<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F/A
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12 (b)
OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
[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 periods 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
---
1 </Page>
<PAGE>
PART I
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Item 1. Description of Business
- ------- -----------------------
Organization
- ------------
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.onOctober 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").
2 </Page>
<PAGE>
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 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 to 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.
3 </Page>
<PAGE>
<PAGE>
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.
4 </Page>
<PAGE>
<PAGE>
Company Reorganization
- ----------------------
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
- ---------------------------
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;
5 </Page>
<PAGE>
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
- -------------------------------------
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.
6 </Page>
<PAGE>
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.
7 </Page>
<PAGE>
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 litigation. 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
corporation) and PCS Acquisition Corp., a wholly-owned subsidiary of the
Company, and the Company (as well as certain related individuals) filed a
series of complaints 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
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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>
8 </Page>
<PAGE>
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
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The Registrant has only one class of capital stock, Common Shares without par
value. Veronex's Common Stock is registered under the United States
Securities Exchange Act of 1934 and its stock trades on the OTC Bulletin
Board in the United States as of February 4, 1993. Prior to that date, the
stock traded on the American Stock Exchange. The stock also traded on the
Vancouver Stock Exchange until it applied for and was granted a voluntary
delisting on July 4, 1997.
The price range for the low and high bids of shares of Veronex's Common Stock,
on a quarterly basis, on the OTC Bulletin Board for 1998 and 1997 expressed in
U.S. Dollars are set out in the following table:
</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".
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9 </Page>
<PAGE>
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
review able under the Act, is review able, 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 review able 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.
10 </Page>
<PAGE>
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. 28, 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) $ (4,973)
- ----------------- ----------- ----------- ----------- ----------- -----------
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.
11 </Page>
<PAGE>
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 unlimited opportunities as we move
into the new millennium. Impetus for this transition 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.
12 </Page>
<PAGE>
<PAGE>
So-called "Legacy Software Systems" were developed using first and
second generation languages which lacked flexibility. Further, these legacy
systems were developed using what have become outdated, obsolete
proprietary software programming languages which have never been updated.
While business applications involved in legacy software systems are still
valid and functional, there exists a real need for a new generation of non-
technical business application software which is not bound to any
"programming language." Veronex's I|Nova System is the best answer to this
multi-billion dollar problem.
At the same time Veronex was making the transition to a software
application company, the Year 2000 ("Y2k") Problem, a problem which is
indicative of the larger legacy software systems maintenance issues, began
to dominate the software industry marketplace. Veronex believes that the
Y2k problem can easily be resolved by the I|Nova System and this solution
can be leveraged to bring attention to the Company's flexible software and
to its overall approach to lowering software maintenance costs.
The Company identified three essential elements for the successful
implementation of its strategic business plan:
1. A flexible business application software which is not language
dependent;
2. An automated software migration tool (analyzer) capable of
identifying and eliminating code redundancy which can be
adapted to a workstation and supporting tool-set to implement the
analyzer and repair capability; and
3. A database interface compatible with all popular database
solutions including Oracle, Sybase and DB2.
A thorough evaluation of existing firms and technology resulted in the
identification of three 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.
13 </Page>
<PAGE>
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 maintenance 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
consistent with its objective to establish the I|Nova System as the
business software tool-set of choice for the new millennium. In May 1999
the Company entered into an agreement to develop an e-commerce system for a
consortium of banks in the Asian Pacific Region. The e-commerce system is a
trade point system for businesses in the entire Asian Pacific Region which
will initially include approximately 6,000 banks in 33 countries with more
than 10,000,000 business enterprises as clients.
I\Nova System
- -------------
The I|Nova System technology is the backbone of the Company. The
I|Nova System provides a legacy application modernizing tool, an
application migration tool and a code-less application development tool.
Collectively this tool-set boosts the competitive ability of its users by
radically simplifying the development, integration, deployment, and
management of their enterprise applications.
The I|Nova System technology consists of three (3) separate tools
which are seamlessly integrated:
1. The DataCentric Analyzer - Legacy Modernizing Tool (also Y2k solution
tool)
2. The Rapid Application Development System - Code-less RAD Tool
3. The Application Manager - Platform Independent Deployment Tool
14 </Page>
<PAGE>
These three tools can be used as a set or individually to accomplish
the goals of the enterprise's information network. More importantly, to the
enterprise seeking to achieve a distributed network application, the
DataCentric Analyzer can be used in conjunction with the Rapid Application
Development System and Application Manager(s) to seamlessly migrate
existing proven legacy applications to a client/server environment allowing
developers to adopt distributed applications without being hampered by
"legacy" management ideas. The I|Nova Application Manager allows the IT
professional to port a single application to a wide variety of platforms
thus obviating application integration.
The I|Nova DataCentric Analyzer is able to optimize existing
applications by eliminating redundant source code and by standardizing
source code definitions, which facilitates application integration and
migration.
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
understanding of the applications to a production environment, ensuring
that their applications, once running, will provide the competitive
advantage that their business requires. With ongoing and pro-active
monitoring based on the information needs management defines as critical to
the application management can be sure that their applications are always
under control regardless of the stresses and strains placed upon them.
Finally, as applications change over time to answer the changing demands of
business enterprises, I|Nova provides an efficient and effective means to
manage that change and maintain the control necessary for a competitive
advantage.
The I|Nova System can read existing legacy applications and automate
management tasks by leveraging the information that has been modeled into
them. Pro-active measures can be taken in response to real-time business
environment changes. The I|Nova 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.
15 </Page>
<PAGE>
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.
16 </Page>
<PAGE>
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.
17 </Page>
<PAGE>
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.
18 </Page>
<PAGE>
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 Held Principal Occupation or Employment and
with the Company Occupation for the Past Five Years
- ----------------------------------- ----------------------------------------
<S> <C>
DAVID A. HITE Chairman of the Board, Chief Financial
Officer and Chief 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
Age: 58 Strategies
- ----------------------------------- ----------------------------------------
SANDRA M. MILLIGAN Director of Veronex Technologies, Inc.
and other private corporations (1980-
Director present); Director of the Company
Age: 57 since May 24, 1989.
- ----------------------------------- ----------------------------------------
PRU ZERNY Ms. Zerny acts as a director of the Company
and also acts as President of Nexos Marketing
Director International, a consulting company for
international trade. Ms. Zerny has been a
Age: 51 Director of the Company since November 12,
1997.
- ----------------------------------- ----------------------------------------
</TABLE>
Subsequent to the Annual General Meeting, W. Gennen McDowell was appointed
to the Company's Board of Directors on February 1, 1999.
<TABLE>
- ----------------------------------- ----------------------------------------
<S> <C>
Name, Age and Other Positions Held Principal Occupation or Employment and
with the Company Occupation for the Past Five Years
- ----------------------------------- ----------------------------------------
W. GENNEN McDOWALL Mr. McDowall is a Director of the Company
and the President and CEO of Poplar Resources
Director Ltd., a public company. He also acts as a
self-employed geophysical consultant. Mr.
Age: 49 McDowall was appointed as a Director on
February 1, 1999.
- ----------------------------------- ----------------------------------------
</TABLE>
19 </Page>
<PAGE>
Item 11. Compensation of Directors and Officers
- -------- ---------------------------------------
Compensation Table
-------------------
<TABLE>
<CAPTION>
- ------------------------- --------------------------- ------------------------------
Name of Individual and Principal and capacities Cash compensation including
number of persons in served by the named salaries, fees, directors'
group individual fees, commissions and bounses
- ------------------------- --------------------------- ------------------------------
<S> <C> <C>
David A. Hite Chairman of the Board, CEO $350,000.00 (U.S.)*
CFO and Director
- ------------------------- --------------------------- ------------------------------
Thomas J. Price President, COO and Director $120,000.00 (U.S.)
- ------------------------- --------------------------- ------------------------------
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.
20 </Page>
<PAGE>
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>
Name Shares Price (Cdn. $) Date
- ---------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
David Woodridge 50,000 $3.69 Nov. 12, 2002
Theodore G. Elser 15,000 $3,69 Nov. 13, 2002
Donald R. Johnson 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
------------------
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>
Name of No. 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 Schafer 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
Million 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
21 </Page>
<PAGE>
<PAGE>
<CAPTION>
Earnout options - Two Year-Term
--------------------------------
Name of No. 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 shares 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 of affiliate of such persons 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 Mr.
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 a 25% right, title and interest in and to
the Alexander Star #2 placer claim, located in the Avawatz Mining District,
County of San Bernadino, 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 Bernadino, California. There was no consideration
paid to the Claim Vendors to acquire this option.
22 </Page>
<PAGE>
PART II
-------
Item 14. Description of Securities to be Registered
- -------- -------------------------------------------
Not applicable.
PART III
---------
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
- -------- --------------------
Index to Financial Statements and Supplemental Information
Page
-----
Independent Auditors' Report to Shareholders. . . . . . . . . . . . 26
Former Independent Auditors' Report to Shareholders . . . . . . . . 27
Consolidated Financial Statements:
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . 28
Consolidated Statements of Shareholders'
Equity (Deficit) . . . . . . . . . . . . . . . . . . . . . . . 29
Consolidated Statements of Income (Loss) . . . . . . . . . . . 30
Consolidated Statements of Cash Flows. . . . . . . . . . . . . 31
Notes to Consolidated Financial Statements . . . . . . . .32 - 43
Supplemental Information
N/A
23 </Page>
<PAGE>
[Letterhead]
Schvaneveldt & Company
Certified Public Accountant
275 East South Temple, Suite 300
Salt Lake City, Utah 84111
(801) 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 by 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
Schvaneveldt & Company
Salt Lake City, Utah
August 31, 1999
24 </Page>
<PAGE>
/Letterhead/
Coopers & Lybrand
chartered accountants
AUDITORS REPORT
To the Shareholders of International Vernonex Resources, Ltd.
We have audited the consolidated balance sheets of International Vernonex
Resources, Ltd., as at February 28, 1997 and February 29, 1996, and the
consolidated statements of earnings (loss), shareholders' equity (deficit)
and cash flow for the year ended February 28, 1997, of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. 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 significant estimates made by management, as well as evaluating
the overall financial statements presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects the financial position of the company as at February
28, 1997 and February 28, 1996 and the results of its operations and its
cash flows for the years ended February 28, 1997 February 29, 1996 and
February 28, 1995 in accordance with generally accepted accounting
principles in the United States. As required by the British Columbia
Company Act, we report that, in our opinion, these principles have been
applied on a consistent basis.
/S/ Coopers & Lybrand
Vancouver, Canada Chartered Accountants
March 14, 1997
Coopers & Lybrand is a member of Coopers & Lybrand International, a limited
liability association incorporated in Switzerland.
25 </Page>
<PAGE>
VERONEX TECHNOLOGIES, INC.
(FORMERLY INTERNATIONAL VERONEX RESOURCES, LTD.)
Consolidated Balance Sheets
(In U.S. Dollars)
<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 expense 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) - 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 -
------------- -------------
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 $ 4,685,000
============= =============
APPROVED BY THE DIRECTORS
"David A. Hite" Director Corporate History (note 1)
"Sandra A. Milligan" Director Contingencies and Commitments (note 15)
</TABLE>
-See accompanying notes-
28 </Page>
<PAGE>
VERONEX TECHNOLOGIES, INC.
(FORMERLY INTERNATIONAL VERONEX TECHNOLOGIES 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) (5,140,000)
-------------------------------------------
Balance - February 28, 1997 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 a finders' fee 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 (loss) (4,677,000)
-------------------------------------------
Balance - February 28, 1999 (audited) 7,549,774 $52,344,000 $41,453,000
===========================================
</TABLE>
-See accompanying notes-
29 </Page>
<PAGE>
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, 1997
(audited) (audited) (audited)
----------------------------------------------
<S> <C> <C> <C>
Revenues
Software sales and service $ 10,258,000 $ 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
==============================================
</TABLE>
-See Accompanying Notes-
28 </Page>
<PAGE>
VERONEX TECHNOLOGIES, INC.
(FORMERLY INTERNATIONAL VERONEX RESOURCES, LTD.)
Consolidated Statements of Cash Flows
(In U.S. Dollars)
<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
Amortization of software acquisition
and integration costs 258,000 - -
Depreciation 20,000 - -
Investing Activities - 6,000 6,000
Write-off of resource property costs 66,000 10,000 10,000
----------------------------------------------
5,021,000 (1,135,000) 5,156,000
Changes in non-cash working capital
items:
Accounts receivable and prepaid
expense (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 related party 809,000 - (182,000)
Share capital issued for cash 1,836,000 1,884,000 799,000
----------------------------------------------
Net Cash Provided (Used) by
Investing Activities 2,645,000 1,884,000 617,000
----------------------------------------------
Cash Flows 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
Opening Balance 2,493,000 3,205,000 6,000
----------------------------------------------
Closing Balance $ 907,000 $ 2,493,000 $ 3,205,000
==============================================
</TABLE>
-See accompanying notes-
29 </Page>
<PAGE>
VERONEX TECHNOLOGIES, INC.
(FORMERLY INTERNATIONAL VERONEX TECHNOLOGIES, LTD.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and 1998
(In U.S. Dollars)
1. CORPORATE HISTORY
- ----------------------
Veronex Technologies, Inc. (hereinafter referred to as "Veronex"), through
a series of acquisitions explained below, designs, develops, licenses and
supports computer software products for complete enterprise-wide management
application developments and implementation for competitive, innovative and
flexible business solutions. Veronex's I/Nova System is a fully integrated
business application development, modernization and migration tool-set
which has been ITAA *2000 Certified.
Veronex acquired three separate complementary software technologies through
agreements which include:
(i) a Stock Purchase Agreement with Thomas J. Price, pursuant to
which Promax Conceptual Strategies, Inc., a California
corporation, became a wholly-owned subsidiary of Veronex;
(ii) a Property Purchase Agreement with Terry G. Goodbody, a
software developer, and;
(iii) a Stock Purchase Agreement with Thomas A. Speed, pursuant to
which Mainstream Technologies, Inc., a California
corporation owned by Mr. Speed, became a wholly-owned
subsidiary of Veronex.
Under the terms of the Agreement with Thomas J. Price, Veronex is to issue
up to 12,000,000 shares of its common stock contingent on future revenues
earned from I/Nova System licensing fees. 6,500,000 of these shares may be
issued to Mr. Price. A further 3,500,000 shares have been reserved for
contingent issue to Promax Conceptual Strategies, Inc. and 2,000,000 shares
have been allocated to Veronex's Contingent Stock Option Plan.
Under the terms of the Agreement with Terry G. Goodbody, Veronex issued
200,000 shares at a deemed price of US$2.26875 per share to Mr. Goodbody.
Under the terms of the Agreement with Thomas A. Speed, Veronex issued
200,000 shares at a deemed price of US$2.26875 per share to Mr. Speed.
2. SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------
Basis of Presentation
- ---------------------
Veronex is incorporated in the Province of British Columbia, Canada.
These consolidated financial statements have been prepared in
accordance with accounting principles and practices generally accepted
in Canada. Application of United States generally accepted accounting
principles would not result in any material differences to the
consolidated financial statements.
Principles of Consolidation
- ---------------------------
These consolidated financial statements include the accounts of
Veronex, and its subsidiaries (all of which are wholly owned) which
are listed below. Intercompany transactions and balances have been
eliminated in consolidation.
30 </Page>
<PAGE>
VERONEX TECHNOLOGIES, INC.
(FORMERLY INTERNATIONAL VERONEX TECHNOLOGIES, LTD.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and 1998
(In U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
- --------------------------------------------
Align Energy, Inc.
Bonaparte Resources, Ltd.
High River Industries, Ltd.
Mainstream Technologies Inc. ("Mainstream")
Nordell International Resources Ltd. ("Nordell")
PCS Acquisition Corp. ("PCS")
Richport Resources Ltd. ("Richport")
Veronex Resources, Inc.
Resource Properties
- -------------------
Costs related to the acquisition of mineral properties are
capitalized. Mineral exploration costs are expensed in the year
incurred. If it is determined that a prospect contains economically
recoverable reserves, all costs relating to that prospect for the
current and subsequent years, including expenses net of revenues
during the start-up phase, are capitalized until the prospect is
capable of sustained operations at commercial production levels.
These capitalized costs, together with property acquisition and
ongoing development costs, are amortized on a unit-of-production
method based on the estimated life of the ore reserves.
Management reviews annually the carrying value of the interest in each
property and, where necessary, properties are written down to fair
market value.
Investments
- -----------
Investments are recorded at cost unless there is a decline in market
value that is other than temporary.
Revenue Recognition
- -------------------
Veronex recognizes revenue in accordance with the American Institute
of Certified Public Accountant Statement of Position 97-2 for software
revenue recognition, which requires that license fee revenues are
recognized upon evidence of a license agreement and delivery of
software if there are no significant implementation or installation
obligations, collection of the receivable is probable, the license
fees are fixed or determinable and the product has been accepted by
the customer.
31 </Page>
<PAGE>
VERONEX TECHNOLOGIES, INC.
(FORMERLY INTERNATIONAL VERONEX TECHNOLOGIES, LTD.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and 1998
(In U.S. Dollars)
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.
32 </Page>
<PAGE>
VERONEX TECHNOLOGIES, INC.
(FORMERLY INTERNATIONAL VERONEX TECHNOLOGIES, LTD.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and 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
- ------------------------
Accounts receivable are as follows:
<TABLE>
<CAPTION>
February February
28, 1999 28, 1998
---------------------------
<S> <C> <C>
I/Nova Licensing, Product Sales and Service (i) $ 10,000,000 $ 107,000
Other Software Services - 13,000
Other Receivables 322,000 -
---------------------------
$ 10,322,000 $ 130,000
===========================
</TABLE>
33 </Page>
<PAGE>
VERONEX TECHNOLOGIES, INC.
(FORMERLY INTERNATIONAL VERONEX TECHNOLOGIES, LTD.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and 1998
(In U.S. Dollars)
3. ACCOUNTS RECEIVABLE
- ------------------------
(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
------------ ------------
Less: accumulated amortization 2,353,000 1,803,000
262,000 -
------------ ------------
$ 2,091,000 $ 1,803,000
============ ============
34 </Page>
<PAGE>
<PAGE>
VERONEX TECHNOLOGIES, INC.
(FORMERLY INTERNATIONAL VERONEX TECHNOLOGIES, LTD.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and 1998
(In U.S. Dollars)
5. RESOURCE PROPERTIES & RELATED DEFERRED COSTS
- -------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Detail of mineral property are as follows: February February
28, 1999 28, 1998
------------ ------------
<S> <C> <C>
Alexander Star Claims, San Bernardino, County $ Nil $ 66,000
============ ============
</TABLE>
b. Litigation
- ----------------
As was reported in previous year-end consolidated financial
statements, Veronex and its wholly-owned subsidiary, Nordell
International Resources Ltd. ("Nordell") were involved in a number of
adversarial lawsuits with Triton Energy Corp. ("Triton"). These lawsuits
arose from the Enim Oil Project joint venture agreement between Nordell
and Triton, a subsequent arbitration and an Arbitration Award that was
adverse to Nordell. Several of the lawsuits initiated by Triton were of a
malicious or vindictive nature aimed at both Veronex and one of Veronex's
directors, David A. Hite ("Hite"). As a result, Veronex, Nordell and Hite
filed a malicious prosecution lawsuit against Triton in the Superior Court
for California in Los Angeles, California, alleging, among other things,
abuse of process, wrongful attachment, breach of fiduciary duty and fraud.
The lawsuit seeks damages, punitive and exemplary damages, specific
performance of the Arbitration Award and an accounting of the Enim Oil
Project joint venture. This lawsuit has been removed to the US District
Court, Central Division of California. Atrial 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.
35 </Page>
<PAGE>
VERONEX TECHNOLOGIES, INC.
(FORMERLY INTERNATIONAL VERONEX TECHNOLOGIES, LTD.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and 1998
(In U.S. Dollars)
5. RESOURCE PROPERTIES & RELATED DEFERRED COSTS
- -------------------------------------------------
(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>
36 </Page>
<PAGE>
VERONEX TECHNOLOGIES, INC.
(FORMERLY INTERNATIONAL VERONEX TECHNOLOGIES, LTD.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and 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 asset 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>
Accumulated
Cost Depreciation Expense Depreciation
1999 1998 1999 1998 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Furniture and
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 February
28, 1999 28, 1998
------------ ------------
<S> <C> <C>
Legal Fees $ 150,000 $ -
Arbitration with former employees
(Note #16) 150,000 -
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>
37 </Page>
<PAGE>
VERONEX TECHNOLOGIES, INC.
(FORMERLY INTERNATIONAL VERONEX TECHNOLOGIES, LTD.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and 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 $47,6228,000
Issued by private placement - - 502,000 1,614,000
Issued on exercise of options 652,273 1,836,000 530,500 270,000
Issued for software technology - - 300,000 519,000
Issued for subsidiary company - - 200,000 454,000
Issued as finders' fees - - 10,000 23,000
-------------------------------------------------
Balance - end of period 7,549,774 $52,334,000 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 $2,745,244 (1998
- - Cdn $373,820; 1997 - Cdn $72,531) on exercise of shares purchase options.
b. Common shares 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.
38 </Page>
<PAGE>
VERONEX TECHNOLOGIES, INC.
(FORMERLY INTERNATIONAL VERONEX TECHNOLOGIES, LTD.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and 1998
(In U.S. Dollars)
10. SHARE CAPITAL (Cont)
- -------------------------
<TABLE>
<CAPTION>
February February
28, 1999 28, 1998
Outstanding stock options as of: ------------ ------------
<S> <C> <C>
Less than Cdn $6.00 per share 106,000 93,678
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
placee varying from .5 common share issued per 1 share placed if gross
revenues were less than US$24,000,000 and greater than US$20,000,000,
to 3 shares per 1 share placed if gross revenues were US$3,000,000 or
less. Veronex recorded gross revenues of US$16,500,000 between
November 7, 1997 and November 30, 1998. Accordingly, subsequent to the
year-end, Veronex issued 502,000 common shares for proceeds of
US$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%.
39 </Page>
<PAGE>
VERONEX TECHNOLOGIES, INC.
(FORMERLY INTERNATIONAL VERONEX TECHNOLOGIES, LTD.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and 1998
(In U.S. Dollars)
10. SHARE CAPITAL (Cont.)
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.
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.
40 </Page>
<PAGE>
VERONEX TECHNOLOGIES, INC.
(FORMERLY INTERNATIONAL VERONEX TECHNOLOGIES, LTD.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and 1998
(In U.S. Dollars)
12. SEGMENTED INFORMATION (Cont.)
- ----------------------------------
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.
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.
41 </Page>
<PAGE>
VERONEX TECHNOLOGIES, INC.
(FORMERLY INTERNATIONAL VERONEX TECHNOLOGIES, LTD.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and 1998
(In U.S. Dollars)
14. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Cont.)
- ----------------------------------------------------------------
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.
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.
c. In February 1997, SFAS No. 129, "Disclosure of Information about
Capital Structure" was issued effective for periods ending after
December 15, 1997. Veronex has adopted the disclosure provisions of
SFAS No. 129 effective with the fiscal year ended February 28, 1998.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was
issued effective for fiscal years beginning after December 31, 1997,
with earlier application permitted. Veronex has elected to adopt SFAS
No. 130 effective with the fiscal year ended February 28, 1998.
Adoption of SFAS No. 130 is not expected to have a material impact on
Veronex's financial statements.
In June 1997, SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" was issued effective for fiscal
year beginning after December 31, 1997, with earlier application
permitted. Veronex has elected to adopt SFAS No. 131, effective with
the fiscal years ended February 28, 1998. Adoption of SFAS No. 131 is
not expected to have a material impact on Veronex's financial
statements.
15. CONTINGENCIES AND COMMITMENTS
- ----------------------------------
a. Veronex has an employment contract with an officer and director for
$350,000 per annum that extends to December 15, 2002.
b. Veronex has employment contracts totaling approximately $1,200,000
per annum with personnel involved in the development, integration and
marketing of the I/Nova System.
c. Veronex leases office facilities in Santa Ana, California under
operating leases expiring in September 1999. Minimum future rental
payments under the lease are:
42 </Page>
<PAGE>
VERONEX TECHNOLOGIES, INC.
(FORMERLY INTERNATIONAL VERONEX TECHNOLOGIES, LTD.)
Notes to Consolidated Financial Statements
For the Years Ended February 28, 1999 and 1998
(In U.S. Dollars)
15. CONTINGENCIES AND COMMITMENTS (Cont.)
- --------------------------------------------
Year Ending Amount
------------- -----------
[S] [C]
February 28, 1999 $ Nil
February 28, 2000 14,760
-----------
Total $ 14,760
===========
Other office facilities in California and Vancouver, Canada are rented
on a month to month basis.
16. LITIGATION AND ARBITRATION PROCEEDINGS WITH FORMER EMPLOYEES
- -----------------------------------------------------------------
Veronex commenced litigation proceedings and become a party to arbitration
proceedings against certain of its former employees. In the litigation,
Veronex alleged, among other causes of action, that the party defendants
misappropriated Veronex's intellectual property. All of these legal and
arbitrations proceedings have been settled to Veronex's satisfaction. As
of 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.
43 </Page>
<PAGE>
Item 19. Financial Statements and Exhibits
- -------------------------------------------
Sequentially
<TABLE>
<CAPTION>
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, is incorporated by
reference to the Registrant's Annual Report on Form 20-F for
the fiscal year ended February 28, 1999, as filed with the
Securities & Exchange Commission on September 23, 1999.
10(c) Director's Stock Option Agreement dated January 5, 1999
between the Registrant and David A. Hite, is incorporated by
reference to the Registrant's Annual Report on Form 20-F for
the fiscal year ended February 28, 1999, as filed with the
Securities & Exchange Commission on September 23, 1999.
10(d) Amending Director's Stock Agreement dated August 5, 1999
between the Registrant and Sandra M. Milligan is incorporated by
reference to the Registrant's Annual Report on Form 20-F for
the fiscal year ended February 28, 1999, as filed with the
Securities & Exchange Commission on September 23, 1999.
10(e) Director's Stock Option Agreement dated February 3, 1999
between the Registrant and Sandra M. Milligan is incorporated by
reference to the Registrant's Annual Report on Form 20-F for
the fiscal year ended February 28, 1999, as filed with the
Securities & Exchange Commission on September 23, 1999.
10(f) Amending Director's Stock Agreement dated August 5, 1999
between the Registrant and Pru Zerny, is incorporated by
reference to the Registrant's Annual Report on Form 20-F for
the fiscal year ended February 28, 1999, as filed with the
Securities & Exchange Commission on September 23, 1999.
44 </Page>
<PAGE>
10(g) Director's Stock Option Agreement dated February 3, 1999
between the Registrant and Pru Zerny, is incorporated by
reference to the Registrant's Annual Report on Form 20-F for
the fiscal year ended February 28, 1999, as filed with the
Securities & Exchange Commission on September 23, 1999.
10(h) Amending Director's Stock Agreement dated August 5, 1999
between the Registrant and W. Gennen McDowall, is incorporated by
reference to the Registrant's Annual Report on Form 20-F for
the fiscal year ended February 28, 1999, as filed with the
Securities & Exchange Commission on September 23, 1999.
10(i) Director's Stock Option Agreement dated February 3, 1999
between the Registrant and W. Gennen McDowall, is incorporated by
reference to the Registrant's Annual Report on Form 20-F for
the fiscal year ended February 28, 1999, as filed with the
Securities & Exchange Commission on September 23, 1999.
10(j) Amending Employee's Stock Agreement dated August 5, 1999
between the Registrant and Peggy Martin, is incorporated by
reference to the Registrant's Annual Report on Form 20-F for
the fiscal year ended February 28, 1999, as filed with the
Securities & Exchange Commission on September 23, 1999.
10(k) Employee's Stock Option Agreement dated February 3, 1999
between the Registrant and Peggy Martin , is incorporated by
reference to the Registrant's Annual Report on Form 20-F for
the fiscal year ended February 28, 1999, as filed with the
Securities & Exchange Commission on September 23, 1999.
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.
45 </Page>
<PAGE>
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.
46 </Page>
<PAGE>
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, as filed with the
Securities & Exchange Commission on September 23, 1999.
23 Notice of Annual General Meeting, Information Circular and
Proxy, is incorporated by reference to the Registrant's Annual
Report on Form 20-F for the fiscal year ended February 28, 1999, as
filed with the Securities & Exchange Commission on September 23,
1999.
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, . . . . . . . . . . . .Attached
25 None.
27 Financial Data Schedule. . . . . . . . . . . . . . . . . . . . .Attached
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.
47 </Page>
<PAGE>
SIGNATURES
----------
Pursuant to the requirement 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: April 29, 2000 By: /S/ David A. Hite
--------------------------------
David A. Hite
Chairman of the Board, President
Chief Executive Officer,
Chief Financial Officer
Date: April 29, 2000 By: /S/ Peggy Martin
--------------------------------
Peggy Martin
Secretary
48 </Page>
</TABLE>
<PAGE>
[Letterhead]
United States Securities & Exchange Commission
450 Fifth Street
Washington, D.C. 20549
Dear Sirs,
VERONEX TECHNOLOGIES, INC.
I Consent to the inclusion in the Form 20-F/A filing of my report dated
August 31, 1999, on our examination of the consolidated financial
statements of Veronex Technologies, Inc., for the period ended May 31,
1999. I also consent to the reference of our firm under the caption
"Experts" in the Form 20-F filing.
/S/ Schvaneveldt & Company
Schvaneveldt & Company
Salt Lake City, Utah 84111
May 4, 2000
</Page>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000781894
<NAME> VERONEX TECHNOLOGIES, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1999
<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> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,567,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,000
<INCOME-PRETAX> 4,677,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,677,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,677,000
<EPS-BASIC> .67
<EPS-DILUTED> .59
</TABLE>
