7. Taxation
- ------------------
Generally, dividends paid by Canadian corporations to non-resident shareholders
are subject to a withholding tax of 25% of the gross amount of such dividends.
However, Article X of the reciprocal tax treaty between Canada and the United
States reduces to 15% the withholding tax on the gross amount of dividends paid
to residents of the United States. A further 5% reduction in the withholding
tax rate on the gross amount of dividends is applicable when a U.S. corporation
owns at least 10% of the voting stock of the Canadian corporation paying the
dividends.
Disposition of Shares by Non-Residents of Canada
- -------------------------------------------------
A non-resident of Canada who holds shares of Veronex Technologies, Inc. as
capital property will not be subject to tax on capital gains realized on the
disposition of such shares unless such shares are "taxable Canadian property"
within the meaning of the Income Tax Act (Canada) and no relief is afforded
under any applicable tax treaty. The shares of Veronex Technologies, Inc. would
be taxable Canadian property of a non-resident if at any time during the five
year period immediately preceding a disposition by the non-resident of such
shares not less than 25% of the issued shares of any class of Veronex
Technologies, Inc. belonged to the non-resident, to a person with whom the
non-resident did not deal at arm's length, or to the non-resident and any
persons with whom the non-resident did not deal at arm's length.
Item 8. Selected Financial Data (in $000's U.S. Dollars)
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Feb. 28, Feb. 28, Feb. 28, Feb. 29, Feb. 28,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
--------- --------- --------- --------- ---------
Revenue $ 10,258 $ 294 $ 132 $ 1 $ 2
- --------------- --------- --------- --------- --------- ---------
Earnings (Loss)
for Period $ 4,677 $ (1,151) $ 5,140 $ (779) $ (4,793)
- --------------- --------- --------- --------- --------- ---------
Total Assets $ 13,621 $ 4,685 $ 3,494 $ 102 $ 91
- --------------- --------- --------- --------- --------- ---------
Working Capital/
(Deficiency) $ 8,512 $ 2,333 $ 2,394 $ (3,371) $ (2,629)
- --------------- --------- --------- --------- --------- ---------
Shareholders'
Equity (Deficit) $ 10,891 $ 4,378 $ 2,649 $ (3,290) $ (2,599)
- --------------- --------- --------- --------- --------- ---------
</TABLE>
This selected financial data should be read in conjunction with the Consolidated
Financial Statements and notes thereto appearing elsewhere herein.
Item 9.
- -------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- --------------------------------------------------------------------------
General
- -------
Veronex 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 7,549,774 shares issued and outstanding as of
February 28, 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 it is
expected to impact application systems 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 accounts 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 unlim
ited opportunities as we move into the new millennium. Impetus for this transi
tion has been fueled 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.
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 applica
tion 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 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.
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 systems to the I|Nova System.
After acquiring the I/Nova technology, Veronex made extensive development
to the migration analyzer to transition it into a Y2k solution tool. Veronex has
applied for a patent on the developed source program analyzer, I/Nova, known as
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 analysis, repair,
testing and re-engineering product known as I/Nova.
The I/Nova tool-set offers COBOL legacy code analysis, repair,
standardization and lines of code 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 mainte
nance costs and solving the Y2k legacy 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 consis
tent 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 busi
nesses in the entire Asian Pacific Region which will initially include approxi
mately 6,000 banks in 33 countries with more than 10,000,000 business enter
prises 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 integra
tion.
The I/Nova DataCentric Analyzer is able to optimize existing applications
by eliminating redundant source code and by standardizing source code defini
tions, which facilitates application integration and migration.
I/Nova 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 understand
ing 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 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 February 28, 1999 the Company had working capital of $8,512,000.
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 solely those of Veronex Technologies,
Inc. and are subject to change without notice. Actual results and developments
could differ materially from those expressed in or implied by such statements
due to a number of factors including those described in the context of such
forward-looking statements.
RESULTS OF 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.
During the fiscal year ended February 28, 1999, Veronex recorded revenues
of $10,258,000 from the licensing and maintenance of its 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, 1999, 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.
RESULTS OF FISCAL 1998 COMPARED TO FISCAL 1997
- ----------------------------------------------
Veronex reported a net loss of $1,151,000 ($0.19 per share) for the fiscal
year ended February 28, 1998 and a net income of $5,140,000 ($0.99 per share)
for the fiscal year ended February 28, 1997, on revenues of $294,000 and
$132,000, respectively.
Revenues of $294,000 for the fiscal year ended February 28, 1998 were
generated from licensing fees and support of the Company's software products.
During the fiscal year ended February 28, 1997, the Company recorded a gain
of $5,200,000 as a result of a malpractice lawsuit settlement with the firms of
attorneys which represented the Company during the Arbitration proceedings in
1990.
During the fiscal year ended February 28, 1997, the Company recorded $132,000 of
prior years' net profits on the Enim Oil Project. Previously, the Company had
not been accruing Enim Oil Project earnings. In addition, during the fiscal year
ended February 28, 1997, the Company recorded a gain of $38,000 on the 1995
sale, by forfeiture, of its net profits interest in the Enim Oil Project. No
such income and gain was recorded during the fiscal year ended February 28,
1998.
During the fiscal year ended February 28, 1998, the Company recovered
$1,000 in exploration expense on its California gold properties due to a
reclassification of expenditures. The Company incurred $59,000 in exploration
expenses during the fiscal year ended February 28, 1997. The Company earned
$98,000 in interest during the fiscal year ended February 28, 1998 as a result
of investing the funds generated by the settlement of malpractice lawsuits
against its former attorneys and by a private placement of the Company's common
shares.
The loss of $10,000 from investing activities during the fiscal year ended
February 28, 1998 was a result of a write-down of the Company's American
Exploration Drilling Program.
Other changes to the various elements of the Statements of Operations were
an increase of $691,000 in administration expenses as a result of the write-off
during the fiscal year ended February 28, 1997, of accrued legal costs and
expanded operations in fiscal 1998. A portion of administration expense incurred
during the fiscal year ended February 28, 1998 has been capitalized as software
integration costs. Additionally, the Company incurred $669,000 of software
marketing costs related to the sales efforts on the I|Nova System. The decrease
of $22,000 in interest expense resulted from the payment in full of the
arbitration award and the increase of $63,000 in interest income resulted from
the increase in the Company's cash balances.
RESULTS OF FISCAL 1997 COMPARED TO FISCAL 1996
- ----------------------------------------------
Veronex reported net earnings of $5,140,000 ($0.99 per share) for the
fiscal year ended February 28, 1997 as compared to losses of $779,000 ($0.30 per
share) for the fiscal year ended February 28, 1996, on revenues of $132,000 and
$1,000 respectively.
The increase in revenues was the result of obtaining information on the
Company's 5% net profits interest in the Enim Oil Project. Triton foreclosed on
the Company's 5% net profits interest on August 23, 1995 which resulted in a
gain of $38,000. Further, the Company no longer has any interest in the Enim Oil
Project. The increase in earnings of $5,919,000 is the result of the settlement
of the malpractice litigation as more fully described above, the total gain of
the settlement of the malpractice litigation was $5,200,000. The receipt of
these funds from the settlement resulted in an increase of interest income of
$35,000.
Other changes in the elements of Expense included a decrease in operating
and administration costs of $536,000 as a direct result of the malpractice
litigation settlement which eliminated the counterclaims by the attorneys. There
was an increase of $55,000 in exploration expenses related to the Company's
mining claims in California.
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.
Item 10. Directors and Officers of Registrant
- ----------------------------------------------
The following individuals were elected as Directors at the Company's Annual
General Meeting held September 21, 1998:
<TABLE>
<CAPTION>
Name, Age and Other Positions Principal Occupation or Employment and
Held with the Company Occupation for the Past Five Years
- ------------------------------------- ----------------------------------------
<S> <C>
DAVID A. HITE Chairman of the Board, Chief Financial
Officer and Executive Officer of
Chairman, Chief Financial Officer, Veronex Technologies, Inc.; formerly
Chief Executive Officer & Director Vice President and Director of Investor
Relations since 1984; Director of the
Age 56 Company since August 21, 1987.
- ------------------------------------- ----------------------------------------
THOMAS J. PRICE President, Chief Operating Officer and
Director of the Company since November
President, Chief Operating Officer 12, 1997. Prior to November 1997, Mr.
& Director Price was President of ProMax Conceptual
Strategies.
Age 57
- ------------------------------------- ----------------------------------------
SANDRA M. MULLIGAN Director of Veronex Technologies, Inc.
And other private corporations
Director (1980-present); Director of the Company
since May 24, 1989.
Age 57
- ------------------------------------- ----------------------------------------
PRU ZERNY Ms. Zerny acts as a director of the
Company and also as President of Nexos
Director Marketing International, a consulting
company for international trade. Ms.
Age 51 Zerny has been a Director of the Company
since November 12, 1997.
- ------------------------------------- ----------------------------------------
</TABLE>
Subsequent to the Annual General Meeting, W. Gennen McDowall was appointed to
the Company's Board of Directors on February 1, 1999.
<TABLE>
<CAPTION>
Name, Age and Other Positions Principal Occupation or Employment and
Held with the Company Occupation for the Past Five Years
- ------------------------------------- ----------------------------------------
<S> <C>
W. GENNEN McDOWALL Mr. McDowell is a Director of the
Company and the President and CEO
Director of Poplar Resources Ltd., a public
company. He also acts as a self-
Age 49 employed geophysical consultant.
Mr. McDowell was appointed as a
Director on February 1, 1999.
- ------------------------------------- ----------------------------------------
</TABLE>
Item 11. Compensation of Directors and Officers
- -------------------------------------------------
Compensation Table
------------------
<TABLE>
<CAPTION>
Name of Individual and Principal capacities Cash compensation
number of persons in served by the named including salaries,
group individual fees, director's fees,
commissions and bonuses
- ------------------------ --------------------- ------------------------
<S> <C> <C>
David A. Hite Chairman of the Board, $350,000.00 ($U.S.)*
CEO, CFO and Director
- ------------------------ --------------------- ------------------------
Thomas J. Price Chairman of the Board, $120,000.00 (U.S.)
CEO, CFO and Director
- ------------------------ --------------------- ------------------------
Executive Officers as a $470,000.00 (U.S.)
Group: (2 persons)
- ------------------------ --------------------- ------------------------
</TABLE>
* Mr. Hite was paid $234,350.00 (U.S.) and a total of $115,650.00 (U.S.) has
been accrued.
On January 5, 1999, the Registrant granted to David A. Hite a directors' stock
option for a total of 174,615 shares at a price of $2.17 (Cdn.) per share
exercisable until January 5, 2004. Mr. Hite exercised the 174,615 options
on February 23, 1999.
On August 5, 1999, the Registrant granted to David A. Hite a directors' stock
option for a total of 207,000 shares at a price of $4.22 (Cdn.) per share
exercisable until August 5, 2004.
The prices of a stock option are set at the average closing market price of the
Company's shares for a ten day period prior to the date the option is granted,
and in some circumstances, the prices at which the stock options were granted
may be less than the market price of the Company's shares on the date of
granting. The closing price of the Company's shares on the NASD Over the
Counter Electronic Bulletin Board on January 5, 1999 was $1.8125 (U.S.).
There is no other employment remuneration which exceeds $60,000.00 in the
aggregate in respect of Executive Officers.
There is no arrangement for compensation with respect to termination of
executive officers in the event of a change of control of the company.
There is no arrangement for compensating directors for their services.
No pension or retirement benefit plans have been instituted by the Company and
none are proposed at this time.
Item 12. Options to Purchase Securities from Registrant or Subsidiaries
- ------------------------------------------------------------------------
As at September 7, 1999, the following stock options to purchase the Company's
shares were outstanding to various directors and employees:
<TABLE>
<CAPTION>
Number of Exercise Expiry
Name Shares Price (Cdn. $) Date
- ------------------- ------------- -------------- --------------
<S> <C> <C> <C>
David Wooldridge 50,000 $3.69 Nov. 12, 2002
Theodore G. Elser 15,000 $3.69 Nov. 13, 2002
Donald R. Johnston 15,000 $4.22 Sept. 14, 2003
James H. Townsend 25,000 $4.22 Sept. 14, 2003
Sandra M. Milligan 50,000 $4.22 Feb. 3, 2004
Peggy Martin 50,000 $4.22 Feb. 3, 2004
W. Gennen McDowall 25,000 $4.22 Feb. 3, 2004
Pru Zerny 25,000 $4.22 Feb. 3, 2004
Gerald D. Lamont 25,000 $4.22 Feb. 3, 2004
Pamela E. Day 20,000 $4.22 Feb. 3, 2004
William Dannemeyer 25,000 $4.22 Feb. 3, 2004
N. David Hamilton 25,000 $4.22 Feb. 3, 2004
Timothy W. Hite 18,600 $4.22 Feb. 3, 2004
Damon S. Young 140,000 $4.13 Apr. 1, 2004
Michael Fryer 40,000 $4.13 Apr. 1, 2004
Rahim Besharaty 40,000 $4.13 Apr. 1, 2004
Jay A. Geier 30,000 $4.22 Aug. 5, 2004
David A. Hite 207,000 $4.22 Aug. 5, 2004
- ------------------- ------------- -------------- --------------
</TABLE>
Contingent Options - Two-Year Term
-----------------------------------
The following contingent earn-out options are allocated from the Company's 1997
Contingent Stock Option Plan, the options for which shall vest on the same
contingent, earn-out basis as those reserved for contingent issuance to ProMax
Conceptual Strategies:
<TABLE>
<CAPTION>
No. of Exercise Expiry
Name of Optionee Shares Price (Cdn. $) Date
- ------------------- ------------- -------------- --------------
<S> <C> <C> <C>
Tony Speed 100,000 $3.13 Nov. 30, 1999
David Wilson 40,000 $3.13 Nov. 30, 1999
Mike Schaefer 25,000 $3.13 Nov. 30, 1999
Andrew Zide 40,000 $4.22 Jan. 16, 2000
Millie Egerton 20,000 $4.22 Mar. 13, 2000
Maxine English 20,000 $4.22 Mar. 13, 2000
Charles E. Armstrong 40,000 $4.10 May 27, 2000
Gregg Puckett 30,000 $4.10 June 22, 2000
William P. Habig 40,000 $4.22 Mar. 5, 2000
Tony Speed 100,000 $2.28 Dec. 31, 2000
Timothy W. Hite 40,000 $2.28 Dec. 31, 2000
Peggy Martin 40,000 $2.28 Dec. 31, 2000
Millie Egerton 40,000 $2.28 Dec. 31, 2000
Christopher S. Caruso 40,000 $4.10 May 17, 2001
Hiroyuko Ochi 40,000 $3.64 May 14, 2001
- ------------------- ------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
Earnout Options - Two Year-Term
--------------------------------
No. of Exercise Expiry
Name of Optionee Shares Price (Cdn. $) Date
- ------------------- ------------- -------------- --------------
<S> <C> <C> <C>
John C. Lazor 20,000 $0.90 Nov. 30, 1999
Beverly Lazor-Bahr 20,000 $0.90 Nov. 30, 1999
Shirley Lazor 20,000 $0.90 Nov. 30, 1999
Siamak Elghanian 20,000 $0.90 Nov. 30, 1999
Eddie Lepkowski 20,000 $0.90 Nov. 30, 1999
Ralph T. McCabe 300,000 $0.90 Nov. 30, 1999
Art Kotowitz 20,000 $0.90 Nov. 30, 1999
Pat McNiff 20,000 $0.90 Nov. 30, 1999
Lorraine DeBaca-Rodriguez 10,000 $0.90 Nov. 30, 1999
Pravin Parmar 20,000 $0.90 Nov. 30, 1999
Chelly D. Speed 12,000 $0.90 Nov. 30, 1999
Nina Alvarez-Shumway 12,000 $0.90 Nov. 30, 1999
- ------------------- ------------- -------------- --------------
</TABLE>
As at September 7, 1999, there are 763,500 outstanding share purchase warrants
to purchase shares of Veronex Technologies, Inc. In addition, further to the
September 12, 1997 financing agreement with Robb, Peck, McCooey Clearing Corp.,
the Company issued a total of 200,800 placement agent's warrants. There remains
180,808 placement agents' warrants outstanding as of September 7, 1999.
Item 13. Interest of Management in Certain Transactions
- --------------------------------------------------------
None of the Directors or Senior Officers of the Company or any subsidiary
thereof, or any associates or affiliates of any of them, is or has been
indebted to the Company at any time since the beginning of the last completed
financial year of the Company.
Other than as set forth below, none of the Directors or Senior Officers of the
Company, or any associate or affiliate of such person or company, has any
material interest, direct or indirect in any transaction during the past year
or any proposed transaction which has materially affected or will materially
affect the company.
Acquisition
- -----------
Pursuant to an agreement dated November 20, 1995, as accepted by the Vancouver
Stock Exchange on November 30, 1995, between the Company and David A. Hite and
Timothy Hite, both of Downey, California, (collectively called the "Vendors"),
the Company acquired from the Vendors, subject to a 5% net smelter return, an
option to acquire a 25% right, title and interest in and to the Alexander Star
#2 placer claim, located in the Avawatz Mining District, County of San
Bernardino, California. There was no consideration paid to the Vendors to
acquire this option.
Also pursuant to an agreement dated November 20, 1995, as accepted by the
Vancouver Stock Exchange on November 30, 1995, between the Company and David
A. Hite, Donna L. Hite, Timothy W. Hite and Bradley Hite, all of Downey,
California (collectively called the "Claim Vendors"), the Company acquired
from the Claim Vendors, subject to a 5% net smelter return, an option to
acquire a 50% right, title and interest in and to the Alexander Star #91
through 98 placer claims, all located in the Avawatz Mining District, County
of San Bernardino, California. There was no consideration paid to the Claim
Vendors to acquire this option.
PART II
--------
Item 14. Description of Securities to be Registered
- ----------------------------------------------------
Not applicable.
PART III
----------
Item 15. Defaults Upon Senior Securities
- -----------------------------------------
Not applicable.
Item 16. Changes in Securities and Changes in Security for
Registered Securities.
- -------------------------------------------------------------
None.
PART IV
---------
Item 17. Financial Statements
- ------------------------------
See "Item 18. Financial Statements."
- -------------------------------------
Item 18. Financial Statements
- ------------------------------
<TABLE>
<CAPTION>
Index to Financial Statements and Supplemental Information
Page
-----------
<S> <C>
Independent Auditors' Report to Shareholders . . . . . . . . . . . . . . . . . . .26
Consolidated Financial Statements:
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . .27
Consolidated Statements of Shareholders' Equity (Deficit). . . . . . . . . . . .28
Consolidated Statements of Income (Loss) . . . . . . . . . . . . . . . . . . . .29
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . .30
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 31 - 42
Supplemental Information:
N/A
<PAGE>
/Letterhead/
Schvaneveldt and Company
Certified Public Accountant
275 E. South Temple, Suite 300
Salt Lake City, Utah 84111
(804) 521-2392
Darrell T. Schvaneveldt, C.P.A.
Board of Directors
Veronex Technologies, Inc.
(Formerly International Veronex Resources, Ltd.)
I have audited the accompanying balance sheets of Veronex Technologies, Inc.,
as of February 28, 1999, and the related statements of operations, stockholders'
equity, and cash flows for the year ended February 28, 1999. These financial
statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based
on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and the
significant estimates made by management, as well as evaluating the overall
financial statements presentation. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of Veronex Technologies, Inc., as of
February 28, 1999, and the results of its operations and its cash flows for the
year ended February 28, 1999, in conformity with generally accepted accounting
principles.
/S/ Schvaneveldt & Company
Salt Lake City, Utah
August 31, 1999
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources, Ltd.)
Consolidated Balance Sheets
(In U.S. Dollars)
</TABLE>
<TABLE>
<CAPTION> February February
28, 1999 28, 1998
(Audited) (Audited)
------------- -------------
<S> <C> <C>
ASSETS
Current Assets
Cash and short-term deposits $ 907,000 $ 2,493,000
Accounts receivable (note 3) 10,322,000 130,000
Prepaid expenses 13,000 17,000
------------- -------------
Total Current Assets 11,242,000 2,640,000
Software Acquisition and Integration Costs (note 4)
Net of accumulated amortization of $262,000: 1998-NIL) 2,091,000 1,803,000
Resource Properties and Related Deferred Costs (note 5) 0 66,000
Fixed Assets and Depreciation (note 7)
(net of accumulated depreciation of $71,000:
1998-$87,000) 136,000 24,000
Investments (note 6) 152,000 152,000
------------- -------------
Total Assets $ 13,621,000 $ 4,685,000
============= =============
LIABILITIES
Current Liabilities
Accounts Payable (note 8) $ 1,921,000 $ 307,000
Due to a related party (note 9) 809,000 0
------------- -------------
Total Current Liabilities 2,730,000 307,000
SHAREHOLDERS' EQUITY
Share Capital (note 10)
Authorized - 100,000,000 (1998-100,000,000)
common shares without par value
Issued - 7,549,774 (1998 - 6,897,501) common shares 52,344,000 50,508,000
Deficit (41,453,000) (46,130,000)
------------- -------------
Total Shareholders' Equity 10,891,000 4,378,000
------------- -------------
Total Liabilities and Shareholders' Equity $ 13,621,000 $ 4,658,000
============= =============
Approved by the Directors
/S/ David A. Hite, Director Corporate History (note 1)
/S/ Sandra M. Mulligan, Director Contingencies and commitments (note 15)
</TABLE>
-See accompanying notes-
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources, Ltd.)
Consolidated Statements of Shareholders' Equity
(In U.S. Dollars)
<TABLE>
<CAPTION>
Number of Share
Shares Capital Deficit
-------------------------------------------
<S> <C> <C> <C>
Balance - February 28, 1996 (audited) 2,668,196 $ 46,829,000 $ 50,119,000
Issued by public offering 2,300,000 654,000
Issued by private placement 250,000 91,000
Issued on the exercise of options 136,805 54,000
Net income (loss) (5,140,000)
-------------------------------------------
Balance - February 28, 1997 (audited) 5,355,001 $ 47,628,000 $ 44,979,000
Issued by private placement 502,000 1,614,000
Issued on the exercise of options 530,500 270,000
Issued for subsidiary company 200,000 454,000
Issued for software technology 300,000 519,000
Issued as finder's fees 10,000 23,000
Net loss 1,151,000
-------------------------------------------
Balance-February 28, 1998 (audited) 6,897,501 $50,508,000 $ 46,130,000
Issued on exercise of options 652,273 1,836,000
Net (income) (4,677,000)
-------------------------------------------
Balance-February 28, 1999 7,549,774 $ 52,344,000 $ 41,453,000
</TABLE>
-See accompanying notes-
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Consolidated Statements of Income (Loss)
(In U.S. Dollars)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
February February February
28, 1999 28, 1998 28, 19997
(audited) (audited) (audited)
-----------------------------------------
<S> <C> <C> <C>
Revenues
Software sales and service $10,528,000 $ 294,000 $ -
Oil and gas revenue - - 132,000
-----------------------------------------
Total Revenues 10,258,000 294,000 132,000
-----------------------------------------
Expenses
Software marketing costs 3,111,000 669,000 -
Operating and administration 2,157,000 855,000 164,000
Amortization of software acquisition
and integration costs 258,000
Depreciation 20,000 6,000 6,000
Exploration costs 10,000 (1,000) 59,000
Interest 11,000 4,000 26,000
-----------------------------------------
Total Expenses 5,567,000 1,533,000 255,000
-----------------------------------------
Other Expenses (Income)
Investing activities - 10,000 10,000
Interest (52,000) (98,000) (35,000)
Sale of oil and gas interest - - (38,000)
Write-off of resource property costs 66,000 - -
Gain on settlement with former attorneys - - (5,200,000)
-----------------------------------------
Total Other Expenses (Income) 14,000 (88,000) (5,263,000)
-----------------------------------------
Net Income (Loss) $ 4,677,000 $(1,151,000) $ 5,140,000
=========================================
Basic Earnings (Loss) per Share $ 0.67 $ (0.19) $ 0.99
=========================================
Weighted Average Number of Shares 7,018,000 6,118,000 5,187,000
=========================================
Fully Diluted Earnings (Loss) per share $ 0.59 N/A $ 0.94
=========================================
Fully Diluted Weighted Average Number
of Shares 7,951,619 N/A 5,452,000
=========================================
-See accompanying notes-
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resouces, Ltd.)
Consolidated Statements of Cash Flows
(In U.S. Dollars)
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
February February February
28, 1999 28, 1998 28, 1997
(audited) (audited) (audited)
-----------------------------------------
<S> <C> <C> <C>
Cash Flows Provided (Used)
by Operating Activities
Basic Earnings (Loss) $ 4,677,000 $ (1,151,000) $ 5,140,000
Items not affecting cash:
Amortization of software acquisition
and integration costs 258,000 - -
Depreciation 20,000 6,000 6,000
Investing activities - 10,000 10,000
Write-off of resource property costs 66,000 - -
-----------------------------------------
5,021,000 (1,135,000) 5,156,000
Changes in non-cash working capital items:
Accounts receivable and prepaid expenses (10,188,000) (113,000) (29,000)
Accounts payable 1,614,000 (538,000) (2,365,000)
-----------------------------------------
Net Cash Provided (Used) by Operating
Activities (3,553,000) (1,786,000) 2,762,000
Cash Flows Provided (Used) by
Financing Activities
Due to a related party 809,000 - (182,000)
Share capital issued for cash 1,836,000 1,884,000 799,000
-----------------------------------------
Net Cash Provided (Used) by
Financing Activities 2,654,000 1,884,000 617,000
-----------------------------------------
Cash Flow Provided (Used) by
Investing Activities
Software acquisition and
integration costs, net (546,000) (787,000) (20,000)
Fixed assets (132,000) (11,000) (10,000)
Sale (acquisition) of investments - (12,000) (150,000)
-----------------------------------------
Net Cash Provided (Used) by
Investing Activities (678,000) (810,000) (180,000)
-----------------------------------------
Changes in Cash and Short-Term Deposits (1,586,000) (712,000) 3,199,000
Cash and Short-Term Deposits 2,493,000 3,205,000 6,000
-----------------------------------------
Closing Balance $ 907,000 $2,493,000 $ 3,205,000
=========================================
</TABLE>
-See Accompanying Notes-
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and February 28, 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.
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and February 28, 1998
(In U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
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.
ntercompany transactions and balances have been eliminated in consolidation.
Align Energy, Inc.
Bonaparte Resources, Ltd.
High River Industries, Ltd.
Mainstream Technologies Inc. ("Mainstream")
Nordell International Resources Ltd. ("Nordell")
PCS Acquisition Corp. ("PCS")
Richport Resources Ltd. ("Richport")
Veronex Resources, Inc.
Resource Properties
- -------------------
Costs related to the acquisition of mineral properties are capitalized.
Mineral exploration costs are expensed in the year incurred. If it is
determined that a prospect contains economically recoverable reserves, all costs
relating to that prospect for the current and subsequent years, including
expenses net of revenues during the start-up phase, are
capitalized until the prospect is capable of sustained operations at commercial
production levels. These capitalized costs, together with property acquisition
and ongoing development costs, are amortized on a unit-of-production method
based on the estimated life of the ore reserves.
Management reviews annually the carrying value of the interest in each
property and, where necessary, properties are written down to fair market value.
Investments
- -----------
Investments are recorded at cost unless there is a decline in market value that
is other than temporary.
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 TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and February 28, 1998
(In U.S. Dollars)
Principles of Consolidation
- ---------------------------
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 128) was issued effective for periods ending after December 15, 1997.
There is no impact on Veronex's financial statements from adoption of SFAS 128.
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and February 28, 1998
(In U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
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.
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 February 28, 1999, cash on deposit at these financial
institutions exceeded federally insured amounts by approximately $607,000.
At February 28, 1998, cash on deposit at these financial institutions exceeded
federally insured amounts by approximately $1,800,000. 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:
February February
28, 1999 28, 1998
-------------------------------
<S> <C> <C>
I/Nova Licensing, Product Sales and Services (i) $ 10,000,000 $ 107,000
Other Software Services 322,000 23,000
Other Receivables
-------------------------------
$ 10,322,000 $ 130,000
===============================
</TABLE>
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and February 28, 1998
(In U.S. Dollars)
3. ACCOUNTS RECEIVABLE Cont.
(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 contracts, Veronex must provide these distribution partners with an
allowance for software distribution fees 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 have not been included in these February 28, 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:
<TABLE>
<CAPTION>
February February
28, 1999 28, 1998
-----------------------------
<S> <C> <C>
Costs to acquire the components:
The I/Nova System $ 86,000 $ 86,000
The ArchiData System 454,000 454,000
The infrastructure (Mainstream) 409,000 409,000
Costs to integrate the components:
Personnel 895,000 663,000
Office and related 509,000 191,000
-----------------------------
2,353,000 1,803,000
Less: Accumulated amortization 262,000 0
-----------------------------
$ 2,091,0000 $ 1,803,000
=============================
</TABLE>
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and February 28, 1998
(In U.S. Dollars)
5. RESOURCE PROPERTIES & RELATED DEFERRED COSTS
a. Details of mineral property are as follows:
- -----------------------------------------------
<TABLE>
<CAPTION> February February
28, 1999 28, 1998
-----------------------------
<S> <C> <C>
Alexander Star Claims, San Bernadino, 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.
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. Veronex has
written-off the acquisition costs of these claims during the year ended February
28, 1999.
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and February 28, 1998
(In U.S. Dollars)
5. RESOURCES PROPERTIES & RELATED DEFERRED COSTS (Cont.)
(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 February 28, 1999, Veronex has incurred $69,000 (1998 - $59,000) in
exploration costs on these properties.
6. INVESTMENTS
<TABLE>
<CAPTION>
February 28, 1999 February 28, 1998
------------------------------- ----------------------------
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 50,000 $ 150,000 $ 150,000
Semper Resources,
Ltd. 5,000 2,000 2,000 5,000 2,000 2,000
-------------------------------------------------------------
$ 152,000 $ 152,000 $ 152,000 $ 152,000
=============================================================
</TABLE>
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and February 28, 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
February 28, 1999 and February 28, 1998 are as follows:
<TABLE>
<CAPTION>
Depreciation Accumulated
Cost Expenses Depreciation
1999 1998 1999 1998 1999 1998
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Furniture &
equipment $ 88,000 $ 66,000 $ 7,000 $ 3,000 $ 40,000 $ 78,000
Computer equipment 119,000 35,000 13,000 3,000 31,000 24,000
------------------------------------------------------------
$ 207,000 $ 126,000 $ 20,000 $ 6,000 $ 71,000 $ 102,000
============================================================
</TABLE>
8. ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
February 28, 1999 February 28, 1998
------------------ ------------------
<S> <C> <C>
Legal Fees
Arbitration with former employees
(Note #16) $ 150,000 $ 0
Other 150,000 0
Accrued management salaries 166,000 230,000
Accrued software marketing and support costs 1,300,000
Trade and other 155,000 77,000
----------------------------------------
$ 1,921,000 $ 307,000
========================================
</TABLE>
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and February 28, 1998
(In U.S. Dollars)
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 February 28, 1999, Veronex has accrued interest payable in the amount of
US$9,138 on these advances.
10. SHARE CAPITAL
a. The authorized share capital of Veronex is 100,000,000 shares without
par value.
<TABLE>
<CAPTION>
February 28, 1999 February 28, 1998
------------------------- -------------------------
<S> <C> <C> <C> <C>
Balance - beginning of period 6,897,501 $50,508,000 5,355,001 $47,628,000
Issued by private placement 0 0 502,000 1,614,000
Issued on exercise of options 652,273 1,836,000 530,500 270,000
Issued for software technology 0 0 300,000 519,000
Issued for subsidiary company 0 0 200,000 454,000
Issued as a finders fee 0 0 10,000 23,000
---------------------------------------------------
Balance - end of period 7,549,774 $52,344,000 6,897,501 $50,508,000
===================================================
</TABLE>
During the year ended February 28, 1999, Veronex issued 652,273 (1998 -
530,500; 1997 - 136,805) shares at an average price of Cdn$4.20 for proceeds
of Cdn $2,745,244 (1998 - Cdn$373,820; 1997 - Cdn$72,351) on the exercise of
share purchase options.
b. Common share purchase options are outstanding expiring at various dates to
February 3, 2004 for 409,600 (1998 - 498,658; 1997 - 530,500) common shares at
prices between Cdn $3.40 (US $2.25) and Cdn $7.19 per share.
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and February 28, 1998
(In U.S. Dollars)
10. SHARE CAPITAL (Cont.)
<TABLE>
<CAPTION>
Outstanding stock options as of : February 28, 1999 February 28, 1998
------------------ ------------------
<S> <C> <C>
Exercise price:
Less than Cdn$6.00 per share 106,000 93,658
Between Cdn$6.00 and Cdn$8.00 per share - 355,000
Greater than Cdn$8.00 per share 303,600 50,000
--------------------------------------
409,600 498,658
======================================
</TABLE>
c. During the year ended February 28, 1999, Veronex granted 573,215
(1998 - 618,658; 1997 - 455,500) share purchase options at prices ranging
between Cdn$3.25 and Cdn$10.44 expiring on various dates to February 3, 2004.
During the year ended February 28, 1999, the exercise price on 405,000
(1998 - Nil; 1997 - 118,257) share purchase options was amended. 10,000
(1998 - 120,000; 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.
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 place 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$16,500,000
between November 7, 1997 and November 30, 1998. Accordingly, subsequent to
the year-end, Veronex issued 502,000 common shares for proceeds of US$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. Subsequent to the year-end, Veronex
issued an additional 100,400 placement agent warrants exercisable at US $1.00
per share until November 7, 2002.
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and February 28, 1998
(In U.S. Dollars)
10. SHARE CAPITAL (Cont.)
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 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
approximately $18,500,000 of Canadian and foreign resource property
expenditures and reported losses available to reduce taxable income in future
years. Future tax benefits relating to these amounts have been eliminated by
the application of a valuation allowance.
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 February 28, 1999, Veronex's major
business effort is directed toward the development and licensing of its software
systems.
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and February 28, 1998
(In U.S. Dollars)
13. RELATED PARTY TRANSACTIONS
a. During the year ended February 28, 1999, management and secretarial fees of
$Nil (1998 - $10,000) were paid to a company controlled by a director of
the Company.
b. During the year ended February 28, 1999, salaries of $504,000
(1998 - $361,000) were paid or accrued to officers of Veronex.
c. Included in accounts payable is approximately $166,000 (1998 - $230,000)
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.
The fair value for options granted during the year ended February 28, 1999, is
estimated at the date of grant using a Black-Scholes option pricing model with
the following assumptions for 1999:
- 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.
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and February 28, 1998
(In U.S. Dollars)
14. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Cont.)
For pro forma disclosure, the estimated fair value of the option is amortized to
expense in the period the option is granted. For the year ended February 28,
1999, Veronex's pro forma net income has been calculated to be $4,677,000. Pro
forma fully diluted earnings per share for the year ended February 28, 1999, has
been calculated to be $0.59. Pro forma fully diluted loss per share for the year
ended February 28, 1998, has not been calculated as it would be anti-dilutive.
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.
c. Veronex leases office facilities in Santa Ana, California under operating
leases expiring in September 1999. Minimum future rental payments under the
lease are:
<TABLE>
<CAPTION>
Year Ending Amount
-------------- -----------
<S> <C>
February 28, 1999 $ Nil
February 29, 2000 14,760
-----------
Total $ 14,760
===========
</TABLE>
Other office facilities in California and Vancouver, Canada are rented on a
month to month basis.
VERONEX TECHNOLOGIES, INC.
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and February 28, 1998
(In U.S. Dollars)
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
February 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.
Item 19. Financial Statements and Exhibits
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Exhibit Page
- ----------- --------------------------------------------------------------- ---------
<S> <C> <C>
3 Articles of Incorporation and By-laws of the Registrant are
incorporated by reference to Exhibit 1 to the Registrant's
Annual Report on Form 20-F for the fiscal year ended
February 28, 1985.
4 None.
9 None.
10(a) Agreement of Sale dated July 12, 1995 between the Registrant
and Martin J. Garo, Barbara A. Garo, Daniel R. Garo,
Kevin W. Garo, Joe Jones, Damon Young, Lisa Anderson and
Timothy O'Connor whereby the Registrant acquired four placer
mining claims, all situate in Avawatz Mining District, County of
San Bernardino, State of California, United States of America
is incorporated by reference to the Registrant's Annual Report
on Form 10-K for the fiscal year ended February 28, 1995
10(b) Director's Stock Option Agreement dated August 5, 1999 between
the Registrant and David A. Hite 46
10(c) Director's Stock Option Agreement dated January 5, 1999
between the Registrant and David A. Hite 49
10(d) Amending Director's Stock Agreement dated August 5, 1999
between the Registrant and Sandra M. Milligan 52
10(e) Director's Stock Option Agreement dated February 3, 1999
between the Registrant and Sandra M. Milligan 57
10(f) Amending Director's Stock Agreement dated August 5, 1999
between the Registrant and Pru Zerny 60
10(g) Director's Stock Option Agreement dated February 3, 1999
between the Registrant and Pru Zerny 65
10(h) Amending Director's Stock Agreement dated August 5, 1999
between the Registrant and W. Gennen McDowall 68
10(i) Director's Stock Option Agreement dated February 3, 1999
between the Registrant and W. Gennen McDowall 73
10(j) Amending Employee's Stock Agreement dated August 5, 1999
between the Registrant and Peggy Martin 76
10(k) Employee's Stock Option Agreement dated February 3,
1999 between the Registrant and Peggy Martin 81
10(l) 1997 Contingent Stock Option Plan is incorporated by
reference to the Registrant's Annual Report on Form 20-F for
the fiscal year ended February 28, 1998, filed with the
Securities & Exchange Commission on July 20, 1998.
10(m) Agreement of Sale dated November 20, 1995 between the
Registrant and David A. Hite and Timothy Hite whereby the
Registrant acquired the Alexander Star #2 Claim, comprised
of 160 acres and located in San Bernardino, California is
incorporated by reference to the Registrant's Annual Report
on Form 10-K for the fiscal year ended February 29, 1996
10(n) Agreement of Sale dated November 20, 1995 between the
Registrant and David A. Hite, Donna L. Hite, Timothy W. Hite
and Bradley Hite whereby the Registrant was granted an option
to acquire eight placer mining claims known as the Alexander
Star #91-98 Claims, all l,280 acres and located in San Bernardino,
California is incorporated by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year ended February
29, 1996
10(o) Amending Agreement dated September 21, 1998 to the Property
Purchase Agreement dated January 14, 1997 between the Registrant
and Thomas J. Price, extending the date by which the Revenues must
be generated in order for the earnout shares to be released from
November 30, 1998 to November 30, 1999
10(p) Amending Agreement dated April 1, 1997 to the Property Purchase Agreement
dated January 14, 1997 between the Registrant and Thomas J. Price,
extending the date for receipt of all requisite regulatory approvals from
June 30, 1997 to December 31, 1997 is incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
February 28, 1997
10(q) Property Purchase Agreement dated January 14, 1997 between the Registrant
and Thomas J. Price whereby the Registrant acquired a 100% interest in
and to certain software technology and intellectual property created by
Thomas J. Price, known as the Automated Information Management (the "AIM
Technology"), subsequently renamed the I|Nova System, is incorporated by
reference to the Registrant's Annual Report on Form 10-K for the fiscal
year ended February 28, 1997
10(r) Property Purchase Agreement effective August 1, 1997 between the
Registrant and Terry G. Goodbody whereby the Registrant acquired a 100%
interest in and to certain proprietary intellectual property created by
Goodbody, known as the Archidata Technology is incorporated by reference
to the Registrant's Annual Report on Form 20-F for the fiscal year ended
February 28, 1998, filed with the Securities & Exchange Commission on
July 20, 1998.
10(s) Stock Purchase Agreement dated the August 1, 1997 between the Registrant
and Thomas A. Speed whereby the Registrant acquired a 100% interest in
and to Mainstream Technologies, Inc., a California corporation is
incorporated by reference to the Registrant's Annual Report on Form 20-F
for the fiscal year ended February 28, 1998, filed with the Securities &
Exchange Commission on July 20, 1998.
11 For Statement re computation of share earnings, refer to
Consolidated Financial Statements for the Years ended February 28, 1999,
February 28, 1998 and February 28, 1997 for the Registrant.
12 Not Applicable.
13 Forms 6-K's for the periods ended May 31, 1998, August 31,
1998 and November 30, 1998 are incorporated by reference to filings with
the Securities & Exchange Commission on August 14, 1998, October 30, 1998
and January 29, 1999, respectively.
18 Letter concerning change in accounting principles from
Coopers & Lybrand dated May 28, 1990 is incorporated by
reference to the Registrant's Annual Report on Form 10-K for the fiscal
year ended February 28, 1990 filed on May 28, 1990.
19 None.
22 Subsidiaries of the registrant 84
23 Notice of Annual General Meeting, Information Circular and Proxy 85
24(a Consent Letter from Schvaneveldt and Company consenting to
the inclusion of the Auditors' Report dated September 21, 1999 of the
Consolidated Financial Statements of the Registrant for the years ended
February 28, 1999, February 28, 1998 and February 28, 1997 100
25 None.
28(a) A Form 8-K was filed on April 1, 1999 announcing the execution of a Loan
Agreement, the resignation of one member of the Company's Board of
Directors due to personal reasons and the subsequent appointment of W.
Gennen McDowall to the Board of Directors to fill the vacancy created by
the resignation.
</TABLE>
SIGNATURES
-----------
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VERONEX TECHNOLOGIES, INC.
Date: September 22, 1999 By: /s/ David A. Hite
-----------------------
David A. Hite
Chairman of the Board,
Chief Executive Officer &
Chief Financial Officer
Date: September 22, 1999 By: /S/ Peggy Martin
--------------------------
Peggy Martin
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000781894
<NAME> VERONEX TECHNOLOGIES, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 907,000
<SECURITIES> 0
<RECEIVABLES> 10,322,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,242,000
<PP&E> 207,000
<DEPRECIATION> 71,000
<TOTAL-ASSETS> 13,621,000
<CURRENT-LIABILITIES> 2,730,000
<BONDS> 0
0
0
<COMMON> 52,344,000
<OTHER-SE> (41,453,000)
<TOTAL-LIABILITY-AND-EQUITY> 13,621,000
<SALES> 10,258,000
<TOTAL-REVENUES> 10,258,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,567,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,000
<INCOME-PRETAX> 0
<INCOME-TAX> 4,677,000
<INCOME-CONTINUING> 4,667,000
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<EXTRAORDINARY> 0
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<NET-INCOME> 4,677,000
<EPS-BASIC> .067
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</TABLE>
