<PAGE>
UNITED STATES SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
For the transition period from __________ to ________
Commission File Number 000-21729
The viaLink Company
(formerly APPLIED INTELLIGENCE GROUP, INC.)
(Exact name of registrant as specified in its charter)
Oklahoma 73-1247666
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
13800 Benson Road
Edmond, Oklahoma 73013
(Address of principal executive offices)
(405) 936-2300
Registrant's telephone number, including area code
Check whether the Registrant(1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act
during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No __
As of October 31, 1998 there were 2,741,974 outstanding
shares of the issuer's Common Stock, par value $.001 per share.
Transitional Small Business Disclosure Format: Yes ___ No X
<PAGE>
PART I - CONSOLIDATED FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
The viaLink Company (formerly APPLIED INTELLIGENCE GROUP, INC.)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS September December
30, 1998 31, 1997
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 281,200 $ 80,769
Accounts receivable-trade, net of allowance
for doubtful accounts of $3,835 at September
30, 1998 and $1,724 at December 31, 1997 1,439,998 1,337,322
Other receivables 2,720,794 44,893
Inventory 12,311 8,707
Current portion of deferred tax asset - 44,502
Prepaid expenses 85,903 51,634
Marketable securities, available for sale 925,741 -
---------- ----------
Total current assets 5,465,947 1,567,827
Furniture, equipment & leasehold improvements, net 861,558 1,462,575
Software development costs, net 1,519,982 1,735,420
Deferred tax asset - 1,004,938
Other assets 64,497 33,393
---------- ----------
Total assets $7,911,984 $5,804,153
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Book overdraft $ - $ 23,619
Accounts payable and accrued liabilities 2,698,246 1,507,018
Deferred revenue - 236,134
Current portion of capital lease obligation 63,894 132,422
---------- ----------
Total current liabilities 2,762,140 1,899,193
Capital lease obligations, net of current portion - 44,194
Notes payable to shareholders, net of current portion 482,830 482,830
Long-term debt 551,062 490,000
---------- ----------
Total liabilities 3,796,032 2,916,217
Stockholders' equity:
Common stock, $.001 par value; 30,000,000
shares authorized; 2,741,974 and 2,729,509
shares issued and outstanding at September
30, 1998 and December 31, 1997, respectively 2,742 2,730
Additional paid-in capital 4,528,190 4,498,988
Retained (deficit) (340,721)(1,613,782)
Accumulated other comprehensive loss (74,259) -
---------- ----------
Total stockholders' equity 4,115,952 2,887,936
---------- ----------
Total liabilities and stockholders' equity $7,911,984 $5,804,153
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
The viaLink Company (formerly APPLIED INTELLIGENCE GROUP, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
For the Three Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Revenues $1,775,043 $2,659,554
Expenses:
Direct cost of sales 700,191 1,147,777
Salaries and benefits 1,183,741 1,685,366
Selling, general and
administrative 445,942 810,383
Interest expense, net 52,592 22,719
Depreciation and amortization 223,536 197,182
---------- ----------
Total expenses 2,606,002 3,863,427
---------- ----------
Loss from operations (830,959) (1,203,873)
Gain on sale of assets 2,998,453 -
Other income 132,770 -
---------- ----------
Income (loss) before income taxes 2,300,264 (1,203,873)
Provision (benefit) for income taxes 1,040,990 (420,000)
---------- ----------
Net income (loss) 1,259,274 (783,873)
Other comprehensive income (loss):
Unrealized loss on securities (74,259) -
---------- ----------
Comprehensive income (loss) $1,185,015 $ (783,873)
========== ==========
Weighted average shares
outstanding-Basic 2,741,001 2,727,444
========== ==========
Net income (loss) per common
share-Basic $ 0.46 $ (0.29)
========== ==========
Weighted average shares
outstanding-Dilutive 2,784,820 2,727,444
========== ==========
Net income (loss) per common
share-Dilutive $ 0.45 $ (0.29)
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
The viaLink Company (formerly APPLIED INTELLIGENCE GROUP, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
For the Nine Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Revenues $7,920,746 $6,585,490
Expenses:
Direct cost of sales 1,681,305 1,838,822
Salaries and benefits 4,577,001 4,600,660
Selling, general and
administrative 1,592,193 2,064,264
Interest expense, net 153,246 52,821
Depreciation and amortization 725,723 592,914
---------- ----------
Total expenses 8,729,468 9,149,481
---------- ----------
Loss from operations (808,722) (2,563,991)
Gain on sale of assets 2,998,453 -
Other income 132,770 -
---------- ----------
Income (loss) before income taxes 2,322,501 (2,563,991)
Provision (benefit) for income taxes 1,049,440 (871,845) --
---------- ----------
Net income (loss) 1,273,061 (1,692,146)
Other comprehensive income (loss):
Unrealized loss on securities (74,259) -
---------- -----------
Comprehensive income (loss) $1,198,802 $(1,692,146)
========== ===========
Weighted average shares
outstanding-Basic 2,736,042 2,727,114
========== ===========
Net income (loss) per common
share-Basic $ 0.47 $ (0.62)
========== ===========
Weighted average shares
outstanding-Dilutive 2,788,174 2,727,114
========== ===========
Net income (loss) per common
share-Dilutive $ 0.46 $ (0.62)
========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
The viaLink Company (formerly APPLIED INTELLIGENCE GROUP, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
For the Nine Months Ended September 30, 1998
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Stock Paid-in Comprehensive Retained
Shares Amount Capital (Loss) (Deficit)
--------- ------- ---------- ------------- -----------
<C> <S> <S> <S> <S> <S>
Balance, Dec. 31,
1997 2,729,509 $2,730 $4,498,988 $(74,259) $(1,613,782)
Exercise of stock
options 4,380 4 6,064 - -
Stock issued under
Employee Stock
Purchase Plan 3,052 3 7,415 - -
Stock issued under
Employee Stock
Bonus Plan 5,033 5 15,723 - -
Net income - - - - 1,273,061
Unrealized loss on
Securities
Available for
Sale - - - (74,259) -
--------- ------- ---------- --------- -----------
Balance, Sep. 30,
1998 2,741,974 $2,742 $4,528,190 $(74,259) $(340,721)
========= ======= ========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
The viaLink Company (formerly APPLIED INTELLIGENCE GROUP, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,273,061 $(1,692,146)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 725,723 592,914
Gain on sale of assets (2,998,453) -
Deferred income tax provision (benefit) 1,049,440 (871,845)
Decrease (increase) in accounts receivable (102,676) 428,111
Decrease (increase) in other receivables (275,901) 134,422
Decrease (increase) in inventory (3,605) 19,086
Increase in prepaid expenses (34,268) (58,811)
Increase in other assets (37,151) (54,775)
Decrease in accounts payable and
accrued liabilities 912,013 726,394
(Decrease) in deferred revenue (236,134) (140,051)
---------- -----------
Net cash provided by (used in) operating activities 272,049 (916,701)
Cash flows from investing activities:
Proceeds from sale of assets, net of costs 483,944 -
Capital expenditures (22,915) (319,158)
Capitalized expenditures for software
development (486,582) (447,053)
---------- -----------
Net cash used in investing activities (25,553) (766,211)
Cash flows from financing activities:
(Decrease) increase in book overdraft (23,619) 36,755
Proceeds from long-term debt 3,522,639 1,061,000
Proceeds from shareholder notes - 6,455
Proceeds from exercise of stock options,
stock bonus and stock purchase plans 29,214 4,419
Payments of capital lease obligations (112,722) (99,758)
Payments of shareholder loans - (20,000)
Payments on long-term debt (3,461,577) (720,000)
---------- -----------
Net cash provided by (used in) financing activities (46,065) 268,871
---------- -----------
Net increase (decrease) in cash 200,431 (1,414,041)
Cash and cash equivalents at beginning of
period 80,769 1,821,014
---------- -----------
Cash and cash equivalents at end of period $ 281,200 $ 406,973
========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
The viaLink Company (formerly APPLIED INTELLIGENCE GROUP, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
For the Nine Months Ended September 30, 1998 and 1997
In September of 1998, the Company sold its consulting and
systems integration assets for $3,000,000 in cash and $1,000,000
in convertible preferred stock, for which $600,000 cash was
received prior to September 30, 1998. The net amount receivable
of $2,400,000 is recorded in Other receivables in the
consolidated balance sheet at September 30, 1998. In addition,
approximately $280,000 of the transaction costs were incurred at
September 30, 1998.
<TABLE>
<CAPTION>
Such sale involved the net book value of the following
assets:
<C> <S>
Software development costs $352,664
Furniture and equipment cost $247,671
Other assets $ 6,047
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
The viaLink Company (formerly APPLIED INTELLIGENCE GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
September 30, 1998
NOTE 1. DESCRIPTION OF BUSINESS
The viaLink Company (formerly Applied Intelligence Group,
Inc.) (the "Company") provides network services and leading-edge
Internet-based computer applications and business solutions
through technology to the retail industry. The Company's viaLinkr
Services combine Electronic Commerce and Internet-based
applications to provide consumer product manufacturers,
distributors, and retailers the capability of doing business
electronically with all of their trading partners. The
subscription-based viaLink Services allow supply chain
participants to electronically send and receive product cost and
promotional information in a format that is compatible with any
party's system, regardless of their technological sophistication
and at a fraction of the cost of traditional electronic data
interchange (EDI). In addition, through its wholly owned
subsidiary, ijob, Inc., the Company provides human resource
recruiting and job candidate matching capabilities, with access
to the ijobT database through the Internet. The Company's
clients and customers range from small, rapidly growing companies
to large corporations and are geographically disbursed throughout
the United States.
NOTE 2. BASIS OF PRESENTATION
Reference is made to the Company's Annual Report on Form 10-
KSB for the year ending December 31, 1997.
The accompanying unaudited consolidated financial statements
have been prepared by the Company in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB. Accordingly, they do
not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring items) considered necessary for a
fair presentation have been included. These interim unaudited
consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and related
notes included in the Company's Annual Report on Form 10-KSB as
filed on March 31, 1998.
NOTE 3. SALE OF CONSULTING AND SYSTEMS INTEGRATION ASSETS
In early 1998, management of the Company began to reconsider
its continued focus on both consulting and network services due
to capital constraints and requirements for further development,
implementation and marketing of viaLink and ijob. Accordingly,
management decided to pursue sale of its consulting and systems
integration assets to provide additional capital for and narrow
the Company's focus on further development, implementation and
marketing of network services, including viaLink and ijob. A
letter of intent was executed with The NetPlex Group, Inc.
("NetPlex") on July 31, 1998 and on August 31, 1998, the
respective boards of Directors of the Company and of NetPlex
unanimously approved the Asset Acquisition Agreement, and the
Company and NetPlex executed the Asset Acquisition Agreement.
Subsequent to the execution of the Asset Acquisition Agreement,
the Company and NetPlex executed an Amendment to the Asset
Acquisition Agreement to make the effective date of the sale of
the consulting and systems integration assets ("Consulting Assets
Sale") September 1, 1998.
Accordingly, the consolidated balance sheet as of September
30, 1998 and the consolidated statements of operations for the
three months and nine months ended September 30, 1998, give
effect to the Consulting Asset Sale to NetPlex for $3,000,000
cash plus $1,000,000 in convertible preferred stock, plus future
earn-out payments to be received by the Company. Therefore, the
revenues and expenses applicable to the consulting and systems
integration assets for the month of September are not included in
the consolidated statements of operations for the three months
and nine months ending September 30, 1998, and consequently, the
results of operations for the three months and nine months ended
September 30, 1998 and 1997 may not be comparable. Furthermore,
the results of operations are not indicative of the results to be
expected for the full year ended December 31, 1998.
Prior to September 30, 1998, in connection with the
Consulting Asset Sale, NetPlex paid to the Company a total of
$600,000 of the $3,000,000 cash consideration. On September 30,
1998, the Company and NetPlex completed the preliminary closing
of the Consulting Asset Sale, and NetPlex placed in escrow, the
net cash consideration of $2,400,000 and 643,770 shares of
NetPlex preferred stock that represented a valuation of
$1,000,000. On October 16, 1998, the Company received net cash
proceeds of $1,851,731, after payment from escrow of certain
fees, costs and expenses of the transaction and long-term debt
repayments, and the Company received 643,770 shares of preferred
stock. The Company immediately paid in full the shareholder
notes plus accrued interest in the total of $565,094, plus other
expenses of the transaction. The net gain on the sale was
$2,998,453, net of the costs and expenses discussed above. As a
result of the gain, most of the deferred tax asset of $1,049,440
was utilized and charged to expense as of September 30, 1998.
The remaining deferred tax asset will be realized from future
taxable income, which is not assured, and therefore a full
valuation allowance was recorded of $190,000.
Additional consideration which may be earned and received by
the Company from NetPlex includes possible payments under an Earn-
out Agreement ("Earn-out"). Under the terms of the Earn-out, the
Company will receive a cash payment equal to one-half of any net
profits (as defined) of the consulting and systems integration
assets over the next seven quarterly periods ending March 31,
2000, not to exceed a total of $1,500,000. For the quarter
ended September 30, 1998, the Company recorded other income of
$132,770 under this Earn-out.
NOTE 4. RECONCILIATION FOR BASIC AND DILUTIVE EARNINGS PER SHARE ("EPS")
<TABLE>
<CAPTION>
For the Three Months Ended 9/30/98
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ---------
<S> <C> <C> <C>
Basic EPS
Income available to common
shareholders $1,273,274 2,741,001 $0.46
======
Effect of Dilutive Securities
Options - 43,819
---------- ---------
Dilutive EPS
Income available to common
shareholders plus assumed
conversions $1,273,274 2,784,820 $0.45
========== ========= =====
For the Nine Months Ended 9/30/98
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ---------
<S> <C> <C> <C>
Basic EPS
Income available to common
shareholders $1,273,061 2,736,042 $0.47
=====
Effect of Dilutive Securities
Options - 52,132
---------- ---------
Dilutive EPS
Income available to common
shareholders plus assumed
conversions $1,273,061 2,788,174 $0.46
========== ========= =====
</TABLE>
Options outstanding during the three month and nine month
periods ending September 30, 1997 wee not included in the
computation of diluted earnings per share because the effect of
these outstanding options would be antidilutive.
Options to purchase 360,000, 50,000 and 102,500 shares of
common stock at $5.00, $3.50 and $3.875, respectively, per share
were outstanding during the nine months ended September 30, 1998,
but were not included in the computation of diluted EPS because
the exercise prices were greater than the average market price of
the common shares. The options, which expire on November 30,
2001 through March 1, 2007, respectively, were still outstanding
at September 30, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Statements of the Company's or management's intentions,
beliefs, anticipations, expectations and similar expressions
concerning future events contained in this Report constitute
"forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995 ("Act"). Any forward-looking
statements are made by the Company in good faith, pursuant to the
safe-harbor provisions of the Act. As with any future event,
there can be no assurance that the events described in forward-
looking statements made in this Report will occur or that the
results of future events will not vary materially from those
described in the forward-looking statements. These forward-
looking statements reflect management's current views and
projections regarding economic conditions, industry environments
and Company performance. Important factors that could cause the
Company's actual performance and operating results to differ
materially from the forward-looking statements include, but are
not limited to, changes in the general level of economic activity
in the markets served by the Company, introduction of new
products or services by competitors, sales performance, expense
levels, interest rates, changes in the Company's financial
condition, availability of capital sufficient to support the
Company's level of activity, delays in implementing further
enhancements to the Company's viaLink and ijob services, and the
ability of the Company to implement its business strategies.
The Company's expectations with respect to future results of
operations that may be embodied in oral and written forward-
looking statements, including any forward-looking statements that
may be included in this Report, are subject to risks and
uncertainties that must be considered when evaluating the
likelihood of the Company's realization of such expectations.
The Company's actual results could differ materially. Factors
that could cause or contribute to such differences include, but
are not limited to, those discussed in Item 5 of Part II of this
Report.
OVERVIEW
The Company provides business solutions through technology
primarily to retail companies and to the manufacturers,
wholesalers, and other suppliers who provide the products that
these retail companies sell (the "Retail Supply Chain"). The
information systems services provided by the Company include
network services and network-based computer applications
accessible through the Internet, known as viaLink, and a human
resource recruiting application through the Internet to a variety
of other industry clients, known as ijobT.
Effective September 1, 1998, in connection with the
Consulting Asset Sale as more fully described in Note 2 to the
Consolidated Financial Statements, the Company also sold the
proprietary Retail Services Application ("RSA") software. As a
result, the Company no longer has the revenue streams from
consulting and system integration fees, hardware and software
sales, software license sales and customer support fees. Gross
revenues associated with the consulting and systems integration
assets were $6,713,542 during the eight months ended August 31,
1998. Following the sale, the Company's has solely focused on
implementing its business plans and strategies regarding its
viaLink and ijob services and products.
Historically, before and up to the effective date of the
Consulting Division Sale, substantially all of the Company's
revenues were earned under consulting and systems integration
projects, primarily in the retail industry, through the resale of
hardware and software, sale and relicense of its own proprietary
software, and from fees for customer support contracts. More
recently the Company has developed a recurring source of revenue
from its network services business, through viaLink, and ijob.
viaLink revenues are derived through retailers and suppliers
matching transactions through the viaLink system. ijob revenues
are derived through licensing arrangements to use the system.
In 1993, the Company, based on its early belief in the
future importance of electronic commerce, began development of
viaLink. viaLink is a designed common industry network
application, enabling retailers, manufacturers, wholesalers and
other suppliers to share and communicate consumer product data.
The Company's viaLink information and subscription database
service is accessible and available on the Internet. viaLink
first became operational in January 1997.
viaLink creates a database of information and a single
interface solution for retailers to receive product information
from all their suppliers, regardless of their technological
capabilities and enhances suppliers electronic data interchange
(EDI) capabilities, while fully secured with state-of-the-art
firewalls and password protections. The viaLink system permits
better management of information flow, reduces errors and invoice
discrepancies, improves the accounts receivable collection
process and reduces redundant work.
The Company offers a variety of products and services
through its viaLink system. The viaLink Item Catalog allows
retailers and suppliers to exchange product, price and
promotional information electronically. An Internet accessible
shared database and multiple interface formats make it possible
to conduct electronic commerce accurately by utilizing the same
single source of the item data in the database.
The viaLink Exchange Manager allows companies to exchange
order and invoice transactions through a single interface
regardless of the number of trading partners. The Exchange
Manager verifies order and invoice information against the Item
Catalog and creates exception reports, further enabling accurate
and efficient electronic commerce to take place between the
retailer and supplier. The Exchange Manager also provides
historical reporting of purchases and sales information.
The viaLink ItemXpress can be used to quickly and accurately
create the initial setup of a retailer's pricebook, through a
custom load for each retailer's system.
The Company has also developed and introduced ijob, an
Internet-based human resources application. During the second
quarter of 1997, ijob, Inc. was formed as a wholly owned
subsidiary of the Company, and commenced operations as a separate
entity on June 30, 1997. As of November 10, 1998, this wholly
owned subsidiary had eleven employees, located at the Company's
principal offices in Edmond, Oklahoma.
ijob is a network-based human resource recruiting
application deployed through either the Internet or accessible by
telephone. ijob uses these communications systems as a medium to
bring together people seeking employment and companies searching
for employees. ijob utilizes a database to collect, catalog and
match information to screen and pre-qualify job candidates with
the human resources needs of employers who subscribe to the ijob
network services application.
ijob, Inc. markets and services its products through a
strategic web-based human resource product called ijob inSource.
ijob inSource is a dedicated and proprietary candidate recruiting
and database management product, custom designed and private
labeled for individual organizations.
The Company believes this system represents a technological
improvement over current Internet "resume web sites" where career
material is simply posted on unscreened databases or on bulletin
boards. With ijob, the subscribing employer benefits by receiving
a list of pre-qualified applicants who have greater probability
of meeting the employer's human resource needs. Computer assisted
structured interviews ("CASI") and skill testing are used to help
determine if the applicant will meet the prospective employer's
needs. This predictive system enables employers to conduct
focused searches, thereby saving time and money. Free to
jobseekers, ijob maintains all information in its active database
until the applicant requests its withdrawal.
RESULTS OF OPERATIONS
INTRODUCTION. The results of operations for the three
months and nine months ended September 30, 1998 include the
Consulting Division Sale, more fully discussed in Note 3 to the
Consolidated Financial Statements. Therefore, the revenues and
expenses applicable to the consulting and systems integration
assets for the month of September are not included in the
consolidated statements of operations for the three months and
nine months ending September 30, 1998, and consequently, the
results of operations for the three months and nine months ended
September 30, 1998 and 1997 may not be comparable.
REVENUES. Gross revenues decreased $884,511 (33 percent) to
$1,775,043 for the third quarter of 1998 from $2,659,554 for the
comparable quarter of 1997. Revenues in the first nine months of
1998 increased $1,335,257 (20 percent) to $7,920,746 from
$6,585,490 for the first nine months of 1997. The third quarter
decrease in gross revenue was almost entirely due to the
Consulting Asset Sale effective September 1, 1998, and the
resulting loss of one month's revenues for September. The
increase in gross revenues for the nine months ended September
30, 1998 were primarily attributable to the Company's consulting
and systems integration fees, which revenue source was sold in
the Consulting Division Sale. The increase was also due to
increased sales and marketing efforts, the addition of a sales
and marketing executive in January 1998, the results of
concentrated sales and marketing efforts, with sales increases
primarily in the consulting fees earned during this period.
Hardware and Product Sales. Hardware and product sales
decreased $740,518 (52 percent) from $1,438,301 in the third
quarter of 1997 to $697,783 in the third quarter of 1998.
Hardware and product sales for the first nine months of 1998
decreased $443,293 (20 percent) from $2,214,314 for the first
nine months of 1997 to $1,771,021 for 1998. The decrease for the
third quarter of 1998 was mainly due to purchases by a large
client of point-of-sale terminals for 101 new stores opened in
the third quarter of 1997, with no similar large orders in 1998.
The decrease for the first nine months of 1998 was due to the
transition and changing of focus to higher margin revenue streams
of consulting and systems integration fees and less focus on
hardware sales which generally have lower profit margins. The
Consulting Asset Sale also accounted for a portion of the
decrease in 1998. The Company will no longer market and sell
hardware and software products. Therefore, the revenues from
these sources are expected to be zero.
Solutions. Solutions revenues decreased $22,000 (44
percent) from reported revenues of $50,584 in the third quarter
of 1997 to $28,584 in the same period of 1998. Revenues for the
first nine months of 1998 were $316,853, an increase of $210,637
(198 percent) from $106,216 for 1997. A sale of the Company's RSA
product totaling $152,000 was made during the nine months ended
1998, whereas no such large sale of RSA was made during 1997.
The increase for the nine months is also due to additional
ChainLink licenses totaling $30,000 that were sold during 1998.
In connection with the Consulting Asset Sale, the Company entered
into a Remarketing and Relicensing Agreement with NetPlex to sell
the proprietary communications product, ChainLink, and the
Company will no longer actively market and sell ChainLink.
Therefore, the Company does not expect any significant revenues
with respect to its historical solutions business.
Consulting and System Integration Fees. Consulting fees
earned during the three months ended September 30, 1998 totaled
$808,666 compared to $827,506 for the same period in 1997, a
decrease of $18,840 (2 percent). The third quarter of 1998
excludes consulting fees revenues for the one month of September
due to the Consulting Asset Sale. Consulting fees for the first
nine months of 1998 were $4,620,742, compared to $3,105,428 for
1997, an increase of $1,515,314 (49 percent). The increase for
the nine months of 1998 was due the concentrated effort to
increase consulting revenue, with the addition of two large
consulting projects during this period. As a result of the
Consulting Asset Sale, the Company no longer expects or intends
to perform consulting projects as a source of revenue.
Customer Support. Customer support revenues decreased
$28,199 (30 percent) to $65,610 for the third quarter of 1998
from $93,809 for the third quarter of 1997. The third quarter of
1998 excludes customer support fees for the one month of
September due to the Consulting Asset Sale. Customer support
revenues for the first nine months of 1998 increased $44,475 (13
percent) to $383,620 from $339,145 for the same period in 1997.
The increase was due to additional contracts obtained in 1998 and
higher levels of billings for hours in excess of the standard
contract levels than were billed in 1997, offset by the loss of
one month of revenues in 1998 due to the Consulting Asset Sale.
As a result of the Consulting Asset Sale, the Company no longer
expects to earn revenues from this source.
Network Services and Applications. Revenues from the
Company's recurring network services and network-based computer
applications were $174,400 for the three months ended September
30, 1998, a decrease of $62,600 (27 percent) compared to $237,000
for the third quarter of 1997. Such revenues for the nine months
ended September 30, 1998 were $828,510, an increase of $165,636
(25 percent) from $662,874 for the comparable period in 1997. The
decrease in revenues during the third quarter of 1998 was due to
the loss of a monthly contract with a health provider, which was
present during the same period in 1997. Overall, however, this
health provider accounted for the increase in revenue for the
nine months ending September 30, 1998. These services
represented the only source of recurring revenue during the nine
month period. The viaLink subscriber list for both retailers and
suppliers has grown from 20 in January 1998 to 206 at the end of
the third quarter, representing more than 6,400 stores.
DIRECT COST OF SALES. Direct cost of sales, which consists
of purchased hardware and certain software for resale, and costs
associated with the Company's proprietary software products,
decreased $447,586 (39 percent) to $700,191 in the third quarter
of 1998 from $1,147,777 in the third quarter of 1997. For the
first nine months of 1998 direct cost of sales decreased $157,517
(9 percent) to $1,681,305 from $1,838,822 for the first nine
months of 1997. The increase in cost of sales for the third
quarter of 1998 and the decrease in cost of sales for the nine
months ended September 30, 1998 were both in line with the
changes in hardware and solution sales for the corresponding
periods. As a result of the Consulting Asset Sale, the Company
will no longer be a reseller of hardware and software and will no
longer incur these expenses.
SALARIES AND BENEFITS EXPENSE. Salaries, wages, taxes and
related benefits, and contract labor expenses totaled $1,183,741
for the three months ended September 30, 1998, compared to
$1,685,366 for the same period in 1997, a decrease of $501,625
(30 percent). Salaries, wages, taxes and related benefits, and
contract labor expenses totaled $4,577,001 for the first nine
months of 1998 compared to $4,600,660 for the same period in
1997, a decrease of $23,659 (less than one percent). The Company
has 32 full-time employees as of November 12, 1998.
During 1998, the Company utilized contract programmers for
client engagements throughout the first nine months to a greater
extent than in 1997, with contract programmer expenses totaling
$620,833 in 1998 compared to a total cost for contract
programmers in 1997 of $374,255, an increase of $246,578 (66
percent). These increases were offset by the decreases in
overall salaries, wages, taxes and benefits of $221,084. In
addition, late in the first quarter of 1997, a contract sales
executive was hired to promote sales in the solutions business
area of the Company. Contract labor expenses totaled $85,283
during the third quarter of 1998 compared to a total of $93,590
for the same quarter in 1997, a decrease of $8,307 (9 percent).
Contract programmers are only hired to staff revenue generating
projects.
Direct payroll costs of salaries and wages totaled
$1,183,741 for the three months ended September 30, 1998 compared
to $1,685,366 for the same period in 1997. Direct payroll costs
of salaries and wages decreased $501,625 (30 percent), while
payroll taxes and employee benefits decreased a total of $44,278
(25 percent). Direct payroll costs of salaries and wages for the
nine months ending September 30, 1998 totaled $3,966,411, a
decrease of $228,061 (6 percent) from the total of $4,194,472 in
1997. The decreases are principally attributable to the
Consulting Asset Sale effective September 1, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling,
general and administrative expense (SG&A) decreased $364,441 (45
percent) to $445,942 for the quarter ended September 30, 1998
from $810,383 for the quarter ended September 30, 1997. For the
nine months ended September 30, 1998, SG&A decreased $472,071 (23
percent) to $1,592,193 from $2,064,264 for 1997.
Travel, meetings and training expenses decreased $62,133 (41
percent), from $150,530 in the third quarter of 1997 to $88,397
in the same quarter of 1998. Travel expenses for the nine months
ended September 30, 1998 decreased 113,167 (26 percent) to
$326,198 from $439,865 for the same period in 1997. The decreases
for both the quarter and the first nine months of 1998 was
partially due to the Consulting Asset Sale, and partially due to
reduced non-billable travel.
Occupancy expense, including rent, repairs and maintenance
and insurance costs, decreased $24,141 (15 percent) for the third
quarter 1998 compared to the third quarter 1997 due primarily to
the closing of the ijob service centers. Total occupancy expense
for the nine months ending September 30, 1998 is $482,184
compared to a total of $431,880 for the nine months ending
September 30, 1997, an increase of $50,304 (12 percent). The
increase was primarily due to increased insurance costs for 1998.
Telecommunications expense decreased $33,794 (41 percent)
from $83,420 for the three months ended September 30, 1997 to
$49,626 in the same period of 1998. Telecommunications expenses
for the nine months ended September 30, 1998 increased $13,880 (8
percent) to $198,462 from $184,582 for the same period in 1997.
The decrease in the third quarter was primarily due to the
closing of the ijob satellite centers by the end of the second
quarter, and the comparison to the prior year third quarter when
(i) the startup of ijob operations and the opening of a new
service center during the second quarter were present and in
operation, (ii) the expansion of the Company's communication
systems for viaLink and web site hosting services, (iii) and
greater long distance usage due to the increased sales and
marketing activities of the Company.
Advertising and promotion expenses totaled $17,480 for the
third quarter of 1998 compared to $80,167 for the same quarter in
1997, a decrease of $62,687 (78 percent). For the first nine
months of 1998, advertising and promotion expenses totaled
$69,206 compared to $167,646 for the comparable period of 1997, a
decrease of $98,440 (59 percent). The decreases were due
primarily to a much higher volume of advertising of viaLink in
the prior year, and current year restrictions on available cash
flow minimizing the Company's advertising expenditures.
Supplies and resources decreased in the third quarter of
1998 by $45,647 (71 percent) from the third quarter in 1997, and
supplies and resources expenses for the nine months ended
September 30, 1998 totaled $69,690 compared to $206,990 for the
nine months ended September 30, 1997, a decrease of $137,300 (66
percent). These decreases were due to the start up costs
associated with ijob in the prior year, which expenses were not
present in the current period with the closing of the ijob
satellite centers, and the reduced expenses in 1998 due to cash
flow restrictions.
Professional fees decreased $41,237 (29 percent) to $103,026
in the three months ended September 30, 1998 compared to $144,263
in the three months ended September 30, 1997. Professional fees
decreased $150,224 (35 percent) to $278,049 for the nine months
ended September 30,1998 compared to $428,273 for the same period
in 1997. These decreased expenses were due primarily to the use
of an outside public relations firm, higher than normal expenses
to consultants used in conjunction with development of the
viaLink MarketLink product. The start up costs associated with
ijob in 1997 were not incurred in 1998. In addition, expenses
were reduced in 1998 due to restrictions on cash flow.
NET INTEREST EXPENSE. Net interest expense increased
$29,873 (132 percent) to $52,592 for the three months ended
September 30, 1998 from $22,719 for the same period in 1997. Net
interest for the first nine months of 1998 increased $100,425
(190 percent) to $153,246 from $52,821 for the same period in
1997. Outstanding borrowings in 1997, other than shareholder
loans, were very low, while during 1998 the Company required
higher levels of borrowings under its line of credit and interest
expense increased accordingly. During the first quarter of 1998,
the Company completed a new credit facility with a commercial
lender that replaced and increased the working capital line-of-
credit with a bank. As of September 30, 1998, the Company had a
balance under this line-of-credit of $551,062. Average total
outstanding debt, including shareholder loans and capital leases,
during the first nine months of 1998 was $1,233,000 compared to
the average outstanding debt for the first nine months of 1997 of
$857,000.
DEPRECIATION AND AMORTIZATION. Depreciation and
amortization expense totaled $223,536 for the third quarter ended
September 30, 1998 compared to $197,182 for the same quarter
ended 1997, an increase of $26,354 (13 percent). Depreciation
and amortization expenses totaled $725,723 for the first nine
months of 1998 compared to $592,914 for the same period in 1997,
an increase of $132,809 (22 percent). The increase was due to
total capital asset expenditures made during 1997 of $1,085,145,
but capital asset expenditures for the first nine months of 1998
total $509,497, including software development costs capitalized
of $486,582 and expenditures for other fixed assets of $22,915.
Depreciation and amortization related to the assets sold in the
Consulting Asset Sale for the month of September is not included
in the statements of operations for the three months and nine
months ended September 30, 1998. The Company does not anticipate
significant capital expenditures during the fourth quarter of
1998.
GAIN ON SALE OF CONSULTING BUSINESS. The consolidated
financial statements as of September 30, 1998 and for the three
months and nine months ended September 30, 1998, give effect to
the Consulting Asset Sale to NetPlex for $3,000,000 cash plus
$1,000,000 in convertible preferred stock, plus future earn-out
payments to be received by the Company. As a result of the
Consulting Assets Sale, the Company incurred a one-time net gain
of $2,998,453, net of the costs and expenses discussed above. As
a result of the gain, most of the deferred tax asset of
$1,049,440 was utilized and charged to expense as of September
30, 1998. The remaining deferred tax asset will be realized from
future taxable income, which is not assured, and therefore a full
valuation allowance was recorded of $190,000.
Prior to September 30, 1998, in connection with the
Consulting Asset Sale, NetPlex paid to the Company a total of
$600,000 of the $3,000,000 cash consideration. On September 30,
1998, the Company and NetPlex completed the preliminary closing
of the Consulting Assets Sale, and NetPlex placed in escrow, the
net cash consideration of $2,400,000 and 643,770 shares of
NetPlex preferred stock that represented a valuation of
$1,000,000. On October 16, 1998, the Company received net cash
proceeds of $1,851,731, after payment from escrow of certain
fees, costs and expenses (legal, accounting, printing,
commissions, etc.) of the transaction and long-term debt
repayments, and the Company received 643,770 shares of preferred
stock. The Company immediately paid in full the shareholder
notes plus accrued interest in the total of $565,094, plus other
expenses of the transaction.
Additional consideration which may be earned and received by
the Company from NetPlex includes possible payments under an Earn-
out Agreement ("Earn-out"). Under the terms of the Earn-out, the
Company will receive a cash payment equal to one-half of any net
profits (as defined) of the consulting and systems integration
assets over the next seven quarterly periods ending March 31,
2000, not to exceed a total of $1,500,000. For the quarter
ended September 30, 1998, the Company recorded other income of
$132,770 under the Earn-out.
TAX PROVISION (BENEFIT). SFAS 109, "Accounting for Income
Taxes", requires, among other things, the separate recognition,
measured at currently enacted tax rates, of deferred tax assets
and deferred tax liabilities for the tax effect of temporary
differences between the financial reporting and tax reporting
bases of assets and liabilities, and net operating loss and tax
credit carryforwards for tax purposes. A valuation allowance
must be established for deferred tax assets if it is "more
likely than not" that all or a portion will not be realized.
Prior to the third quarter of 1998, the Company had recorded a
tax benefit of $1,049,440 related to the pre-tax losses incurred
in prior years, and no valuation allowance had been established
prior to the third quarter of 1998. As a result of the gain, the
deferred tax asset of $1,049,440 was utilized, including a
valuation allowance of $190,000, and charged to expense as of
September 30, 1998. The Company will not record any further tax
benefits and deferred tax assets until such time as management
believes it is more likely than not that the Company will be
profitable in the future.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board
issued a Statement of Financial Accounting Standards No. 131,
"Disclosure about Segments of an Enterprise and Related
Information", which establishes standards for reporting
information about operating segments in annual and interim
financial statements issued to the shareholders. This Statement
also establishes standards for related disclosures about products
and services, geographic areas, and major customers. The Company
plans to adopt this Statement in the fourth quarter of 1998.
YEAR 2000 PLAN
Many currently installed computer systems and software
products are coded to accept only two-digit entries in the date
code field. These date code fields will need to accept four-
digit entries to distinguish 21st century dates from 20th century
dates. This problem could result in system failures or
miscalculations causing disruptions of business operations. As a
result, in approximately one year, computer systems and/or
software used by many companies may need to be upgraded to comply
with such "Year 2000" requirements. Significant uncertainty
exists in the software industry concerning the potential effects
associated with such compliance.
The Company's vendors, customers, suppliers and service
providers are under no contractual obligation to provide Year
2000 information to the Company. Generally, the Company believes
its key internal software systems are either compliant, the
vendors claim compliance, or the problems can be corrected by
purchasing small amounts of hardware, software or software
upgrades, where necessary. The Company is also continuing its
assessment of the readiness of external entities, such as
subcontractors, suppliers, vendors, and service providers that
interface with the company.
Based on the its assessments and current knowledge, the
Company believes it will not, as a result of the Year 2000 issue,
experience any material disruptions in internal processes,
information processing or services from outside relationships.
The Company presently believes that the Year 2000 issue will not
pose significant operational problems and the Company will be
able to manage its total Year 2000 transition without any
material effect on the Company's results of operations or
financial condition. The most likely risks to the Company from
Year 2000 issues are external, due to the difficulty of
validating all key third parties' readiness for Year 2000. The
Company has sought and will continue to seek confirmation of such
compliance and seek relationships which are compliant.
As noted, the Company currently anticipates that all of its
internal systems and equipment will be Year 2000 compliant by the
end of the second quarter of 1999 and that the associated costs
will not have a material adverse effect on the Company's results
of operations and financial condition. However, the failure to
properly asses or timely implement a material Year 2000 problem
could result in a disruption in the Company's normal business
activities or operations. Such failures, depending on the extent
and nature, could materially and adversely effect the Company's
operations and financial condition. To date, the Company has not
developed a contingency plan.
Under the terms of the Consulting Asset Sale to NetPlex,
discussed more fully elsewhere in this Report, the Company
retains the liability and responsibility for software programs
developed and installed in customer sites by the Company prior to
September 1, 1998. The Company is unable to determine at this
time the extent to which potential liability for Year 2000
requirements may exist and the Company could incur substantial
costs, which would potentially have a material adverse effect on
the Company.
The Company does not believe that the costs of its Year 2000
Program have been or are material to its financial position or
results of operations. All expenses have been charged against
earnings as incurred and the Company intends to continue to
charge such costs against earnings as the costs are incurred.
The Company in its ordinary course of business tests and
evaluates its own software products on a continuous basis. The
Company believes that its own developed software products are
generally Year 2000 compliant, meaning that the use or occurrence
of dates on or after January 1, 2000 will not materially affect
the performance of the Company's software and network services
products with respect to four digit date dependent data or the
ability of such products to correctly create, store, process and
output information related to such date data. Notwithstanding
such belief by management, the products being tested for
compliance include all of the services and systems included in
the viaLink products and services and the ijob inSource system.
Since these are network database systems, there is not an issue
of earlier versions which will require upgrade to be Year 2000
compliant.
The estimates and conclusions set forth herein regarding
Year 2000 compliance contain forward-looking statements and are
based on management's estimates of future events and information
provided by third parties. There can be no assurance that such
estimates and information provided will prove to be accurate.
Risks to completing the Year 2000 project include the
availability of resources, the Company's ability to discover and
correct potential Year 2000 problems and the ability of
suppliers and other third parties to bring their systems into
Year 2000 compliance.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position was significantly
enhanced as a result of the Consulting Asset Sale effective
September 1, 1998. As of September 30, 1998 the Company had cash
and cash equivalents of $281,200, and working capital of
$2,703,807, with a working capital ratio of 1.81 to 1, as
compared to a working capital deficit of $331,366 as of December
31, 1997. The Consulting Asset Sale, with appropriate receivables
recorded, has been recognized as of September 30, 1998.
During the nine months ended September 30, 1998, net cash
increased a total of $200,431. Net cash provided by operating
activities for the first nine months of 1998, including giving
effect to the Consulting Asset Sale, was $3,870,505, compared to
net cash used in the first nine months of 1997 of $916,701. This
increase in cash was due to the improved operations during the
nine month periods ending September 30, 1998 compared to 1997,
and to the Consulting Asset Sale effective September 1, 1998.
The Company does not expect significant cash flow to be generated
through future operations for the next six months and must use its
current level of cash and collection of accounts receivable to operate
the business.
During the nine months ended September 30, 1998, the Company
expended only $22,915 for investing activities in various fixed
assets and $486,586 for software development costs of its
proprietary software products, compared to total expenditures of
$319,158 and $447,053, respectively, for the same items in the
nine months ended September 30, 1997. As of November 10, 1998,
the Company had no material firm cash commitments for capital
expenditures, nor does the Company expect to incur any material
cash commitments for capital expenditures for the remainder of
1998, other than capitalized internal staff costs for further
development of viaLink and ijob.
During the nine months ended September 30, 1998, financing
activities used net cash of $46,064, which was mainly provided by
net borrowings under the new credit facility of $61,062. Payments
on the Company's capital lease obligations of $112,722 and a
decrease in the book overdraft of $23,619 offset the borrowings.
In addition, during the nine months ended September 30, 1998 the
Company received $29,215 through the exercise of stock options,
the Company stock purchase plan and the stock bonus plan.
Subsequent to September 30, 1998, upon receipt of the net
proceeds from the Consulting Asset Sale, the Company paid the
shareholder notes in the principal amount of $482,830, plus the
accrued interest of $82,264, for a total of $565,094.
As of September 30, 1998, the Company had borrowed $551,062
under its credit facility, bearing interest at 11.25%. On
October 16, 1998, the Company paid the outstanding principal
balance of $433,241 in full and cancelled the credit facility.
The Company does not have any available borrowing or credit
facility available as of November 12, 1998. The Company
maintains a credit facility including a $1,000,000 large sale
financing option with IBM Credit Corp. Under this facility the
Company may finance directly with IBM Credit Corp. large sales of
hardware and software. As of September 30, 1998, the Company had
financed $288,830 under the IBM Credit Corp. arrangement, which
was included in accounts payable. The Company still has this
credit arrangement available.
The Company anticipates that its operations for the next six
months will be funded out of cash and cash equivalents. The
Company believes that these sources of funds will be sufficient
to satisfy the Company's operating and capital requirements for
at least the next six months. Future capital requirements of the
Company will depend on its growth rate, profitability, working
capital requirements and level of investment in long term assets.
Increases in these capital requirements would accelerate the
Company's use of such financing sources. If this occurs, the
Company may, from time to time, incur indebtedness or attempt to
issue, in public or private transactions, equity or debt
securities. There can be no assurance that the Company will be
able to obtain requisite financing when needed on acceptable
terms. See Item 5. Other Information "Certain Factors That May Affect
Future Results--Future Capital Needs; Uncertainty of Additional
Financing; Possiblity of Significant Diluation."
CONSULTING ASSET SALE; CHANGE IN BUSINESS; EXPECTED LOSS
The Company is negotiating with several potential marketing,
hosting and development partners to join in strategic alliances
with the Company to further develop, host and market the products
and services and implement the business strategies and plans for
viaLink and ijob.
With the Consulting Asset Sale, approximately ninety percent
of its historical revenues will not be available to the Company.
Historical revenues associated with the Consulting Division Sale
were $6,713,542 for the eight months ended August 31, 1998. In
fact, as a result of the Consulting Assets Sale, the Company
fundamentally should be viewed as a development stage company, since
its planned principal operations are underway, but have not yet generated
significant revenues.
The Company expects to report a loss from operations for the
fourth quarter of 1998. The Company expects to continue the high
level of expenditures for investment in, and sales and marketing
of its new network information systems, viaLink and ijob. The
extent of the fourth quarter loss will depend on revenues from
its network services and application products, which have not yet
achieved market acceptance, and the Earn-out payments. To date,
gross revenues from these sources have not been significant. The
Company's strategy is to invest in new network information systems
to facilitate its plan to build recurring network service revenues
with higher profit margins. In order to implement its strategy, the
Company believes that it will need significant additional capital
resources, as well as host and marketing partners for its viaLink
product. The Company is currently seeking additional equity or
debt financing and negotiating with potential hosts or marketing
partners. There can be no assurance, however, that these efforts
will be successful or that the Company will be able to obtain
equity or debt financing or agreements with host or marketing
partners on commercially reasonable terms, if at all. A failure
by the Company to successfully negotiate such arrangements would
have a material adverse affect of the Company's business,
financial condition and results of operations, including its
viability as an enterprise. As a result of the high level of
expenditures for selling and marketing and investments in these
network services, the Company expects to incur losses in future
periods until such time, if ever, as the recurring revenues from
these systems are sufficient to cover the expenses.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Consent To Action in Lieu of a Meeting of the
Shareholders of Applied Intelligence Group, Inc., whereby the
Company approved (i) the Asset Acquisition Agreement, (ii)
amendment to the Company's Articles of Incorporation to change
the name of the Company to The viaLink Company, (iii) amendments
to the Company's 1995 Stock Option Plan, and (iv) amendments to
the Company's 1998 Non-Qualified Stock Option Plan, effective as
of the first day of September, 1998. The Consent to Action in
Lieu of a Meeting of the Shareholders was filed with the
Information Statement, Form 14-C, filed with the Securities and
Exchange Commission on September 10, 1998.
ITEM 5. OTHER INFORMATION
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company does not provide forecasts of its future
financial performance. However, from time to time, information
provided by the Company or statements made by its employees may
contain "forward-looking" information that involves risks and
uncertainties. In particular, statements contained in this Report
that are not historical facts constitute forward-looking
statements and are made under the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. The Company's
actual results of operations and financial condition have varied
and may in the future vary significantly from those stated in any
forward-looking statements. The Company's future operating
results are subject to risks and uncertainties and are dependent
upon many factors, including, without limitation, (i) changes in
the general level of economic activity in the markets served by
the Company, (ii) introduction of new products or services by competitors,
(iii) the availability of capital sufficient to support the
Company's level of activity, (iv) the ability of the Company to
implement its business plans and strategies, (v) delays in
implementing the Company's viaLink services, (vi) the ability of
the Company to understand, anticipate and respond to rapidly
changing technologies, market trends and customer needs, and
(vii) the ability of the Company to recruit and retain highly
talented professionals in a competitive job market. The Company's
ability to market and sell its products could also be adversely
affected by the emergence of new competitors in the market place
and by changes resulting in increased government regulation.
Each of these factors, and others, are discussed from time to
time in the filings made by the Company with the Securities and
Exchange Commission.
Market Acceptance
Because the markets for the Company's products and services
are evolving, it is difficult to predict the future growth rate,
if any, and size of these markets. There can be no assurance that
markets for the Company's products will continue to develop, that
the Company's products and services will be accepted by existing
and potential customers, or that the retail industry will utilize
the Internet or the Company's telecommunications network for
information management, all of which are critical to the success
of the Company. The Company believes that a number of factors
will determine product acceptance, such as product performance,
ease of adoption, migration from host-based to network computing
environments, and operability with diverse hardware, network
servers and databases. If markets fail to develop, develop more
slowly than expected or become saturated with competitors, or the
Company's products fail to achieve or sustain market acceptance,
the Company's business, operating results and financial condition
will be materially adversely affected.
Success of the Company's viaLink network information service
as an industry wide shared database is dependent on subscriptions
from a large number of industry participants. It is also
difficult to predict the number of industry participants
(manufacturers, suppliers and retailers) that will subscribe to
the service. Furthermore, it is difficult to predict the amount
of time required for a significant number of industry
participants (manufacturers, suppliers and retailers) to
subscribe to viaLink. The Company believes the rate of
acceptance is dependent on many factors, including the success of
initial subscribers, improvements in technological performance,
the functionality and performance of the service, and continued
acceptance of the Internet for business use.
Because viaLink is recently introduced, it is difficult to
predict the future growth rate, if any, and the size of the
market for such products and services. There can be no assurance
that a market will develop for viaLink or continue to grow and
expand. If a market fails to develop, develops more slowly than
expected or the market for the Company's products and services
fails to continue to grow and expand or becomes saturated with
competitors, the Company's business, operating results and
financial condition will be materially adversely affected.
Future Capital Needs; Uncertainty of Additional Financing;
Possibility of Significant Dilution
Companies, such as the Company, attempting to develop a
market and market acceptance for a new technology typically need
large amounts of capital to fund growth. While the Company
currently believes that its current cash and cash equivalents
will be sufficient to meet its presently anticipated cash needs
for working capital and capital expenditure requirements through
the first quarter of 1999, the Company's future capital
requirements will depend on a number of factors, including its
profitability, growth rate, working capital requirements, and
costs of future research and development activities. However,
the Company's cash requirements may very materially from those
now planned as a result of unforeseen changes that could consume
a significant portion of the available resources before that
time.
Future operating results will depend, in part, on the
Company's ability to obtain and manage capital sufficient to
finance its business, including the marketing and development of
viaLink and ijob. To the extent that funds expected to be
generated from the Company's operations are insufficient to meet
current or planned operating requirements, the Company will seek
to obtain additional funds through bank facilities, equity or
debt financing, collaborative or other arrangements with
corporate partners and from other sources. Such additional
funding may not be available when needed or on terms acceptable
to the Company, which could have a material adverse effect on the
Company's business, financial condition and results of
operations, including the Company's viability as an enterprise.
If adequate funds are not available, the Company may be required
to delay or to eliminate certain expenditures or to license third
parties the rights to commercialize technologies that the Company
would otherwise seek to develop itself. In addition, in the
event that the Company obtains any additional funding, such
financing may have a substantially dilutive effect on the holders
of the Company's securities.
Competition
The environment within which the Company operates is
intensely competitive and subject to rapid change. To maintain or
increase its market share position in the retail, supplier, and
wholesale distribution industries, the Company will need to
continually develop additional products, introduce new product
features and enhancements, and expand its professional services
capability. The Company currently competes principally on the
basis of the specialized nature of its viaLink and ijob services
and products. Specifically, the features and functions of the
Company's software products include adaptability and scalability
and their interoperability with other network products, product
quality, ease-of-use, reliability and performance, company
reputation and professional service, integration with other
enterprise and network applications, and adaptability to popular
operating systems, relational databases and communications
hardware architecture. Current and potential competitors in the
markets for the Company's products and services generally are
better known and have greater financial, technical, research and
development and marketing resources than the Company.
Rapid Technological Change
The network application software market is subject to rapid
technological change, frequent new product introductions, and
evolving technologies and industry standards that may render
existing products and services obsolete. While the Company is not
aware of any emerging products that are likely to render its
existing products and services obsolete, there can be no
assurance that the Company's products and services could not
suffer such obsolescence. However, within the grocery supply
chain, the viaLink system offers a unique service to end-to-end
supply chain management.
Because of the rapid pace of technological change in the
network application software industry, the Company's current
market position in the retail and wholesale distribution
industries or other markets that it may enter could be eroded
rapidly by product advancements. The Company's products must keep
pace with technological developments and conform to evolving
technologies and standards, including developments within the
network computing environment, and must address increasingly
sophisticated customer needs. Such developments may require, from
time to time, substantial capital investments by the Company in
product development and testing. There can be no assurance that
the Company will have sufficient resources to make the necessary
investments. Also, there can be no assurance that the Company
will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of new
products, including viaLink, that the new products and product
enhancements will meet the requirements of the marketplace and
achieve market acceptance, or that the Company's current or
future products will conform to industry requirements.
Fluctuations in Quarterly Operating Results May Be Significant
The Company's quarterly operating results have, in the past,
varied and may in the future vary significantly, depending on
factors such as the size, timing and recognition of revenue from
the timing of new product releases and market acceptance of these
new releases and increases in operating expenses. Thus, the
Company's revenues and results of operations have and may
continue to vary significantly from quarter to quarter, period to
period, and year to year based upon frequency and volume of sales
and the future volume of viaLink subscriptions. Due to the
relatively fixed nature of certain of the Company's costs
throughout each quarterly period, including personnel and
facilities costs, the present level of revenues is insufficient
to enable the Company to operate profitably. Therefore, the
Company will report losses in future periods until such time as
the recurring revenues from these systems are sufficient to cover
the expenses.
Reliance on the Internet
Widespread acceptance of the Internet, in general and the
World Wide Web in particular, within the retail industry as a
vehicle for electronic commerce is critical for the rapid
adoption and deployment of viaLink. There are a number of
critical issues concerning the commercial use of the Internet
(including security, reliability, cost, ease of use and access,
and quality of service). While the Company believes that viaLink
offers significant advantages for telecommunication and
information management over the Internet, there can be no
assurance that information management utilizing viaLink over the
Internet will become widespread, in which case the viaLink
subscriber may be required to utilize the Company's private
communications network, possibly at comparatively higher cost.
The adoption of the Internet for communications and
information management, particularly by those organizations that
have historically relied upon alternative means of communication
and information management, generally requires acceptance of a
new way of conducting business and exchanging information. In
particular, organizations that have already invested substantial
resources in other means of exchanging information may be
particularly reluctant or slow to adopt a new strategy that may
make their existing personnel and infrastructure obsolete.
Furthermore, there are currently few laws or regulations
directly applicable to access to or commerce on the Internet;
however, due to the increasing popularity and use of the
Internet, it is possible that a number of laws and regulations
may be enacted or adopted with respect to the Internet and
commerce thereon, covering issues such as user privacy, pricing
and pricing characteristics, and quality of products and
services. The enactment or adoption of any such laws and
regulations may impact acceptance of the Internet as a means of
commerce and increase the cost of commerce on the Internet, which
could affect the marketability of viaLink, and, in such event,
could have an adverse effect on the Company's operating results
or financial condition.
Dependence on Key Personnel
The Company's success will largely be dependent upon the
skills and efforts of the executive officers and other key
employees. The loss of services of any of its executive
officers or other key employees could have an adverse effect on
the operations of the Company. The Company is a party to
non-competition agreements with each of its executive officers,
other employees and key employees. The laws governing such
agreements are in continual flux, however, and the enforceability
of such agreements in each jurisdiction in which enforcement
might be sought is uncertain. The inability of the Company to
hire talented personnel or the loss of key employees could have a
material adverse effect on the Company's business and results of
operations.
Competition for Employees
The success of the Company has been and will continue to be
dependent in large part on its ability to attract and retain
talented and qualified employees, including highly skilled
management personnel. Competition in the recruiting of highly
qualified personnel in the software industry is intense. From
time to time the Company has experienced, and may experience
again, difficulty in recruiting talented and qualified employees.
The Company's inability to recruit additional professional
services or other necessary personnel could have a material
adverse effect on the Company's business and results of
operations. There can be no assurance that the Company will be
able to continue to attract, motivate and retain personnel with
the skills and experience needed to successfully manage its
business and operations.
Volatility of Stock and Warrant Prices
The market prices of the Company's Common Stock and Warrants
are likely to be highly volatile and could be subject to
significant fluctuations in response to, and may be adversely
affected by, variations in quarterly operating results, changes
in earnings estimates by analysts, developments in the computer
service and software industry, adverse earnings or other
financial announcements of the Company's customers and general
stock market conditions, as well as other factors. In addition,
the stock market has experienced extreme price and volume
fluctuations from time to time, especially equity securities of
many high technology and software companies, which have, in
certain circumstances, borne no meaningful relationship to
performance. In the past, following periods of volatility in the
market price of a company's securities, securities class action
litigation has often been initiated against such a company. Such
litigation could result in substantial costs and a diversion of
management's attention and resources, which would have a material
adverse effect on the Company's business, operating results and
financial condition. These broad market fluctuations may
adversely affect the market prices of the Common Stock and
Warrants.
Shares Eligible for Future Sale and Lock-Up Agreements
Sales or availability for sale of substantial amounts of
shares of the Company's Common Stock in the public market after
completion a two year lock-up period ending on or about November
21, 1998, could adversely affect the market price of the Common
Stock and Warrants and, consequently, the Company's ability to
raise additional capital. As of October 31, 1998, the Company has
2,741,974 shares outstanding, of which the Company's executive
officers and directors, hold in the aggregate 1,500,000 shares of
Common Stock. In connection with the initial public offering of
the Company's Common Stock in November 1996, the executive
officers of the Company and the holders of stock options, who
currently hold in the aggregate options for the purchase of
70,578 shares of Common Stock, have agreed, pursuant to certain
lock-up agreements with the Underwriter of the Company's initial
public offering, not to sell or otherwise dispose of any shares
of the Company's Common Stock beneficially owned for a period
expiring two years from the date of the initial public offering
of November 21, 1996. Therefore, on or about November 21, 1998,
approximately 1,570,000 shares will be eligible for sale on the
public market, subject to Rule 144 requirements and limitations.
Anti-Takeover Effect of Charter Provisions and Bylaws;
Availability of Preferred Stock for Issuance
The issuance of the Company's Preferred Stock could be used
to discourage an unsolicited acquisition proposal. The Company's
Certificate of Incorporation and Bylaws, as amended, and the
Oklahoma General Corporation Act contain provisions that could
discourage a proxy contest or make more difficult the acquisition
of a substantial block of the Company's Common Stock. Such
provisions could limit the price that investors might be willing
to pay in the future for shares of the Common Stock. The Board of
Directors is authorized to issue, without shareholder approval,
up to 10,000,000 shares of Preferred Stock of the Company with
voting, conversion and other rights and preferences that may be
superior to the Common Stock and that could adversely affect the
voting power or other rights of the holders of the Common Stock.
Pursuant to agreement with the Underwriter of its initial public
offering, the Company has agreed, for a period of three years
following the effective date of the prospectus on November 20,
1996, not to issue any Preferred Stock without the prior written
consent of the Underwriter.
Government Regulation
The Company is not currently subject to direct regulation by
any government agency, other than regulations applicable to
businesses in general. There are currently few laws or
regulations directly applicable to access to or commerce on the
Internet; however, due to the increasing popularity and use of
the Internet, it is possible that a number of federal and state
laws and regulations may be enacted or adopted with respect to
the Internet, covering issues such as user privacy, taxation,
encryption, authentication technology, pricing, quality of
products or services. The enactment or adoption of any such laws
and regulations may decrease the growth of the Internet and
increase the cost of commerce on the Internet, which could affect
the marketability of viaLink, and, in such event, could have an
adverse effect on the Company's operating results and financial
condition. Furthermore, the applicability to the Internet of
existing laws governing issues such as property ownership, libel
and personal privacy is uncertain.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Form 8-K dated September 4, 1998
Item 2. Acquisition or disposition of assets
Form 8-K dated October 27, 1998
Item 2. Acquisition or disposition of assets
Item 5. Other events
Amendment to stock options plans
Name change to The viaLink Company
Resignation and election of officers
<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.
The viaLink Company
(formerly APPLIED INTELLIGENCE GROUP,
INC.)
By: /s/ LEWIS B. KILBOURNE
Lewis B. Kilbourne
Chief Executive Officer
November 14, 1998
By: /s/ JOHN M.DUCK
John M. Duck
Vice President and Chief
Financial Officer
November 14, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE BALANCE SHEET
FOR SEPTEMBER 30, 1998 AND THE STATEMENT OF OPERATIONS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 281,200 281,200
<SECURITIES> 925,741 925,741
<RECEIVABLES> 1,443,833 1,443,833
<ALLOWANCES> 3,835 3,835
<INVENTORY> 12,311 12,311
<CURRENT-ASSETS> 5,465,947 5,465,947
<PP&E> 2,348,783 2,348,783
<DEPRECIATION> 1,487,225 1,487,225
<TOTAL-ASSETS> 7,911,984 7,911,984
<CURRENT-LIABILITIES> 2,762,140 2,762,140
<BONDS> 0 0
0 0
0 0
<COMMON> 2,742 2,742
<OTHER-SE> 4,113,210 4,113,210
<TOTAL-LIABILITY-AND-EQUITY> 7,911,984 7,911,984
<SALES> 0 0
<TOTAL-REVENUES> 1,775,043 7,920,746
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 2,553,410 8,576,222
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 52,592 153,246
<INCOME-PRETAX> 2,300,264 2,322,501
<INCOME-TAX> 1,040,990 1,049,440
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,185,015 1,198,802
<EPS-PRIMARY> .46 .47
<EPS-DILUTED> .45 .46
</TABLE>
