<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 20, 2000
-----------------
VERONEX TECHNOLOGIES, INC.
----------------------------
(Exact name of registrant as specified in its charter)
British Columbia, Canada #0-13967 95-4235375
- ---------------------------- -------------- -----------------
(State of other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
#1505 - 800 West Pender Street, Vancouver, British Columbia, Canada V6C 2V6
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (604) 647-2225
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N/A
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(Former name or former address, if changed since last report)
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Item 1 - Changes in Control of Registrant
- ------ --------------------------------
N/A.
Item 2 - Acquisition or Disposition of Assets
- ------ ------------------------------------
N/A.
Item 3 - Bankruptcy or Receivership
- ------ --------------------------
N/A.
Item 4 - Changes in Registrant's Certifying Accountant
- ------ ---------------------------------------------
N/A.
Item 5 - Other Events
- ------ ------------
On January 20, 2000, Veronex Technologies, Inc. announced the appointment
of F. Bryson Farrill and Thomas W. Randall as members of the Board of
Directors.
Mr. Bryson Farrill, the former CEO of McLeod Young Weir International, is a
leading international finance expert. Mr. Farrill has many years
international expertise having opened and managed offices in London, Paris,
Zurich, Geneva, Tokyo, and Hong Kong. He also has established extensive
contacts in the Middle East including Saudi Arabia and Kuwait. Mr. Farrill
is a former member of the New York Stock Exchange and has broad personal
contacts in the United Kingdom, Germany, France, Mexico and South America.
Mr. Thomas Randall, a graduate of the Stern Graduate Business School of New
York University, is currently Managing Director of Torrey Pines Securities.
Mr. Randall brings more than 25 years experience in Investment Banking,
mergers and acquisitions, and corporate finance, having made strong
contributions at various U. S. firms, including Paine Webber. Mr. Randall's
thorough knowledge and experience in the areas of marketing strategy,
corporate acquisition strategy and other international business activities
will greatly assist Veronex as it expands the direction of the company and
its I|Nova System into the Application Development markets.
Item 6 - Resignations of Registrant's Directors
- ------ --------------------------------------
Pru Zerny resigned from the Company's Board of Directors, effective
January 20, 2000.
Item 7 - Financial Statements and Exhibits
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Nine month period ended November 30, 1999 and November 30, 1998.
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
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GENERAL
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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 development 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 (formerly known as International Veronex Resources Ltd.) was
founded in 1974 in the Province of British Columbia, Canada. Veronex is a
Canadian company with operations in Canada, the Philippines and the United
States of America. On January 14, 1997, Veronex acquired the worldwide
rights to an automated information management system and application
manager technology (the "I|NOVA System" which was formerly known as the "M-
5 System"). On December 4, 1997, Veronex changed its name to Veronex
Technologies, Inc. to reflect Veronex's transition to the computer software
industry.
Veronex entered into a Property Purchase Agreement (the "Agreement") on
January 14, 1997, 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
twelve million (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 an earn-out formula,
contingent upon future revenues generated from licensing sales and
maintenance contracts of the I|Nova System. A finder's fee will be payable
pursuant to the rules, policies and guidelines of the regulatory
authorities.
Effective the same date, the Agreement was amended to reduce by 5,500,000
the number of shares of Common Stock to be issued to Mr. Price based on a
contingent earn-out formula. Of such reduction, 3,500,000 shares were
reserved for contingent issuance to ProMax Conceptual Strategies
(hereinafter referred to as "ProMax"), a California corporation, of which
Mr. Price was the majority shareholder; the balance of the 2,000,000
contingent earn-out shares were allocated to Veronex's 1997 Contingent
Stock Option Plan, which shares are also to be issued on a contingent
basis. Effective as of January 14, 1997, the Board of Directors of ProMax
approved an agreement to merge ProMax with and into PCS Acquisition Corp.,
a California corporation and wholly-owned subsidiary of Veronex. 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, complementary
software technologies through two additional transactions:
(i) a Property Purchase Agreement with Terry G. Goodbody, a software
developer; and (ii) a Stock Purchase Agreement with Thomas A. Speed,
pursuant to which Mainstream Technologies, Inc., a California corporation
owned by Mr. Speed, became a wholly-owned subsidiary of Veronex.
As a result of the three transactions described above, Veronex acquired the
I|Nova System computer software technology. Subsequent to the acquisitions,
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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.
I|NOVA SYSTEM TECHNOLOGY
- ------------------------
Veronex has integrated and further developed the I|Nova System as a
software tool set for developing, migrating and modernizing mainframe
applications. The I|Nova System is a new concept for application
development, deployment and management that enables software developers and
maintenance staff to save time and optimize quality by the effective reuse
of common functions. This reuse is achieved through a library of functional
modules (business process templates) and a run-time system (application
manager). This unique technology is code-less, self-documenting, portable
and extremely cost effective. Additionally, the I|Nova System's DataCentric
Analyzer is a Year 2000 solution tool which has the ability to perform 100%
independent validation and verification of Y2k repairs.
Software applications are critical in modern business organizations.
Information Technology ("IT") departments are challenged with developing,
deploying and maintaining applications quickly and effectively in order to
provide the enterprise with a competitive advantage. As applications become
more strategically oriented, they also become more difficult to manage.
Organizations are embracing new, innovative information system
architectures in order to provide the flexibility, scalability, portability
and reliability needed for mission-critical tasks. These distributed
approaches to applications provide many benefits, however, distributed
applications are harder to manage due to their distributed nature. These
applications can truly be said to be running on a network as opposed to
being on any one, single computer. The distributed application approach
creates the need for platform independent applications which are flexible
and capable of rapid change to meet the changing needs of the enterprise.
THE I|NOVA DIFFERENCE
- ---------------------
What is different and unique about the I|Nova System is that it separates
the application from the platform so that the application is portable and
scalable. Additionally, applications become flexible and never become
obsolete. I|Nova is very easy to use and offers formidable cost savings
coupled with very rapid application development not offered by the
"procedural programming" technique of application development.
The differences between programming languages such as Visual Basic (VB) and
the I|Nova System development process are significant, and dramatically
effect the overall development and enhancement time and cost for business
applications.
VB involves a "procedural programming" technique while I|Nova is an
application template development process. The template is much like an
EXCEL spreadsheet except it involves the applications entire business
process. Template development promotes "what if scenarios" during review
sessions with end-users resulting in a much higher quality application
being deployed. Further, development times are shortened greatly because
instead of having several developers writing multiple programs for an
application, only a single analyst develops the template for an entire
application.
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Procedural programming techniques such as VB require that documentation be
performed manually by the author(s) of any business application. The result
is non-standard, usually incomplete documentation that never gets
maintained properly and eventually becomes functionally obsolete. I|Nova
automatically produces all documentation including application flow,
technical documentation, management documentation and user manuals for all
authorized users of the application. It is also available "on demand" with
current information and never becomes obsolete. Most important, it is
automatic and has no cost or development effort required to produce.
During the life cycle of any business application, changes and/or
enhancements are inevitable. The time and cost associated with "change" are
a direct result of development disciplines, standards and documentation
employed during its creation and subsequent enhancements. Procedural
programming techniques promote creativeness by individuals with the quality
of result being dependent on their skill levels. Multiple individuals
involved in any application development results in quality that is variable
by program and/or author. I|Nova's template development process removes
this dependency and maintains a rigid standard for all enhancements made to
an application during its life cycle. Because of the difference in concept,
the time and cost savings of I|Nova versus procedural programming is almost
incalculable.
Procedural programming techniques (VB) are dependent on individuals and the
computer platform where it is utilized. I|Nova has only one program that is
dependent on the computer platform that is selected by the enterprise. This
one program can be made to operate on any computer platform and makes every
application portable, scalable and without dependency on any individual or
computer platform. The result of the above is an extension of an
applications usable life cycle and cost amortization.
Essentially, the "procedural programming" technique of application
development is dead. The Y2k problem is just a symptom of the disease of
inflexibility which killed the "procedural programming" technique of
application development. The I|Nova System's application template
development process offers a ready solution to rapid application
development which can, as a by-product, solve the Y2k problem, European
Union currency conversion complications, and the root causes of such
problems.
Capabilities of the I|Nova System
* Source code and system analysis of legacy COBOL applications
* Modernize source code (standardize source code and remove redundant
and obsolete code)
* Migration of applications (mainframe COBOL applications to a
client/server environment)
* Year 2000 analysis, repair and testing
* Application re-engineering
* Development of new applications (RAD)
* Independent Validation and Verification of 100% of all repairs and
changes to applications
FUNCTIONAL FEATURES OF THE I|NOVA SYSTEM
- ----------------------------------------
The I|Nova System Application Manager is complementary to any computer
operating system, and will operate on any platform including mainframe,
mini and micro-computers. The DataCentric Analyzer is structured to permit
analysis of most business program languages currently in use. Initially,
the DataCentric Analyzer applies to the COBOL computer programming
language, which is estimated to represent approximately eighty-five percent
(85%) of the market.
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The DataCentric Analyzer reads the source code of all programs used in a
business application system, applying highly sophisticated algorithms to
determine and capture all information related to a system's procedural
flow, input/output functions, data definitions, screen displays and
conditional logic. The DataCentric Analyzer then produces an "Application
Map" that completely describes the procedural flows and databases used by
the business application system. This feature allows the DataCentric
Analyzer to interrogate all databases for storage areas containing date
information (hence "DataCentric"). The DataCentric Analyzer then produces a
Management Project Analysis Report.
The Management Project Analysis Report details the cost necessary to
accomplish (i) the repair of the source code in the same language; (ii) to
repair and standardize the data definitions of the source code; (iii) to
repair, standardize the data definitions and revitalize the source code;
(iv) to rewrite the system in a similar language; (v) to rewrite the system
in a fourth generation language (ie., Oracle); (vi) to convert the system
to the I|NOVA Rapid Application Development System; or (vii) to write a new
system using the I|NOVA Rapid Application Development System.
The Management Project Analysis Report allows business application system
users the opportunity to create "what if" scenarios using criteria which
applies to their specific application. The Management Project Analysis
Report provides management with the information necessary to thoroughly
evaluate the costs of repairing or replacing existing systems relative to
the specific needs of their company.
The DataCentric Analyzer is capable of analyzing and identifying all
occurrences where a selected element, such as "date", is used by the system
being analyzed. The DataCentric Analyzer can identify all program
instructions, including the line number locations, that use the selected
element, such as "date". The DataCentric Analyzer's capabilities make it
possible to pinpoint all of the source code instructions where specific
element definitions, including synonyms or abbreviations, occur.
The DataCentric Analyzer can standardize a company's existing business
application system's source code. Standardization of existing source code
allows a business to reduce maintenance costs for existing systems and
thereby achieve substantial cost savings each and every year subsequent to
the standardization. Standardization simply means that a common term is
used for specific source code definitions such as "date".
The DataCentric Analyzer can also modernize a company's existing business
application system's source code by removing redundancies and reducing the
amount of source code. Revitalization of existing source code also allows a
business to reduce maintenance costs for existing systems. This
revitalization of source code is a unique feature of the I|Nova System.
Management believes this feature will be useful to all business systems
even if a business's Y2k problem were repaired by another vendor. The
reduced maintenance costs resulting from a substantial reduction in source
code provides continuous cost savings for years to come.
In combination, the DataCentric Analyzer's standardization and
revitalization features offer a complete re-engineering solution to a
company's existing business application system. This re-engineering feature
is often the only answer to solving certain problems in existing source
code that cannot otherwise be saved due to obsolescence or other factors.
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The I|NOVA Rapid Application Development System allows customers to design,
create, document and implement "NoCode" application software solutions. The
Rapid Application Development System offers users the opportunity to
convert outdated legacy systems to current state-of-the-art technology. The
I|NOVA Rapid Application Development System is a software product which has
benefits and applications which are useful after the Y2k crisis passes.
In summary, management believes that the I|Nova System has several distinct
advantages for users. The I|Nova System provides (i) added value and a
return on the investment required to repair the Y2k problem; (ii) updated
business applications software technology; (iii) a return of control of the
information system department to senior management; (iv) the ability to
seamlessly migrate proven COBOL legacy applications to a client/server
environment; and, (v) perhaps most importantly, substantial cost savings
and more flexibility for the information system department by reducing
program source code size and maintenance costs by up to 60%, by reducing
the information system department size by up to 50%, and by reducing
systems application development time by up to 50%. The cost savings
provided by Veronex's technology should continue to provide a return on the
investment necessary to standardize, modernize, revitalize and/or fix the
Y2k problem for years to come.
Veronex also develops business to business e-commerce systems using the
unique features of the I|Nova System. Veronex has signed an agreement to
develop an e-commerce system to be deployed in the Asian-Pacific Region.
The e-commerce system will be capable of handling transactions in multiple
languages, in over 30 different currencies and in a geographic area
encompassing over 60% of the world's population, including China, India,
Japan, Indonesia, Philippines, Pakistan, etc. This e-commerce system is a
business to business system designed to level the economic playing field
for emerging countries. The e-commerce system will be marketed to the
business enterprises using the banking services of approximately 6,000
banks and their branches in the Asian-Pacific Region
* Buyers have access to many Sellers and conversely Sellers have access
to many Buyers
* Financial institutions can be involved in each transaction as required
* Connects to ERP Financial Systems
* Multi-Country (conforms to all local business rules)
* Multi-Lingual (users see transactions in their native language)
* Multi-Currency (automatic translation to local currencies at time of
transaction)
* Multi-Units of Measure (facilitates standard measure in local country)
* Hosted and Non-Hosted Inventory Information
* Automatic Payment Settlement of Transactions
* Applicable to all Industries in any Country
* Unprecedented Trade Information available
* Facilitates Lines of Credit for Buyers
COMMERCIAL SALES OF THE I|NOVA SYSTEM
- -------------------------------------
Effective February 1, 1998, Veronex signed its first Strategic Alliance
Agreement to License the I|Nova System. During the year ended February 28,
1999, Veronex signed several additional Strategic Alliance Agreements to
License the I|Nova System. Veronex has completed two Distribution
Agreements in the European Union and has also signed several Teaming
Agreements with systems integration companies. The first revenues from
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strategic alliances were reported in the first quarter of fiscal 1999. This
revenue event signaled the commencement of commercial sales of the I|Nova
System and Veronex has commenced to amortize the deferred development
costs.
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.
As of November 30, 1999 Veronex had working capital of $15,758,000.
Further, Veronex anticipates that it will be able to generate 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 Condition 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 THE THREE MONTHS ENDED NOVEMBER 30, 1999 COMPARED
TO THE THREE MONTHS ENDED NOVEMBER 30, 1998
- ----------------------------------------------------------------
Veronex reported net income of $1,267,000 ($0.15 per share) and $7,266,000
($1.04 per share) for the three months ended November 30, 1999 and 1998,
respectively on revenues of $2,675,000 and $15,317,000, respectively.
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During the three months ended November 30, 1999 the Company recorded
revenues of $2,500,000 from the licensing and maintenance of its software
products. An additional $175,000 of revenue was generated by the Company's
development of an e-commerce system for an Asian-Pacific region client.
These revenues apply to the Tom Price earnout stock and accordingly, the
Company has allotted and issued 118,000 and 87,250 earnout shares,
respectively, to Mr. Price at a deemed value of US$383,000 and US$229,000,
respectively. Offsetting this revenue is $808,000 in software marketing
costs and $14,000 in amortization of costs previously capitalized as
software acquisition and integration costs. During the three months ended
November 30, 1998 the Company recorded revenue of $14,417,000 from the
licensing and maintenance of its software products and $900,000 in software
royalties. Offsetting this revenue is $7,050,000 in software distribution
costs, $508,000 in software marketing costs and $21,000 in amortization of
costs previously capitalized as software acquisition and integration costs.
The increase of $84,000 in administration costs was the result of higher
professional fees and office expenses, which increased by $109,000 and
$104,000, respectively, as a result of the development of the Company's e-
commerce system. Shareholder relations costs decreased by $11,000 and
travel costs decreased by $141,000 reflecting the Company's established
position in the software industry.
The Company incurred expenditures on its California gold properties of
$4,000 and $1,000 during the three months ended November 30, 1999 and 1998,
respectively. The Company incurred $17,000 in interest expense related to
the $815,000 loan from a related company. Other changes to the various
elements of the Statements of Income (Loss) were an increase of $6,000 in
depreciation, and a decrease of $4,000 in interest income.
RESULTS OF THE NINE MONTHS ENDED NOVEMBER 30, 1999 COMPARED
TO THE NINE MONTHS ENDED NOVEMBER 30, 1998
- ------------------------------------------------------------
Veronex reported net income of $6,447,000 ($0.79 per share) and $7,449,000
($1.07 per share) for the six months ended August 31, 1999 and 1998,
respectively on revenues of $9,876,000 and $17,400,000, respectively.
During the nine months ended November 30, 1999 the Company recorded
revenues of $9,500,000 from the licensing and maintenance of its software
products. An additional $376,000 of revenue was generated by the Company's
development of an e-commerce system for an Asian-Pacific region client.
These revenues apply to the Tom Price earnout stock and accordingly, the
Company has allotted and issued 118,000 and 87,250 earnout shares,
respectively, to Mr. Price at a deemed value of US$383,000 and US$229,000,
respectively. Offsetting this revenue is $2,161,000 in software marketing
costs and $99,000 in amortization of costs previously capitalized as
software acquisition and integration costs. During the nine months ended
November 30, 1998 the Company recorded revenue of $16,500,000 from the
licensing and maintenance of its software products and $900,000 in software
royalties. Offsetting this revenue is $7,050,000 in software distribution
costs, $1,235,000 in software marketing costs and $23,000 in amortization
of costs previously capitalized as software acquisition and integration
costs.
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The decrease of $492,000 in administration costs was the result of lower
professional fees, which decreased by $216,000 as a result of reduced legal
fees offset by office expenses, which increased as a result of the
development of the Company's e-commerce system by $115,000. Shareholder
relations costs decreased by $237,000 and travel costs decreased by
$156,000 reflecting the Company's established position in the software
industry.
The Company incurred expenditures on its California gold properties of
$4,000 and $10,000 during the nine months ended November 30, 1999 and 1998,
respectively. The Company incurred $52,000 in interest expense related to
the $815,000 loan from a related company. Other changes to the various
elements of the Statements of Income (Loss) were an increase of $20,000 in
depreciation, an increase of $98,000 in net investment income and a
decrease of $50,000 in interest income.
YEAR 2000 CONSIDERATIONS
- -------------------------
Veronex is in the computer software business and the I|Nova System offers a
Y2k solution which management believes to be the best Y2k solution
available at this time. All of Veronex's internally developed products have
been designed and tested to be year 2000 compliant. Veronex 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. Veronex has completed an assessment of
all of its internal operating systems which operate on personal computers
and were just completely updated in 1997. Veronex plans to update its
internal operating systems again in 1999 and anticipates that these systems
will be year 2000 compliant. The cost of Veronex's year 2000 compliance
program has not had and is not expected to have a material adverse effect
on Veronex's results of operations or liquidity. However, there can be no
assurance that Veronex will not experience material adverse consequences in
the event that Veronex'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 prices of
goods and services. 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 Veronex.
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Veronex Technologies, Inc.
(Formerly International Veronex Resources Ltd.)
Interim Consolidated Balance Sheets
(In U.S. Dollars) 1
<TABLE>
<CAPTION>
November November February
30, 1999 30, 1998 28, 1999
(unaudited) (unaudited) (unaudited)
------------ ----------- -------------
<S> <C> <C> <C>
ASSETS
- ------
Current Assets
- --------------
Cash and short-term deposits $ 48,000 $ 327,000 $ 907,000
Accounts receivable (note 3) 19,542,000 10,153,000 10,322,000
Prepaid expense 30,000 15,000 13,000
------------ ------------ ------------
Total Current Assets 19,620,000 10,495,000 11,242,000
Software Acquisition and Integration Costs
(note 4)
- ------------------------------------------
(net of accumulated amortization of
$362,000: 1998 - $23,000) 2,606,000 2,323,000 2,091,000
Resource Properties and Related Deferred
Costs (note 5) - 66,000 -
- ----------------------------------------
Fixed Assets and Depreciation (note 7)
- --------------------------------------
(net of accumulated depreciation of
$108,000: 1998 - $69,000) 178,000 95,000 136,000
Investments (note 6) 2,000 152,000 152,000
- ---------------------- ------------ ------------ ------------
Total Assets $22,406,000 $13,131,000 $13,621,000
============ ============ ============
LIABILITIES
- -----------
Current Liabilities
- -------------------
Accounts and loans payable (note 8) $ 2,988,000 $ 892,000 $ 1,921,000
Due to a related party (note 9) 874,000 - 809,000
------------ ------------ ------------
Total Current Liabilities 3,862,000 892,000 2,730,000
SHAREHOLDERS' EQUITY
- --------------------
Share Capital (Note 10)
Authorized - 100,000,000
(1998 - 100,000,000) common shares
without par value
Issued and allotted - 8,602,016
(1998 - 6,996,159) common shares, 53,550,000 50,920,000 52,344,000
Deficit (35,006,000) (38,681,000) (41,453,000)
------------ ------------ ------------
Total Shareholders' Equity 18,544,000 12,239,000 10,891,000
------------ ------------ ------------
Total Liabilities and Shareholders' Equity $22,406,000 $13,131,000 $13,621,000
============ ============ ============
APPROVED BY THE DIRECTORS
David A. Hite Director Corporate History (note 1)
Sandra M. Milligan Director Contingencies and Commitments (note 15)
- See accompanying notes -
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Veronex Technologies, Inc.
(Formerly International Veronex Resources, Inc.)
Interim Consolidated Statement of Shareholders' Equity
(In U.S. Dollars) 2
<TABLE>
<CAPTION>
Number of Share
Shares Capital Deficit
------------ ------------ ------------
<S> <C> <C> <C>
Balance - February 28, 1997 (audited) 5,355,001 $47,628,000 $44,979,000
Issued by private placement 502,000 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 finder's fee 10,000 23,000 1,151,000
Net loss
------------ ------------ ------------
Balance - February 28, 1998 (audited) 6,897,501 50,508,000 46,130,000
Issued on exercise of options 98,658 412,000 -
Loss (income) for the period - - (7,449,000)
------------ ------------ ------------
Balance - November 30, 1998 (unaudited) 6,996,159 $50,920,000 $38,681,000
============ ============ ============
Balance - February 28, 1998 (audited) 6,897,501 $50,508,000 $46,130,000
Issued on exercise of options 652,273 1,836,000 -
Loss (income) - - (4,677,000)
------------ ------------ ------------
Balance - February 28, 1999 (audited) 7,549,774 52,344,000 41,453,000
Issued on exercise of options 94,500 244,000 -
Issued on exercise of warrant 325,492 618,000 -
Issued as part of a private placement 502,000 - -
Cancelled and returned to treasury (75,000) (268,000) -
Earnout shares allotted 205,250 612,000 -
Loss (income) - - (6,447,000)
------------ ------------ ------------
Balance - November 30, 1999 (unaudited) 8,602,016 $53,550,000 $35,006,000
</TABLE>
- See accompanying notes -
</Page>
<PAGE>
Interim Consolidated Statements of Income (Loss)
(In U.S. Dollars) 3
<TABLE>
<CAPTION>
Three Three Nine Nine
months months months months
ended ended ended ended
November November November November
30, 1999 30, 1998 30, 1999 30, 1998
(unaudited) (unaudited) (unaudited) (unaudited)
---------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
- --------
Software sales and service $ 2,500,000 $14,417,000 $ 9,500,000 $16,500,000
Software royalties - 900,000 - 900,000
Development fees 175,000 - 376,000 -
---------------------------------------------------
Total Revenues 2,675,000 15,317,000 9,876,000 17,400,000
Expenses
- --------
Software distribution costs - 7,050,000 - 7,050,000
Software marketing costs 808,000 508,000 2,161,000 1,235,000
Operating and administration 552,000 468,000 1,173,000 1,665,000
Amortization of software
acquisition and integration
costs 14,000 21,000 99,000 23,000
Depreciation 13,000 7,000 38,000 18,000
Interest 17,000 - 52,000 -
Exploration costs 4,000 1,000 4,000 10,000
---------------------------------------------------
Total Expenses 1,408,000 8,055,000 3,527,000 10,001,000
---------------------------------------------------
Other (Income)
- --------------
Investing activities - - (98,000) -
Interest - (4,000) - (50,000)
---------------------------------------------------
Total Other (Income) - (4,000) (98,000) (50,000)
---------------------------------------------------
Net Income (Loss) $1,267,000 $7,266,000 $6,447,000 $7,449,000
===================================================
Basic Earnings (Loss) per Share $ 0.15 $ 1.04 $ 0.79 $ 1.07
===================================================
Weighted Average Number of Shares 8,327,000 6,996,000 8,112,000 6,983,000
===================================================
Fully Diluted Earnings (Loss)
per Share $ 0.14 $ 0.97 $ 0.75 $ 0.96
===================================================
Fully Diluted Weighted Average
Number of Shares 8,808,000 7,352,000 8,593,000 7,339,000
</TABLE>
- See accompanying notes -
</Page>
<PAGE>
Veronex Technologies, Inc.
(Formerly International Veronex Resources, Ltd.)
Interim Consolidated Statements of Cash Flows
(In U.S. Dollars) 4
<TABLE>
<CAPTION>
Three Three Nine Nine
months months months months
ended ended ended ended
November November November November
30, 1999 30, 1998 30, 1999 30, 1998
(unaudited) (unaudited) (unaudited) (unaudited)
---------------------------------------------------
<S> <C> <C> <C> <C>
Cash Provided (Used)
by Operating Activities
- -----------------------
Net income (loss) $1,267,000 $7,266,000 $6,447,000 $7,449,000
Items not affecting cash:
Amortization of software
acquisition & integration costs 14,000 21,000 99,000 23,000
Depreciation 13,000 7,000 38,000 18,000
Investing activities - - (98,000) -
---------------------------------------------------
1,294,000 7,294,000 6,486,000 7,490,000
Changes in non-cash working
capital items:
Accounts receivable and prepaid
expense (2,432,000) (8,140,000) (9,239,000) (10,021,000)
Accounts and loans payable 410,000 65,000 1,067,000 588,000
---------------------------------------------------
Net Cash Provided (Used)
by Operating Activities (728,000) (781,000) (1,686,000) (1,943,000)
---------------------------------------------------
Cash Provided (Used) by Financing
Activities
- ---------------------------------
Due to a related party 30,000 - 65,000 -
Share capital issued for cash 296,000 - 862,000 412,000
Share capital returned to treasury - - (268,000) -
---------------------------------------------------
Net Cash Provided (Used)
by Financing Activities 326,000 - 659,000 412,000
---------------------------------------------------
Cash Provided (Used) by Investing
Activities
- ---------------------------------
Sale of investments - - 248,000 -
Software acquisition and
integration costs, net - (150,000) - (543,000)
Fixed assets (13,000) (48,000) (80,000) (89,000)
---------------------------------------------------
Net Cash Provided (Used)
by Investing Activities (13,000) (198,000) 168,000 (632,000)
---------------------------------------------------
Changes in Cash and
Short-Term Deposits (415,000) (979,000) (859,000) (2,163,000)
Cash and Short-Term Deposits
Opening Balance 463,000 1,306,000 907,000 2,490,000
---------------------------------------------------
Closing Balance $ 48,000 $ 327,000 $ 48,000 $ 327,000
</TABLE>
- See accompanying notes -
</Page>
<PAGE>
VERONEX TECHNOLOGIES, INC. 6
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Nine Months ended November 30, 1999 and November 30, 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.
</Page>
VERONEX TECHNOLOGIES, INC. 7
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Nine Months ended November 30, 1999 and November 30, 1998
(In U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
- -------------------------------------------
Align Energy, Inc..
High River Industries, Ltd.
Mainstream Technologies Inc. ("Mainstream")
Nordell International Resources Ltd. ("Nordell")
PCS Acquisition Corp. ("PCS")
Richport Resources Ltd. ("Richport")
Veronex Resources, Inc.
Resource Properties
- --------------------
Costs related to the acquisition of mineral properties are
capitalized. Mineral exploration costs are expensed in the year
incurred. If it is determined that a prospect contains economically
recoverable reserves, all costs relating to that prospect for the
current and subsequent years, including expenses net of revenues
during the start-up phase, are capitalized until the prospect is
capable of sustained operations at commercial production levels.
These capitalized costs, together with property acquisition and
ongoing development costs, are amortized on a unit-of-production
method based on the estimated life of the ore reserves.
Management reviews annually the carrying value of the interest in each
property and, where necessary, properties are written down to fair
market value.
Investments
- -----------
Investments are recorded at cost unless there is a decline in market
value that is other than temporary.
Revenue Recognition
- -------------------
Veronex recognizes revenue in accordance with the American Institute
of Certified Public Accountant Statement of Position 97-2 for software
revenue recognition, which requires that license fee revenues are
recognized upon evidence of a license agreement and delivery of
software if there are no significant implementation or installation
obligations, collection of the receivable is probable, the license
fees are fixed or determinable and the product has been accepted by
the customer.
Veronex structures its strategic alliance agreements with an initial
licensing fee plus a revenue sharing feature. Veronex records the
initial licensing fee as a receivable and anticipates that each
strategic alliance partner will generate revenues and cash flow in the
future. The I|Nova System's template driven application development
process distinguishes it as the best of breed solution for enterprise-
wide business application software problems and development projects.
</Page>
<PAGE>
VERONEX TECHNOLOGIES, INC. 8
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Nine Months ended November 30, 1999 and November 30, 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 No. 128) was issued effective for periods
ending after December 15, 1997. There is no impact on Veronex's
financial statements from adoption of SFAS No. 128.
Depreciation Policy
- -------------------
Veronex provides for depreciation on furniture and equipment at
between 20% and 30% on a declining balance basis. Veronex is
capitalizing all costs related to integrating the various components
of its I|Nova software system as Software Acquisition and Integration
Costs and will continue to do so until licensing sales reach
commercial levels. Thereafter, all costs associated with the
production and marketing of the I|Nova software system will be charged
to operations. Capitalized costs will be amortized based on current
and future revenues for the product with an annual minimum amount
equal to the straight-line amortization over the remaining estimated
economic life of the product.
</Page>
<PAGE>
VERONEX TECHNOLOGIES, INC. 9
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Nine Months ended November 30, 1999 and November 30, 1998
(In U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (Cont.)
- -------------------------------------------
Cash Equivalents
- ----------------
For purposes of reporting cash flows, Veronex considers as cash
equivalents all highly liquid investments with a maturity of three
months or less at the time of purchase.
Concentration of Credit Risks
- -----------------------------
Financial instruments which potentially subject Veronex to
concentrations of credit risk consist of cash. Veronex maintains cash
accounts at two financial institutions. At November 30, 1999, cash on
deposit at these financial institutions did not exceed federally
insured amounts.
At November 30, 1998, cash on deposit at these financial institutions
exceeded federally insured amounts by approximately $1,200,000.
Veronex periodically evaluates the credit worthiness of financial
institutions, and maintains cash accounts only in large high quality
financial institutions, thereby minimizing exposure for deposits in
excess of federally insured amounts.
3. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
November November
30, 1999 30, 1998
--------------------------
<S> <C> <C>
Accounts receivable are as follows:
I|Nova Licensing, Product Sales and Services (i) $ 19,500,000 $ 10,140,000
Other Receivables 42,000 13,000
--------------------------
</TABLE>
(i) In November 1998, Veronex entered into contracts which guarantee gross
revenues of $11,750,000 from two distribution partners. Under the terms of
these agreements, Veronex must provide these distribution partners with an
allowance for software distribution as well as incur certain software
distribution costs. These allowances and costs have been netted against the
gross revenues and accounts receivable from the distribution partners as
only the net amounts will be received directly by Veronex. The amount for
sales and accounts receivable were not included in the February 28, 1999
financial statements and are not included in these November 30, 1999
financial statements. Comparative figures for November 30, 1998, which
originally reported gross receivables, have been amended accordingly.
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.
</Page>
<PAGE>
VERONEX TECHNOLOGIES, INC. 10
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Nine Months ended November 30, 1999 and November 30, 1998
(In U.S. Dollars)
4. SOFTWARE ACQUISITION AND INTEGRATION COSTS (Cont.)
- -------------------------------------------------------
As a result of the three acquisitions mentioned in Note #1, Veronex
acquired, and subsequently upgraded, what it renamed the I|Nova System
computer technology. The costs of acquiring and integrating the components
of the I|Nova System are as follows:
<TABLE>
<CAPTION>
November November
30, 1999 30, 1998
------------------------
<S> <C> <C>
Costs to acquire the components:
The I/Nova System (i) $ 703,000 $ 86,000
The ArchiData System 454,000 454,000
The infrastructure (Mainstream) 409,000 409,000
Costs to integrate the components:
Personnel 895,000 895,000
Office and related 507,000 502,000
------------------------
2,968,000 2,346,000
Less: accumulated amortization 362,000 23,000
------------------------
$2,606,000 $2,323,000
========================
</TABLE>
i) Under the terms of the Share Purchase Agreement with Thomas J. Price,
Veronex is to issue to Mr. Price one earnout share for each US$2.00 of
cash generated by I|Nova System licensing fees. As at November 30,
1999, a total of $408,000 in cash has been generated by I|Nova System
licensing fees, $236,000 of which was generated as of August 31, 1999.
Accordingly, Veronex has allotted, for issue subsequent to August 31,
1999 and November 30, 1999, 118,000 and 87,250 earnout shares,
respectively, to Mr. Price at a deemed value of US$383,000 and
US$229,000, respectively, and has included these amounts in the
capitalized acquisition costs of the I|Nova System. 118,000 shares
were issued on December 6, 1999.
5. RESOURCE PROPERTIES & RELATED DEFERRED COSTS
- -------------------------------------------------
a. Details of mineral properties are as follows:
---------------------------------------------
<TABLE>
<CAPTION>
November November
30, 1999 30, 1998
----------- -----------
<S> <C> <C>
Alexander Star Claims, San Bernadino County $ Nil $ Nil
=========== ===========
</TABLE>
b. Litigation
As was reported in previous year-end consolidated financial
statements, Veronex and its wholly-owned subsidiary, Nordell
</Page>
<PAGE>
VERONEX TECHNOLOGIES, INC. 11
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Nine Months ended November 30, 1999 and November 30, 1998
(In U.S. Dollars)
5. RESOURCE PROPERTIES & RELATED DEFERRED COSTS (Cont.)
- --------------------------------------------------------
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 of California in Los
Angeles, California, alleging, among other things, abuse of process,
wrongful attachment, breach of fiduciary duty and fraud.
The lawsuit was tried by jury which, on September 17, 1999, found in
favor of Veronex and David A. Hite ("Hite) and subsequently, on
October 5, 1999, assessed compensatory damages against Triton in the
amount of approximately $700,000 and punitive damages in the amount of
approximately $11,000,000. The jury found that Triton had maliciously
prosecuted Mr. Hite, awarding him compensatory damages and punitive
damages. The jury also awarded Veronex compensatory damages of
$66,000, but no punitive damages. Subsequent to November 30, 1999,
Veronex received $33,000, being the award net of legal costs.
c. The Congress Property in British Columbia, Canada
-------------------------------------------------
During the year ended February 28, 1998, Veronex sold its 50% interest
in the Congress Gold Property to Yucca Gold, Inc., ("Yucca Gold"), in
exchange for 3.4 million shares in Yucca Gold. All costs associated
with the Congress Gold Property were written off in previous years.
Yucca Gold is a private company whose shares have no market value.
Accordingly, no value was assigned to this transaction. Veronex
retains a 5% net smelter interest in the Congress Gold Property.
d. The Alexander Star Claims in California, USA
--------------------------------------------
(i) On July 12, 1995, Veronex entered into an agreement to acquire a
100% interest in four placer mining claims, known as the Alexander
Star Claims, in Avawatz Mining District, San Bernardino County,
California, subject to a 4% net smelter return. Veronex issued 100,000
common shares at a value of $66,000 as consideration for the
acquisition and has the right to acquire one-half of the net smelter
return, which is a 2% smelter return, for $500,000. The acquisition
costs of these claims were written-off during the year ended February
28, 1999.
(ii) On November 20, 1995, Veronex entered into an Agreement with a
group, including a director of Veronex and others related to the
director, to acquire a 50% interest in eight placer mining claims in
the Avawatz Mining District, San Bernardino, California, subject to a
5% net smelter return. To earn this interest, Veronex must expend
$350,000 on exploration work by December 31, 1999.
(iii) Also on November 20, 1995, Veronex entered into an agreement
with a group, including a director of Veronex and others related to
the director, to acquire a 25% interest in one placer mining claim in
the Avawatz Mining District, San Bernardino County, California,
subject to a 5% net smelter return. To earn this interest, Veronex
must expend $50,000 on exploration work by December 31, 1999.
</Page>
<PAGE>
VERONEX TECHNOLOGIES, INC. 12
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Nine Months ended November 30, 1999 and November 30, 1998
(In U.S. Dollars)
5. RESOURCE PROPERTIES & RELATED DEFERRED COSTS (Cont.)
- --------------------------------------------------------
(iv) As of November 30, 1999, Veronex has incurred $74,000 (1998 -
$70,000) in exploration costs on these properties.
6. INVESTMENTS
- ---------------
<TABLE>
<CAPTION>
November 30, 1999 November 30, 1998
Number Market Number Market
of Shares Cost Value of Shares Cost Value
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
EMB Corporation - $ - $ - - $ 150,000 $ 150,000
Semper Resources
Ltd. 5,000 2,000 2,000 5,000 2,000 2,000
--------------------------------- ---------------------------------
$ 2,000 $ 2,000 $152,000 $152,000
================================= =================================
</TABLE>
7. DEPRECIATION
- ----------------
Veronex capitalizes the purchase of equipment and fixtures for major
purchases in excess of $1,000 per item. Capitalized amounts are
depreciated over the useful life of the assets using the declining method
of depreciation.
The assets, costs, depreciation expense, and accumulated depreciation at
November 30, 1999 and November 30, 1998 are as follows:
<TABLE>
<CAPTION>
Depreciation Accumulated
Cost Cost Expense Depreciation
1999 1998 1999 1998 1999 1998
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Furniture and Equipment $ 99,000 $ 66,000 $ 11,000 $ 5,000 $ 48,000 $ 40,000
Computer Equipment 187,000 98,000 27,000 13,000 60,000 29,000
------------------------------------------------------------
$286,000 $164,000 $ 38,000 $ 18,000 $108,000 $ 69,000
============================================================
</TABLE>
8. ACCOUNTS PAYABLE
- --------------------
<TABLE><CAPTION> November November
30, 1999 30, 1998
------------ ------------
<S> <C> <C>
Legal Fees
Arbitration with former employees (Note #16) $ 125,000 $ 150,000
Other 300,000 150,000
Accrued management salaries 402,000 422,000
Accrued software marketing and support costs 2,050,000 170,000
Trade and other 111,000 -
------------- ------------
$ 2,988,000 $ 892,000
============= ============
</TABLE>
Comparative figures have been amended from those originally reported
(see Note #3).
</Page>
<PAGE>
VERONEX TECHNOLOGIES, INC. 13
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Nine Months ended November 30, 1999 and November 30, 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
restricted 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. Accordingly, subsequent to November 30, 1999,
Veronex has issued 15,065 restricted shares at a deemed value of Cdn$62,339
to D'Oro.
In addition, on November 24, 1999, D'Oro advanced a further $15,000 to
Veronex. This advance, together with interest, has been repaid subsequent
to November 30, 1999.
As of November 30, 1999, Veronex has accrued interest payable in the amount
of US$59,208 on these advances.
10. SHARE CAPITAL
- ------------------
a.The authorized share capital of Veronex is 100,000,000 shares without par
value.
<TABLE>
<CAPTION>
November 30, 1999 November 30, 1998
Issued and Alloted: -------------------------------------------------
<S> <C> <C> <C> <C>
Balance - beginning of period 7,549,774 $52,344,000 6,897,501 $50,508,000
Issued by private placement 502,000 - - -
Issued on exercise of options 94,500 244,000 98,658 412,000
Issued on exercise of warrants 325,492 618,000 - -
Canceled and returned to treasury (75,000) (268,000) - -
--------------------------------------------------
Total issued 8,396,766 52,938,000 6,996,159 50,920,000
Earnout shares alloted (Note #4) 205,250 612,000 - -
--------------------------------------------------
Balance - end of period 8,602,016 $53,550,000 6,996,159 $50,920,000
==================================================
</TABLE>
During the nine months ended November 30, 1999, Veronex issued 94,500
(1998 - 98,658; 1997 - 530,500) shares at an average price of Can$3.82 for
proceeds of Cdn $360,585 (1998 - Cdn$593,297; 1997 - Cdn$373,290) on the
exercise of share purchase options. During the nine months ended November
30, 1999, 75,000 shares issued on the exercise of options prior to February
28, 1999 were canceled and returned to treasury. Subsequent to November 30,
1999, Veronex has issued 333,000 shares on the exercise of options for
proceeds of Cdn$1,392,660.
</Page>
<PAGE>
VERONEX TECHNOLOGIES, INC. 14
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Nine Months ended November 30, 1999 and November 30, 1998
(In U.S. Dollars)
10. SHARE CAPITAL (Cont.)
- --------------------------
b. Common share purchase options are outstanding expiring at various
dates to October 14, 2004 for 821,600 (1998 - 535,000; 1997 - 530,000)
common shares at prices between Cdn $3.69 and Cdn $4.22 per share.
<TABLE>
<CAPTION>
November November
30, 1999 30, 1998
------------ ------------
<S> <C> <C>
Outstanding stock options as of:
Exercise price
Less than Cdn $6.00 per share 821,600 485,000
Between Cdn $6.00 and Cdn $10.00 per share - 40,000
Greater than Cdn $10.00 per share - 10,000
-------------------------
821,600 535,000
=========================
</TABLE>
c. During the nine months ended ended November 30, 1999, Veronex granted
612,000 (1998 -75,000; 1997 - 590,000) share purchase options at
prices ranging between Can$4.13 and Cdn$4.22 per share expiring on
various dates to August 5, 2004. During the nine months ended November
30, 1999, 70,000 (1998 - Nil; 1997 Nil) share purchase options were
canceled and 20,500 (1998 - Nil; 1997 - Nil) share purchase options
expired, unexercised. During the nine months ended November 30, 1999,
the exercise price on 303,600 (1998 - Nil; 1997 - Nil) was amended.
d. On September 12, 1997, Veronex entered into a financing agreement with
Robb, Peck McCooey Clearing Corp, ("Robb, Peck") allowing Robb, Peck
and/or its clients to invest up to $15.4 million in Veronex. Veronex
agreed to pay Robb, Peck certain fees and expenses. On November 7,
1997, as a result of the agreement, 502,000, shares were issued at a
price of US$4.00 per share, for net proceeds of $1,614,000. Attached
to the shares were 502,000 transferable share purchase warrants
exercisable at a price of US $8.00 per share (which exercise price was
subsequently reduced to US $2.00 per share). 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 additional common shares should Veronex generate less than
US$24,000,000 in gross revenues between November 7, 1997 and November
30, 1998.Veronex recorded gross revenues of US$16,500,000 between
November 7, 1997 and November 30, 1998. Accordingly, during the nine
months ended November 30, 1999, Veronex was obligated to issue 502,000
common shares for proceeds of US$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%.
</Page>
<PAGE>
VERONEX TECHNOLOGIES, INC. 15
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Nine Months ended November 30, 1999 and November 30, 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 (which
exercise price was subsequently reduced to US $2.00 per share until
November 7, 2002). During the nine months ended November 30, 1999,
Veronex issued an additional 100,400 placement agent warrants
exercisable at US $1.00 per share until November 7, 2002.
During the nine months ended November 30, 1999, Veronex issued 250,500
shares on the exercise of private placement warrants and 74,992 shares
on the exercise of agent's warrants for net proceeds of US$501,000
(Cdn$736,091) and US$117,328 (Cdn$173,083), respectively.
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 November 30, 1999, 1,149,000 (1998 - 1,149,000) of these
contingent options have been allocated at an average exercisable price
of Cdn $2.62 to personnel involved in the integration and marketing of
the I|Nova System.
11. INCOME TAXES
- -----------------
Veronex has adopted the provisions of SFAS No. 109, "Accounting for Income
Taxes". SFAS No. 109 requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the differences are
expected to reverse.
Veronex has fully reserved the tax benefits of these operating losses
because the likelihood of realization of the tax benefits cannot be
determined.
Temporary differences between the time of reporting certain items for
financial and tax reporting purposes consist primarily of compensation
expense related to the issuance of stock options.
No income taxes are currently payable. Veronex and its subsidiaries have
Canadian and foreign resource property expenditures and reported losses of
approximately $ 6,900,000 and $905,000, respectively, 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.</Page>
<PAGE>
VERONEX TECHNOLOGIES, INC. 16
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Nine Months ended November 30, 1999 and November 30, 1998
(In U.S. Dollars)
12. SEGMENTED INFORMATION (Con't.)
- -----------------------------------
During the year ended February 28, 1998, Veronex entered into an agreement
to acquire additional software technology ("the ArchiData System"). In
addition, during the year ended February 28, 1998, Veronex entered into an
agreement to acquire a software development company ("Mainstream
Technologies, Inc."). Both acquisitions are explained in Note #1. During
the nine months ended November 30, 1999, Veronex commenced development and
installation of an E-Commerce Service Network ("E-Commerce System"). As of
November 30, 1999, Veronex's major business effort is directed toward the
licensing of its software systems and installation of the E-Commerce
System.
13. RELATED PARTY TRANSACTIONS
- -------------------------------
a. During the nine months ended November 30, 1999, salaries of $262,500
(1998 - $262,500) were accrued or paid to an officer and director of
the Company.
b. Included in accounts payable is approximately $402,000 (1998 -
$466,000) payable to an officer of Veronex under the terms of an
employment contract and for reimbursement of services. (See Note #15
- Contingencies and Commitments)
c. Included in share capital are 15,065 common shares with a deemed value
of Cdn$62,339 issued to a company with common directors (see Note #9).
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.
</Page>
<PAGE>
VERONEX TECHNOLOGIES, INC. 17
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Nine Months ended November 30, 1999 and November 30, 1998
(In U.S. Dollars)
14. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Cont.)
- ----------------------------------------------------------------
The fair value for options granted during the nine months ended
November 30, 1999 and the year ended February 28, 1999, is estimated
at the date of grant using a Black-Scholes option pricing model with
the following assumptions:
- risk-free interest rates of between 5.42% and 5.93%
- dividend yield of 0%
- volatility factors of the expected market price of Veronex's stock of 80%
- an expected life of the option of one and one-half years
Because Veronex's stock options have characteristics significantly
different from those of traded options, and because changes in the
subjective inputs assumptions can materially affect the fair value
estimate, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For pro forma disclosure, the estimated fair value of the option is
amortized to expense in the period the option is granted. For the
nine months ended November 30, 1999, Veronex's pro forma earnings and
pro forma fully diluted earnings per share have been calculated to be
$6,447,000 and $0.79, respectively. For the year ended February 28,
1999, Veronex's pro forma earnings and pro forma fully diluted income
per share have been calculated to be $4,677,000 and $0.59,
respectively. Pro forma fully diluted income and earnings per share
for the nine months ended November 30, 1998, have been calculated to
be $7,043,000 and $0.96, respectively.
c. In February 1997, SFAS No. 129, "Disclosure of Information about
Capital Structure" was issued effective for periods ending after
December 15, 1997. Veronex has adopted the disclosure provisions of
SFAS No. 129 effective with the fiscal year ended February 28, 1998.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was
issued effective for fiscal years beginning after December 31, 1997,
with earlier application permitted. Veronex has elected to adopt SFAS
No. 130 effective with the fiscal year ended February 28, 1998.
Adoption of SFAS No. 130 is not expected to have a material impact on
Veronex's financial statements.
In June 1997, SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" was issued effective for fiscal
year beginning after December 31, 1997, with earlier application
permitted. Veronex has elected to adopt SFAS No. 131, effective with
the fiscal years ended February 28, 1998. Adoption of SFAS No. 131 is
not expected to have a material impact on Veronex's financial
statements.
</Page>
<PAGE>
VERONEX TECHNOLOGIES, INC. 18
(Formerly International Veronex Resources Ltd.)
Notes to Consolidated Financial Statements
For the Nine Months ended November 30, 1999 and November 30, 1998
(In U.S. Dollars)
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 currently has employment contracts totaling approximately
$500,000 per annum with personnel involved in the development,
integration and marketing of the I|Nova System.
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 November 30, 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.
</Page>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VERONEX TECHNOLOGIES, INC.
Date: January 26, 2000 /S/ David A. Hite
------------------
David A. Hite
Chief Executive Officer
Date: January 26, 2000 /S/ Gerald D. Lamont
---------------------
Gerald D. Lamont
Chief Accounting Officer
</Page>
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