UNITED STATES SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to __________
Commission File Number 000-21729
__________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) (Zip Code)
Registrant's telephone number, including area code: (405) 936-2300
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of Exchange
on which registered
None None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.001 par value per share, and Redeemable Common
Stock Purchase Warrants
(Title of class)
Check whether the Registrant(1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such report) and
(2) has been subject to such filing requirements for the past 90
days. Yes_X_ No ____
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The issuer's revenues for the year ended December 31, 1997 were
$9,022,842.
As of March 16, 1998, there were 2,729,509 outstanding shares of
Common Stock, par value $.001 per share. The aggregate market
value of the voting stock of the registrant held by non
affiliates of the registrant on March 16, 1998, based on the
average bid and asked price on such date was $4,302,596.
Transitional Small Business Disclosure Format: Yes _____ No__X___
<PAGE>
APPLIED INTELLIGENCE GROUP, INC.
Table of Contents
<TABLE>
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PART I
Page
<S> <C>
Item 1. Description of Business 1
Item 2. Description of Property 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security
Holders 11
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters 12
Item 6. Management's Discussion and Analysis or
Plan of Operation 12
Item 7. Financial Statements 18
Item 8. Changes in and Disagreement With
Accountants on Accounting and
Financial Disclosure 18
PART III
Item 9. Directors, Executive Officers, Promoters
and Control Persons 19
Item 10. Executive Compensation 22
Item 11. Security Ownership of Certain Beneficial
Owners And Management 25
Item 12. Certain Relationships and Related
Transactions 26
Item 13. Exhibits and Reports and Form 8-K 28
</TABLE>
Cautionary Statement Related to Forward Looking Information
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. 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. 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, delays in further
development and implementation of the Company's viaLink and
ijob services, the availability of capital sufficient to
support the Company's level of activity, 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.
<PAGE>
PART 1.
Item 1. Description of Business
General
Applied Intelligence Group, Inc. (the "Company") is engaged in
the business of providing a diversified range of management
consulting and computer systems information integration services
and technology to the retail and wholesale distribution
industries. Since its formation in 1985, the Company's
operations have included consulting services, which are
primarily focused on the planning, designing, building, and
installation of computerized information management systems and
computerized checkout or point-of-sale systems in the retail and
distribution industry. The Company continues to provide these
consulting services. In 1993, the Company commenced the design and
development of viaLink, a subscription service on the World Wide Web
of the Internet (the "Internet"). viaLink was announced in April 1996
and the viaLink Item Catalog service was brought on line in
January 1997. viaLink services currently include the Item
Catalog, Exchange Manager, Item Express, and CSP MARKETLink. In
1994, the Company commenced development work on its Retail
Services Application ("RSA"), a complete store point-of-sale
solution to the retailer and their chain stores. RSA was
released in August 1995. In connection with RSA, the Company
also offers CHAINLINK, a communication system, which transfers
information (e.g., sales or inventory) electronically between
the store and the retailer's headquarters.
Beginning in late 1996 and during 1997, the Company designed,
developed and introduced in April 1997, 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. The principal offices of ijob, Inc. are located in the
Company's Headquarters in Edmond, Oklahoma and ijob, Inc. has
two satellite recruiting centers located in the metropolitan
Oklahoma City area.
The Company's Internet home page can be located on the World
Wide Web of the Internet ("Internet") at http://www.aig.vialink.com.
The Company's principal executive offices and headquarters are
located at 13800 Benson Road, Edmond, Oklahoma 73013-6417, and
its telephone number is (405) 936-2300.
ijob, Inc.
On April 25, 1997, the Company completed the organization of its
wholly-owned subsidiary, ijob, Inc. Pursuant to the Asset
Purchase Agreement dated June 12, 1997, the Company, through
ijob, Inc., completed the acquisition of certain assets and
intellectual property of Human Technologies, Inc. ("HT"),
including software programs know as "HT1", "HT2", "Hal-1" and
"ijob-internet", the related trademarks, trade names, sales
marks, logos and marketing concepts, and the original technical
and instructional documentation, source and executable code of
the programs relating thereto. Furthermore, the Company
received all copyright powers and benefits related to the
software programs and the right to produce, sell, modify,
distribute, license and copy in full or in part those software
programs (the "HT Assets"). The Company paid to the owners of
HT $100 and issued stock options and warrants exercisable for
the purchase of 50,000 shares of Common Stock at $3.50 per share
on or before June 12, 1999. Furthermore the Company agreed to
pay the HT owners 50 percent of the (i) distributable earnings
of ijob, (ii) distributable proceeds from the sale of ijob
assets and (iii) distributable gross royalties received by ijob
from the sale or other transfer of ijob assets, (collectively
the "Distributable Amounts"). The Distributable Amounts are
determined from time to time by the Board of Directors of ijob,
Inc.
In connection with the acquisition of the HT Assets, the Company
entered into an at will employment agreement with the former
president of HT to become president of ijob, Inc. Among other
duties, the president is a member of the Board of Directors of
ijob, Inc.
Vantage Capital Resources Inc. Acquisition
On June 12, 1996, Vantage Capital Resources, Inc. ("VCRI"), an
Oklahoma corporation, merged with and into the Company pursuant
to an Agreement and Plan of Merger dated May 8, 1996 (the
"Merger"). On June 5, 1996, VCRI completed a private offering
of 250,000 shares of its Common Stock at an offering price of
$1.75 per share and received net proceeds of approximately
$394,567 (the "Private Placement Offering"). In consummation of
the Merger, the Company exchanged 610,000 shares of its Common
Stock, on a one-for-one basis, for the outstanding Common Stock
of VCRI. The merger was accounted for as an acquisition of VCRI
by the Company in a manner similar to the pooling of interests
method of accounting. Pursuant to an Exchange Agreement dated
October 14, 1996, each of John Simonelli and Larry E. Howell,
exchanged 180,000 shares of Common Stock of the Company received
in connection with the Merger for stock options, each
exercisable on or after November 20, 1998, and on or before
November 30, 2001, for the purchase of Common Stock for $5.00
per share. Furthermore, during October 1996, the Company
redeemed 22,500 shares of Common Stock issued to David B. North,
an executive officer of the Company, pursuant to the Merger and
1,000 shares of Common Stock issued to a former executive
officer pursuant to the Merger for $1.75 per share (the offering
price of the VCRI Common Stock under the Private Placement
Offering) for an aggregate amount of $39,375 and $1,750,
respectively.
Overview of Products and Services
The Company is engaged in the business of providing management
consulting and technology systems information services to retail
companies and to the manufacturers, wholesalers, and other
suppliers who provide the products that these retail companies
sell (the "Retail Supply Chain"). These information systems
services include (i) management consulting and computer system
integration services, (ii) proprietary software products and
applications, and (iii) network services and network-based
computer applications. The Company is currently organized in
two business areas to provide all its services and product
offerings: Retail and Store Systems Consulting , including RSA
and CHAINLINK, and systems integration; and, Network Services,
including viaLink and ijob internet based offerings, and
production/operations of web-site hosting. The Company is also
a reseller of various computer software, hardware and point-of-
sale systems.
Consulting and Systems Integration Services
The Company's consulting services include designing, building,
installation, and implementation of custom computerized checkout
or point-of-sale systems and integrated custom software products
for customers in the retail and distribution industries. The
Company also selects and then customizes and installs third-
party software for many of its customers.
The Company's consulting services include determination of
business and technology requirements, operating system planning
and implementation, situational and due diligence studies,
information technology plans, business and technology
recommendations, and training. A typical consulting arrangement
will last from two to six months or longer for more complex
projects. A single consulting and systems integration
arrangement may include multiple projects, using a wide range of
the Company's professional staff.
The Company's systems integration services include various
computer architectures and operating systems for personal
computer ("PC") based systems (i.e., DOS, Windows, Windows NT,
UNIX, OS/2, 4680/OS, 4690/OS) and intermediate to large systems
(AS/400, RS/6000, HP, MVS, and VSE). The Company has
significant development and support experience with industry-
standard technologies, such as COBOL, SQL, DB2 and ORACLE. The
Company is also developing software applications using object-
oriented technology, such as the Smalltalk programming language,
provided by Object Share, Inc.
Solutions, Software Products, Licenses and Applications ("Solutions")
Many of the Company's customers are retail chains, who are
attempting to implement information management systems in their
headquarters and/or store locations, in addition to accounting,
payroll and other financial management information systems. A
typical in-store retail system includes the following
components:
1. a "front-end" system (i.e., "checkout system", "cash
register system" or "point-of-sale system") which
records sales, provides a cash drawer, prints customer
receipts, etc. Most front-end systems utilize PC
hardware, and include programs that operate the PC and
specialized hardware, such as the cash drawer or
barcode scanner;
2. a "back-office" system, which typically coordinates
the operation of the registers, and provides store
management applications, such as receiving and
inventory control; and
3. a "communication" system, which transfers information (e.g.,
sales or inventory) electronically between the store
and the retailer's headquarters.
The Company is a business partner of International Business
Machine Corp. ("IBM") and an authorized reseller of IBM hardware
and point-of-sale software. When implementing in-store systems
for retailers, the Company has historically relicensed and
customized one or more IBM software programs, and installed
these programs on IBM hardware that, in many cases, the Company
sold to the retailer. Such hardware includes point-of-sale
registers, radio frequency hand-held terminals, in-store processors, and
other in-store equipment. The Company also provides programming
services to personalize and customize the in-store software,
implementation services related to software installation and
personnel training.
In 1994, the Company began development of a software system that
would operate on a wide range of computer hardware, including
different models of IBM and non-IBM hardware, and on a variety
of non-IBM operating systems such as UNIX and Windows NT. The
Company subsequently developed its proprietary in-store software
applications for licensing to retailers, as an alternative to relicensing
and customizing IBM software applications and
programs. The Company's RSA software application was first
licensed and implemented in a retail chain in 1995. Because the
Company's software applications operate on a variety of PC
operating systems, and with a wide variety of PC hardware, the
Company's software applications address a broader market. RSA
allows retailers to selectively install new in-store systems
without storewide or company-wide replacement of existing
hardware.
The Company is also a global solutions partner of the NCR
Corporation ("NCR"). This relationship, along with the
Company's IBM relationship, enables the Company to provide a
full-service, single-source solution for the store automation
needs of retailers. The contractual relationships with IBM and
NCR provide the Company with the ability to relicense software,
resell hardware, and gain access to technical support for the
Company's customers.
The Company has also developed CHAINLINK, a cost-effective, easy
to-use store communications program, which provides reliable and
consistent movement of data between stores and headquarters.
CHAINLINK is designed to work with RSA, as well as other point-
of-sale software packages. CHAINLINK is currently in use in at
least twelve retail chains, representing close to 1,000 stores,
in the United States as of March 23, 1998.
Together, RSA and CHAINLINK provide the retailer with store
management and point-of-sale applications, including checkout at
the cash register, back office and store to headquarters
communications. RSA can be customized to meet the specific
needs of the retailer. RSA can provide the store managers and
cashiers with the same "look and feel" on a variety of installed
point-of-sale computer systems, while giving the retailer's
information management systems staff a consistent interface to
all of its store systems. RSA is currently installed in four
retail chains, representing approximately 650 stores as of March
23, 1998. The primary target market for RSA is general
merchandise retailers who generally have more than 70 stores,
and more than $100 million in sales.
RSA and ChainLink sales in 1997 totaled $131,800. The Company
continues to aggressively market and sell its propriety and
software products and closed a sale of RSA for $152,520 in
January 1998.
Network Services
The Company provides a full range of network services including
its viaLink subscription service, telecommunications planning
and consulting, Internet-based applications development, and
maintenance and hosting of internal and external web-sites.
Through its internal customer support network, the Company
provides web-site hosting and maintenance.
viaLink Subscription Services
viaLink is an industry-specific, shared business application
subscription service, developed and maintained by the Company,
with access through telecommunications, including private
networks, and the Internet. Through viaLink, the Company is a
content provider on the Internet.
viaLink offers a moderately-priced electronic commerce service
for manufacturers, suppliers, retail headquarters and individual
retail stores through which subscribing customers are connected
via the Internet to a database maintained on the Company's
computer systems. Using a PC and commonly available computer
programs, participants can subscribe to the viaLink service and
avoid the purchase, installation, implementation and maintenance
of a complex information system. viaLink provides a common set
of business systems and support offerings to subscribers, and is
priced as a monthly subscription service.
In April 1996, the Company introduced the viaLink subscription
service primarily for the convenience store industry, which
consists of approximately 68,000 stores operated by
approximately 1,650 companies. viaLink has application in other
operations within the retail industry. According to the
National Association of Convenience Stores ("NACS"), only a
small percentage of convenience store companies have implemented
instore computerized retail information systems. In order to
implement computerization and scanning in a retail store, the
retail chain must first develop and then maintain a "pricebook"
which contains information for all items offered for sale in the
store. The pricebook typically contains descriptions of the
items, along with their Universal Product Codes ("UPCs"),
purchase costs, retail sales prices, and any discounts or
rebates to be received from the supplier. A convenience store
chain may have hundreds of suppliers, and each supplier may have
different prices on the items it supplies to the chain,
depending on the locations of the stores being supplied, which
makes pricebook maintenance difficult, but essential. Pricebook
maintenance typically involves inefficient manual entry of item
information, which can introduce errors into the pricebook.
According to NACS, maintenance of the pricebook often poses the
most significant challenge to computerization of the convenience
store's purchases and sales.
A subscribing retailer can use the viaLink Item Catalog Service
to electronically retrieve product item information (e.g., item
numbers, UPCs, descriptions, pricing information, deal and
promotional pricing) that has been placed in the database by
manufacturers, wholesalers, or other product suppliers. This
information can be electronically loaded into the retailer's
pricebook to improve the accuracy and reliability of the
pricebook.
Product manufacturers can use viaLink to efficiently introduce
new products, by electronically providing product information to
retailers and wholesalers. Wholesalers and other suppliers can
use viaLink to provide product and pricing information to
retailers by placing this information in the viaLink database,
and allowing the retailers to access these prices. The
database in viaLink is specifically designed to manage the
complexity of the arrangements that exist between retailers and
their wholesalers and suppliers, especially related to prices
and promotions.
In January 1997, the Company brought the viaLink Item Catalog
Service on line with a retailer and three suppliers. Since that
time, the viaLink Item Catalog subscriber base has grown to 45
retailers, representing approximately 4,500 stores, and 50
suppliers as of March 23, 1998. The Company is in the process
of implementing the Item Catalog Service with these retail
chains and suppliers.
The Company has begun to further develop and implement its
business plan and strategy for viaLink with new product
offerings of Exchange Manager, ItemXpress and CSP MARKETLink,
all of which are available for market and industry use.
Revenues from all viaLink activities in 1997 totaled $45,125, an
increase of $44,025 from revenues of $1,100 in 1996
In addition to the convenience store industry, the Company has
deployed viaLink in the grocery store industry. The Company
also intends to deploy viaLink applications into other segments
of the retail industry, who share much of the same supply chain
(manufacturers and distributors) with the convenience and
grocery store industries.
The Company announced the beta test of the viaLink Exchange
Manager, an invoice and purchase order processing system, in the
summer of 1997. The system was ready for general distribution
in March 1998. Along with the Exchange Manager, the Company
made the viaLink ItemXpress Service available in March of 1998.
The viaLink ItemXpress Service allows retailers to select from
the extensive information of merchandise data in the viaLink
database and download the information into their headquarters price and
item management system.
In the third quarter of 1997 the Company and
EPIC Communications, Inc., launched CSP MARKETLink, the first
Internet-based, interactive communications service between
manufacturers and convenience store operators. CSP MARKETLink
is powered by the viaLink application and provides product and
merchandising information that saves time for both manufacturers
and retailers. It also gives retailers access to a broader range
of information, while affording manufacturers direct access to a
broader range of retailers.
Created as a joint venture between the Company and EPIC
Communications, Inc., which publishes CSP Magazine, CSP
MARKETLink goes far beyond typical banner advertising on passive
web pages. It utilizes the latest "push" technology to deliver
supplier messages into the subscribing store's e-mail in-box.
The retailer can then preview new products, promotions and media
plans, obtain category information and research, participate in
surveys, e-mail questions or suggestions, and then look or
listen to the latest consumer advertising campaigns on video
transmitted directly to his PC. The new service is also the
first electronic commerce tool to provide manufacturers with
immediate feedback from retailers, as well as verification that
their information was received and read by decision-makers at
targeted retail companies. A number of leading manufacturers
joined Miller Brewing Co. in providing input into the
development and design of CSP MARKETLink, including American
Chicle, Kraft Foods, M&M Mars, and Proctor and Gamble.
The Company also constructs Internet-based information
applications for its customers, such as NACS. The Company
constructed, operates and maintains the Internet-based
applications and directories, which allow NACS to offer services
on the Internet. This site or "home page" is known as "C-Store
Central" and can be found on the Internet at
http://www.cstorecentral.com. NACS places daily news about the
convenience store industry on this site which also allows
members easy access to the viaLink services.
ijob
Commencing in late 1996 and during 1997, the Company designed,
developed and completed ijob an Internet employer subscription
service. ijob is a network based human resource recruiting
application accessible through either the Internet or by
telephone. ijob uses these communications systems as a medium
to bring together job seekers and employers. ijob utilizes a
database to collect, catalog, and match information to pre-qualified
job candidates with the human resource needs of ijob
subscribing employers. The Company believes ijob represents a
technological improvement over current Internet "resume web
sites" where career material is simply posted on unscreened
databases or on bulletin boards. Utilizing ijob subscription
services, an employer benefits by receiving a list of pre-qualified
registrants who have greater probability of meeting
the employer's human resource needs. Computer assisted,
structured interviews and skill testing are used to screen job
applicants which enables employers to efficiently conduct
focused employee recruiting. Job seekers also benefit by using
the ijob system on a cost-free basis. A job seeker's information is
maintained in the ijob database until the registrant requests its withdrawal.
During 1997, ijob, Inc, earned $610,689 in revenues. Since the
inception of ijob, Inc., the Company has made cash expenditures
of approximately $750,000 in excess of revenues, to launch and
implement the ijob service. Of these cash expenditures, the
Company capitalized $142,411 in development costs associated
with the design and ongoing development of ijob.
ijob conducts its operations as a wholly owned subsidiary of the
Company, under the name ijob, Inc. and as of March 23, 1998, employs
15 full-time and eight part-time employees. Of the total of 23
employees, four are in sales and marketing, including the
president of ijob, Inc., three full-time employees and one part
time employee are in technical and product development, and the
remaining employees are in operations and customer support.
Customer Support
The Company's customer support group provides customers of the
Company telephone and on-line technical support. As of March
23, 1998, the Company's customer support group consisted of four
fulltime representatives. However, all the Company's technical
staff can be used, when appropriate, for resolving technical
problems and supporting specific customer needs.
Sales and Marketing
The Company's services and products are marketed directly to the
Company's customers through its sales and marketing support
group and senior staff members. During all of 1997, the Company
operated without a sales and marketing executive. As of March
23, 1998, the Company's sales and marketing support group
consisted of 17 full-time employees including the President of
the Company, and those in the Company's wholly owned subsidiary,
ijob, Inc. Also included in that total are a Vice President of
Sales and Marketing, hired in January 1998 to assume full-time
leadership of marketing and sales, and two additional sales
executives added in the first quarter of 1998. The sales and
marketing team is responsible for sales-lead generation, follow-
up on customer referrals, and providing input into the Company's
ongoing services and product development efforts based on
customer feedback and market data. Sales and marketing leads
are generated through advertising, customer referrals, public
relations, trade shows, and strategic relationships with
hardware manufacturers and customers. The Company also utilizes
a variety of other consulting and contractor relationships to
help develop and promote viaLink.
Licenses and Intellectual Property
The Company regards its software as proprietary, which is
generally licensed under written license agreements. Because
the Company's software products allow customers to customize
their applications without altering source programs, the source
programs for the Company's products are typically neither
licensed nor provided to customers.
The Company has no patents or patent applications pending. The
Company attempts to protect its products through a combination
of copyright, trademark and trade secret laws. CHAINLINK and
viaLink are registered trademarks of the Company and trademark
applications are pending with the United States Patent and
Trademark Office for Retail Services Application and ijob. The
Company also requires employee and third-party non-disclosure
and confidentiality agreements. Despite these precautions, it
may be possible for unauthorized parties to copy certain
portions of the Company's software products, reverse engineer,
or obtain and use information that the Company regards as
proprietary.
Because the software development industry is characterized by
rapid technological change, the Company believes that factors
such as the technological and creative skills of its personnel,
new product developments, frequent product enhancements, name
recognition and reliable product maintenance, are more important
to establishing and maintaining a technology leadership
position, than the various legal protections available for its
technology.
Software License Agreements
From time to time, the Company licenses third-party software
components for inclusion principally in its software application
RSA. In January 1994, the Company entered into a non-exclusive
confidential software license agreement with Applied Retail
Solutions Corporation ("ARSC") related to certain computer
software programs, development tools, interfaces and codes (the
"ARS Software") used by the Company in the development and
marketing of RSA for use on certain identified point-of-sale
computer terminals. This agreement had an initial term of two
years and, following the initial term, the agreement has
continued on the same terms and conditions and is subject to
termination on 90 days' notice. The agreement requires the
Company to pay periodic license and support fees. The ARS
Software and all modifications and enhancements to the ARS
Software by the Company remain the property of ARSC.
In March 1994, the Company entered into a five-year confidential
Agreement for Licensing of IBM software with IBM pursuant to
which the Company became an authorized reseller and technical
support provider of certain IBM software. Furthermore, in
February 1995, the Company entered into a two-year confidential
IBM Business Partner Agreement and became an authorized
remarketer of IBM computer hardware. This agreement was renewed
in 1997 for another two years. Pursuant to these agreements,
the Company receives discounts on the purchase of IBM software
and hardware products. With respect to IBM software, the
Company is required to pay IBM a one-time royalty on each
distributed or installed copy of the IBM software.
Under a Global Solutions Partner Agreement effective April 28,
1997, the Company continued its relationship as a Global
Solutions Partner with NCR Corporation. The Global Solutions
Partner Program is designed so that NCR and various independent
software vendors can work together to enhance each other's
marketing and product programs. Pursuant to such agreement the
Company receives discounts on NCR hardware and software
purchases and maintenance, personnel education and training,
software support, and certain commissions and fees associated
with NCR equipment and software installations.
Employees and Consultants
As of March 23, 1998, the Company had 115 full-time employees
and ten part-time employees, including those of its wholly-owned
subsidiary, ijob, Inc. Of the 125 employees, 16 were employed
in sales and marketing support, including the President of the
Company, 21 were employed in product research and development
and technical support, 76 were employed in professional
services, operations and customer support, and 12 were employed
in human resources, administration and finance. The Company's
future performance depends in significant part upon the
continued service of its key technical and senior management
personnel, and its continuing ability to attract and retain
qualified and motivated personnel in all areas of its
operations. Competition for such personnel is intense, and
there can be no assurance that the Company will retain key
managerial and technical employees or that it can attract,
assimilate or retain other highly qualified personnel in the
future. None of the Company's employees are represented by a
labor union. The Company has not experienced any work stoppages
and considers its relations with its employees to be good.
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.
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 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, the ability to
deploy complex systems, product quality, ease-of-use,
reliability and performance, company reputation and professional
service, integration with other enterprise and network
applications, and availability on popular computer operating
systems, databases and communications hardware architecture.
The Company believes its products and services compete favorably
in all of these areas.
Competitors vary in size and in the scope and breadth of
the products and services offered. The Company encounters
competition from a number of sources, including the
big-six accounting firms, IBM and other software developers and
hardware manufacturers, local and regional consulting and
software companies, most of whom are privately-held, third-party
professional service organizations, and management information
systems departments of potential customers who are developing
custom software. In the market place of the retail and
wholesale distribution industries, the Company competes with
numerous, smaller, privately-held companies based on product
features and functionality, as well as larger, publicly-held
companies with greater resources and having greater product and
market diversification. The Company competes with these
companies based upon the specialized nature of its focus on the
retail and wholesale distribution industries and company
reputation.
With respect to its proprietary retail software products, many
of the Company's current and potential competitors, both
privately-held and publicly-held, have greater financial,
technical, marketing and distribution resources than those of
the Company. As a result, they may be able to respond more
quickly to new or emerging technologies and changes in customer
requirements, and devote greater resources to the development
and distribution of their products. In addition, because there
are relatively low barriers to entry in the software
marketplace, the Company expects additional competition from
other established or emerging companies as the network services
market continues to expand. Increased competition may result in
pricing pressures, reduced gross margins and loss of market
share, any of which could materially adversely affect the
Company's business and results of operations. The Company also
believes that competition will increase as a result of software
industry consolidations. There can be no assurance that the
Company will be able to compete successfully against current and
future competitors or that competitive pressures faced by the
Company will not materially adversely affect its business and
results of operations.
Clients and Customers
The Company's clients and customers range from small, rapidly
growing companies to large corporations, principally within the
retail and wholesale distribution industries. The following is
a partial list of the Company's consulting and viaLink clients
as of March 23, 1998.
Consulting customers:
ALDI Inc. Brinker, International
Dollar General Corporation Duckwall-ALCO Stores, Inc.
Fleming Companies, Inc. Fox Photo, Inc.
Fred's Inc. Genovese Drug Stores, Inc.
Jan-Bell Marketing, Inc. Michaels Stores, Inc.
Petro PSC, L.P. Trans World Entertainment
Sonic Corp. Western Family Foods, Inc.
viaLink customers:
Suppliers
Coca-Cola Cons. of La Vergne Crowley Foods, Inc.
Fleming Companies of Altoona Frito-Lay, Inc.
J.T. Davenport & Sons Pepsi Cola Marketing Group
Retailers
Nice N Easy Grocery Shoppes Petr-All Petroleum Corp
Quick Stop Food Mart, Inc. R&H Maxxon, Inc.
Store 24 Companies, Inc. Sugar Creek Stores, Inc.
In 1997, three individual customers each accounted for 20, 13,
and 10 percent of the Company's revenues. In 1996,
three individual customers each accounted for 17, 14 and 10
percent of the Company's revenues. Furthermore,
in 1997 and 1996, five of the Company's customers accounted for
57 percent of the Company's total revenues. The Company
believes that a significant, if not a majority, of future
revenues will continue to be concentrated in a small number of
customers, the loss of any one of which may have a material
adverse effect upon the Company's results of operations.
Other Business Strategies
The Company's principal business objective is to become a
leading provider of fully-integrated information and network
services linking retailers, distributors and manufacturers
throughout the retail supply chain. Utilizing the Company's
experience and expertise in the retail and distribution
industries, the Company's principal strategy is to continue
further development and enhancement of viaLink and ijob, as well
as further development and deployment of its Solutions software
offerings, RSA and CHAINLINK, and potentially their integration
with viaLink. In addition, the Company's Retail and Store
Systems Consulting business area will continue to be developed.
The Company intends to increase revenues generated from its
existing customer base by providing previous and current
customers with additional consulting and systems integration
services, enhancements to its existing products customized to
their particular needs, continuing customer support services and
new product offerings.
Security Technologies
To minimize the security risks associated with a shared network
on the Internet, the Company has implemented security protocols
in viaLink and ijob. The services provide encryption protection
of confidential information as it passes through the Internet.
The Company has also constructed a double "firewall" between its
services and the Internet, which is intended to restrict
unauthorized use and prevent security breaches.
Although the Company has implemented these security measures,
viaLink and ijob are vulnerable to break-ins and similar
security breaches that jeopardize the security of the
information stored in and transmitted through the computer
systems of viaLink and ijob users, which may result in
significant liability to the Company and also deter potential
customers. Moreover, the security and privacy concerns of
potential customers, as well as concerns related to computer
viruses, may inhibit the marketability of viaLink and ijob. The
Company does not currently have product liability insurance to
protect against these risks, and there can be no assurance that
such insurance will be available to the Company on commercially
reasonable terms or at all.
Product Development and Enhancement
The Company will continue to make significant investments in
product development, and enhancement, as it is able, to continue
to provide technological solutions to its customers' business
needs. Historically, the Company has obtained customer funding
to develop products and services which jointly met the Company's
needs to remain competitive and the customer's need to solve
information management problems. Currently, the dynamic nature
of the information technology industry places large research and
development demands on businesses that desire to remain
competitive. Competing with larger firms with substantially
greater capital resources, the Company has devoted significant
portions of available resources to stay abreast of industry
developments and to offer competitive products and services.
As of March 23, 1998, the Company's product development staff
consisted of 21 full-time employees, including ijob, Inc., but
consisted of up to 30 employees from time to time during 1997.
The Company's total expenditures for product development of
viaLink, Solution services (RSA and CHAINLINK), and ijob during
1997 were approximately $945,000, $400,000 and $530,000,
respectively, for a total of approximately $1,875,000. Such
expenditures in 1996 were approximately $584,000, $598,000 and
$22,000, respectively for a total of approximately $1,204,000.
These expenditures represented approximately 21 percent and 13
percent of total revenues for 1997 and 1996, respectively. Of
the product development expenditures, the Company capitalized
software development costs and interest totaling $752,158 and
$655,248 in 1997 and 1996, respectively. The Company
anticipates that it will continue to commit substantial
resources to product development in the future, including
further development and enhancement of viaLink, RSA, CHAINLINK
and ijob; however, the amount of such capital required is
undeterminable at this time.
Item 2. Description of Properties
The Company's corporate headquarters consists of a two-story
office facility of approximately 30,000 square feet at 13800
Benson Road, Edmond, Oklahoma, which the Company first occupied
in January 1996. The office facility is occupied under a ten
year lease requiring monthly rental payments of $24,545 during
the first 36 months, $27,500 during the next 48 months, and
$28,750 during the remaining term of the lease. The lease
expires on June 30, 2006.
The Company's wholly owned subsidiary, ijob, Inc., leases two
satellite office locations in Oklahoma City, Oklahoma. The
North center contains approximately 1,800 square feet of office
space under an 18-month lease requiring monthly rentals of
$1,200 through August 14, 1998. The South center contains 1,200
square feet of office space under a one-year lease requiring
monthly rentals of $550 through May 31, 1998.
The headquarters facility of the Company has internal systems
consisting of a local area computer network with associated
servers, a wide-area network, high speed ("T1") connectivity to
the Internet, two RS/6000's, an AS/400, an HP 9000,
approximately 140 workstations and several testing labs of point-
of-sale equipment. The facility is designed to support a
projected increase in staff for both traditional and viaLink
services and the increased office space required to house a
production computer operations facility.
Item 3. Legal Proceedings
From time to time, the Company may be involved in litigation
relating to claims arising out of its operations in the normal
course of business. The Company is not currently a party to any
legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during
the fourth quarter ended December 31, 1997.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Common Stock and the Redeemable Common Stock
Purchase Warrants began trading separately in November 1996
(subsequent to the initial public offering) on the Nasdaq
SmallCap Market under the symbols "IQIQ" and "IQIQW",
respectively. The following table sets forth the high and low
closing bid quotations of the Common Stock and Redeemable Common
Stock Purchase Warrants as reported by the National Association
of Securities Dealers Automated Quotation System ("NASDAQ").
The bid quotation reflects inter-dealer prices without
adjustment for retail markups, markdowns or commissions and may
not reflect actual transactions. Prior to the fourth quarter of
1996, no established public trading market existed for the
Common Stock and Redeemable Common Stock Purchase Warrants.
<TABLE>
<CAPTION>
Redeemable Common Stock
Common Stock Price Purchase Warrants Price
------------------ -----------------------
High Low High Low
------ ------ ------- -------
<S> <C> <C> <C> <C>
1996
Fourth Quarter $6.00 $4.375 $1.75 $.75
1997
First Quarter $5.375 $3.625 $1.688 $.625
Second Quarter $4.50 $2.875 $1.00 $.375
Third Quarter $5.875 $3.000 $1.50 $.50
Fourth Quarter $4.50 $2.938 $1.125 $.50
</TABLE>
The number of record holders of the Company's Common Stock as of
March 23, 1998, was approximately 825.
The Company has not paid a dividend with respect to its Common Stock
nor does the Company anticipate paying dividends in the foreseeable future.
ITEM 6. Management's Discussion and Analysis or Plan of Operation
Overview
The Company provides information systems services to retail
companies and to the manufacturers, wholesalers, and other
suppliers who provide the products that these retail companies
sell (the "Retail Supply Chain"). These information systems
services include (i) management consulting and computer system
integration services, (ii) proprietary software products and
applications, and (iii) network services and network-based
computer applications. The Company continues to sell computer
hardware and point-of-sale systems.
The following table sets forth selected results of operations
for the fiscal years ended December 31, 1997, 1996 and 1995,
which are derived from the audited financial statements of the
Company.
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------------------------
1997 1996 1995
-------------------- ------------------- -------------------
Amount % Amount % Amount %
------------ ------ ----------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 9,022,842 100.0% $ 9,507,370 100.0% $11,590,224 100.0%
Expenses:
Direct Cost
of sales 2,211,956 24.5% 2,570,840 27.0% 3,616,687 31.2%
Salaries &
benefits 6,174,503 68.4% 5,167,571 54.4% 5,673,034 49.0%
Selling,
general &
administrative 2,708,351 30.0% 2,007,999 21.1% 1,588,655 13.7%
Interest
expense, net 73,581 0.8% 219,089 2.3% 149,042 1.3%
Depreciation &
amortization 827,396 9.2% 591,205 6.2% 511,494 4.4%
------------ ----- ------------ ----- ----------- -----
Total
expenses 11,995,787 132.9% 10,556,704 111.0% 11,538,912 99.5%
------------ ------ ------------ ------ ----------- -----
Income (loss)
before income
taxes $(2,972,945) (32.9%) $(1,049,334) (11.0)% $ 51,312 0.4%
=========== ====== ========== ======= =========== =====
</TABLE>
Results of Operations
REVENUES. 1997 revenues decreased by $484,528 (5 percent) to
$9,022,842 from total revenues of $9,507,370 in 1996. Revenues
in 1996 decreased by $2,082,854 (18 percent) from total revenues
of $11,590,224 in 1995. The decrease in gross revenues for 1997
was due to an overall decrease of $566,461 (11 percent) in
consulting fees, a decrease of $865,699 (87 percent) in
solutions and license sales, and a decrease of $120,284 (4
percent) in sales of hardware and software for 1997. These
decreases of $1,552,444 were offset by increases in
recurring revenues, customer support fees, and commissions for
1997. Recurring revenue for 1997, consisting of fees earned
for viaLink services, ijob operations, web-site hosting, and
certain other items, increased $816,527 (439 percent). The
Company earned commissions on referrals for certain hardware
sales for 1997 of $175,860, whereas no commissions were earned
in 1996. Customer support revenues increased $75,529 (19
percent) for 1997 over 1996.
The $2,082,854 (18 percent) decrease in gross revenues from 1995
to 1996 was principally due to overall decreases of $1,098,084
(28 percent) in hardware sales, $674,193 (40 percent) in
solutions and licenses sales, and $526,151 (9 percent) in
consulting fees. The decreases were offset by an increase of
$215,574 (59 percent) in recurring revenues and customer support
fees.
Hardware and product sales. Hardware and product sales
decreased $120,284 (4 percent) from revenues of $2,784,380 in
1996 to revenues of $2,664,096 in 1997. The decrease was
generally due to one client purchasing directly from the vendor
in the early part of the year, lower overall hardware
requirements and point-of-sale equipment roll-out schedules of
the Company's current client base, plus a changing focus by the
Company to higher margin revenue streams. The direct purchases
by one client, however, created earned commissions of $175,860,
which were not present in 1996. These commissions more than
offset the gross margin decrease on hardware sales in 1997.
Hardware and product sales in 1996 decreased $1,098,084 (28
percent) compared to sales of $3,882,464 in 1995. The decrease
in hardware sales revenue was the result of the completion of
two large point-of-sale hardware installations in 1995, while
orders and installations by customers were generally lower in
1996.
Solutions. Solutions and licenses revenues, which consists of
sales of the Company's proprietary software products,
decreased $865,699 (87 percent) in 1997 to $131,800, compared to
$997,499 in 1996. A single sale of the Company's RSA product
totaling approximately $898,000 was made in 1996, whereas RSA
and CHAINLINK sales in 1997 totaled only $131,800. Solutions
revenue decreased $674,193 (40 percent) from $1,671,692 in 1995,
when the Company made its first significant sale of RSA for
approximately $1.3 million.
Consulting fees. Consulting fees earned during 1997 totaled
$4,576,234, a decrease of $566,461 (11 percent) from consulting
revenues of $5,142,695 in 1996. The decrease was due, in part,
to the conclusion of the revenue stream from several large
consulting projects in the first and second quarters of 1997
that were not completely replaced with consulting revenue from
new sales until the fourth quarter of 1997. The decrease was
also a result of the transition and changing of focus to
recurring revenue streams, viaLink and ijob, which moved
personnel from the consulting area to these recurring revenue
areas. Beginning in the fourth quarter of 1997 the Company
refocused more resources than in the previous quarters on the
consulting and systems integration area, aggressively pursuing
new clients and projects. As a result of these efforts,
consulting fees from the third quarter of 1997 to the fourth
quarter of 1997 increased $643,300 (78 percent) from $827,506 in
the third quarter to $1,470,806 in the fourth quarter. The
Company will continue to place a strong focus on the consulting
area of the business throughout 1998. Consulting fees for
1996 decreased $526,151 (9 percent) from 1995 consulting fees of
$5,668,846. The 1996 decrease was primarily a result of an overall lower
level of consulting and systems integration work
having been performed by the Company for its customers and due
to an increase in utilization of consulting personnel and
programmers for internal research and development of viaLink.
Customer support. Customer support revenues increased $75,529
(19 percent) to $472,325 for 1997 from $396,796 for 1996.
Customer support revenues for 1996 increased $29,754 (8 percent)
over 1995 revenues of $367,222. These increases were due to
additional contracts obtained in both 1997 and 1996 and higher
levels of billings for hours in excess of the standard contract
levels in both years.
Network services and applications. Network services and
applications represented a new recurring revenue stream for the
Company commencing in late 1996, that continued to grow and
develop in 1997. Revenues from the Company's network services
and network based computer applications in 1997 were $1,002,527,
an increase of $816,527 (439 percent) over the initial 1996
revenues of $186,000. The 1997 total includes revenues from
ijob, Inc. of $567,841, which commenced operations in 1997. The
remaining revenues of $434,686 were derived from web-site
maintenance and hosting fees and viaLink services fees. The
viaLink subscriber list for both retailers and suppliers has
grown from 20 in January 1997 to 95 at March 23, 1998,
representing more than 4,500 stores. The Company has and will
continue to make significant expenditures for investment in and
development of these services in order to shift the Company's
focus from only single consulting projects to recurring network
service revenues with expected higher profit margins and
increasing revenue. The Company believes the investments made
in 1997 will provide further growth in recurring revenue in
1998; however, there can be no such assurance.
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 $358,884 (14 percent) to $2,211,956 for 1997 from
$2,570,840 for 1996. The decrease in cost of sales is generally
in line with the decrease in revenues from product and hardware
sales and solutions and license sales for the year. Direct cost
of sales in 1996 also decreased by $1,045,847 (29 percent), from
$3,616,687 in 1995. This decrease in direct cost of sales was
attributable to the decrease sales in hardware and software
during 1996.
SALARIES AND BENEFITS. Total employee costs of salaries, wages,
taxes and related benefits, and contract labor expenses totaled
$6,174,503 for 1997 compared to $5,167,571 for 1996, an increase
of $1,006,932 (19 percent). These costs for 1995 totaled
$5,673,034, a decrease of $505,463 (9 percent) from 1995 to
1996.
During 1997, the Company utilized contract programmers for
client engagements to a greater extent than in 1996, which
during such year virtually no contract programmers were
utilized. 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 $488,710 for 1997 compared to a total of $84,696 for
1996, an increase of $404,014 (477 percent). The start-up costs
and expenses of ijob, Inc. during 1997 included $134,984 of such
contract labor expenses, which were not present anytime in 1996.
Certain of the ijob, Inc. contract labor expenses were converted
to salaried employees after June 30, 1997. Contract labor
expenses in 1996 decreased from $416,286 in 1995 by $331,590 (80
percent). In 1995 temporary programmers were hired to meet the
demand and workload.
Direct payroll costs of salaries and wages increased $677,059
(14 percent) from $4,880,030 in 1996 to $5,557,089 in 1997. The
increases were due to increased employed personnel for the
Company, increasing from 105 employees at the end of 1996 to 115
employees at the end of 1997, and also the addition of new staff
and personnel in ijob, Inc. during the year to a total of 21 at
the end of 1997. In 1996, total salaries and wages costs
actually decreased by $45,112 (1 percent), from a total salaries
and wages costs of $4,925,142 in 1995. The Company's total
employment base remained relatively constant at 105 staff
throughout 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general
and administrative expenses (SG&A) increased a total of $700,352
(35 percent) to $2,708,351 for 1997, compared to $2,007,999 for
1996. Over half (54 percent), or $377,299 of this increase is
due to the start-up costs and ongoing operations of ijob, Inc.
throughout 1997. SG&A in 1996 increased by $419,344 (26
percent) compared to $1,588,655 in 1995.
Other than the operations of ijob, Inc., SG&A increased $323,053
(16 percent) in 1997 when comparing the operations for the
Company to 1996, when no ijob Inc. operations were present.
Recruiting and staffing costs decreased $44,751 (45 percent)
from $99,483 in 1996 to $54,732 in 1997, due to reduced
requirements for new employee relocations in 1997 compared to
1996 and 1995. Recruiting and staffing expenses totaled $90,825
in 1995, only a small increase of $8,658 (9 percent) to $99,483
in 1996.
Travel expenses for 1997 of $406,937 increased $26,736 (7
percent) from $380,201 in 1996. The increase for 1997 was
primarily attributable to the travel expenses incurred by three
full-time viaLink sales representatives that the Company began
hiring in February of 1997, and by travel expenses associated
with sales and marketing activities of the ijob product. Travel
expenses for 1996 increased $9,039 (2 percent) from $371,162 in
1995.
Occupancy expenses, including rent expense, utilities, equipment
rentals and leases, and insurance increased a total of $118,633
(25 percent) to $599,300 in 1997 from $480,667 in 1996. ijob,
Inc. accounted for $52,330 (44 percent) of this increase, with
the start-up of two satellite offices and ongoing operations.
The remainder of the increase, $66,303, was primarily due to
increased expenses for an equipment lease to provide new
equipment for staff growth and production and development
equipment for the continued development of viaLink. Occupancy
costs increased by $142,315 (42 percent) over $338,352 in 1995,
as a result of the Companies relocation to its new leased office
facilities, which was completed in January of 1996, and due to
the leasing of additional equipment for the development,
production and implementation of viaLink.
Telecommunications expense increased $106,040 (68 percent) from
$154,975 for 1996 to $261,015 in 1997. ijob, Inc. accounted for
$51,738 (49 percent) of this increase, with expenses for
telecommunications requirements for the Internet, Interactive
Voice Response systems, and the telecommunications needs at the
two satellite offices of ijob, Inc. The remaining increases
were due to the expansion of the Company's communication systems
for viaLink and web-site hosting services and greater long
distance usage due to the increased sales and marketing
activities of the Company. Telecommunications expense increased
$47,792 (45 percent) during 1996 compared to $107,183 in 1995,
primarily due to the relocation to the Company's new facilities
in 1996 that allowed for increased telecommunications
capabilities.
Advertising and promotion expenses of $217,319 for 1997 compared
to $69,967 in 1996, increased $147,352 (211 percent). ijob,
Inc. accounted for $54,451 (37 percent) of this increase for
ijob advertising and marketing activities, and the balance of
the increase, $92,901, was due to increased sales and marketing
promotion activities of viaLink. During 1997, the Company
intensified its marketing and sales activities of viaLink,
including travel, long distance, and advertising and promotion.
The Company anticipates that advertising and promotion expenses
will continue to be at higher levels than in prior years due to
the increased efforts associated with marketing of viaLink and
ijob, and with the addition of a Vice President of Sales and
Marketing in January 1998. Expected revenues from viaLink and
ijob due to higher levels of selling and marketing expenses may
not occur until late 1998 or may not occur at all, depending
upon market acceptance. Advertising expense in 1996 increased
$20,046 (40 percent) over 1995 balances of $49,921 due to
initial marketing associated with viaLink in 1996.
Professional fees increased $254,477 (104 percent) to $498,689
in 1997 compared to $244,212 in 1996. Of the total increase,
ijob, Inc. accounted for $137,985 (54 percent) of the increase,
which was used for legal and consultant fees in the development
and start-up of the ijob subsidiary. The remaining increase of
$116,492 relates to legal fees, accounting fees, and the use of
professional consultants for the continued marketing and further
development of the Company's viaLink Item Catalog Service and
newly introduced CSP MARKETLink. These projects are part of the
recurring revenue business area, as the Company continues to shift its focus
from only single consulting projects to recurring network
service revenues with expected higher profit margins on growing
revenue streams. Professional fees in 1995 totaled $266,986, an
increase of $22,774 (9 percent) over 1996 fees.
INTEREST EXPENSE. Net interest expense decreased $145,508 (66
percent) to $73,581 for 1997 from $219,089 for 1996. The
decrease was generally due to the repayment of outstanding bank
debt in the fourth quarter of 1996, which was used largely to
finance the development of viaLink, RSA and CHAINLINK during the
preceding two years. Proceeds of the Company's initial public
offering in November 1996 were utilized to pay off the bank
debt. During the second, third and fourth quarter of 1997,
certain borrowings were made under the Company's bank line-of-
credit, which had an outstanding balance of $490,000 at December
31, 1997. Interest expense increased $70,047 (47 percent) in
1996 from $149,042 in 1995. Average total outstanding debt,
including shareholder loans, during 1997, 1996 and 1995 was
$910,772, $2,277,000 and $1,392,000, respectively.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expense totaled $827,396 for 1997 compared to $591,205 for 1996,
an increase of $236,191 (40 percent). The increase was due to
capital asset expenditures made during 1997 and 1996 totaling
$332,987 and $625,893, respectively, and capitalized software
development costs of $752,158 and $655,248, respectively. Of
the total capitalized costs in 1997, $104,044 of the costs were
associated with the development of ijob. Furthermore, the
Company commenced amortization of software development costs
associated with the viaLink Item Catalog Service system placed
in service in January 1997. Depreciation and amortization for
1996 increased $79,711 (16 percent) from a total of $511,494 in
1995, generally due to the expenditure during 1995 on fixed
assets and software development costs of $376,541 and $650,158,
respectively.
TAX BENEFIT. The Company recorded a tax benefit of $1,112,127
related to the pre-tax loss of $2,972,945 for the year ended
December 31, 1997 and a tax benefit of $366,925 related to the
pre-tax loss of $1,049,334 for the year ended December 31, 1996.
Such tax benefits were the results of net operating loss
carryforwards of $4,500,000 which, if not utilized, will expire
in 2011 and 2012. The cumulative net deferred tax asset at
December 31, 1997 is $1,049,440. Management believes realization
of such deferred tax benefit is more likely than not based upon
expected future taxable income and therefore a valuation
allowance has not been provided.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued a
Statement of Financial Standards No. 130, "Reporting
Comprehensive Income", the objective of which is to report and
disclose a measure of all changes in equity of a company that
result from transactions and other economic events of the period
other than transactions with owners. The impact of adopting
SFAS 130, which is effective for the Company in 1998, is not
considered to be material.
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 1998.
Readiness for Year 2000 Issues
In 1997, the Company initiated a complete risk evaluation and
assessment study to determine the preparedness level of the
Company, customers, vendors, and other service providers for the
Year 2000 and the subsequent impact on the Company. The review
will be completed in 1998 and based upon the results of the
review, ongoing Year 2000-impact analysis and risk assessment
will continue as management deems appropriate. The Company
expects to incur internal staff costs as well as consulting and
other expenses related to the risk evaluation and assessment
project. Although cost estimates for the project are not yet
available, management does not anticipate that the remaining
costs associated with assuring that its internal systems will be
Year 2000 compliant will be material to its business, operations
or financial condition.
Liquidity and Capital Resources
As of December 31, 1997, the Company had cash and cash
equivalents of $80,769, and a working capital deficit of
$331,366, with a working capital ratio of 0.83 to 1. As of
December 31, 1997, the Company had extended its working capital
line-of-credit facility with a bank of $500,000 to June 30,
1998. 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 with the bank. Under the new
credit facility the Company may borrow up to $1,000,000. The
facility is collateralized by accounts receivable and all
tangible assets of the Company and is guaranteed by three
principal officers of the Company. The note is due July 15,
1999. As of December 31, 1997, the Company had borrowed
$490,000 under the former facility with the bank, and as of
March 23, 1998 had borrowed $569,030 under the new facility with
the commercial lender, which was partially used to pay off the
bank facility. In addition, during the first quarter of 1998 the Company
obtained a credit facility including, a $1,000,000 large sale
financing option with IBM Credit Corp., whereby the Company may
finance directly with IBM Credit Corp. large sales of hardware
or software. As of March 23, 1998, there were no sales financed
under the financing arrangement with IBM Credit Corp. Prior to
the Company's initial public offering in November 1996, the
Company financed its operations and growth through internally
generated cash flows and borrowings.
During 1997, net cash decreased a total of $1,740,245. This
decrease was caused primarily by the loss for the year of
$1,860,818 and cash used in investing activities for
expenditures of capital and software development, offset by the
collection of accounts receivable, other receivables, and bank
borrowings. Net cash increased during 1996 by $1,802,515, the
majority of which was due to the proceeds from the initial
public offering in 1996.
The Company used cash in operating activities of $743,026 during
1997 compared to net cash flow used in 1996 of $90,635. Accounts
receivable decreased a net $672,515 during 1997 due to decreased revenues
for the year and an aggressive collection effort by the Company of its
accounts receivable during the fourth quarter. Accounts payable and
accrued liabilities increased a net of $428,512 during 1997.
During 1997, the Company expended cash for investing activities
of $332,987 in various fixed assets, hardware and software and
$752,158 for software development costs of its proprietary
software products, compared to total expenditures of $625,893
and $655,248, respectively, for the same items in the year ended
December 31, 1996.
During the year December 31, 1997, $87,926 was provided by
financing activities, which was mainly provided by net
borrowings under the bank line-of-credit facility of $490,000.
The borrowings were offset by payments on the Company's capital
lease obligations, payment of a shareholder loan and a decrease
in the book overdraft.
The Company anticipates that its operations and growth strategy
will be financed through cash and cash equivalents, accounts
receivable, operating cash flows generated from the Company's
focus on its consulting services engagements, capital lease
sources, the new line-of-credit facility of $1,000,000, and the
financing arrangement with IBM Credit Corp. The Company believes
that these sources of funds will be sufficient to satisfy the
Company's operating and capital requirements for at least twelve
months. There may be circumstances, however, that would
accelerate the Company's use of such financing sources. If this
occurs, the Company may, from time to time, incur indebtedness
or 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.
At December 31, 1997, pursuant to ten separate three-year
promissory notes, Robert L. Barcum, Robert N. Baker and Russell
L. Reinhardt, shareholders and executive officers of the
Company, had aggregate outstanding loans to the Company of
$443,455 (the "Shareholders' Loans"). The proceeds of the
Shareholders' Loans were utilized to fund operating costs and
development of the Company's viaLink network subscription
services and RSA software application. The Shareholders' Loans
bear interest at rates of 8.5 percent to 11.5 percent per annum,
and mature commencing March 8, 1999 through December 21, 2001.
In addition, on October 15, 1996, the Company issued a promissory note to
David B. North, a shareholder and executive officer of the
Company, in redemption of 22,500 shares of Common Stock of the
Company issued to Mr. North in connection with the merger of
VCRI, in the principal amount of $39,375, bearing interest at
the rate of 10 percent per annum, with a maturity date of
November 15, 1997. This note has been extended to November 15,
2000. See "Item 12. Certain Relationships and Related
Transactions."
Management's Plans for Improved Operations
The Company operated in 1997 without the services of its Vice President
of Sales and Marketing who left the Company in late 1996. In January,
1998, Mr. Larry R. Davenport joined the Company as Vice President of
Sales and Marketing. With his extensive experience, the Company expects
to improve its sales effort in 1998. Also the Company has entered
into negotiations with a large retail software company, whereby
the Company will serve as the preferred supplier of hardware to their
customers and may obtain consulting engagements to install their
software. Substantial hardware sales and consulting revenues
are expected from such arrangement in 1998. In addition,
in the first quarter of 1998 the Company obtained a $1,000,000 credit
facility to replace its existing bank facility. Further, in support
of the potential hardware sales discussed above, the Company obtained a
large sale financing facility of $1,000,000 with IBM Credit Corp.,
whereby the Company may finance directly with IBM Credit Corp. large
sales of hardware or software. There can be no assurance that increased
revenues and a return to profitability will result from the above
events.
Item 7. Financial Statements
The financial statements are included beginning at page F-2.
See page F-1 for the Index to the Financial Statements.
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure
None
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons
Set forth below is certain information with respect to each
executive officer and director of the Company. Directors are
generally elected at the annual shareholders' meeting and hold
office until the annual shareholders' meeting three years
following their election and until their successors are elected
and qualify. Executive officers are elected by the Board of
Directors and serve at its discretion. The Bylaws of the
Company provide that its Board of Directors shall consist of not
less than three or more than fifteen. As of the December 31,
1997, the Board of Directors of the Company consisted of four
members, and as of March 23, 1998, the Board of Directors of the
Company consisted of five members.
<TABLE>
<CAPTION>
Name Age Position
----------------------- --- -------------------------------
<S> <C> <C>
Robert L. Barcum(1)(4) 49 President, Chief Executive
Officer and Chairman of the
Board
Robert N. Baker(1)(4) 46 Vice President-Network
Services, Secretary and
Director
Russell L. Reinhardt(6) 51 Vice President and Director
David B. North 41 Vice President-Consulting
Services, Assistant Secretary
John M. Duck 55 Vice President, Treasurer,
Chief Financial Officer
Larry R. Davenport 47 Vice President-Marketing and
Sales
Lewis B. Kilbourne,
Ph.D. (2)(3)(6) 51 Director
Jimmy M. Wright (2)(3)(5) 44 Director
</TABLE>
------------------
(1) Member of Stock Option Committee of the Applied
Intelligence Group, Inc. 1995 Stock Option Plan. See "Stock
Option Plan," below.
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
(4) A Class II Director, whose term expires in 1998.
(5) A Class III Director, whose term expires in 1999.
(6) A Class I Director, whose term expires in 2000.
Background Information of Executive Officers and Directors
The following is a brief description of the business background
of the executive officers and directors of the Company:
Robert L. Barcum, as a cofounder, has served as a director and
as an executive officer of the Company since its formation in
1985 and currently serves as Chairman of the Board, President
and Chief Executive Officer. Mr. Barcum is responsible for
developing the Company's national retail practice, including
product and services planning, marketing and business alliances.
Mr. Barcum has more than 25 years of experience in management
information systems for retail organizations. He is active in
the National Retail Federation. Since 1991 he has served as an
outside director of Duckwall-ALCO Stores, Inc., a publicly-held
retailer and a Company customer. Since 1993, he has served as
an outside director of Commercial Distributing Inc., a
distributor of automotive products in the automobile after-
market and also a Company customer. Since 1995, he has served
on the Business Advisory Council of Oklahoma Christian University of
Science and Arts (formerly Oklahoma Christian College), and since 1996 has
served as a member of the Advisory Board of Kent State
University.
Robert N. Baker, as a cofounder, has served as a director and
Vice President of the Company since its formation in 1985 and
currently serves as Vice President-Network Services and
Corporate Secretary. Mr. Baker is responsible for developing
the viaLink services as well as managing the Network Services
business area. Mr. Baker has over 20 years of experience in
management, technical support and systems development within the
retail industry. He graduated magna cum laude from Oklahoma
Christian University of Science and Arts with a Bachelor of
Science in Mathematics.
Russell L. Reinhardt has served as a director, Vice President
and Secretary since joining the Company in 1986 and currently
services as a director and Vice President. Mr. Reinhardt
is responsible for large account management and assists on
product development. Mr. Reinhardt has 20 years experience with
the IBM Corporation during which time he held a range of staff
and management positions. Mr. Reinhardt is a graduate of the
University of Michigan with a B.S.E. in Science Engineering.
David B. North has served as Vice President since joining the
Company in 1985 and currently serves as Vice President-
Consulting Services and Assistant Secretary. Mr. North is the
Company's chief computer scientist, manages the Retail and Store
Systems Consulting business area, and serves as a system
designer and technical consultant. Mr. North was an instructor
of computer science at the University of Oklahoma for two years
and also an instructor, systems analyst and program developer at
Oklahoma Christian University of Science and Arts. Mr. North
is a graduate of Oklahoma Christian University of Science and
Arts with a Bachelor of Science in Chemistry. He was awarded a
Masters of Science in Computer Science from the University of
Oklahoma and has completed further graduate studies in
Artificial Intelligence at the University of Oklahoma.
John M. Duck joined the Company as Director of Finance and
Administration in 1991 and currently serves as Vice President,
Treasurer and Chief Financial Officer. Mr. Duck is responsible
for all financial and tax reporting and compliance as well as
for overall direction of the Finance Department of the Company.
Prior to joining the Company, Mr. Duck served as Chief Financial
Officer of Griffin Entities, Inc. as well as Mr. Rooter
Corporation. Mr. Duck currently serves on the Board of
Directors of the Edmond Chamber of Commerce and is a member of
the Oklahoma County Workforce Development Board. Mr. Duck is a
certified public accountant and holds a Bachelor of Science in
Economics from Oklahoma City University.
Larry R. Davenport has served as Vice President of Sales and
Marketing since joining the Company in January 1998. Mr.
Davenport is responsible for all aspects of sales and marketing
activities of the Company. Mr. Davenport is a seasoned veteran
with over 17 years of managerial experience in sales and
marketing. He previously held the position of Director of Sales
and Marketing with Inacom Information Systems of Atlanta and was
Vice President of Sales and Marketing at SDS, Inc. in Atlanta.
He also played an integral sales and marketing role at Coin
Financial Systems, Inc. and Automatic Data Processing. Mr.
Davenport has received over 30 industry awards for outstanding
performance and contributions. Mr. Davenport attended Central
State University (Oklahoma) with a major in Business
Administration/Marketing.
Lewis B. "Bucky" Kilbourne, Ph.D. has served as director since
December 1997. Dr. Kilbourne has 20 years of financial
experience in the retail, restaurant, and banking business. Dr.
Kilbourne is a Professor of Finance and Economics at Oklahoma
City University and former Chief Financial Officer of Sonic
Corporation. Dr. Kilbourne is also President of Kilbourne and
Associates, Inc., a management consulting firm located in
Oklahoma City that works with regional firms experiencing
earnings and cash flow problems in the retail and restaurant
industry. Dr. Kilbourne has a BA from Louisiana State
University and a MA and Ph.D. from the University of
Pennsylvania.
Jimmy M. Wright has served as director since February 1998. Mr.
Wright recently retired as Vice President of Distribution for
Wal*Mart Stores and has been actively involved in Logistics for
more than 25 years. During his 13 year tenure at Wal*Mart, he
was involved in all facets of strategic planning including
supply chain management, personnel, site selection, and building
design. Mr. Wright has served as an invited advisor to the
Defense Logistics Agency and has been a multi-year participant
in the U.S. Army's Wise Person summits which advise the Deputy
Chief of Staff Logistics on strategic logistics issues and
trends. Mr. Wright is currently with Diversified Retail
Solutions, LLC. Mr. Wright received his BBA from the University
of Texas Permain Basin.
Board of Directors
Pursuant to the terms of the Company's Certificate of
Incorporation, the directors are divided into three classes.
Class I Directors hold office initially for a term expiring at
the annual meeting of shareholders to be held in 2000, Class II
Directors hold office initially for a term expiring at the
annual meeting of shareholders to be held in 1998, and Class III
Directors hold office initially for a term expiring at the
annual meeting of shareholders to be held in 1999. Each
director will hold office for the term to which he or she is
elected and until his or her successor is duly elected and
qualified. Mr. Barcum and Baker are serving as Class II
Directors under terms expiring in 1998, Mr. Wright is serving as
a Class III Director under a term expiring in 1999, and Mr.
Reinhardt and Dr. Kilbourne are serving as a Class I Directors
under terms expiring in 2000. At each annual meeting of the
shareholders of the Company, the successor or successors to a
member of the class of directors whose term expires at such
meeting will be elected to hold office for a term expiring at
the annual meeting of shareholders held in the third year
following the year of his election.
Director Liability and Indemnification
As permitted by the provisions of the Oklahoma General
Corporation Act, the Certificate of Incorporation (the
"Certificate") of the Company, including amendments thereto,
eliminates in certain circumstances the monetary liability of
directors of the Company for a breach of their fiduciary duty as
directors. These provisions do not eliminate the liability of a
director (i) for a breach of the director's duty of loyalty to
the Company or its shareholders; (ii) for acts or omissions by a
director not in good faith or which involve intentional
misconduct or a knowing violation of law; (iii) for liability
arising under Section 1053 of the Oklahoma General Corporation
Act (relating to the declaration of dividends and purchase or
redemption of shares in violation of the Oklahoma General
Corporation Act); or (iv) for any transaction from which the
director derived an improper personal benefit. In addition,
these provisions do not eliminate liability of a director for
violations of federal securities laws, nor do they limit the
rights of the Company or its shareholders, in appropriate
circumstances, to seek equitable remedies such as injunctive or
other forms of non-monetary relief. Such remedies may not be
effective in all cases.
The Certificate and the Bylaws of the Company, as amended,
provide that the Company shall indemnify its directors and
officers to the full extent permitted by the Oklahoma General
Corporation Act. Under such provisions, any director or officer
who, in his capacity as such, is made or threatened to be made a
party to any suit or proceeding, may be indemnified if the Board
of Directors determines such director or officer acted in good
faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company. The Certificate
and Bylaws and the Oklahoma General Corporation Act further
provide that such indemnification is not exclusive of any other
rights to which such individuals may be entitled under the
Certificate, the Bylaws, an agreement, vote of shareholders or
disinterested directors or otherwise.
Item 10. Executive Compensation
The directors of the Company who are employees of the Company do
not receive any compensation in their capacity as directors of
the Company. The following table sets forth the total cash
compensation of the President and each named executive officer
that during 1997, 1996 and 1995 received compensation in excess
of $100,000 during 1997.
<TABLE>
<CAPTION>
Director and Executive Officer Compensation
Annual Compensation(1)
------------------------
Name and Principal Position Year Salary(2) Bonus
- ---------------------------------- ---- --------- ------
<S> <C> <C> <C>
Robert L. Barcum(3) 1997 $169,716 $ --
President and Chief Executive 1996 169,150 $ --
Officer 1995 170,710 $ --
Robert N. Baker(3) 1997 169,940 $ --
Vice President-Network Services, 1996 169,159 $ --
Secretary 1995 170,389 $ --
Russell L. Reinhardt(3) 1997 171,774 $ --
Vice President 1996 171,840 $ --
1995 171,256 $ --
David B. North 1997 125,817 $ --
Vice President- 1996 116,248 $ --
Consulting Services, Assistant 1995 109,194 $ --
Secretary
</TABLE>
____________
(1)The named executive officer received additional non-cash
compensation, perquisites and other personal benefits; however, the
aggregate amount and value thereof did not exceed 10 percent of the total
annual salary and bonus paid to and accrued for the named executive officer
during the year.
(2)Dollar value of base salary (both cash and non-cash) earned
during the year.
(3)During each of the years 1997, 1996 and 1995, Robert L.
Barcum, Robert N. Baker and Russell L. Reinhardt each were paid the same
annual base salary of $175,127, The differences in the amounts presented
above are due to different levels of participation of each individual
in the Section 125 Cafeteria Plan offered by the Company to all
employees on a nondiscriminatory basis.
Stock Option Plan
The Company established the Applied Intelligence Group, Inc.
1995 Stock Option Plan (the "Stock Option Plan" or the "Plan")
in March 1995, and amended the Plan on April 29, 1996. The Plan
provides for the issuance of incentive stock options ("ISO
Options") and non-incentive stock options ("NSO Options") to key
management, directors, key professional employees and key
professional non-employee service providers of the Company. The
number of shares of Common Stock authorized and reserved for
issuance under the Plan is 300,000. Under the Plan, as of December 31,
1997, options to purchase a total of 173,078 shares of Common Stock at prices
ranging from $.63 to $3.88, with a weighted average exercise
price of $2.71 per share, were outstanding, of which 112,328
were exercisable at an average exercise price of $2.08.
The Stock Option Committee, which is currently comprised of Ms.
Kay H. Titchenal and Mr. Barcum and Baker, administers and
interpret the Plan and has authority to grant options to all
eligible participants and determine the types of options
granted, the terms, restrictions and conditions of the options
at the time of grant.
The option price of the Common Stock is determined by the Stock
Option Committee. The option price of NSO Options may not be
less than 75 percent of the fair market value of the shares on
the grant date of the option. In the case of an ISO Option, the
option price may not be less than the fair market value of the
Common Stock on the date of the grant of the ISO Option. The
fair market value of a share of the Common Stock is determined
by the Stock Option Committee. Upon the exercise of an option,
the option price must be paid in full, in cash, Common Stock (at
the fair market value thereof) or a combination thereof. For a
period of two years ending November 21, 1998, the Company has
agreed with Barron Chase Securities, Inc., the underwriter of
the Company's initial public offering not to grant more than 25,000 NSO
Options having an option price of less than fair market value of the
shares on the date of grant of the option, without written consent of
the Underwriter.
Options are exercisable during employment and for a period of
three months after the participant ceases to be an employee, a
director, or non-employee service provider of the Company;
however, in the event of death or disability of the participant,
the ISO Options are exercisable for a period of one year
following death or disability. In any event, options may not be
exercised beyond the expiration date of the option. NSO Options
may be granted to key management employees, directors, key
professional employees or key professional non-employee service
providers of the Company, while ISO Options may only be granted
to key management or key professional non-employee service
providers of the Company. No option may be granted after
February 28, 2005. Options are not transferable except by will
or by the laws of descent and distribution.
All outstanding options granted pursuant to the Plan will become
fully vested and immediately exercisable in the event that (i)
within any 12-month period, the Company sells an amount of
Common Stock that exceeds 50 percent of the number of shares of
Common Stock outstanding immediately prior to such 12-month
period, (ii) the Company completes an initial public offering of
its stock, or (iii) a "change of control" occurs. For purposes
of the Plan, a "change of control" is defined as the acquisition
in a transaction or series of transactions by any person, entity
or group (two or more persons acting as a partnership, limited
partnership, syndicate or other group for the purpose of
acquiring securities of the Company) of beneficial ownership of
50 percent or more (or less than 50 percent as determined by a
majority of the directors of the Company) of either the then
outstanding shares of Common Stock or the combined voting power
of the Company's then outstanding voting securities.
Non-Qualified Stock Option Plan
On February 9, 1998, the Board of Directors of the Company
adopted the 1998 Non-Qualified Stock Option Plan (the "Non-
Qualified Stock Plan" or "Plan"), to attract, retain and
motivate directors, executive officers, key employees and
independent contractors of the Company and its subsidiaries by
way of granting non-qualified stock options with stock
appreciation rights attached. The Non-Qualified Stock Plan
authorizes and reserves up to 300,000 shares of Common Stock for
issuance and options under the Plan. The option price shall not
be less than 85 percent of the fair market value of the Common
Stock on the date of grant. All options pursuant to the Plan
expire after ten years from the date of grant. The Board of
Directors has the discretion to fix the period and the time at
which any options granted under the Plan may be exercised.
As of March 23, 1998, the Company has issued 87,500 stock
options to two outside directors and one independent contractor,
with exercise dates from December 31, 1998 through December 31,
2000, at an exercise price of $3.125 per share, as long as the
individuals continue to serve the Company.
Stock Grant Plan
On February 10, 1998, the Board of Directors of the Company
adopted the 1998 Stock Grant Plan (the "Stock Grant Plan" or
"Plan") to attract, retain and motivate consultants, independent
contractors and key employees of the Company and its
subsidiaries by way of granting shares of stock in the Company.
The Stock Grant Plan authorizes and reserves up to 150,000
shares of Common Stock of the Company for issuance under the
Plan. Shares of Common Stock received pursuant to the Stock
Grant Plan restrict the sale, transfer or other disposal of said
shares for a period of one year. As of March 23, 1998, no
shares of Common Stock had been issued under the Stock Grant
Plan.
Employee Stock Purchase Plan
The Company established the Applied Intelligence Group, Inc.
Employee Stock Purchase Plan (the "Employee Stock Purchase Plan"
or "Plan" in April 1997, and it was approved by the shareholders at
the Annual Meeting of Shareholders on June 3, 1997. The
Employee Stock Purchase Plan provides the opportunity for
employees to purchase the Company's Stock through payroll
deductions, to encourage participation in the ownership and
economic progress of the Company. The number of shares of
Common Stock authorized and reserved for issuance under the Plan
is 100,000 shares. As of December 31, 1997, 2,565 shares of
Common Stock have been purchased at an average price of $2.92 by
employees of the Company.
The Plan provides for the granting of stock options to eligible
employees of the Company. It is intended that the Plan and the
stock options granted under the Plan will meet the qualification
requirements set forth in the Internal Revenue Code of 1986, as
amended (the "Code"). The Plan is administered by the Board of
Directors or a committee appointed by and serving at the
pleasure of the Board of Directors, consisting of not less than
two members of the Board of Directors. The Board or committee
administers and interprets the Plan and has the authority to
establish, adopt or revise rules and regulations with respect to
the Plan. The interpretation of the Plan by the Board or the
committee is final, binding, and conclusive on all employees and
participants.
All full-time employees (i.e., whose customary employment is 20
hours or more per week and more than five months in any calendar
year), who have been continuously employed more than six months
will be eligible to participate in the Plan by entering into an
option agreement to purchase shares of Common Stock of the
Company. Provided, however, the employees who own or would own
five percent or more of the Company's Common Stock, including
shares owned by family members and indirectly through a
corporation, partnership or trust, immediately after the
options are granted in accordance with the option agreement
after giving effect to and assuming exercise of such options and
any other stock options held by the employee-participant, are
not eligible to participate in the Plan.
The total number of shares of Common Stock authorized and
reserved for issuance under the Plan is 100,000. The number of
shares of Common Stock is subject to appropriate adjustment in
the event of any merger, consolidation, recapitalization,
reclassification, stock dividend, stock split or similar
transaction. Plan participants may contribute up to $20 per pay
period into their account to purchase whole shares of the Common
Stock of the Company at pre-determined calendar quarter grant
dates or exercise dates. The option price will be 85 percent of
the per share fair market value on the granting date or the
exercise date, whichever is the lesser, of the purchase period.
During each quarterly purchase period, a participant will not be
permitted to purchase more than 50 shares of Common Stock. Any
remaining balance in the Participants' accounts after the
purchase of shares during a quarterly purchase period will be
carried over to the next quarterly purchase period
and exercise date.
The stock options may not be assigned, encumbered or otherwise
transferred by the participants, except by will or under laws
of inheritance.
The Plan will remain in force until March 31, 2002. The Board
of Directors may amend the Plan in any respect consistent
with Sections 421 and 423 of the Code, except that, without
approval of the stockholders, no amendment shall (i) increase
the maximum number of shares of Common Stock reserved under the
Plan other than in connection with a merger, consolidation,
recapitalization, reclassification, stock split, combination of
shares, stock dividend or (ii) make the Plan available to any
person who is not an employee of the Company.
Other Stock Options
In connnection with the transaction with Vantage Capital Resources, Inc.,
(see Item 12. Certain Relationships and Related Transactions-Vantage Capital
Resources, Inc.) the Company issued 360,000 stock options at an exercise
price of $5.00 per share. Furthermore, in connection with the transaction
with ijob, Inc. (see Item 1. Business-ijob, Inc.) the Company issued 50,000
stock options at an exercise price of $3.50 per share. As of December 31,
1997, under all stock options granted by the Company, options to purchase a
total of 583,078 shares of Common Stock ranging in price from $.63 to $5.00,
with a weighted average exercise price of $4.19 per share were outstanding,
of which, 522,328 were exercisable at a weighted average exercise price of
$4.23.
Profit Sharing Plan
In 1987, the Company adopted the Applied Intelligence Group,
Inc. Profit Sharing Plan (the "Profit Sharing Plan"). The
Profit Sharing Plan covers all employees of the Company who have
completed at least one year of service with the Company as of
the enrollment date under the Profit Sharing Plan. The Company
may make an annual contribution to the Profit Sharing Plan on
behalf of employees which, if made, begins to vest for each
employee's account after the employee has completed two years of
service with the Company. Thereafter, each employee's account
vests ratably as to 20 percent of the employee's account
following each subsequent year of completed service with the
Company. Vested contributions will normally be distributed to
an employee upon (i) the employee's retirement, (ii) the
employee's death or disability, (iii) the termination of the
employee's employment with the Company or (iv) the termination
of the Profit Sharing Plan. The Company did not make any
contributions to the Profit Sharing Plan for the fiscal years
ended December 31, 1995, 1996 and 1997.
In 1995, the Company amended the Profit Sharing Plan to include
a 401(k) deferred compensation feature, whereby eligible
participants may elect to defer up to 15 percent of their
salaries, not to exceed the annual statutory limits, pursuant to
a voluntary salary reduction agreement. The Company may
determine matching levels of contributions from time to time, at
the discretion of the administrative committee. No matching
contributions were made by the Company during 1995, 1996 and
1997. All employee contributions under the 401(k) feature are
fully vested at all times.
Keyman Life Insurance
The Company maintains keyman policies insuring the lives of Mr.
Barcum, Baker and Reinhardt for $1,250,000, $1,250,000 and
$820,000, respectively, the proceeds of which are payable to the
Company.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table presents certain information as to the
beneficial ownership of the Common Stock of the Company as of
March 23, 1998, of (i) each person who is known by the Company
to own beneficially more than five percent of the outstanding
Common Stock, (ii) each director of the Company, (iii) each
executive officer named in the Summary Compensation Table and
(iv) all current executive officers and directors as a group,
together with their percentage holdings of the outstanding
shares. All persons listed have sole voting and investment
power with respect to their shares unless otherwise indicated,
and there is no family relationship between the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
Shares Percent of
Name (and Address) Beneficially Outstanding
of Beneficial Owner Owned Shares
________________________________ ____________ ___________
<S> <C> <C>
Robert L. Barcum(1) 554,616 20.3%
Robert N. Baker(1) 554,529 20.3%
Russell L. Reinhardt(1) 316,081 11.6%
David B. North(1) 89,861 3.3%
Executive Officers
and Directors as a
group (five persons) (2) 1,520,143 55.7%
</TABLE>
- ----------
(1)The business address of the named person is 13800 Benson
Road, Edmond, Oklahoma 73013-6417.
(2)The number of shares and percent include 5,056 shares of
Common Stock issuable pursuant to stock options held and exercisable
by an executive officer of the Company.
Item 12. Certain Relationships and Related Transactions
Vantage Capital Resources, Inc.
On June 12, 1996, Vantage Capital Resources, Inc., an Oklahoma
corporation ("VCRI"), merged with and into the Company (the
"Merger"). VCRI was organized on March 28, 1996, by John
Simonelli and Larry E. Howell with an initial capitalization of
$360. On June 5, 1996, VCRI completed a private placement
offering of 250,000 shares of VCRI Common Stock at an offering
price of $1.75 per share, with net proceeds to VCRI of $394,567
( the "VCRI Private Placement"). Pursuant to the VCRI Private
Placement offering, David B. North, an executive officer and
director of the Company, purchased 22,500 shares of VCRI Common
Stock, and James R. Stepp, a former executive officer of the
Company, purchased 1,000 shares of VCRI Common Stock; however,
all of such shares were subsequently redeemed by the Company, as
described below. In consummation of the Merger, the Company
issued 610,000 shares of its Common Stock, on a one-for-one
basis, for the outstanding Common Stock of VCRI.
In connection with the organization of VCRI, each of Mr.
Simonelli and Howell were issued 180,000 shares of VCRI Common
Stock for $.001 per share. Prior to the Merger, VCRI had not
engaged in any operations other than the negotiation of the
Merger and the offering of its Common Stock pursuant to a
private placement offering. Upon consummation of the Merger,
each of Mr. Simonelli and Howell, as well as the other
shareholders of VCRI, exchanged their shares of VCRI Common
Stock, on a one-for-one basis, for the Company's Common Stock.
Furthermore, upon closing of the Merger, Mr. Simonelli and
Howell entered into three-year employment agreements with the
Company and were elected to the Board of Directors and appointed
executive officers of the Company. In connection with the Merger
and the transactions related thereto, an independent
determination of fairness and reasonableness of the terms of the
transactions was not obtained; however, the transactions were
negotiated on an arm's-length basis by the respective parties
(which included all of the shareholders of the Company) and are
believed by respective parties and management of the Company to
have been fair.
In connection with the Company's application with The Nasdaq
Stock Market, Inc. ("Nasdaq") for listing of the Common Stock
and Warrants on the Nasdaq SmallCap Market, the staff of Nasdaq
raised investor protection concerns regarding (i) the 360,000
shares of Common Stock received by Mr. Simonelli and Howell in
consummation of the Merger and their employment with the Company
pursuant to certain three-year employment agreements, and (ii)
the VCRI Private Placement of the VCRI Common Stock at $1.75 per
share followed by the exchange of such shares for the Common
Stock of the Company. In addition, the staff of Nasdaq orally
expressed concerns regarding the purchase of the shares of VCRI
Common Stock by Mr. North and Stepp. Initially the staff of
Nasdaq denied listing of the Company's securities on the Nasdaq
SmallCap Market, and the Company appealed the staff's decision
to the Nasdaq appeal panel (the "Panel"). In an effort to
alleviate the concerns of the staff of Nasdaq and obtain the
listing on appeal, the Company, pursuant to agreements with Mr.
Simonelli and Howell, North and Stepp completed the transactions
described below, including the redemption of the shares of
Common Stock received by Mr. North and Stepp in consummation of
the Merger. However, the Panel in its written appeal decision of
October 28, 1996, did not require such redemption.
Pursuant to an Exchange Agreement dated October 14, 1996 (the
"Exchange Agreement"), each of Mr. Simonelli and Howell
exchanged 180,000 shares of Common Stock for stock options
exercisable on or after November 30, 1998 and on or before
November 30, 2001 for the purchase of 180,000 shares of Common
Stock for $5.00 per share. The stock options and the Common
Stock or other securities issuable under the stock options may
not be offered for sale except in compliance with the applicable
provisions of the Securities Act of 1933, as amended. The
Company has agreed that if it files with the Securities and
Exchange Commission a posteffective amendment to the
registration statement, a new registration statement, or similar
offering document, Mr. Simonelli and Howell (or other holders of
the stock options) shall have the right through December 31,
2001, to include in such registration statement or offering
statement the Common Stock or other securities issuable upon
exercise of the stock options at no expense to Mr. Simonelli and
Howell. In addition, pursuant to the Exchange Agreement, Mr.
Simonelli and Howell resigned as executive officers and
directors of the Company, and their employment agreements were
terminated effective April 1, 1996, without any payment of or
continuing right to receive compensation under such employment
agreements.
Although not required pursuant to the Panel's written appeal
decision, on October 14, 1996, the Company redeemed the shares
of Common Stock issued to James R. Stepp, a former executive
officer of the Company, in exchange for the 1,000 shares of VCRI
Common Stock that he purchased in connection with the VCRI
Private Placement Offering, for $1.75 per share and for an
aggregate amount of $1,750. Also, on October 15, 1996, the
Company redeemed the shares of Common Stock issued to David B.
North in exchange for the 22,500 shares of VCRI Common Stock
that he purchased in connection with the VCRI Private Placement
Offering for $1.75 per share for an aggregate amount of $39,375.
In redemption of the shares, the Company issued to Mr. North a
promissory note in the principal amount of $39,375, bearing
interest at the rate of 10 percent per annum (payable at
maturity), with a maturity date of November 15, 1997. This note
has been extended to November 15, 2000. Management of the
Company believes that the terms of the promissory note were at
least as favorable as could be obtained from unaffiliated third-
party lenders. These redemptions were completed based solely in
reliance upon the oral concerns expressed by the Nasdaq staff
and were completed in anticipation that the Panel's appeal
decision would require such redemptions. The Company does not
intend to redeem any of the remaining outstanding shares of
Common Stock of the Company issued to the shareholders of VCRI
in consummation of the Merger.
Notes Payable to Shareholders
Pursuant to ten separate promissory notes, Robert L. Barcum,
Robert N. Baker and Russell L. Reinhardt have loaned to the
Company, in the aggregate, $443,455 (the "Shareholders'
Loans"). The Shareholders' Loans are each evidenced by a
promissory note, bearing interest at rates of 8.5 percent to
11.5 percent per annum, with maturity dates commencing March 18, 1999
through December 21, 2001. In addition, on October 15, 1996, the Company
issued a promissory note to David B. North, a shareholder and
executive officer of the Company, in redemption of 22,500 shares
of Common Stock of the Company issued to Mr. North in connection
with the merger of VCRI, in the principal amount of $39,375,
bearing interest at the rate of 10 percent per annum, with a
maturity date of November 15, 1997. This note has been extended
to November 15, 2000. With respect to the Shareholders' Loans,
the interest paid or accrued for payment to each of Robert L.
Barcum, Robert N. Baker, Russell L. Reinhardt, and David B.
North was $13,288, $14,045, $15,202, and $3,938, respectively,
for 1997 and $13,055, $13,900, $16,600 and $820, respectively, for
1996. Management of the Company believes that the terms of the
Shareholders' Loans were at least as favorable as could be
obtained from unaffiliated third-party lenders.
The Company has adopted policies that any loans to officers,
directors and five percent or more shareholders ("affiliates")
and any future transactions between the Company and any
affiliates will be subject to approval by a majority of the
disinterested independent directors of the Company and will be
on terms no less favorable than could be obtained from
unaffiliated parties. As of March 23, 1998, the Board of
Directors is comprised of five members, two of whom are
independent directors.
Item 13. Exhibits and Reports on Form 8-K
(a) The following documents are filed or incorporated by reference as part
of this Report:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -------------------------------------------------------------------
<S> <C>
2.1 The Agreement and Plan of Merger among Registrant,
Vantage Capital Resources, Inc., John Simonelli, Larry
E. Howell, Robert L. Barcum, Robert N. Baker, and David
B. North, dated May 8, 1996*
2.2 Asset Purchase Agreement, ijob, Inc., dated June 12, 1997
3.1 Registrant's Certificate of Incorporation*
3.2 Registrant's Bylaws*
4.1 Form of Certificate of Common Stock of Registrant*
4.3 Form of Warrant Agreement between Liberty Bank & Trust
Company of Oklahoma City, Oklahoma, N.A.*
4.4 Form of Certificate of Redeemable Common Stock Purchase
Warrant*
4.5 Stock Option Agreement between John Simonelli and
Registrant, dated October 15, 1996*
4.6 Stock Option Agreement between Larry A. Howell and
Registrant, dated October 15, 1996*
4.7 Applied Intelligence Group, Inc. 1998 Non-Qualified
Stock Option Plan**
4.8 Applied Intelligence Group, Inc. 1998 Stock Grant Plan**
4.9 Stock Option Agreement between David C. Mitchell and
Registrant, dated June 12, 1997
4.10 Stock Warrant Agreement between Ron Beasley and
Registrant, dated June 12, 1997
10.1 Lease between Oklahoma Christian Investment Corporation
and Registrant, dated October 3, 1994*
10.41 Arrangement Letter Agreement with Dollar General
Corporation and Registrant, dated January 30, 1997*
10.43 Arrangement Letter Agreement with Fox Photo, Inc. and
Registrant, dated December 21, 1997
10.44 Employment Agreement between David C. Mitchell and
Registrant with an effective date of June 1, 1997
21.1 Subsidiaries of Registrant
24.4 Consent of Coopers and Lybrand, L.L.P.
27.1 Financial Data Schedule
</TABLE>
* Incorporated by reference to Exhibit of same number of the
Registrant's Registration Statement on Form SB-2 (Registration No.
333-5038-D) as filed with the Central Regional Office of the Commission.
** Incorporated by reference to Exhibit filed with Registrant's S-8
Registration Statement as filed with the Commission on March 9, 1998.
(b) No reports on Form 8-K were filed on behalf of the
Registrant during the fourth quarter ended December 31,
1997.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the
City of Edmond, Oklahoma, on this 30th day of March, 1998.
APPLIED INTELLIGENCE GROUP, INC.
BY: /s/ ROBERT L. BARCUM
----------------------------------
Robert L. Barcum
President
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- --------------------------- -------------------- --------------
<S> <C> <C>
/s/ ROBERT L. BARCUM President, Chief March 30, 1998
- ------------------------ Executive Officer,
Robert L. Barcum and Chairman of the
Board of Directors
/s/ ROBERT N. BAKER Vice President and March 30, 1998
- ------------------------ Director
Robert N. Baker
/s/ RUSSELL L. REINHARDT Vice President and March 30, 1998
- ------------------------ Director
Russell L. Reinhardt
/s/ DAVID B. NORTH Vice President March 30, 1998
- ------------------------
David B. North
/s/ LARRY R. DAVENPORT Vice President March 30, 1998
- ------------------------
Larry R. Davenport
/s/ JOHN M. DUCK Vice President and March 30, 1998
- ----------------------- Chief Financial Officer
John M. Duck
/s/ LEWIS B. KILBOURNE Director March 30, 1998
- -----------------------
Lewis B. Kilbourne
/s/ JIMMY M. WRIGHT Director March 30, 1998
- ------------------------
Jimmy M. Wright
</TABLE>
Item 7. Financial Statements
<TABLE>
<CAPTION>
INDEX TO FINANCIAL INFORMATION
Page
----
<S> <C>
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1997
and 1996 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Applied Intelligence Group, Inc.
We have audited the accompanying consolidated balance sheets of
Applied Intelligence Group, Inc. as of December 31, 1997 and
1996 and the related statements of operations, stockholders'
equity and cash flows for each of the three years in the
period ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the financial
position of Applied Intelligence Group, Inc. as of December 31,
1997 and 1996 and the results of its operations and its cash
flows for each of the three years in the period ended December 31,
1997 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Oklahoma City, Oklahoma
March 23, 1998
APPLIED INTELLIGENCE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION
ASSETS 1997 1996
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 80,769 $1,821,014
Accounts receivable - trade, net of
allowance for doubtful accounts of
$1,724 in 1997 and $5,631 in 1996 1,337,322 2,009,837
Other receivables 44,893 314,874
Inventory 8,707 28,159
Current portion of deferred tax asset 44,502 -
Prepaid expenses 51,634 76,264
---------- ----------
Total current assets 1,567,827 4,250,148
Furniture, equipment and leasehold
improvements, net 1,462,575 1,632,147
Software development costs, net 1,735,420 1,308,099
Deferred tax asset, net 1,004,938 -
Other assets 33,393 117,141
---------- ----------
Total assets $5,804,153 $7,307,535
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Book overdraft $ 23,619 $ 284,760
Accounts payable and accrued
liabilities 1,507,018 1,078,506
Deferred revenue 236,134 332,449
Current portion of notes payable
to shareholders - 107,375
Current portion of capital lease
obligations 132,422 135,151
---------- ----------
Total current liabilities 1,899,193 1,938,241
Capital lease obligations, net
of current portion 44,194 176,618
Long-term debt 490,000 -
Notes payable to shareholders, net
of current portion 482,830 389,000
Deferred income taxes - 62,687
---------- ---------
Total liabilities 2,916,217 2,566,546
Commitments and contingencies (Notes 7 and 10)
Stockholders' equity:
Common stock, $.001 par value;
30,000,000 shares authorized;
2,729,509 and 2,726,500 shares
issued and outstanding at
December 31, 1997 and 1996, respectively 2,730 2,727
Additional paid-in capital 4,498,988 4,491,226
Retained earnings (deficit) (1,613,782) 247,036
---------- ---------
Total stockholders' equity 2,887,936 4,740,989
---------- ---------
Total liabilities and
stockholders' equity $5,804,153 $7,307,535
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
APPLIED INTELLIGENCE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ 9,022,842 $ 9,507,370 $11,590,224
Expenses:
Direct cost of sales 2,211,956 2,570,840 3,616,687
Salaries and benefits 6,174,503 5,167,571 5,673,034
Selling, general and
administrative 2,708,351 2,007,999 1,588,655
Interest expense, net 73,581 219,089 149,042
Depreciation and
amortization 827,396 591,205 511,494
----------- ----------- -----------
Total expenses 11,995,787 10,556,704 11,538,912
----------- ----------- -----------
Income (loss) before
income taxes (2,972,945) (1,049,334) 51,312
Provision (benefit) for
income taxes (1,112,127) (366,925) 42,754
---------- ---------- ----------
Net income (loss) $(1,860,818) $ (682,409) $ 8,558
=========== =========== ==========
Basic and diluted earnings:
Net income (loss) per
common share $ (.68) $ (.37) $ .005
=========== =========== ==========
Weighted average common
shares outstanding 2,727,438 1,838,522 1,755,628
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
APPLIED INTELLIGENCE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings
--------- ------- ----------- ----------
<S> <C> <C> <C> <C>
Balance,
December 31, 1994 1,500,000 $1,500 $ 66,484 $ 920,887
Net income - - - 8,558
--------- ------ ---------- ---------
Balance,
December 31, 1995 1,500,000 1,500 66,484 929,445
Vantage Capital
Resources, Inc
Merger., 610,000 610 394,317 -
Stock redemptions (383,500) (383) (40,742) -
Initial public
offering 1,000,000 1,000 4,071,167 -
Net loss - - - (682,409)
---------- ------ ---------- --------
Balance,
December 31, 1996 2,726,500 2,727 4,491,226 247,036
Exercise of stock
options 444 - 279 -
Stock issued under
Employee Stock
Purchase Plan 2,565 3 7,483 -
Net loss - - - (1,860,818)
--------- ------ ---------- ----------
Balance (Deficit),
December 31, 1997 2,729,509 $2,730 $4,498,988 $(1,613,782)
========= ====== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
APPLIED INTELLIGENCE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1996 and 1997
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,860,818) $( 682,409) $ 8,558
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 827,396 591,205 511,494
Deferred income tax provision
(benefit) (1,112,127) (241,730) 158,237
Loss on disposal of fixed assets - 5,720 35
Decrease (increase) in accounts
receivable 672,515 363,680 (602,282)
Decrease (increase) in other
receivables 269,981 (95,995) (143,580)
Decrease (increase) in inventory 19,452 (5,767) 1,484
Decrease (increase) in prepaid
expenses 24,630 19,974 (75,473)
Decrease (increase) in other assets 83,748 (68,698) 119,747
Increase (decrease) in accounts
payable and accrued liabilities 428,512 (184,601) 308,505
Increase (decrease) in deferred
revenue (96,315) 207,986 67,143
---------- ----------- -----------
Net cash provided by (used in)
operating activities (743,026) (90,635) 353,868
---------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (332,987) (625,893) (376,541)
Capitalized expenditures for
software development (752,158) (655,248) (650,158)
---------- ----------- -----------
Net cash used in investing activities (1,085,145) (1,281,141) (1,026,699)
---------- ----------- -----------
Cash flows from financing activities:
Increase (decrease) in book
overdraft (261,141) 115,294 169,466
Payments of wholesale financing plan - - (1,020,126)
Proceeds from long-term debt 1,270,000 5,609,000 2,435,000
Proceeds from shareholder notes 6,455 39,375 76,000
Proceeds from exercise of stock
options 279 - -
Proceeds from employee stock
purchase plan 7,486 - -
Proceeds from sale of stock - 4,425,969 -
Payments of capital lease
obligations (135,153) (111,347) (24,610)
Payment of shareholder note (20,000) - -
Payments on long-term debt (780,000) (6,904,000) (1,140,000)
---------- ----------- -----------
Net cash provided by financing
activities 87,926 3,174,291 495,730
---------- ----------- -----------
Net increase (decrease) in cash (1,740,245) 1,802,515 (177,101)
Cash and cash equivalents at
beginning of period 1,821,014 18,499 195,600
---------- ----------- -----------
Cash and cash equivalents at
end of period $ 80,769 $ 1,821,014 $ 18,499
========== =========== ===========
Supplemental disclosures of
cash flow information:
Cash paid for interest $ 123,778 $ 251,967 $ 138,575
========== =========== ===========
Cash paid for income taxes,
net of cash received for
income taxes $ 114,852 $ (10,000) $ 127,871
========== =========== ==========
Supplemental disclosures of noncash
investing and financing activities:
Capital lease obligation incurred $ - $ 205,938 $ 241,788
========== =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
APPLIED INTELLIGENCE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General Description of Business. Applied Intelligence
Group, Inc. ("the Company") provides a diversified range of
management consulting and computer system integration
services, along with providing network services and network
based computer applications. All services are focused
primarily on the retail and wholesale distribution
industries. Through the Company's wholly-owned subsidiary, ijob, Inc.,
the Company also provides a comprehensive automated human
resource recruiting, testing, and screening process
utilizing the technologies of the Internet and interactive
voice response.
The Company's clients and customers range from small,
rapidly growing companies to large corporations and are
geographically dispersed throughout the United States.
Principles of Consolidation. The consolidated financial
statements include the accounts of the Company and its
wholly-owned subsidiary, ijob, Inc., which was formed June
30, 1997. All material intercompany balances and
transactions have been eliminated.
Use of Estimates. The preparation of financial statements
in conformity with generally accepted accounting principles
requires the use of management's estimates and assumptions
in determining the carrying values of certain assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts for certain revenues and expenses during
the reporting period. Actual results could differ from
those estimates.
Cash and Cash Equivalents. For purposes of the statement
of cash flows, the Company considers all highly liquid
investments with a maturity of three months or less at the
time of purchase to be cash equivalents.
Risks from Concentrations. Financial instruments which
potentially subject the Company to concentrations of credit
risk consist principally of temporary cash investments and
accounts receivable. The Company places its temporary cash
investments with high credit quality financial institutions.
Concentrations of credit risk with respect to accounts
receivable are limited due to the size of customers and
their dispersion across different regions. The Company does
not believe a material risk of loss exists with respect to
its financial position due to concentrations of credit risk.
The Company's revenues are in part dependent on large
license fees and systems integration contracts from a limited
number of customers. In 1997 and 1996, three customers
individually accounted for 20, 13, and 10 percent and 17,
14, and 10 percent of the Company's total revenues,
respectively. In 1997 and 1996, approximately 57 percent of
the Company's total revenues were attributable to five
clients. It is anticipated that the Company's revenue
derived from current and future large clients will continue
to represent a significant portion of its total revenues.
The loss of, or reduced demand for products or related
services from, any of the Company's major clients could have
a material adverse effect on the Company's business and
results of operations.
Furniture, equipment and leasehold improvements.
Furniture, equipment and leasehold improvements are stated
at cost. Expenditures for repairs and maintenance are
charged to expense as incurred. Upon disposition, the cost
and related accumulated depreciation are removed from the
accounts and the resulting gain or loss is reflected in
operations for the period. The Company depreciates
furniture and equipment using the straight-line method over
their estimated useful lives ranging from 5 to 10 years.
Leasehold improvements are amortized over the lease term
using the straight-line method.
Revenue Recognition. The Company recognizes revenues as
the services are provided. Revenues collected in advance
are deferred and recognized as earned. Revenues for fixed-
price contracts are recognized using the percentage of
completion method. Accounts receivable include unbilled
amounts of $193,355 and $534,756 at December 31, 1997 and
1996, respectively.
Direct Cost of Sales. Direct Cost of sales represents the
cost of hardware and certain point-of-sale software acquired
for resale, including royalty payments required for sale of
the Company's proprietary software products.
Earnings per Share. The Company presents basic and diluted
earnings per share ("EPS") as required under Statement of
Accounting Standard No. 128, "Earnings Per Share," ("SFAS
128"), which was adopted in fiscal year 1997. Securities
that could potentially dilute basic EPS in the future that
were not included in the computation of diluted EPS because
to do so would have been antidilutive include common stock
options and warrants outstanding at December 31, 1997 and
1996 of 583,078 and 435,208, respectively.
Income Taxes. The Company accounts for income taxes under
the liability method. Accordingly, deferred taxes are
determined based on the difference between the financial
statement and tax bases of assets and liabilities using the
enacted tax rate in effect in the years in which the
differences are expected to reverse. Deferred tax expense
represents the change in the net deferred tax liability
balance.
Costs of Product Development. The Company incurred costs
and expenses of approximately $1,875,000, $1,204,000, and
$1,060,000 for product development in 1997, 1996, and 1995,
respectively. A substantial portion of these costs relates
to development of a network subscription service that the
Company made available to subscribers in January of 1997.
Certain of these costs are capitalized as Software
Development Costs (See Note 4).
Recently Issued Accounting Pronouncements. In June 1997,
the Financial Accounting Standards Board issued a Statement
of Financial Standards No. 130, "Reporting Comprehensive
Income", the objective of which is to report and disclose a
measure of all changes in equity of a company that result
from transactions and other economic events of the period
other than transactions with owners. The impact of adopting
SFAS 130, which is effective for the Company in 1998, is not
considered to be material.
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
1998.
Reclassifications. Certain reclassifications of prior year
balances have been made to conform to the current year
presentation.
2. WHOLESALE FINANCING PLAN:
During 1995, the Company had a wholesale financing agreement
and Flexible Payment Plan with IBM Credit Corporation
("IBMCC"). The credit agreement generally called for a
credit line of $1,500,000, with the borrowing base or
advance rate calculated at 75% of accounts receivable and
100% of IBM inventory items. The credit agreement was
collateralized by the accounts receivable, inventories and
fixed assets of the Company.
The balance due under this plan of $1,209,186 was
extinguished on July 25, 1995 and the financing agreement
was canceled.
3. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Furniture, equipment and leasehold improvements at December
31, 1997 and 1996 consists of the following:
</TABLE>
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Furniture and fixtures $ 482,818 $ 461,203
Computer equipment 2,029,864 1,788,312
Computer software 657,498 595,730
Leasehold improvements 55,779 47,727
----------- ----------
3,225,959 2,892,972
Less: accumulated depreciation
and amortization (1,763,384) (1,260,825)
----------- ----------
Furniture, equipment and leasehold
improvements, net $ 1,462,575 $ 1,632,147
=========== ===========
</TABLE>
Included in furniture and fixtures in 1997 and 1996 was
$125,886 of assets under a capital lease. Included in
computer equipment in 1997 and 1996 was $321,840 of assets
under capital leases. The accumulated depreciation for all
assets under capital leases at December 31, 1997 and 1996
was $195,177 and $105,636, respectively.
4. SOFTWARE DEVELOPMENT COSTS:
The Company capitalizes certain costs, including interest,
that are directly related to the development of software.
In accordance with Statement of Financial Accounting
Standards No. 86, capitalization of costs begins when
technological feasibility has been established and ends when
the product is available for customers. Capitalized software
development costs are amortized using the straight-line
method over the estimated useful life of five years.
Amortization of capitalized software costs for December 31,
1997, 1996, and 1995 was $324,837, $176,756 and $193,246,
respectively. Accumulated amortization at December 31, 1997
and 1996 was $841,826 and $516,989, respectively.
The Company continually assesses whether the unamortized
capitalized cost of software development is impaired. This
assessment is based on the future cashflows expected to be
generated by the related product. If an impairment is
determined, the amount of such impairment is calculated
based on the estimated net realizable value of the related
asset. During 1996, the Company wrote-off $294,000 of fully
amortized capitalized software development costs. No write
offs were made in 1997.
Total interest costs for the year ended December 31, 1997,
1996, and 1995 were $116,183, $291,089 and $171,106,
respectively, of which $54,423 and $22,064, were capitalized
in 1996 and 1995, respectively. No interest was capitalized
in 1997.
5. LONG-TERM DEBT:
On July 19, 1995, the Company entered into a revolving
credit agreement (the "Agreement") with a bank whereby the
Company could borrow, under two separate notes, up to the
lesser of $3,000,000 or the borrowing base as defined in the
agreement. Pursuant to the terms of the revolving credit
agreement, upon successful completion of the Company's
initial public offering, the working capital note of
$800,000 was paid in full on November 27, 1996, and in
October, 1997, and December 1997, the terms of the remaining
note were renegotiated to a credit line of $500,000.
Interest on the note was prime plus 0.5% at December 31,
1997, which was 9%.
During the first quarter of 1998, the Company completed a
new credit facility with a commercial lender that replaced
the revolving credit agreement with the bank. Under the new
credit facility the Company may borrow up to $1,000,000;
however, amounts borrowed are limited to 75% of the
Company's accounts receivables as defined by the new
facility. The facility is collateralized by accounts
receivable and all tangible assets of the Company and is
guaranteed by three principal officers of the Company. The
promissory note under this agreement is due July 15, 1999.
As of December 31, 1997, the Company had borrowed $490,000
under the former facility with the bank, and as of March 23,
1998 had borrowed $569,030 under the new facility with the
commercial lender, which was partially used to pay off the
bank facility. The amounts borrowed at December 31, 1997
are classified as long-term in conjunction with the terms of
the new facility. The interest rate on the new facility is
prime plus 3%. In addition, during the first quarter of
1998 the Company obtained a credit facility including a
large sale financing option with IBM Credit Corp., whereby
the Company may finance directly with IBM Credit Corp. large
sales of hardware or software. As of March 23, 1998 no
borrowings had been made under this facility.
6. NOTES PAYABLE TO SHAREHOLDERS:
Notes payable to shareholders, who are also executive
officers of the Company, at December 31, 1997 and 1996,
consist of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
8.50% notes payable to shareholders, due
at maturity on March 8, 1999 $ 60,000 $ 60,000
11.50% note payable to shareholder, due
at maturity on April 5, 1999 55,000 -
11.50% note payable to shareholder, due
at maturity on April 21, 1999 77,000 -
8.50% notes payable to shareholders, due
at maturity on January 3, 2000 20,000 40,000
10.00% note payable to shareholder, due
at maturity on July 28, 200 30,800 28,000
10.00% note payable to shareholder, due
at maturity on November 15, 2000 39,375 39,375
10.00% note payable to shareholder, due
at maturity on January 5, 1998 - 55,000
8.50% note payable to shareholder, due
at maturity on April 1, 2001 46,655 43,000
10.00% notes payable to shareholders,due
at maturity on December 21, 2001 154,000 231,000
-------- --------
482,830 496,375
Less current portion - 107,375
-------- --------
$482,830 $389,000
========= ========
</TABLE>
Interest expense for 1997 and 1996 related to the notes
payable to shareholders was $46,473 and $44,375,
respectively.
Combined aggregate maturities of long-term debt and notes
payable to shareholders are as follows at December 31, 1997:
<TABLE>
<S> <C>
1998 $ -
1999 682,000
2000 90,175
2001 200,655
--------
$972,830
========
</TABLE>
7. STOCKHOLDERS' EQUITY:
On April 30, 1996, the Company amended its Certificate of
Incorporation to eliminate its previously authorized and
designated classes of Voting Common Stock and Non-Voting
Common Stock, to authorize a single class of Common Stock
with 30,000,000 shares authorized, par value $.001 per
share, and to authorize 10,000,000 shares of Preferred
Stock, $.001 par value per share. Furthermore, the Company
made a stock dividend distribution to its existing
shareholders to cause the number of shares of the Company's
Common Stock outstanding to increase from 541,000 to
1,500,000. All stockholders' equity amounts have been
restated to reflect this stock dividend.
On June 12, 1996, the Company merged with Vantage Capital
Resources, Inc. ("VCRI"). The merger was accounted for as
an acquisition of VCRI by the Company in a manner similar to
the pooling of interests method of accounting. To
consummate the merger, the Company exchanged 610,000 shares
of its Common Stock for all of the outstanding common shares
of VCRI. VCRI has no operations and, at the time of the
merger, had total assets of $541,151 and total liabilities
of $103,291.
On October 14, 1996, the Company redeemed 1,000 shares of
common stock issued to a former executive officer in
consummation of the merger of VCRI with the Company, for
$1.75 per share for an aggregate amount of $1,750. On
October 15, 1996, the Company redeemed 22,500 shares of
common stock that was also issued to an executive office and
director in consummation of the merger of VCRI with the
Company, for $1.75 per share for an aggregate amount of
$39,375. In redemption of the shares, the Company issued a
promissory note in the principal amount of $39,375, bearing
interest at the rate of 10 percent per annum (payable at
maturity), with a maturity date of November 15, 1997. This
note has been extended to November 15, 2000
Pursuant to an Exchange Agreement dated October 15, 1996,
two former executive officers and directors exchanged
360,000 shares of common stock, which were issued in
consummation of the merger of VCRI with the Company for
stock options, exercisable on November 20, 1998, to purchase
360,000 shares of common stock for $5.00 per share on or
before November 30, 2001. The Company has agreed that if it
files a registration statement or an amendment to a
registration statement under the Securities Act of 1933 with
the United State Securities and Exchange Commission, the
holders of the stock options have the right through December
31, 2001, to include in such registration statement the
stock options and or the common stock or other securities
issuable upon exercise of the stock options at no expense to
the holders of the stock options. In addition, the
executive officers and directors resigned as executive
officers and directors of the Company, and their employment
agreements were terminated effective June 12, 1996, without
any payment of or continuing right to receive compensation
under such employment agreement.
The Company's initial public offering was consummated on
November 20, 1996, pursuant to which the Company sold a
total of 1,000,000 common shares at an offering price to the
public of $5 per share, and 920,000 redeemable common stock
purchase warrants, including the underwriter's over-
allotment option, at $.125 per share. Each warrant entitles
the holder to purchase one share of common stock at $5.00
per share (subject to adjustment) during the three-year
period commencing November 20, 1996. The warrants are
redeemable by the Company, for $.125 per warrant, on not
less than 30 nor more than 60 days' written notice if the
average closing price per share of common stock is at least
$7.00 per share during a period of 30 consecutive trading
days ending not earlier than 20 days before the date the
warrants are called for redemption and provided that there
is then a current effective registration statement under the
Securities Act of 1933, as amended, with respect to the
issuance and sale of the common stock upon exercise of the
warrants. The net proceeds from the initial public offering
to the Company were approximately $4,071,000, after
deducting expenses of $428,162 and underwriting discounts.
The Company established the Applied Intelligence Group, Inc.
Employee Stock Purchase Plan (the "Employee Stock Purchase
Plan" or "Plan") in April 1997, which was approved by the
shareholders at the Annual Meeting of Shareholders on June
3, 1997. The Employee Stock Purchase Plan provides the
opportunity for employees to purchase the Company's Stock
through payroll deductions, to encourage participation in
the ownership and economic progress of the Company. Plan
participants may contribute up to $20 per pay period into
their account to purchase whole shares of the Common Stock
of the Company at pre-determined calendar quarter grant
dates or exercise dates. The price will be 85 percent of the
per share fair market value on the granting date or the
exercise date, whichever is the lesser, of the purchase
period. The number of shares of Common Stock authorized and
reserved for issuance under the Plan is 100,000 shares. As
of December 31, 1997, 2,565 shares of Common Stock have been
purchased by Employees of the Company, and are included in
the total outstanding shares as of December 31, 1997.
8. STOCK OPTION PLAN:
In 1995, the Company created the 1995 Stock Option Plan (the
"Plan"). The Plan provides for incentive stock options and
non-incentive stock options to key management, directors,
key professional employees or key professional non-employee
service providers of the Company. In April 1996, the Company
amended the Plan to authorize and reserve up to 300,000
shares of Common Stock for issuance of options under the
Plan.
The Plan permits the issuance of qualified and nonqualified
stock options. The Company issued 360,000 options not
pursuant to the Plan (see Note 7), which become exercisable
after 2 years and expire after 5 years from the original
grant date. The exercise price for all options granted to
date was based on the fair market value on the date of the
grant.
Activity pertaining to the options is as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Outstanding at January 1, 1995 - $ -
Granted 45,513 0.63
Exercised - -
Canceled - -
------
Outstanding at December 31, 1995 45,513 0.63
Granted 396,238 4.69
Exercised - -
Canceled (6,543) 0.80
-------
Outstanding at December 31, 1996 435,208 4.32
Granted 167,500 3.76
Exercised (444) 0.63
Canceled (19,186) 3.31
-------
Outstanding at December 31, 1997 583,078 $4.19
=======
</TABLE>
<TABLE>
<CAPTION>
Outstanding Options
------------------------------------------------
Weighted Average Weighted
Number of Remaining Average
Exercise Price Shares Contractual Life Exercise Price
-------------- --------- ----------------- ---------------
<S> <C> <C> <C>
$0.63 - $1.80 70,578 8 years $1.02
$3.50 - $5.00 512,500 7 years $4.63
</TABLE>
The Company applies APB Opinion 25 in accounting for its
stock options issued pursuant to the Plan. Accordingly,
based on the nature of the Company's grants of options, no
compensation cost has been recognized in 1997, 1996 and 1995. Had
compensation been determined on the basis of fair value
pursuant to FASB Statement No. 123, net income (loss) and
net income (loss) per share would not have been materially
impacted.
On February 9, 1998, the Board of Directors of the Company
adopted the 1998 Non-Qualified Stock Option Plan (the "Non-
Qualified Stock Plan" or "Plan"), to attract, retain and
motivate directors, executive officers, key employees and
independent contractors of the Company and its subsidiaries
by way of granting non-qualified stock options with stock
appreciation rights attached. The Non-Qualified Stock Plan
authorizes and reserves up to 300,000 shares of Common Stock
for issuance and options under the Plan. The option price
shall not be less than 85 percent of the fair market value
of the Common Stock on the date of grant. All options
pursuant to the Plan expire after ten years from the date of
grant. The Board of Directors has the discretion to fix the
period and the time at which any options granted under the
Plan may be exercised.
As of March 23, 1998, the Company has issued 87,500 stock
options to two outside Directors and one independent
contractor, with exercise dates from December 31, 1998
through December 31, 2000, at an exercise price of $3.125
per share, as long as the individuals continue to serve the
Company.
On February 10, 1998, the Board of Directors of the Company
adopted the 1998 Stock Grant Plan (the "Stock Grant Plan" or
"Plan") to attract, retain and motivate consultants,
independent contractors and key employees of the Company and
its subsidiaries by way of granting shares of stock in the
Company.
The Stock Grant Plan authorizes and reserves up to 150,000
shares of Common Stock of the Company for issuance under the
Plan. Shares of Common Stock received pursuant to the Stock
Grant Plan restrict the sale, transfer or other disposal of
said shares for a period of one year. As of March 23, 1998,
no shares of Common Stock had been issued under the Stock
Grant Plan.
9. INCOME TAXES:
The components of the provision (benefit) for income taxes
for the years ended December 31, 1997, 1996 and 1995 are as
follows:
<TABLE>
1997 1996 1995
------------ --------- ---------
<S> <C> <C> <C>
Current $ - $(125,195) $(115,483)
Deferred (1,112,127) (241,730) 158,237
----------- --------- ---------
Provision (benefit) for
income taxes $(1,112,127) $(366,925) $ 42,754
=========== ========= ==========
</TABLE>
The difference in federal income taxes at the statutory rate
and the provision for income taxes for the years ended
December 31, 1997, 1996, and 1995 are as follows:
<TABLE>
1997 1996 1995
----------- --------- -------
<S> <C> <C> <C>
Income tax expense (benefit)
at federal statutory rate $(1,010,801) $(356,773) $17,446
State income taxes (118,918) (41,973) 2,052
Nondeductible expenses 9,320 6,071 15,960
Revision of prior year estimate - 14,273 -
Other 8,272 11,477 7,296
----------- --------- -------
Provision (benefit) for
income taxes $(1,112,127) $(366,925) $42,754
=========== ========= =======
</TABLE>
Deferred tax assets (liabilities) are comprised of the
following:
<TABLE>
December 31,
---------------------
1997 1996
---------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 655 $ 2,140
Compensated absences 43,847 40,977
Tax carryforwards 24,969 22,929
Net operating loss carryforward 1,730,999 452,613
---------- ---------
1,800,470 518,659
Deferred tax liabilities:
Intangible assets (659,460) (497,078)
Depreciation and amortization
(91,570) (84,268)
---------- ---------
Net deferred tax asset (liability) $1,049,440 $ (62,687)
========== =========
</TABLE>
Management believes realization of the cumulative net
deferred tax asset at December 31, 1997 is more likely than
not based upon expected future taxable income and therefore
a valuation allowance has not been provided.
At December 31, 1997, the Company had net operating loss
("NOL") carryforwards for Federal and State purposes of
approximately $4,500,000 and $4,900,000, respectively, and
other carryforwards of approximately $66,000. The Federal
and State NOL carryforwards expire as follows: $1,100,000
and $1,500,000, respectively, in 2011 and $3,400,000 for
both in 2012.
10. LEASES:
The Company leases its office and storage space under
operating leases. The terms range from month-to-month up to
ten years and include options to renew. The Company also
leases office equipment under various noncancelable lease
agreements. Total rental expense in 1997, 1996 and 1995 for
all leases was $455,369, $333,225 and $210,962,
respectively.
Future minimum lease payments under noncancelable leases at
December 31, 1997 follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ----------
<S> <C> <C>
1998 $146,130 $ 456,656
1999 46,020 441,386
2000 - 402,158
2001 - 332,211
2002 - 330,000
Thereafter - 1,026,000
-------- ---------
Future minimum lease payments 192,150 $2,988,411
==========
Less amount representing interest 15,534
--------
Present value of minimum lease payments $176,616
========
11. RETIREMENT PLAN:
The Company has a profit sharing plan ("the Plan") for
certain eligible employees who have attained the age of 18
and completed one year of service. Under the Plan, employer
contributions are made at management's discretion.
Participants may contribute up to 6% of earnings as eligible
contributions and up to 15% of earnings in total for any
Plan year. The Company's discretionary matching percentage
is equal to each participant's share of total eligible
contributions for a year. The Company made no contributions
in 1997, 1996, and 1995.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying values of financial instruments included in
long-term debt approximate their fair values due to the
nature and terms of the instruments involved.
13. MANAGEMENT'S PLANS FOR IMPROVED OPERATIONS
The Company operated in 1997 without the services of its Vice President
of Sales and Marketing who left the Company in late 1996. In January,
1998, Mr. Larry R. Davenport joined the Company as Vice President
of Sales and Marketing. With his extensive experience, the Company
expects to improve its sales effort in 1998. In addition, the Company
has entered into negotiaions with a large retail software company,
whereby the Company will serves as the preferred supplier of hardware
to their customers and may obtain consulting engagements to install
their software. Substantial hardware sales and consulting revenues
are expected from such arrangement in 1998. In addition, in
the first quarter of 1998 the Company obtained a $1,000,0000 credit
facility to replace its existing bank facility. Further, in
support of the potential hardware sales discussed above, the
Company obtained a large sale financing facility of $1,000,000
with IBM Credit Corp., whereby the Company may finance directly with
IBM Credit Corp. large sales of hardware and software. There can be
no assurance that increased revenues and a return to profitability
will results from the above events.
</TABLE>
Exhibit 2.2
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") entered into as
of June 12, 1997 ("Effective Date") between ijob, Inc. ("ijob"),
an Oklahoma corporation whose principal place of business is
13800 Benson Road, Edmond, OK 73013 and HT Technologies, Inc.
("HT"), an Oklahoma corporation whose principal place of business
is 2801 E. Memorial Road, Edmond, Oklahoma 73013; David
Mitchell, an individual residing at 2801 E. Memorial
Road,Oklahoma City, OK 73013 ("Mitchell"); and Ron Beasley, an
individual residing at 2801 E. Memorial Road, Oklahoma City, OK
73013 ("Beasley").
WHEREAS, HT has developed certain software and software
related processes relating to the testing, identification and/or
referral of individuals seeking employment ("Software"); and
WHEREAS, ijob desires to acquire all of HT's interest in and
to said Software; and
WHEREAS, Mitchell and Beasley are the sole shareholders of
HT and Mitchell has executed an employment agreement ("Employment
Agreement") with ijob of even date herewith; and
WHEREAS, ijob, agrees to license back to HT certain rights
in the assets being purchased pursuant to this Agreement.
WHEREUPON, in consideration of the above premises and the
mutual agreements, representations and warranties set forth in
this Agreement, the parties agree as follows:
1. Sale of Assets. HT, Mitchell and Beasley agree to
sell and transfer to ijob, and ijob agrees to purchase from HT,
Mitchell and Beasley at the Closing (as hereinafter identified
in this Section 1),all of HT's right, title and interest in and
to the assets identified on Exhibit A hereto ("Assets") free and
clear of any pledge, lien, option, security interest, mortgage
claim, charge or other encumbrance of any kind whatsoever except
as provided in Sections 3.4 and 3.5 hereof. Notwithstanding
anything to the contrary herein, it is agreed and understood that
HT's expatriate selection and testing program known as
"ipatriot" is not included in the Assets being sold to ijob by
HT. Also, notwithstanding anything to the contrary in this
Agreement, it is also agreed and understood that ijob is not
assuming any of HT's financial or other obligations whatsoever,
including without limiting the generality of the foregoing, any
financial or other obligations under the license agreements or
other agreements listed on Exhibit C hereto. The closing of this
sale shall take place at the offices of ijob on the 1st day of
June, 1997 ("Closing").
2. Purchase Price. The consideration for the purchase of
said Assets shall be comprised of the following:
2.1 One Hundred ($100.00) Dollars paid at Closing to HT.
2.2 The issuance by Applied Intelligence Group, Inc.
("AIG") of thirty-eight thousand (38,000) stock options to
Mitchell and twelve thousand (12,000) stock warrants to Beasley
in AIG common stock with a price of $3.50 per share. Such stock
options and warrants shall be fully vested as of the Effective
Date of this Agreement but shall be forfeited to the extent that
they are not exercised within two (2) years of the Effective Date
of this Agreement.
2.3 Subject to the terms of subsections 2.3.1 and 2.3.2
hereof, the payment by ijob to HT of (i) fifty percent (50%) of
the Distributable Earnings of ijob, (ii) fifty percent (50%) of
the Distributable Proceeds from the sale of ijob assets and (iii)
fifty percent (50%) of any Distributable Gross Royalties received
by ijob from the sale or other transfer of ijob assets
(hereinafter collectively referred to as "Distributable
Amounts"). For purposes of this Agreement, what constitutes such
Distributable Amounts shall be determined from time to time by a
majority vote of the then current Board of Directors of ijob.
The other fifty percent (50%) of said Distributable Amounts shall
be distributed to AIG, which is an intended beneficiary of this
Agreement.
2.3.1 Notwithstanding anything to the contrary
in section 2.3 hereof but subject to the terms of
subsection 2.3.2 hereof, it is agreed and understood
that the Board of Directors of ijob shall have the
power and authority upon a majority vote to grant key
ijob employees a share in any or all of said
Distributable Amounts as ijob's Board deems
appropriate; provided however and notwithstanding
anything to the contrary in this subsection 2.3.1, any
such share(s) granted to other parties shall equally
reduce the amounts otherwise payable to HT and AIG from
said Distributable Amounts.
2.3.2 Notwithstanding anything to the contrary
in section 2.3 hereof or any subsection thereof, upon
the sale of all of the stock or of substantially all of
the assets of ijob, neither HT nor AIG nor any other
person who has been given a share(s) in said
Distributable Amounts shall have any further right to
any share therein except as may be reserved in such
sale.
2.4 The granting of a license from ijob to HT to use
certain of the Assets subjects to the terms and conditions of
said License. It is agreed and understood that although ijob is
acquiring said Assets, ijob is not assuming any of HT's
obligations under the licenses or other agreements identified on
Exhibit C hereto. The License shall be in substantially the form
set forth in Exhibit B hereto.
2.5 It is agreed and understood that AIG shall have the
right in its sole and absolute discretion to sell any stock it
holds in ijob. Provided, however, and notwithstanding anything
to the contrary herein, HT shall have a right of first refusal to
match any bona fide offer(s) from any third party or parties,
accepted by AIG, to purchase all or any of the stock of ijob.
Such right of first refusal shall be on the same terms and
conditions as are set forth in any such bona fide offer(s) which
may be accepted by AIG; provided however, HT must notify AIG in
writing within thirty (30) days of receipt of notice from AIG
that AIG either has or will accept any such bona fide offer if HT
will exercise this right of first refusal and agrees to meet the
terms of such bona fide offer. If AIG receives such notice that
HT will exercise its right of first refusal, AIG agrees to sell
to HT on such terms and conditions. If AIG has not received such
notice from HT within such thirty (30) day period, HT's right of
first refusal as to that bona fide offer is null and void and of
no further force and effect. In the event that HT does not
exercise its right of first refusal, and AIG proceeds with such
sale, HT shall share in the net sales proceeds ("Net Sales
Proceeds") from such sale in :
an amount equal to the amount it would have been
entitled to receive as Distributable Proceeds from the
sale of ijob assets pursuant to either Section 2.3 or
2.3.1 of this Agreement, as the case may be.
2.6 It is agreed and understood that HT shall have the
right, in its sole and absolute discretion, to transfer its
rights to receive Distributable Amounts under this Agreement.
Provided, however, and notwithstanding anything to the contrary
herein, AIG shall have a right of first refusal to match any bona
fide offer(s) from any third party, accepted by HT, to acquire
HT's rights to any such Distributable Amounts. Such right of
first refusal shall be on the same terms and conditions as are
set forth in such bona fide offer(s) which may be accepted by HT;
provided however, AIG must notify HT in writing within thirty
(30) days of receipt of notice from HT that HT either has or will
accept any such bona fide offer if AIG will exercise this right
of first refusal and agrees to meet the terms of such bona fide
offer. If HT receives such notice that AIG will exercise its
right of first refusal, HT agrees to sell to AIG on such terms
and conditions. If HT has not received such notice from AIG
within such thirty (30) day period, AIG's right of first refusal
as to that bona fide offer is null and void and of no further
force and effect.
3. Representations and Warranties of HT, Mitchell and
Beasley. HT, Mitchell and Beasley covenant, represent and
warrant as follows:
3.1 HT is a corporation duly organized and validly existing
and in good standing under the laws of the State of Oklahoma and
its sole shareholders are Mitchell and Beasley.
3.2 HT has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions
contemplated hereby. No other corporate proceedings on the part
of HT are necessary to authorize the Agreement or to consummate
the transaction so contemplated.
3.3 Neither the execution and delivery by HT of this
Agreement, nor the consummation of the transactions contemplated
hereby will result in a default (or give rise to any right of
termination, cancellation or acceleration) under any of the
terms, conditions or provisions of any note, license, agreement,
contract, or other instrument or obligation to which HT is a
party or by which HT or any of the Assets may be bound; or
violate any order, writ, injunction, decree, statute, rule or
regulation applicable to HT or any of the Assets.
3.4 Except for any claims by Mastermind Technology, Inc.
and/or Kerry Master in or to any of the Assets, such Assets or
any portion thereof are not subject to any license or other
rights of any third party.
3.5 Except for any claims by Mastermind Technology, Inc.
and/or Kerry Master in or to the Assets, and except to the extent
that HT has granted licenses in or to said Assets in any of the
licenses identified on Exhibit C to this Agreement, HT, Mitchell
and Beasley have not mortgaged, pledged or subjected any of said
Assets to any lien, charge, security interest or any other
encumbrance or sold, assigned, transferred or granted any rights
or options of any kind or nature in the Assets or agreed to do
so.
3.6 Other than as contained in the Assets sold to ijob
pursuant to this Agreement, there are no patents, patents
pending, trademarks, trade names, service marks, copyright
registrations or applications therefor, owned, licensed or used
by or registered in the name of HT or other persons which apply
to the business. To the extent that any such rights exist, HT,
Mitchell and Beasley specifically agrees to assign such
unreserved rights to ijob, so long as such rights relate to any
of said Assets.
3.7 There are no actions, suits, notices, proceedings,
orders, arbitrations or investigations (whether HT is plaintiff,
defendant, claimant or subject) pending or, to the best knowledge
of HT and the Shareholders, threatened against or affecting the
Assets, at law or equity, or before or by any federal, state,
municipal or other governmental departments, commission, board,
bureau, agency or instrumentality, domestic or foreign, (and to
the best knowledge of HT and its Shareholders, there exists no
set of facts which would give rise to any of the foregoing).
3.8 The consummation of the transactions contemplated by
this Agreement will not violate, or require compliance with, the
bulk sale or bulk transfer law of any jurisdiction.
3.9 That neither of them have dealt with any person, firm
or corporation who is or may be entitled to a broker's
commission, finder's fee or similar payment from the other party
for arranging the transactions contemplated herein or introducing
the parties to each other.
3.10 The persons signing below on behalf of the respective
parties represent and warrant that they have the authority to
bind the party on whose behalf they have executed this Agreement.
3.11 In the event that the Closing does not take place
contemporaneously with the execution of this Agreement, all of
the covenants, warranties and representations set forth in this
section 3 or elsewhere in this Agreement shall also be true as of
the Closing and HT, Mitchell and Beasley shall give ijob a
written statement to that effect at Closing.
4. Transfer of Documents; Further Assurances. At Closing,
HT will transfer and deliver to ijob all of its right, title and
interest in and to the Assets, and will also then deliver to ijob
all such assignments, bills of sale and instruments of
conveyance, in form and substance reasonably satisfactory to
ijob, and transfer as shall be necessary and effective to
transfer to and vest in ijob good and valid title to all of said
Assets. At the request of ijob after the Closing, HT will
execute and deliver any further instruments of conveyance and
transfer or confirmation thereof and will take such other action
as may reasonably be requested by ijob in order to make effective
and to transfer of the Assets contemplated by this Agreement.
5. Indemnification.
5.1 By HT, Mitchell and/or Beasley. HT, Mitchell and
Beasley jointly and individually agree to indemnify, defend, and
hold ijob harmless from and against and in respect to any and all
damages, losses, deficiencies, liabilities, out-of-pocket costs,
attorney fees and expenses, claims, actions, suits or other
proceedings resulting from, related to or arising out of (i) any
breach of any covenant, warranty or representation of HT,
Mitchell and/or Beasley in this Agreement, (ii) any
misrepresentation in or omission from any schedule, certificate
or other document furnished or to be furnished to ijob under this
Agreement, and (iii) any breach by HT, Mitchell or Beasley of any
of their obligations or duties under the licenses or other
agreements identified on Exhibit C hereto or under any other
agreements otherwise executed or otherwise entered into by HT,
Mitchell or Beasley.
5.2 By ijob. ijob agrees to indemnify, defend, and hold
HT, Mitchell and Beasley harmless from and against and in respect
to any and all damages, losses, deficiencies, liabilities, out-of-
pocket legal costs, attorney fees and expenses, claims, actions,
suits or other proceedings resulting from, related to or arising
out of the operations of ijob after Closing except to the extent
that the same may be covered by or relate to or arise out of the
provisions of Section 5.1 hereof and/or the obligations of HT,
Mitchell and/or Beasley thereunder.
6. Non-Competition; Confidentiality; Non-Solicitation. In
order to induce ijob to enter into this Agreement and the
transactions contemplated hereby, HT, Mitchell and Beasley agree
as follows:
6.1 Non-Competition. HT, Mitchell and Beasley agree that
for so long as HT is eligible to receive any Distributable
Amounts from ijob pursuant to Section 2.3 hereof or any
subsection(s) thereof and for a period of two (2) years
subsequent thereto, none of them will compete directly or
indirectly (whether as proprietor, partner, principal,
stockholder, agent, consultant, adviser, employee or otherwise)
with the activities of ijob or solicit existing customers of
ijob. The restrictions on Mitchell set forth in this section
6.1 are in addition to, and not in lieu of, any restrictions
placed upon him in said Employment Agreement.
6.2 Confidentiality Agreement. HT, Mitchell and Beasley
agree to hold all business information and data of ijob as the
confidential and proprietary property of ijob. Moreover, except
to the extent set forth in the license agreement issued pursuant
to Section 2.4 hereof, they and each of them agree that they
will not make any voluntary or independent use of any
confidential, trade secret, trademark, copyrightable, patented or
patentable, or other proprietary business information of ijob,
including, but not limited to, customer lists, computer
programs, databases, pricing formulae, designs, research files,
or any other related information, or attempt to procure any
rights adverse to ijob in any intellectual property as listed
herein.
7. Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto concerning the
subject matter thereof. No prior or contemporaneous
representations, inducements, promises, or agreements, oral or
otherwise, between the parties with reference thereto shall be of
any force or effect.
8. Modification. This Agreement may not be modified,
waived, amended, in whole or in part, without the written consent
of each of the parties hereto.
9. Arbitration. Any controversy or claim arising out of
or relating to this Agreement, or its breach, or its validity or
interpretation, except claims for injunctive relief and claims
involving necessary third parties who refuse to participate,
shall be settled by binding arbitration in accordance with the
then current Commercial Arbitration Rules of the American
Arbitration Association ("AAA"). The location for the
arbitration shall be in Oklahoma County, Oklahoma. Such
arbitration shall be heard and determined by a panel of three (3)
arbitrators in accordance with the then current rules or
regulations of the AAA relating to commercial disputes. One
arbitrator shall be appointed by each party to serve on the
panel. One neutral arbitrator shall be appointed by the AAA and
shall serve as chair-person of the three arbitrator panel. Such
neutral arbitrator shall be an attorney with experience in
handling disputes relating to commercial and/or corporate
litigation disputes. The arbitration award shall be binding on
the parties and may be enforced in any court of competent
jurisdiction. The prevailing party in such arbitration shall be
entitled to recover its reasonable attorney fees and costs
incurred in such arbitration proceeding.
10. Binding. This Agreement is binding on, and inures to
the benefit of ijob, HT, Mitchell, Beasley and their respective
heirs, successors and assigns to the extent permitted by said
Agreement.
11. Captions. The captions of the various sections or
paragraphs used in said Agreement are for convenience only, and
they are not intended to be any part of the body or text of said
Agreement, nor shall they be utilized in construing any of the
provisions thereof.
12. Attorney Fees. In the event that litigation is
instituted between the parties in connection with any controversy
or dispute arising out of or relating to said Agreement, the
prevailing party in such litigation shall be entitled to recover
its reasonable attorney fees and costs.
13. Severability. If any provision of said Agreement shall
be deemed invalid or unenforceable, the remaining provisions of
said Agreement shall not be affected thereby and each remaining
provision shall be valid and enforceable to the fullest extent
permitted by law.
14. Nonwaiver. Any waiver by a party of any breach of any
provision of this Agreement shall not be construed as a waiver of
any continuing or succeeding breach of such provision, a waiver
of that provision itself or a waiver of any other right(s) under
this Agreement.
15. Notice. All communications and notices provided for or
permitted in this Agreement shall be made in writing and shall be
personally delivered, mailed by certified mail, postage prepaid,
or sent by overnight courier to the party at its address first
specified above or to such other address as either party shall
have communicated by written notice to the other.
16. Survival. Unless otherwise specified all of the terms
of this Agreement shall survive the Closing .
ijob, INC. HUMAN TECHNOLOGIES, INC.
By: /s/Robert Baker By: /s/David C. Mitchell
Name: Robert Baker Name: David C. Mitchell
Its: Vice President Its: President
Date: June 12, 1997 Date: June 12, 1997
/s/ Ron Beasley /s/ David C. Mitchell
RON BEASLEY DAVID MITCHELL
June 12, 1997 June 12, 1997
Date Date
Applied Intelligence Group, Inc. (consenting and agreeing only as
to the terms of this Asset Purchase Agreement applicable to
Applied Intelligence Group, Inc. and in this regard AIG warrants
that it is a corporation in good standing under the laws of the
state of Oklahoma.)
By: /s/ Robert L. Barcum
Its: President
Date: June 12, 1998
EXHIBIT A: ASSETS
1. All of the software programs known as "HT1", "HT2", "Hal-1"
and "ijob-Internet", including, without limiting the
generality of the foregoing, all original technical and
instructional documentation relating thereto .
2. All rights held by Human Technologies, Inc ("HT"), David
Mitchell (`Mitchell") and/or Ron Beasley ("Beasley") to the
Source and Executable Code of Programs listed in paragraph
1.
3. Assignment of all copyright powers and benefits related to
the software programs listed in paragraphs 1 and 2 held by
HT, Mitchell and/or Beasley including, but not limited to,
the right to produce, sell, modify, distribute, license, and
copy in full or part those items described in paragraphs 1
and 2. .
4. All "ijob" and "ijob.com" and HT-1, HT-2, ijob-Internet and
Hal-1 related trademarks, trade names, sales marks, logos,
marketing concepts, and trade dress of the ijob business
concept.
5. Assignment of full ownership rights, including copyright and
other intellectual property rights, in all advertising,
instructional, or technical documents, whether printed or
computerized, relating to the software programs listed in
paragraphs 1 and 2. .
6. Legal title and ownership, or assignment where appropriate,
of any and all Internet properties, including, but not
limited to, domain names, addresses, unique URL's, and
service agreements relating to software programs listed in
paragraphs 1 and 2.
7. Assignment by HT, Mitchell and Beasley to ijob of all rights
to enforce and/or recover, for infringement or other legal
claims, past, present, or future, against any third party,
any of the rights or items transferred or assigned pursuant
to this Asset Purchase Agreement.
8. The goodwill of HT's, Mitchell's and Beasley's business
efforts related to the ijob business concept, including the
exclusive right to solicit the former clients or prospective
clients of HT in relation to the ijob business concept or
ijob services transferred or assigned pursuant to this Asset
Purchase Agreement.
9. Any and all rights to apply for, acquire, or retain the
benefit of any patentable subject matter derived from or
related to the ijob business concept, that at any time was
possessed by HT, in relation to the software programs
transferred or assigned pursuant to this Asset Purchase
Agreement.
Exhibit B.
SOFTWARE LICENSE AGREEMENT
This Software License Agreement ("Agreement") made and
entered into between ijob, Inc. ("ijob"), with a business address
of 13800 Benson Road, Edmond, Oklahoma 73013 and Human
Technologies, Inc. ("Customer"). Ijob and Customer agree that
the following terms and conditions shall govern in all cases when
Ijob furnishes Program Products (as hereinafter defined) to
Customer:
1. DEFINITIONS.
1.1 "Agreement" means this Agreement, including any exhibits,
amendments, supplements, and addenda. The term "Agreement" also
includes any future written amendments, modifications or
supplements made pursuant to and in accordance with this
Agreement.
1.2 "Program Product" means the computer software programs,
documentation, interfaces and related code identified in Exhibit
A attached hereto. This may include software from third parties
from whom Ijob has obtained a right to use and distribute.
1.3 "Executable Code" means computer programs assembled or
compiled in magnetic or electronic binary form on software media,
which are readable and usable by machines but not generally
readable by humans without reverse assembly, reverse compiling,
or reverse engineering.
1.4 "Source Code" means computer programs written in
higher-level programming languages, sometimes accompanied by
English language comments which are intelligible to trained
programmers and which may be translated into Executable Code for
operation on computer equipment through the process of compiling.
1.7 "Documentation" means printed instructions, manuals,
descriptions, on-line help and diagrams pertaining to the Program
Products described in Exhibit A.
2. LICENSE. ijob hereby grants and the Customer accepts a
nontransferable, non-assignable and non-exclusive license to use
the Program Products listed on Exhibit A for its internal
business purposes and, subject to the terms, covenants,
conditions and limitations of this Agreement, to sublicense the
same to third parties; provided however and notwithstanding
anything to the contrary, neither Customer nor any of its
sublicensees may use the Program Products to compete either
directly or indirectly with ijob in the providing of Internet
based employment referral, recruiting and testing services;
provided however, HT may continue to use and develop its
expatriate selection and testing program known as "ipatriot" to
the extent that such program is solely used for the selection and
testing of employees to be sent or transferred overseas by their
employer. Customer may not grant a license to or otherwise
transfer the Program Products to any third party who competes
with ijob in the providing of Internet based employment
referral, recruiting and testing services. The license granted
hereunder extends to the United States and its Territories only.
To the extent that HT grants licenses as permitted by this
Agreement, it is not obligated to pay any royalties or additional
license fees to ijob therefore. The Customer shall shall take
all reasonable actions to prevent others from reverse engineering
the Program Products, decompiling or disassembling any code, or
engineering derivative products which duplicate the unique
qualities of the Program Products. All copies made by the terms
of this Agreement and derivative works based on the Program
Products are subject to the terms and conditions of this
Agreement and shall state on such copy(s) that they are, or
include, the property of ijob, and that such rights of ijob are
protected under the copyright, trade secret and confidentiality
laws of the United States, and such other notices as required by
Ijob.
3. TERM. This Agreement is perpetual unless earlier terminated
in accordance with the provisions of this Agreement.
4. CONSIDERATION. This License is granted pursuant to the
terms of an Asset Purchase Agreement executed by and between ijob
and Customer as of the 12th day of June, 1997.
5. TERMINATION.
5.1 Upon termination of this Agreement, Customer shall
immediately discontinue use of the Program Products. Within one
(1) week after the date of termination of this Agreement,
Customer will deliver to Ijob the original and all copies,
including partial copies and modifications, of the Program
Products and related documentation or certify in writing to Ijob
that all such Program Products and related documentation has been
destroyed by Customer and have been fully removed from any
computer(s) upon which they have been installed.
5.2 This Agreement shall immediately terminate without notice,
to the extent permitted by applicable law in the jurisdiction or
jurisdictions in question, if Customer files a petition in
bankruptcy (or is the subject of an involuntary petition in
bankruptcy that is not dismissed within sixty (60) days after the
effective filing date thereof); or is or becomes insolvent; or
admits of a general inability to pay its debts as they become
due.
5.3 This Agreement shall terminate immediately upon any of the
following events, without the need for further action on the part
of Ijob, (i) if Customer breaches any of its obligations under
this Agreement relating to Ijob's intellectual property rights or
confidentiality in or to the Program Products or relating to
export controls of the Program Products or (ii) if Customer fails
to cure any other obligation it owes to Ijob pursuant to the
terms of this Agreement within thirty (30) days after receipt of
written notice thereof from Ijob.
6. OWNERSHIP. Nothing in this Agreement shall be deemed to
give Customer ownership rights in or title to all or any portion
of the Program Products. Customer acknowledges that the Program
Products are proprietary to ijob, or third parties from whom Ijob
has obtained a right to use and distribute, and that the sole and
exclusive title, right and interest in and to the Program
Products and all related documentation and any alterations, new
releases, new versions or any other modifications or
Enhancements, or Updates of the Program Products and any copies
thereof and any and all documentation relating thereto are and
shall remain in Ijob, or such third parties from whom Ijob has
obtained a right to use and distribute the same. All applicable
legal and statutory rights in the Program Products, Source code,
Executable code, patents, and copyrights are and shall remain the
property of Ijob, or third parties from whom Ijob has obtained a
right to use and distribute the same. Nothing in this Agreement
shall preclude Ijob from developing Program Products or
Documentation which are competitive, irrespective of their
similarity, to Program Products or Documentation which might be
produced for or provided to Customer pursuant to this Agreement.
7. CONFIDENTIALITY. The Program Products contains confidential
information protected by copyright, trade secret and trademark
laws. The Customer may not remove or alter ownership and
copyright notices or such other notices on or in the media or the
Program Products. Customer shall take all reasonable steps to
protect and maintain the confidentiality of the Agreement and the
Program Products. The Customer shall not disclose this Agreement
or any portion of the Program Products to any person other than
its own employees who have a need to use such Program Products in
furtherance of the Customer's business. The Customer shall
advise each of its employees with any such access of such
confidentiality requirements. The provisions of this Agreement
relating to confidentiality shall survive the termination of this
Agreement. Customer shall take or cause to be taken all
reasonable precautions to hold in confidence, and to prevent the
disclosure or communication to third parties of, and shall not
disclose or communicate to third parties, without Ijob's prior
written consent, all information, data and know-how pertaining to
the design and operation of the Program Products, including, but
not limited to, Source and Executable Code, tapes, machine
listings and flowcharts and documentation relating thereto.
8. DISCLAIMER OF ALL WARRANTIES. THE PROGRAM PRODUCTS ARE
DELIVERED TO CUSTOMER AS IS, WHERE IS. IJOB DISCLAIMS ANY AND
ALL WARRANTIES, OR CONDITIONS, OR REPRESENTATIONS (EXPRESS OR
IMPLIED, ORAL OR WRITTEN), WITH RESPECT TO THE PROGRAM PRODUCTS
OR ANY PART THEREOF, INCLUDING ANY AND ALL IMPLIED WARRANTIES OR
CONDITIONS OF TITLE, NONINFRINGEMENT, MERCHANTABILITY, OR FITNESS
FOR A PARTICULAR PURPOSE (WHETHER OR NOT IJOB KNOWS, HAS REASON
TO KNOW, HAS BEEN ADVISED, OR IS OTHERWISE IN FACT AWARE OF ANY
SUCH PURPOSE), WHETHER ALLEGED TO ARISE BY LAW, BY REASON OF
CUSTOM OR USAGE IN THE TRADE, OR BY COURSE OF DEALING, OR BY
COURSE OF PERFORMANCE UNDER ANY OTHER CONTRACT BETWEEN THE
PARTIES HERETO. IN ADDITION, IJOB EXPRESSLY DISCLAIMS ANY
WARRANTY OR REPRESENTATION TO ANY PERSON OTHER THAN CUSTOMER WITH
RESPECT TO THE PROGRAM PRODUCTS OR ANY PART THEREOF.
9. IN NO EVENT SHALL IJOB BE LIABLE TO CUSTOMER NOR TO ANY
PERSON CLAIMING RIGHTS DERIVED FROM CUSTOMER'S RIGHTS FOR ANY
DAMAGES OF ANY KIND OR NATURE, INCLUDING WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, INCIDENTAL, CONSEQUENTIAL AND
EXEMPLARY DAMAGES..
10 Ijob and Customer each acknowledge that the provisions of
this Agreement were negotiated to reflect an informed, voluntary
allocation between them of all risks (both known and unknown)
associated with the transactions associated with this Agreement.
The warranty disclaimers and limitations in this Agreement are
intended to limit the circumstances of liability. The remedy
limitations, and the limitations of liability, are separately
intended to limit the forms of relief available to Customer.
11. OTHER PROVISIONS.
11.1 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between Ijob and Customer concerning the subject matter
hereof. No prior or contemporaneous representations,
inducements, promises, or agreements, oral or otherwise, between
Ijob and customer with reference thereto will be of any force or
effect.
11.2 MODIFICATION. No modification, amendment or waiver of any
of the provisions of this Agreement, and no prior approval
required by this Agreement, shall be effective unless in writing
signed by the parties. Writings signed on behalf of Ijob shall
be signed by an officer of the corporation. Any provision of
Customer's purchase order or other request for products or
services under this Agreement that is in any way inconsistent
with or in addition to the terms and conditions of this
Agreement, shall not bind Ijob. Ijob's failure to object to any
such provision shall not be construed as a waiver of the terms
and conditions of this Agreement nor as acceptance of any such
provision.
11.3 CHOICE OF LAW. This Agreement shall be governed by the laws
of the State of Oklahoma and the venue of any action for
enforcement of any of the terms covenants or conditions of this
Agreement, or otherwise, shall be in the State of Oklahoma.
11.4 ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, or its breach, or its validity or
interpretation, except claims for injunctive relief and claims
involving necessary third parties who refuse to participate,
shall be settled by binding arbitration in accordance with the
then current Commercial Arbitration Rules of the American
Arbitration Association ("AAA"). The location for the
arbitration shall be in Oklahoma County, Oklahoma. Such
arbitration shall be heard and determined by a panel of three (3)
arbitrators in accordance with the then current rules or
regulations of the AAA relating to commercial disputes. One
arbitrator shall be appointed by each party to serve on the
panel. One neutral arbitrator shall be appointed by the AAA and
shall serve as chair-person of the three arbitrator panel. Such
neutral arbitrator shall be an attorney with experience in
handling disputes relating to software license agreements. The
arbitration award shall be binding on the parties and may be
enforced in any court of competent jurisdiction. The prevailing
party in such arbitration shall be entitled to recover its
reasonable attorney fees and costs incurred in such arbitration
proceeding.
11.5 ASSIGNMENT. Customer may not assign this Agreement or the
rights and obligations created hereunder without the prior
written consent Ijob.
11.6 BINDING. This Agreement is binding on, and inures to the
benefit of, Ijob, the Customer, and their respective successors
and assigns to the extent permitted by this Agreement.
11.7 COMPLIANCE WITH LAWS. Each party shall comply with all
applicable laws and regulations.
11.8 FORCE MAJEURE. Ijob shall not be responsible for failure of
performance due to causes beyond its control, including, but not
limited to, accidents, acts of God, labor disputes, or the
actions of any Government agency.
11.9 CAPTIONS. The captions of the various paragraphs herein are
for convenience only, and they are not intended to be any part of
the body or text of this Agreement, nor are they intended to be
referred to in construing any of the provisions hereof.
11.10 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, any of which shall be deemed to be an
original.
11.11 INDEPENDENT CONTRACTORS. Ijob and the Customer are
strictly independent contractors. Neither party has the right to
bind the other in any manner, and nothing in this Agreement shall
be interpreted to make either party the agent or legal
representative of the other or to make the parties joint
venturers or partners.
11.12 JOINT EFFORTS. This Agreement has been prepared and
negotiations in connection therewith have been carried on by the
joint efforts of the parties to this Agreement. This Agreement
is to be construed simply and fairly and not strictly for or
against any of the parties to this Agreement.
11.13 ATTORNEY FEES. In the event that litigation or
arbitration is instituted between the parties in connection with
any controversy or dispute arising from, under or related to this
Agreement the prevailing party in such litigation shall be
entitled to recover its reasonable attorney fees and costs,
including without limitation, deposition costs relating to such
litigation and further including, without limitation, any such
attorney fees or costs incurred as a result of any appeal related
to such litigation.
11.14 AUDIT. In furtherance of any and all of Ijob's rights
under this Agreement ijob may, at its expense and without notice
to the Customer, but during the Customer's regular business
hours, enter upon the Customer's premises to audit the number of
copies of Program Products made under this Agreement and the
Customer's compliance with the other provisions of this
Agreement.
11.15 SEVERABILITY. If any provision of this Agreement shall
be invalid or unenforceable, the remaining provisions of this
Agreement shall not be affected thereby and each remaining
provision shall be valid and enforceable to the fullest extent
permitted by law.
11.16 NONWAIVER. The failure of Ijob at any time to require
performance by Customer of any provision of this Agreement shall
in no way affect the right of Ijob to require performance of that
provision. Any waiver by Ijob of any breach of any provision of
this Agreement shall not be construed as a waiver of any
continuing of succeeding breach of such provision, a waiver of
that provision itself or a waiver of any right under this
Agreement.
11.17 TRADEMARK USAGE. Customer shall not make any use of
any of Ijob's intellectual property, including but not limited
to, trademarks, service marks, trade names, or corporate name for
any reason or purpose without the prior express written consent
of Ijob.
11.18 NOTICE. All communications and notices provided for or
permitted hereunder shall be effective when made in writing and
shall be personally delivered, mailed by certified mail, postage
prepaid, or sent by overnight courier to the addresses set forth
below or to such other address as either party shall have
communicated by written notice to the other.
The parties agree and acknowledge that they have read this
agreement, understand it, and that they shall be bound by its
terms and conditions. The "Effective Date" of the Agreement
shall be the later of the dates shown below.
ijob, INC. HUMAN TECHNOLOGIES, INC.
By: /s/ Robert Baker By: /s/ David C. Mitchell
Name: Robert Baker Name: David C. Mitchell
Its: Vice President Its: President
Date: June 12, 1997 Date: June 12, 1997
Exhibit C.
1. Thermalloy Proposal Commencing on or about May 1, 1997
2. Stillwater Medical Center Sales Agreement dated on or about
March 28, 1997
3. Quest Medical Contract dated on or about May 29, 1996
4. Neighbor Executive Coffee Proposal dated February 27, 1996
5. Bob Mills Furniture Sales Agreement dated on or about April
1, 1996
6. License Agreement dated June 25, 1996
7. Fred Jones Enterprises Contract dated January 15, 1997
8. Fleming Companies, Inc. Proposal dated September 10, 1997
9. Childers Contruction Co. with a reference date of April 15,
1996
10. Accord Human Resources Sales Agreement dated August 15, 1996
11. BCTI License Agreement dated April 10, 1997
Exhibit 4.9
THE SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, THE
OKLAHOMA SECURITIES ACT OR THE SECURITIES LAWS OF ANY OTHER
STATE. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE SOLD OR TRANSFERRED FOR VALUE IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION OF THEM UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND/OR THE SECURITIES LAWS OF ANY OTHER STATE OR AN
OPINION OF COUNSEL OR OTHER DOCUMENTATION SATISFACTORY TO APPLIED
INTELLIGENCE GROUP, INC. THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER SUCH ACT OR ACTS.
STOCK OPTION AGREEMENT
OPTIONS TO PURCHASE COMMON STOCK
OF
APPLIED INTELLIGENCE GROUP, INC.
Date: June 12, 1997
This is to certify that, for value received, David Mitchell
or any subsequent holder or holders of option rights under this
Stock Option Agreement (this "Agreement" or "Option") by virtue
of assignment or transfer (the "Holder") is entitled to purchase,
subject to the provisions of this Agreement, from Applied
Intelligence Group, Inc., an Oklahoma corporation (the
"Company'), up to THIRTY-EIGHT THOUSAND (38,000) shares of Common
Stock, $.001 par value, of the Company (the "Stock") at an
exercise price of Three Dollars Fifty Cents ($3.50) per share
(the "Exercise Price"). With the exception of any adjustments
pursuant to Section 4 of this Agreement, the Stock issuable upon
exercise of this Option shall be in all respects identical to the
Common Stock issued and outstanding of the Company as of the date
hereof. The shares of Stock or other securities deliverable upon
such exercise, as adjusted from time to time, are hereinafter
sometimes referred to as the "Option Securities." Unless the
context otherwise requires, the term "Option" or "Options" as
used herein includes this Option and any other Option or Options
that may be issued pursuant to the provisions of this Agreement,
whether upon transfer, assignment, partial exercise, divisions,
combinations, exchange or otherwise, and the term "Holder" or
"Holders" includes any registered transferee or transferees or
registered assignee or assignees of Holder, who in each case
shall be subject to the provisions of this Agreement, and when
used with reference to Option Securities, means the holder or
holders of such Option Securities.
SECTION 1. Exercise of Option. Subject to the provisions of
this Agreement, the Holder shall be eligible to exercise that
portion of this Option for purchase of the number of Option
Securities on or before the Expiration Date (as defined below).
This Option may be exercised in whole or in part at any time or
from time to time during the period commencing June 12, 1997 (the
"Commencement Date"), and ending 5:00 P.M., Central
Daylight-Savings Time, on June 12, 1999 (the "Expiration Date"),
by presentation end surrender to Company at its principal office
of this Option and the Purchase Form annexed hereto, duly
executed and accompanied by payment, in cash, certified or
official bank check payable to the order of Company in the amount
of the Exercise Price for the number of shares of Stock (or
Option Securities) specified in such Form. Upon such exercise,
Company shall issue to the Holder one or more certificates for
the shares of Stock (or Option Securities), as appropriate. If
this Option is exercised in part only, Company shall, promptly
after presentation of this Option upon such exercise, execute and
deliver a new Option evidencing the rights of Holder thereof to
purchase the balance of the shares of Stock (or Option
Securities) purchasable hereunder upon the same terms and
conditions as herein set forth.
SECTION 2. Reservation of Shares. Company shall at all
times after the date hereof and until expiration or full exercise
of this Option reserve for issuance and delivery upon exercise of
this Option the number of Option Securities as shall be required
for issuance and delivery upon exercise of this Option.
SECTION 3. Transfer, Exchange, Assignment or Loss of Option.
SECTION 3.1 Transferability. This Option may not be
assigned or transferred, in whole or in part, except by operation
of law or with the prior written consent of the Company (which
consent shall not be unreasonably withheld) and then only so long
as such assignment or transfer is in accordance with and subject
to the provisions of the Securities Act of l933, as amended, and
the rules and regulations promulgated thereunder (said Act and
such rules and Regulations being hereinafter collectively
referred to as the "Securities Act"). Any purported transfer or
assignment made other than in accordance with this Section 3
shall be null and void and of no force and effect.
SECTION 3.2 Transfer Procedure. Any assignment permitted
hereunder shall be made by surrender of this Option to Company at
its principal office with the Assignment Form annexed hereto duly
executed and funds sufficient to pay any transfer tax. In such
event and the Company is required to and consents to such
transfer, Company shall, without charge, execute and deliver a
new Option in the name of the assignee named in such instrument
of assignment and designate the assignee as the registered holder
on the Company's records and this Option shall promptly be
canceled. This Option may be divided or combined with other
Options which carry the same rights upon presentation thereof at
the principal office of Company together with a written notice
signed by Holder hereof, specifying the names and denominations
in which new Options are to be issued.
SECTION 3.3 Loss or Destruction of this Agreement. Upon
receipt by Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Option, and (in the case
of loss, theft or destruction) of reasonably satisfactory
indemnification to Company or (in the case of mutilation)
presentation of this Option for surrender and cancellation,
Company will execute and deliver a new Option of like tenor and
date and any such lost, stolen, destroyed or mutilated Option
shall thereupon become void. This Option may be exchanged at the
option of the Holder for another Option or Options of different
denominations, of like tenor and evidencing in the aggregate the
number of shares of Stock or Option Securities purchasable
pursuant to this Option, upon surrender of this Option, with the
Assignment Form duly filled in and executed, to the Company at
its principal office, at any time or from time to time after the
close of business on the date hereof and prior to the close of
business on the Expiration Date. The Company shall promptly
cancel the surrendered Option and deliver the new Option or
Options pursuant to the provisions of this Section.
SECTION 4. Adjustment in the Number. Kind and Price of
Option Securities. The number and kind of Option Securities
purchasable upon exercise of this Option shall be subject to
adjustment from time to time upon the occurrence, after the date
hereof, of the following events:
SECTION 4.1 Stock Dividends and Splits. In the event
Company shall (i) pay a dividend in, or make a distribution of,
shares of Stock or of capital stock convertible into Stock on its
outstanding Stock, (ii) subdivide (forward split) its outstanding
shares of Stock into a greater number of such shares, or (iii)
combine (reverse split) its outstanding shares of Stock into a
smaller number of such shares, the total number of shares of
Stock purchasable upon the exercise of this Option immediately
prior thereto shall be adjusted so that the Holder shall be
entitled to receive at the same Exercise Price the number of
shares of Stock and the number of shares of capital stock
convertible into Stock which such Holder would have owned or have
been entitled to receive immediately following the happening of
such event, assuming and giving effect to the exercise of this
Option by such Holder. Any adjustment made pursuant to this
Subsection shall, in the case of a stock dividend or distribution
or a stock issuance, become effective as of the record date
therefore and, in the case of a subdivision or combination, be
made as of the effective date thereof.
SECTION 4.2 Adjustment of Option Securities. In the event
of any adjustment of the total number of shares of Stock
purchasable upon the exercise of this Option pursuant to
Subsection 4.1, the Exercise Price shall remain unchanged, but
the number of shares of capital stock or Option Securities
obtainable on exercise of this Option shall be adjusted as
provided in Subsection 4.l.
SECTION 4.3 Reorganization, Recapitalization, etc. In the
event of a capital reorganization or a reclassification of the
Stock (except as provided in Subsection 4.1 or Subsection 4.4),
the Holder of this Option, upon exercise thereof, shall be
entitled to receive, in lieu of the Stock to which he would have
become entitled upon exercise immediately prior to such
reorganization or reclassification, the shares (of any class or
classes) or other Option Securities or property of the Company
(or cash) that the Holder would have been entitled to receive at
the same Exercise Price upon such reorganization or
reclassification if this Option had been exercised immediately
prior thereto; and in any such case, appropriate provision shall
be made for the application of this Section 4 with respect to the
rights and interests thereafter of the Holder of this Option
(including, but not limited to, the allocation of the Exercise
Price between or among the Option Securities),), to the end that
this Section 4 (including the adjustments of the number of shares
of Stock or other Option Securities purchasable) shall thereafter
be reflected, as nearly as reasonably practicable, in all
subsequent exercises of this Option for any shares or other
Option Securities or other property (or cash) thereafter
deliverable upon the exercise of this Option.
SECTION 4.4 Consolidation, Merger, etc. In case of any
consolidation of the Company with, or merger of the Company with,
or merger of the Company into, another corporation (other than a
consolidation or merger which does not result in any
reclassification or change of the outstanding Stock), or in case
of any sale or conveyance to another corporation of the property
of the Company as an entirety or substantially as an entirety,
the corporation formed by such consolidation or merger or the
corporation which shall have acquired such assets, as the case
may be, shall execute and deliver to the [{older a supplement to
this Option or a new option providing that the Holder of this
Option shall have the right thereafter (until the Expiration
Date) to receive, upon exercise of this Option or any new option,
at the same Exercise Price, solely the kind and amount of shares
of Option Securities and property (or cash) receivable upon such
consolidation, merger, sale or transfer by the Holder of this
Option for the number and kind of Option Securities for which
this Option might have been exercised immediately prior to such
consolidation, merger, sale or transfer. Such supplemental option
or new option shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments
provided in this Section. The above provision of this Subsection
4.4 shall similarly apply to successive consolidations, mergers,
sales or transfers.
SECTION 4.5 Notification of Adjustment. Whenever the Option
Securities purchasable upon exercise of this Option are modified
as provided in Section 4.1 or 4.4, the Company will promptly
deliver to the Holder a certificate signed by the Chairman of the
Board, Chief Executive Officer or the President, or a Vice
President of the Company and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the
Company setting forth the number and kind of Option Securities
purchasable and the other property (including cash) receivable by
the Holder upon exercise of this Option or any supplemental or
new option. Such certificate will state that such adjustments in
the kind of purchasable Option Securities and other property
(including cash) receivable by the Holder upon exercise of this
Option conform to the r requirements of this Section 4, and
setting forth a brief statement of the facts accounting for such
adjustments. In the event, the Holder of this Option does not
agree with such determination of the Board of Directors of the
Company as set forth in the certificate, the Company shall retain
a firm of independent public accountants acceptable to the Holder
to make any computation required under this Section 4, and a
certificate signed by such firm shall be conclusive evidence of
the correctness of any computation made under this Section 4.
SECTION 5. Redemption and Dividend Consent Requirements.
This Option may not be redeemed by Company. During the period
from the date hereof until exercise of this Option in full or
through the Expiration Date, the Company shall not declare any
dividends payable in cash or property (other than in liquidation,
voluntary or involuntary dissolution or winding-up of the
Company) without the prior written consent of the Holder of this
Option.
SECTION 6. Notice of Certain Corporation Action. In case
the Company after the date hereof shall propose to effect any
consolidation or merger to which the Company is a party and for
which approval of any shareholders of the Company is required, or
any sale, transfer or other disposition of its property and
assets substantially as an entirety, or the liquidation,
voluntary or involuntary dissolution or winding-up of the
Company, then, in each such case, the Company shall mail (by
first-class, postage prepaid mail) to the Holder of this Option
notice of such proposed action, which notice shall specify the
date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, other disposition,
liquidation, voluntary or involuntary dissolution or winding-up
shall take place or commence, as the case may be, and which shall
also specify any record date for determination of holders of the
capital stock of the Company entitled to vote thereon or
participate therein and shall set forth such facts with respect
thereto as shall be reasonably necessary to indicate any
adjustments in the number or kind of Option Securities
purchasable upon exercise of this Option which will be required
as a result of such action, and the Holder may thereafter
exercise this Option. Such notice shall be filed and mailed in
the case of any action covered by this Section 6, at least 20
days prior to the earlier of (i) the date on which such
reclassification, reorganization, consolidation, merger, sale,
transfer, other disposition, liquidation, voluntary or
involuntary dissolution or winding-up is expected to become
effective, (ii) the date on which it is expected that holders of
shares of the capital stock of record on such date shall be
entitled to exchange their shares for securities or other
property deliverable upon such reclassification, reorganization,
consolidation, merger, sale, transfer, other disposition,
liquidation, voluntary or involuntary dissolution or winding-up,
or (iii) the record date for determination of holders of the
capital stock of the Company entitled to vote on such action or
participate in such action. Failure of the Holder to exercise
this Option in whole or in part prior to any corporate action as
described in this Section 6 shall not affect or alter the rights
of the Holder as set forth in this Option.
SECTION 7. Acquisition for Investment Purposes. The Holder
represents and acknowledges to the Company and its officers and
directors that the Option Securities at the time of issuance to
the Holder upon exercise of this Option (i) will be acquired by
the Holder for investment purposes only without the intent to
resell such Option Securities, (ii) will be issued pursuant to
exemption from registration under the Securities Act and any
applicable state securities act, (iii) will not be transferred
except pursuant to registration under the Securities Act and any
applicable state securities act unless pursuant to exemption from
registration under such acts, and (iv) the certificates
evidencing the Option Securities will bear appropriate
restrictive transfer legends as required pursuant to the
Securities Act and any applicable state securities act.
SECTION 8. Registration under Securities Act. The Company
shall not be obligated at any time to register the Option
Securities under the Securities Act or any applicable state
securities act.
SECTION 9 Governing Law. This Option shall be construed in
accordance with the laws of the State of Oklahoma applicable to
contracts executed and to be performed wholly within such state.
SECTION 10 Notice. Notices and other communications to be
given to Holder of this Option shall be delivered by hand or by
first-class mail, postage prepaid, to
Mr. David Mitchell
___________________________
___________________________
(until another address is filed in writing by the Holder with the
Company). Notices or other communications to Company shall be
deemed to have been sufficiently given if delivered by hand or by
first-class mail, postage prepaid to Company at
Applied Intelligence Group, Inc.
13800 Benson Road
Edmond, Oklahoma 73013-6417
Attention: Robert L. Barcum
or such other address as the Company shall have designated by
written notice to such registered owner is herein provided.
Notice by mail shall be deemed given when deposited in the
United States mail, postage prepaid, as herein provided.
SECTION 11. Successors. All the covenants and provisions
of this Agreement by or for the benefit of the Company shall bind
and inure to the benefit of its successors and assigns hereunder,
and all covenants and provisions of this Agreement by or for the
benefit of the Holder of this Agreement shall bind and inure to
the benefit of the Holder of this Agreement.
SECTION 12. Termination. This Agreement shall terminate as
of the close of business on the earlier of the Expiration Date,
or such earlier date upon which the Options evidenced by this
Agreement shall have been exercised in full. However, with
respect to the Holders representations set forth in Section 7,
such Section and representations shall continue on and after the
Expiration Date if this Option is fully or partially exercised on
or before the Expiration Date.
SECTION 13. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation
other than the Company, and its respective successors and assigns
hereunder and the registered Holder of this Agreement and the
Option hereunder any legal or equitable right, remedy or claim
under this Agreement, but this Agreement shall be for the sole
and exclusive benefit of the Company and its respective
successors and assigns hereunder and the registered Holder of
this Agreement and Option hereunder.
IN WITNESS WHERFOF, Company has executed this Agreement on
June 12, 1997.
APPLIED INTELLIGENCE GROUP, INC.
By: /s/ Robert N. Baker
Robert N. Baker, Vice President
By: /s/ David C. Mitchell
David C. Mitchell
PURCHASE FORM
(TO BE EXECUTED BY THE HOLDER OF THE STOCK OPTION IF EXERCISED IN
WHOLE OR IN PART)
To: APPLIED INTELLIGENCE GROUP, INC.
The undersigned (______________________________) Please insert
Social Security or other number of Subscriber hereby irrevocably elects to
exercise the right of purchase represented by the Stock Option (the
"Option") to which this Purchase Form is attached, for, and to purchase
thereunder, __________________________________________________
( ) shares of Common Stock provided for therein and tenders
payment herewith to the order of APPLIED INTELLIGENCE GROUP, INC. in the
amount of $_____________________. In accordance with Section 1 of the Stock
Option Agreement, the undersigned requests that certificates for such shares
of Common Stock be issued as follows:
Name:___________________________________________________________
Address:_________________________________________________________
Deliver to:______________________________________________________________
_
Address:_________________________________________________________
and if said number of shares of Common Stock shall not be all the shares of
Common Stock purchasable thereunder, that a new Stock Option for the
balance remaining of shares of Common Stock purchasable under the
Option be registered in the name of, and delivered to the undersigned at
the address stated below:
Name:____________________________________________________________
Address:_________________________________________________________
Deliver to:______________________________________________________________
Address:_________________________________________________________
Dated:_______________,____ Signature___________________________
(Signature must conform in all
respects to the name of
Holder as specified on the face of
the Stock Option in every
particular, without alteration,
enlargement or any change
whatever.)
ASSIGNMENT FORM
(TO BE EXECUTED BY THE MOLDER OF THE STOCK OPTION ONLY UPON
ASSIGNMENT)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
("Assignee")
the right to purchase _____________________________(_____________) shares
of Common Stock subject to purchase under the Stock Option (the
"Option") to which this Assignment is attached, and appoints
______________________________________________________________
Attorney to transfer said Option or portion thereof on the books of
APPLIED INTELLIGENCE GROUP, INC. with the full power of substitution
in the premises. In accordance with Section 3 of the Stock Option Agreement,
the undersigned requests that the Company execute, issue and deliver a
new Stock Option evidencing the rights of the Assignee to purchase such
assigned shares of Common Stock to Assignee as follows:
Name:____________________________________________________________
Address:______________________________________________
Deliver to:______________________________________________________________
Address:_________________________________________________________
and if said number of shares of Common Stock shall not be all
the shares of Common Stock purchasable under the Option, that the
Company execute, issue and deliver a new Stock Option for the
balance remaining of shares of Common Stock purchasable under the
Option to be registered in the name of, and delivered to the
undersigned at the address stated below:
Name:____________________________________________________________
Address:_________________________________________________________
Deliver to:______________________________________________________________
Address:_________________________________________________________
Dated:_______________,____.
In the presence of:
Signature
Signature Guaranteed:
_________________
(Signature must conform in all
respects to the name of Holder
as specified on the face of
the Stock Option in every
particular, without
alteration, enlargement or any
change whatsoever, and the
signature must be guaranteed
in the usual manner.)
Exhibit 4.10
THE SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, THE
OKLAHOMA SECURITIES ACT OR THE SECURITIES LAWS OF ANY OTHER
STATE. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE SOLD OR TRANSFERRED FOR VALUE IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION OF THEM UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND/OR THE SECURITIES LAWS OF ANY OTHER STATE OR AN
OPINION OF COUNSEL OR OTHER DOCUMENTATION SATISFACTORY TO APPLIED
INTELLIGENCE GROUP, INC. THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER SUCH ACT OR ACTS.
COMMON STOCK PURCHASE WARRANT AGREEMENT
FOR THE PURCHASE COMMON STOCK
OF
APPLIED INTELLIGENCE GROUP, INC.
Date: June 12, 1997
This is to certify that, for value received, Ron Beasley or
any subsequent holder or holders of Warrant rights hereunder (the
"Warrants") by virtue of assignment or transfer (the "Holder") is
entitled to purchase, subject to the provisions of this Common
Stock Purchase Warrant Agreement (this "Agreement"), from Applied
Intelligence Group, Inc., an Oklahoma corporation (the
"Company"), up to TWELVE THOUSAND (12,000) shares of Common
Stock, $.001 par value, of the Company (the "Stock") at an
exercise price of Three_Dollars Fifty Cents ($3.50) per share
(the "Exercise Price"). With the exception of any adjustments
pursuant to Section 4 of this Agreement, the Stock issuable upon
exercise of this Warrant shall be in all respects identical to
the Common Stock issued and outstanding of the Company as of the
date hereof. The shares of Stock or other securities deliverable
upon such exercise, as adjusted from time to time, are
hereinafter sometimes referred to as the "Warrant Securities."
Unless the context otherwise requires, the term "Warrant" or
"Warrants" as used herein includes the Warrants and any other
warrant or warrants that may be issued pursuant to the provisions
of this Agreement, whether upon transfer, assignment, partial
exercise, divisions, combinations, exchange or otherwise, and the
term "Holder" or "Holders" includes any registered transferee or
transferees or registered assignee or assignees of Holder, who in
each case shall be subject to the provisions of this Agreement,
and when used with reference to Warrant Securities, means the
holder or holders of such Warrant Securities.
SECTION 1. Exercise of Warrants. Subject to the provisions
of this Agreement, the Holder shall be eligible to exercise that
portion of the Warrants for purchase of the number of Warrant
Securities on or before the Expiration Date (as defined below).
The Warrants may be exercised in whole or in part at any time or
from time to time during the period commencing, June 12, 1997
(the "Commencement Date"), and ending 5:00 P.M., Central
Daylight-Savings Time, on June 12, 1999 (the "Expiration Date"),
by presentation and surrender to Company at its principal office
of the Warrants and the Purchase Form annexed hereto, duly
executed and accompanied by payment, in cash, certified or
official bank check payable to the order of Company in the amount
of the Exercise Price for the number of shares of Stock (or
Warrant Securities) specified in such Form. Upon such exercise,
Company shall issue to the Holder one or more certificates for
the shares of Stock (or Warrant Securities), as appropriate. If
the Warrants are exercised in part only, Company shall, promptly
after presentation of the Warrants upon such exercise, execute
and deliver new Warrants evidencing the rights of Holder thereof
to purchase the balance of the shares of Stock (or Warrant
Securities) purchasable hereunder upon the same terms and
conditions as herein set forth.
SECTION 2. Reservation of Shares. Company shall at all
times after the date hereof and until expiration or full exercise
of the Warrants reserve for issuance and delivery upon exercise
of the Warrants the number of Warrant Securities as shall be
required for issuance and delivery upon exercise of the Warrants.
SECTION 3. Transfer, Exchange, Assignment or Loss of the
Warrants.
SECTION 3.1 Transferability. The Warrants may not be
assigned or transferred, in whole or in part, except by operation
of law or with the prior written consent of the Company (which
consent shall not be unreasonably withheld) and then only so long
as such assignment or transfer is in accordance with and subject
to the provisions of the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder (said Act and
such rules and Regulations being hereinafter collectively
referred to as the "Securities Act"). Any purported transfer or
assignment made other than in accordance with this Section 3
shall be null and void and of no force and effect.
SECTION 3.2 Transfer Procedure. Any assignment permitted
hereunder shall be made by surrender of the Warrants to Company
at its principal office with the Assignment Form annexed hereto
duly executed and funds sufficient to pay any transfer tax. In
such event and the Company is required to and consents to such
transfer, Company shall, without charge, execute and deliver new
Warrants in the name of the assignee named in such instrument of
assignment and designate the assignee as the registered holder on
the Company's records and the Warrants shall promptly be
canceled. The Warrants may be divided or combined with other
Warrants which carry the same rights upon presentation thereof at
the principal office of Company together with a written notice
signed by Holder hereof, specifying the names and denominations
in which new Warrants are to be issued.
SECTION 3.3 Loss or Destruction of this Agreement. Upon
receipt by Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Agreement, and (in the
case of loss, theft or destruction) of reasonably satisfactory
indemnification to Company or (in the case of mutilation)
presentation of this Agreement for surrender and cancellation,
Company will execute and deliver a new Agreement of like tenor
and date and any such lost, stolen, destroyed or mutilated
Agreement shall thereupon become void. This Agreement may be
exchanged at the option of the Holder for another agreement or
agreements of different Warrant denominations, of like tenor and
evidencing in the aggregate the number of shares of Stock or
Warrant Securities purchasable pursuant to this Agreement, upon
surrender of this Agreement, with the Assignment Form duly filled
in and executed, to the Company at its principal office, at any
time or from time to time after the close of business on the date
hereof and prior to the close of business on the Expiration Date.
The Company shall promptly cancel this Agreement upon surrender
and deliver the new agreement evidencing the Warrant or Warrants
pursuant to the provisions of this Section.
SECTION 4. Adjustment in the Number, Kind and Price of
Option Securities. The number and kind of Warrant Securities
purchasable upon exercise of the Warrants shall be subject to
adjustment from time to time upon the occurrence, after the date
hereof, of the following events:
SECTION 4.1 Stock Dividends and Splits. In the event
Company shall (i) pay a dividend in, or make a distribution of,
shares of Stock or of capital stock convertible into Stock on its
outstanding Stock, (ii) subdivide (forward split) its outstanding
shares of Stock into a greater number of such shares, or (iii)
combine (reverse split) its outstanding shares of Stock into a
smaller number of such shares, the total number of shares of
Stock purchasable upon the exercise of the Warrants immediately
prior thereto shall be adjusted so that the Holder shall be
entitled to receive at the same Exercise Price the number of
shares of Stock and the number of shares of capital stock
convertible into Stock which such Holder would have owned or have
been entitled to receive immediately following the happening of
such event, assuming and giving effect to the exercise of the
Warrants by such Holder. Any adjustment made pursuant to this
Subsection shall, in the case of a stock dividend or distribution
or a stock issuance, become effective as of the record date
therefore and, in the case of a subdivision or combination, be
made as of the effective date thereof.
SECTION 4.2 Adjustment of Warrant Securities. In the event
of any adjustment of the total number of shares of Stock
purchasable upon the exercise of the Warrants pursuant to
Subsection 4.1, the Exercise Price shall remain unchanged, but
the number of shares of capital stock or Warrant Securities
obtainable on exercise of the Warrants shall be adjusted as
provided in Subsection 4.1.
SECTION 4.3 Reorganization. Recapitalization, etc. In the
event of a capital reorganization or a reclassification of the
Stock (except as provided in Subsection 4.1 or Subsection 4.4),
the Holder of the Warrants, upon exercise thereof, shall be
entitled to receive, in lieu of the Stock to which he would have
become entitled upon exercise immediately prior to such
reorganization or reclassification, the shares (of any class or
classes) or other Warrant Securities or property of the Company
(or cash) that the Holder would have been entitled to receive at
the same Exercise Price upon such reorganization or
reclassification if the Warrants had been exercised immediately
prior thereto; and in any such case, appropriate provision shall
be made for the application of this Section 4 with respect to the
rights and interests thereafter of the Holder of the Warrants
(including, but not limited to, the allocation of the Exercise
Price between or among the Warrant Securities), to the end that
this Section 4 (including the adjustments of the number of shares
of Stock or other Warrant Securities purchasable) shall
thereafter be reflected, as nearly as reasonably practicable, in
all subsequent exercises of the Warrants for any shares or other
Warrant Securities or other property (or cash) thereafter
deliverable upon the exercise of the Warrants.
SECTION 4.4 Consolidation, Merger, etc. In case of any
consolidation of the Company with, or merger of the Company with,
or merger of the Company into, another corporation (other than a
consolidation or merger which does not result in any
reclassification or change of the outstanding Stock), or in case
of any sale or conveyance to another corporation of the property
of the Company as an entirety or substantially as an entirety,
the corporation formed by such consolidation or merger or the
corporation which shall have acquired such assets, as the case
may be, shall execute and deliver to the Holder a supplement to
the Warrants or a new option providing that the Holder of the
Warrants shall have the right thereafter (until the Expiration
Date) to receive, upon exercise of the Warrants or any new
option, at the same Exercise Price, solely the kind and amount of
shares of Warrant Securities and property (or cash) receivable
upon such consolidation, merger, sale or transfer by the Holder
of the Warrants for the number and kind of Warrant Securities for
which the Warrants might have been exercised immediately prior to
such consolidation, merger, sale or transfer. Such supplemental
warrants or new warrants shall provide for adjustments which
shall be as nearly equivalent as may be practicable to the
adjustments provided in this Section. The above provision of this
Subsection 4.4 shall similarly apply to successive
consolidations, mergers, sales or transfers.
SECTION 4.5 Notification of Adjustment. Whenever the
Warrant Securities purchasable upon exercise of the Warrants are
modified as provided in Section 4.1 or 4.4, the Company will
promptly deliver to the Holder a certificate signed by the
Chairman of the Board, Chief Executive Officer or the President,
or a Vice President of the Company and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of
the Company setting forth the number and kind of Warrant
Securities purchasable and the other property (including cash)
receivable by the Holder upon exercise of the Warrants or any
supplemental or new option. Such certificate will state that such
adjustments in the kind of purchasable Warrant Securities and
other property (including cash) receivable by the Holder upon
exercise of the Warrants conform to the requirements of this
Section 4, and setting forth a brief statement of the facts
accounting for such adjustments. In the event, the Holder of the
Warrants does not agree with such determination of the Board of
Directors of the Company as set forth in the certificate, the
Company shall retain a firm of independent public accountants
acceptable to the Holder to make any computation required under
this Section 4, and a certificate signed by such firm shall be
conclusive evidence of the correctness of any computation made
under this Section 4.
SECTION 5. Redemption and Dividend Consent Requirements.
The Warrants may not be redeemed by Company. During the period
from the date hereof until exercise of the Warrants in full or
through the Expiration Date, the Company shall not declare any
dividends payable in cash or property (other than in liquidation,
voluntary or involuntary dissolution or winding-up of the
Company) without the prior written consent of the Holder of this
Option.
SECTION 6. Notice of Certain Corporation Action. In case
the Company after the date hereof shall propose to effect any
consolidation or merger to which the Company is a party and for
which approval of any shareholders of the Company is required, or
any sale, transfer or other disposition of its property and
assets substantially as an entirety, or the liquidation,
voluntary or involuntary dissolution or winding-up of the
Company, then, in each such case, the Company shall mail (by
first-class, postage prepaid mail) to the Holder of the Warrants
notice of such proposed action, which notice shall specify the
date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, other disposition,
liquidation, voluntary or involuntary dissolution or winding-up
shall take place or commence, as the case may be, and which shall
also specify any record date for determination of holders of the
capital stock of the Company entitled to vote thereon or
participate therein and shall set forth such facts with respect
thereto as shall be reasonably necessary to indicate any
adjustments in the number or kind of Warrant Securities
purchasable upon exercise of the Warrants which will be required
as a result of such action, and the Holder may thereafter
exercise the Warrants. Such notice shall be filed and mailed in
the case of any action covered by this Section 6, at least 20
days prior to the earlier of (i) the date on which such
reclassification, reorganization, consolidation, merger, sale,
transfer, other disposition, liquidation, voluntary or
involuntary dissolution or winding-up is expected to become
effective, (ii) the date on which it is expected that holders of
shares of the capital stock of record on such date shall be
entitled to exchange their shares for securities or other
property deliverable upon such reclassification, reorganization,
consolidation, merger, sale, transfer, other disposition,
liquidation, voluntary or involuntary dissolution or winding-up,
or (iii) the record date for determination of holders of the
capital stock of the Company entitled to vote on such action or
participate in such action. Failure of the Holder to exercise the
Warrants in whole or in part prior to any corporate action as
described in this Section 6 shall not affect or alter the rights
of the Holder as set forth in this Agreement.
SECTION 7. Acquisition for Investment Purposes. The Holder
represents and acknowledges to the Company and its officers and
directors that the Warrant securities at the time of issuance to
the Holder upon exercise of the Warrants (i) will be acquired by
the Holder for investment purposes only without the intent to
resell such Wart ant Securities, (ii) will be issued pursuant to
exemption from registration under the Securities Act and any
applicable state securities act, (iii) will not be transferred
except pursuant to registration under the Securities Act and any
applicable state securities act unless pursuant to exemption from
registration under such acts, and (iv) the certificates
evidencing the Warrant Securities will bear appropriate
restrictive transfer legends as required pursuant to the
Securities Act and any applicable state securities act.
SECTION 8. Registration under Securities Act. The Company
shall not be obligated at any time to register the Warrant
Securities under the Securities Act or any applicable state
securities act.
SECTION 9 Governing Law. This Option shall be construed in
accordance with the laws of the State of Oklahoma applicable to
contracts executed and to be performed wholly within such state.
SECTION 10 Notice. Notices and other communications to be
given to Holder of this Option shall be delivered by hand or by
first-class mail, postage prepaid, to
Mr. Ron Beasley
____________________________
____________________________
(until another address is filed in writing by the Holder with the
Company).
Notices or other communications to Company shall be deemed to
have been sufficiently given if delivered by hand or by
first-class mail, postage prepaid to Company at
Applied Intelligence Group, Inc.
13800 Benson Road
Edmond, Oklahoma 73013-6417
Attention: Robert L. Barcum
or such other address as the Company shall have designated by
written notice to such registered owner is herein provided.
Notice by mail shall be deemed given when deposited in the
United States mail, postage prepaid, as herein provided.
SECTION 11. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company shall bind
and inure to the benefit of its successors and assigns hereunder,
and all covenants and provisions of this Agreement by or for the
benefit of the Holder of this Agreement shall bind and inure to
the benefit of the Holder of this Agreement.
SECTION 12. Termination. This Agreement shall terminate as
of the close of business on the earlier of the Expiration Date,
or such earlier date upon which the Warrants evidenced by this
Agreement shall have been exercised in full. However, with
respect to the Holders representations set forth in Section 7,
such Section and representations shall continue on and after the
Expiration Date if the Warrants are fully or partially exercised
on or before the Expiration Date.
SECTION 13. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation
other than the Company, and its respective successors and assigns
hereunder and the registered Holder of this Agreement and the
Warrants hereunder any legal or equitable right, remedy or claim
under this Agreement, but this Agreement shall be for the sole
and exclusive benefit of the Company and its respective
successors and assigns hereunder and the registered Holder of
this Agreement and the Warrants hereunder.
IN WITNESS WHEREOF, Company has executed this Agreement on
June 12, 1997.
APPLIED INTELLIGENCE GROUP, INC.
By: /s/Robert N.Baker
Robert N. Baker, Vice President
/s/Ron Beasley
Ron Beasley
PURCHASE FORM
(TO BE EXECUTED BY THE MOLDER OF THE COMMON STOCK
PURCHASE WARRANT AGREEMENT IF EXERCISED IN WHOLE OR IN PART)
To: APPLIED INTELLIGENCE GROUP, INC.
The undersigned (___________________________________________)
Please insert Social Security or other number of Subscriber
hereby irrevocably elects to exercise the right of purchase represented
by the Common Stock Purchase Warrant Agreement to which this Purchase
Form is attached, for, and to purchase thereunder,
(______________________) shares of Common Stock provided for therein and
tenders payment herewith to the order of APPLIED INTELLIGENCE GROUP, INC. in
the amount of $__________. In accordance with Section 1 of the Common Stock
Purchase Warrant Agreement, the undersigned requests that certificates for
such shares of Common Stock be issued as follows:
Name:_______________________________________________________________________
Address:____________________________________________________________________
Deliver to:__________________________________________________________________
Address:____________________________________________________________________
and if said number of shares of Common Stock shall not be all the shares of
Common Stock purchasable thereunder, that a new Common Stock Purchase
Warrant Agreement for the balance remaining of shares of Common Stock
purchasable under the Common Stock Purchase Warrant Agreement be registered
in the name of, and delivered to the undersigned at the address stated
below:
Name:_______________________________________________________________________
Address:____________________________________________________________________
Deliver to:_________________________________________________________________
Address:____________________________________________________________________
Dated:_______________, _____ Signature
______________________________________
(Signature must conform in all respects
to the name of Holder as specified on the
face of the Common Stock Purchase Warrant
Agreement in every particular, without
alteration, enlargement or any change
whatever.)
ASSIGNMENT FORM
(TO BE EXECUTED BY THE HOLDER OF THE COMMON STOCK
PURCHASE WARRANT AGREEMENT ONLY UPON ASSIGNMENT)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
("Assignee") the right to purchase
(_____________) shares of Common Stock subject to purchase under the Common
Stock Purchase Warrant Agreement (the "Warrants") to which this Assignment
is attached, and appoints __________________________________ Attorney to
transfer said Warrants or any portion thereof on the books of APPLIED
INTELLIGENCE GROUP, INC. with the full power of substitution in the
premises. In accordance with Section 3 of the Common Stock Purchase Warrant
Agreement, the undersigned requests that the Company execute, issue and
deliver a new common stock purchase warrant agreement evidencing the rights
of the Assignee to purchase such assigned shares of Common Stock to Assignee
as follows:
Name:_______________________________________________________________________
Address:____________________________________________________________________
Deliver to:_________________________________________________________________
Address:____________________________________________________________________
and if said number of shares of Common Stock shall not be all the shares of
Common Stock purchasable under Common Stock Purchase Warrant Agreement, that
the Company execute, issue and deliver a new common stock purchase warrant
agreement for the balance remaining of shares of Common Stock purchasable
under the Warrants to be registered in the name of, and delivered to the
undersigned at the address stated below:
Name:_______________________________________________________________________
Address:____________________________________________________________________
Deliver to:_________________________________________________________________
Address:____________________________________________________________________
Dated:_______________, _____.
In the presence of:
Signature
Signature Guaranteed:
_________________________________________________
(Signature must conform in all respects
to the name of Holder as specified on the
face of the Common Stock Purchase Warrant
Agreement in every particular, without
alteration, enlargement or any change
whatsoever, and the signature must be
guaranteed in the usual manner.)
Arrangement Letter - Confidential Information
Fox Photo, Inc. (12-10-97)
Applied Intelligence Group, Inc.
13800 Benson Road
Edmond, OK 73013
December 10, 1997
Mr. Alan D. Kerschner
Executive Vice President of Finance & CFO
Fox Photo, Inc.
1706 Washington Avenue
St. Louis, MO 63103
Dear Mr. Kerschner:
Applied Intelligence Group, Inc. (AIG) is pleased to present
this Arrangement Letter (Letter) defining the agreement
between our firms for AIG to provide services to Fox Photo,
Inc. (Fox Photo) to design and implement elements of the Sales
Audit and POS data processing system that are scheduled to
replace Fox's current systems by March 31, 1998. This Letter
supersedes and replaces the previous arrangement letter
between Fox Photo and AIG dated October 28, 1997.
SCOPE AND APPROACH
The scope of this project is to provide Fox Photo with the
retail expertise and professional services of AIG's employees.
AIG will perform professional services for Fox Photo on a time
and expenses basis to assist in the replacement of Fox's
current Sales Audit and POS data processing systems. As
mutually agreed between Fox Photo and AIG, AIG will use its
best efforts to:
Assist Fox Photo in the development and implementation of
the above-mentioned Sales Audit and POS data processing
systems
Provide written System Requirements Document (SRD) for
included applications
Provide written high-level procedure descriptions
Provide Data Conversion Requirements Document for
historical data
Provide training services and documentation for Fox Photo
employees on the new systems
AIG will provide updates and status reports on a weekly basis
so that Fox Photo can identify AIG's progress and make
changes, if necessary, in the scope, schedule, and/or budget
for this project.
ASSUMPTIONS
The assumptions AIG used to develop scheduling and terms are
listed in this section. If any of these assumptions needs to
change, AIG reserves the right to adjust our proposed terms
and timeframes accordingly.
Development of the new systems will be performed on-site
at AIG.
Leased communications lines or direct connections will be
established and maintained by Fox Photo. AIG will provide an
AS/400 and work stations for work done in Edmond, Oklahoma.
See Exhibit B for pricing information.
All the systems will not be in place by March 31, 1997.
AIG will work with Fox Photo to develop unavoidable business
systems as a highest priority, as agreed by Fox and AIG.
SPECIFIC TERMS AND CONDITIONS
The specific terms and conditions related to the services that
AIG will provide to Fox within the scope of this agreement are
listed in the following section.
PROJECT MANAGEMENT
Fox will provide a suitable Project Manager to coordinate
the project and an Executive Sponsor with overall
responsibility for project implementation and direction
within Fox. AIG will also provide a Project Manager who
will be Fox's primary project contact. AIG's proposed
project timeframe assumes that Fox personnel are available
to participate in the project as required.
GENERAL TERMS AND CONDITIONS
For the General Terms and Conditions section of this Letter,
Fox will be referred to as the Client.
OWNERSHIP
AIG and the Client agree that the tools, method,
techniques, and documentation developed by AIG for the
Client are confidential and proprietary. The Client may
not sell, share, lease, loan, transfer, or give these
assets to any other entity without prior written approval
from AIG. In the event that a new parent corporation
acquires Fox, the transfer of this asset can be made to the
new parent corporation.
Under the terms of this Letter, the Client receives a non-
transferable, non-assignable, non-exclusive right to use
the tools, method, techniques, software, and documentation
developed by AIG for the Client in its headquarters and
stores, as well as the headquarters and stores of any of
the Client's subsidiaries or parent corporation.
WARRANTY
The work AIG performs will be done in a professional and
workmanlike manner. AIG does not warrant that the systems,
software, plans, strategies, designs, recommendations or
services provided by AIG will meet the strategic or
business needs of the Client. AIG only warrants that the
analysis and recommendations are based on information
provided to AIG by the Client.
CONFIDENTIALITY
AIG recognizes the confidential nature of our clients'
business plans and strategies and agrees to treat these
plans and strategies appropriately. Likewise, AIG's tools,
techniques, and proprietary documentation are important
company assets which we consider to be confidential and
proprietary. The Client agrees to treat AIG materials,
plan, and strategies in the same confidential manner as its
own material. Both companies agree that no confidential
information will be released or disclosed to any persons
other than the Client's or AIG's employees. Both companies
also agree to label confidential information as such before
information is exchanged.
LIMITATION OF LIABILITY
In no event will AIG be liable for any reason beyond the
total amount paid to AIG for services performed within the
scope of this Letter. AIG disclaims any and all liability
for special, incidental or consequential damages. This
disclaimer includes any loss of profit arising out of, or
related to, any service provided under the terms of this
Letter. This limitation of liability applies even if AIG
was aware of the possibility of such damage.
HIRING OF PERSONNEL
The Client and its staff agree not to solicit, and will
instruct its staff not to solicit, AIG staff members. If
the Client hires any AIG staff person who works with the
Client on this engagement within twelve months of project
completion, then the Client agrees to compensate AIG in the
amount of that staff member's annual salary, including
benefits. AIG agrees to be bound by the same terms
regarding the hiring of the Client's personnel.
RIGHTS AND REMEDIES
The rights and remedies granted to AIG are in addition to
and not in lieu of any rights and remedies granted by law
or in equity. No action arising out of this Letter,
regardless of form, may be brought more than one year after
the cause of action has accrued.
ORIGIN OF AGREEMENT
This agreement will be deemed to be made in the State of
Missouri.
TAXES
The Client will pay any applicable state, county, or local
sales taxes or assessments and other applicable expenses.
RESOLUTION OF DISPUTES
In the event that AIG and/or the Client disagree and are
not able to come to resolution about the execution of
either party's responsibilities regarding the terms of this
Letter, AIG and the Client mutually agree to enter into
binding arbitration for quick resolution of issues. The
arbitration process will be governed by the Commercial
Arbitration Rules of the American Arbitration Association
(AAA). The AAA will appoint an individual with experience
in handling disputes in information systems matters as the
chairperson and neutral arbitrator, with any additional
arbitrators to be selected by the parties from individuals
with background and training in the computer industry.
Venue for all hearings shall be established by the party
initiating the arbitration. The cost of arbitrators shall
be borne equally by the parties, but other costs for
arbitration (i.e., travel, exhibits, copies, attorney)
shall be borne by the company incurring the costs. The
parties will have no right to take discovery of the other
party by any method. The arbitrators may award reasonable
attorneys' fees to the prevailing party as an element of
the cost of arbitration, and judgment upon the award may be
entered in any court having jurisdiction.
PROJECT TIMEFRAME AND COST
Upon receiving Fox Photo's approval to proceed, AIG will begin
work on October 29, 1997. AIG expects this work to last six
(6) months.
The cost for AIG's professional services under the terms of
this Letter are AIG's current rates as listed in Exhibit A of
this Letter, plus expenses, invoiced monthly. Out-of-pocket
expenses, if any, will also be invoiced monthly and supported
by the appropriate paperwork. AIG agrees not to charge any
significant expenses without the prior written approval of the
Client. AIG invoices may include charges for late payment
which will accrue at the rate of one and one-half percent (1 1/2
%) per month (or the maximum amount allowed by law, whichever
is less) on the unpaid balance from the due date until the
date the payment is received by AIG.
In consideration for the payment of services related to this
agreement, AIG will also provide Fox with a written Store
Systems Requirement Plan, as outlined in Exhibit C of this
Letter. The development of the Store Systems Requirement Plan
will be conducted at no fee; however, Fox will pay reasonable
expenses. These out-of-pocket expenses, primarily for travel,
will be invoiced monthly and supported by the appropriate
paperwork.
EXPIRATION OF THIS OFFER
This offer expires fifteen (15) calendar days from the date of
this Letter, unless accepted and signed by both parties.
TERMINATION OF AGREEMENT
This Letter will terminate one (1) year from the date of
signature unless both parties mutually agree to extend the
Letter. The responsibilities for payment of fees, all
limitations of liability, all terms regarding ownership of
products and techniques, the rights and remedies clause,
resolutions of disputes, and the restrictions regarding
confidentiality shall survive the expiration of this Letter.
EXHIBIT
Exhibit A contains a list of Other Provisions related to this
Letter.
Exhibit B is a list of AIG's current applicable professional
rates and equipment costs.
Exhibit C is an outline of the Store Systems Requirement Plan.
APPROVAL
This Letter, attached Exhibit, and its terms and conditions
are agreed to by both Fox Photo and AIG on this day.
Applied Intelligence Group, Fox Photo, Inc.
Inc.
Signature Signaturee
Name Robert Barcum Name
Title President Title
Date December 10, 1997 Date
Schedule and Attachments
Exhibit A.
Other Provisions
In this Exhibit Fox Photo will be referred to as the
"Client".
ENTIRE AGREEMENT
This Letter and Exhibits constitute the entire agreement
between AIG and the Client concerning the subject matter of
this Letter. Agreement is defined as the Arrangement Letter
to which this Exhibit is attached, this Exhibit, and any other
exhibits, amendments, supplements, and addenda, including any
future written amendments, modifications, or supplements to
these documents.
MODIFICATION
Any modification or amendment to this agreement must be in
writing signed by the parties. For AIG, the writing must be
signed by an officer of the corporation. Any written document
that is inconsistent with this agreement or adds to its terms
and conditions will not be binding on either AIG or the
Client. AIG's failure to object to any provision outside of
this Letter shall not be considered to be a waiver of the
terms and conditions of this Letter or an acceptance of such a
provision.
BINDING
This agreement is binding on AIG, the Client, and their
respective successors and assigns to the extent permitted by
this agreement.
AUTHORITY
AIG and the Client, as parties to this agreement, warrant to
each other that:
If organized as a corporation, partnership, limited
partnership, or other non-natural person, the party is
organized and subsisting under the laws of the jurisdiction of
its incorporation or existence.
The party has full power and authority to enter into this
agreement.
The persons executing this agreement have actual
authority to bind the parties to this agreement.
SINGULAR/PLURAL
Singular words will include the plural and vice versa.
Masculine, feminine, and neuter genders will include the
others. The word "person" will include corporations, firms,
partnerships, joint ventures, trusts, or estates, in addition
to natural persons.
FORCE MAJEURE
Except for the obligation to make payments due under the terms
of this agreement, neither AIG nor the Client will be held
liable for failure to perform due to circumstances beyond the
control of the parties. These circumstances include, but are
not limited to: accidents; acts of God; labor disputes;
supplier or material shortages; embargoes; rationing; fuel
shortages; actions of local, state or national governments, or
governmental agencies or authorities, or military authorities;
utility or communication failures; delays in transportation;
fire, flood, epidemics, riots, or strikes; war or criminal
activities; delays in delivery or failure to manufacture or
deliver.
CAPTIONS
The captions of various paragraphs in this Letter are for
convenience only. They are not intended to be part of the
body or text of this agreement. They are also not intended to
be referred to in construing any of the provisions of the
agreement.
COUNTERPARTS
This agreement may be executed in any number of counterparts,
any of which will be deemed to be an original.
INDEPENDENT CONTRACTORS
AIG and the Client are strictly independent contractors.
Neither party has the right to bind the other in any manner.
Nothing in this agreement should be interpreted to make either
part the agent or legal representative of the other, or to
make the parties joint venturers or partners.
OTHER INSTRUMENTS
The Client agrees to execute any instruments or documents that
may be required in order to effect the terms, conditions,
purpose, or objective of this agreement.
OTHER TRANSACTIONS
In addition to the services provided under the terms of this
agreement, AIG may perform other services or provide other
products through separate written agreements which must be
executed by AIG before AIG is bound. AIG and the Client agree
that these additional products and services cannot be the
subject of an oral agreement.
ASSIGNMENT
The Client agrees to obtain prior written consent from AIG
before assigning this agreement, or the rights and obligations
created under this agreement, to any third party.
SEVERABILITY
The parties agree that if any provision of this agreement is
invalid or unenforceable, the remaining provisions of this
Letter will be valid and enforceable to the fullest extent
permitted by law.
TRADEMARK USAGE
The Client agrees not to make use of any of AIG's trademarks,
service marks, or trade names for any reason without the prior
express written consent of AIG.
NONWAIVER
AIG's failure at any time to require the Client to perform any
provision of this agreement will in no way affect AIG's right
at a later time to require performance of that provision.
AIG's waiver of any breach of a provision of this agreement
will not be construed as a waiver of:
Succeeding breaches of that provision.
That provision itself.
Any right under this agreement.
NOTICE
All communications and notices related to this agreement will
be made in writing and delivered to the following addresses:
Applied Intelligence Group, Inc.
13800 Benson Road
Edmond, OK 73013-6417
Fox Photo, Inc.
1706 Washington Avenue
St. Louis, MO 63103
Address changes will be communicated by written notice to the
other party on a timely basis. Communications and notices may
be delivered by any of the following methods with effective
date as listed:
Delivered personally with same day effective date.
Mailed by certified mail, postage prepaid, with effective
date five business days after mailing.
Sent by overnight courier with effective date one day
after sending.
Exhibit B.
1997 AIG Rates
Exhibit C.
Store Systems Requirement Plan
This Exhibit outlines AIG services related to the
development of a Store Systems Requirement Plan for
retail store operations for Fox.
SCOPE AND APPROACH
The scope of AIG's work for this project focuses on developing
a Store Systems Requirement Plan, along with a master plan
for Point-of-Sale functionality in Fox Photo retail stores.
The following points highlight the nature of AIG's approach:
Interview Fox executives and MIS personnel to determine
business and operational requirements.
Review current Fox documentation and previous systems
requirements documentation provided by Fox.
Evaluate Fox current operations - systems, plans,
objectives and databases.
Identify and document hardware, software, and
communications issues, including information flow of current
systems, by spending at least one to two days at as many as
three stores of Fox's choosing.
Perform a high-level review of third-party software
solutions.
Build the Store Systems Requirement Plan.
Build the Store Systems Architecture Document.
Develop implementation timelines of the various projects
and recommendations in the Store Systems Requirement Plan.
Do a cost/benefit analysis.
Conduct an executive presentation to review our findings
and to make recommendations.
DELIVERABLES
This list details specific deliverables to be provided to Fox
by AIG within the scope of this agreement.
A detailed workplan identifying the approach, tasks,
resources and responsibilities for the ongoing project.
A timeline identifying tasks and expected start and stop
dates.
A Store Systems Requirements Plan based on retail
operations "best practices" which outlines what AIG, along
with Fox, considers to be acceptable standards for POS and
retail operations in Fox stores.
A cost estimate.
A presentation of the results and recommendations to Fox
executive management.
Exhibit 10.44
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") entered into by and
between ijob, Inc., an Oklahoma corporation, with its principal
place of business at 13800 Benson Road, Edmond, Oklahoma 73013
("ijob"), and David Mitchell, an individual residing at 2801 E.
Memorial Road, Oklahoma City, OK 73013 ("Mitchell").
WHEREAS, ijob has acquired certain assets and operations
("Software") of Human Technologies, Inc. ("HT"), as more fully
described in an Asset Purchase Agreement of even date herewith;
WHEREAS, Mitchell is knowledgeable about said Software and
desires to become employed with ijob subject to terms and
conditions of this Agreement.
WHEREAS, Applied Intelligence Group, Inc. ("AIG") is the
sole shareholder of ijob and specifically agrees and gives its
consent to certain terms and conditions of this Agreement.
WHEREUPON, in consideration of the above premises and in
consideration of such other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, parties
agree as follows:
1. On the first day of June, 1997("Effective Date"),
Mitchell shall become an employee of ijob. Mitchell agrees and
understands that his employment relationship with ijob is "at-
will" and may be terminated by ijob or himself at any time for
any reason, and that upon his death or disability or upon the
sale of a controlling interest in the stock of ijob by AIG, this
Agreement and Mitchell's employment hereunder shall cease.
2. During the course of this Agreement, Mitchell shall
perform such duties, hold such titles, and report as required and
specified from time to time by the Board of Directors of ijob.
3. During the course of this Agreement, Mitchell shall
receive the gross sum of Ninety-five Hundred ($9,500.00) Dollars
per month, plus any standard employee benefits provided by ijob
in the normal course of business, while he is engaged in full-
time employment for ijob. If the Board of Directors, in its sole
discretion, determines that Mitchell does not maintain a full-
time job status with ijob in any given month(s), such salary
shall be Four Thousand ($4,000.00) Dollars gross for any such
month(s).
4. During the time that he is employed by ijob under the
terms of this Agreement, Mitchell shall maintain a position as a
member of the Board of Directors of ijob and, unless otherwise
agreed by Mitchell, during such time the number of Directors of
ijob shall not exceed three. It is agreed and understood that
AIG will vote for and elect Mitchell as a director of ijob during
his employment therewith. AIG may elect whomever it chooses as
the second ijob Director. It is agreed and understood that
during Mitchell's employment, the third ijob Director shall be a
person who is nominated by the joint agreement of AIG and
Mitchell. In the event that Mitchell's employment terminates for
any reason, the provisions of this paragraph shall immediately be
of no force and effect, and AIG shall thereafter elect such
Directors as it deems appropriate.
5. During the course his employment by ijob, Mitchell
shall not (a) compete with ijob or hold an active interest in any
competitor of ijob, (b) make any voluntary or independent use of
confidential, trade secret, trademark, copyrightable, patented or
patentable, or other proprietary business information of ijob,
including, but not limited to, customer lists, computer
programs, databases, pricing formulae, designs, research files,
or any other related information, whether or not such information
is developed by Mitchell during his employment, (c) attempt to
procure any rights adverse to ijob in any intellectual property
as listed in the preceding clause (b), or (d) engage in any
fraud, embezzlement, criminal conduct, or material breach of the
terms of this Agreement. If ijob terminates this Agreement as a
result of acts described in this paragraph, Mitchell's
termination will be "for cause" and he will be entitled to no
further compensation or benefits other than have accrued up to
the date of his termination, and will not receive severance as
described in paragraph 6 below. The restrictions of clauses (b)
and (c) within this paragraph shall survive the termination of
Mitchell's employment and shall continue to have binding effect
until all such protected rights expire by operation of law.
6. If Mitchell's employment with ijob is terminated other
than by operation of paragraph 5 of this Agreement or his death,
disability, voluntary separation or upon the sale of a
controlling interest in the stock of ijob by AIG, Mitchell will
receive severance compensation as follows;
If But Severance compensation will be. . .
employed less
at least than .
. . . . .
1 month 1 year equivalent to one year salary as defined
in para.3 above and based on his actual
earnings up to the date of separation.
1 year 3 equivalent to two years of salary as
years described above.
3 years equivalent to three years of salary as
described above.
7. Mitchell hereby represents and warrants that, as of the
date of this Agreement, he is not a party to any agreement,
contract, understanding, undertaking, or factual circumstance
which would in any way restrict or prohibit him from consenting
to or performing any of the obligations or duties created by this
Agreement.
8. The parties agree that any material breach of this
Agreement shall entitle the injured party or parties to seek
relief, including, but not limited to, damages, injunctive or
other equitable relief, declatory judgments, the costs and
attorney's fees of the successful party, accounting, and, if such
breach is willful and applicable law otherwise allows, exemplary
damages, provided, that any and all disputed claims arising from
this Agreement, other than those for equitable relief or
involving third parties who object hereto, will be submitted to
binding arbitration terms identical to those specified in
paragraph 10 of the Asset Purchase Agreement between HT/Mitchell
and ijob/AIG of even date herewith.
9. If any portion of this Agreement is construed by a
Court with appropriate jurisdiction to be invalid or
unenforceable, such finding shall not affect the remainder of the
Agreement or the validity or effect of any other terms herein,
and a reasonable valid construction of such unenforceable term,
if available, will be deemed by the parties to have been the
intended effect of such term.
10. All notices under the provisions of this Agreement
shall be deemed duly given if written and delivered personally or
mailed by postage prepaid, certified or registered mail, with
return receipt requested.
11. Neither this Agreement nor any rights or duties
hereunder may be assigned or delegated by Mitchell.
12. This Agreement contains the entire agreement of the
parties hereto on its subject matter and supersedes all previous
agreements between the parties hereto, written or oral, express
or implied, covering the subject matter hereof, except as other
documents relating to this agreement are explicitly identified
referred to, or incorporated by reference herein.
13. This Agreement and its terms may not be modified,
waived, rescinded, amended, supplemented, or altered, whether in
whole or in part, except by a written instrument signed by both
ijob and Mitchell.
14. The terms of this Agreement are effective and
enforceable as of the Effective Date, and its provisions will
continue to have binding force and effect after the event of
termination of the employment of Mitchell to the extent necessary
to fulfill the intent of each paragraph herein and consistent
with the language thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the 12th day of June, 1997.
ijob, Inc. /s/ David C. Mitchell
David Mitchell
By: /s/ David C. Mitchell
Its: President of Human Technologies
and President of ijob, Inc.
Applied Intelligence Group, Inc. (consenting and agreeing only as
to terms applicable to AIG, Inc. as shareholder of ijob, Inc.)
By: /s/ Robert L. Barcum
Its: President
Exhibit 21.1
APPLIED INTELLIGENCE GROUP, INC.
Subsidiaries of Registrant
Ijob, Inc.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
of Applied Intelligence Group, Inc. on Form (File Nos. 333-22227,
333-30073, 333-47547 and 333-47549) of our report dated March 23,
1998, on our audits of the consolidated financial statements of Applied
Intelligence Group, Inc., as of December 31, 1997 and 1996, and for
each of the three years in the period ended December 31, 1997 and 1996,
and for each of the three years in the period ended December 31, 1997,
which report is included in this Annual Report on Form 10-KSB.
COOPERS & LYBRAND L.L.P.
Oklahoma City, Oklahoma
March 23, 1997
[ARTICLE] 5
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE BALANCE SHEET FOR
DECEMBER 31, 1997 AND THE STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] DEC-31-1997
[CASH] 80,769
[SECURITIES] 0
[RECEIVABLES] 1,339,046
[ALLOWANCES] 1,724
[INVENTORY] 8,707
[CURRENT-ASSETS] 1,567,827
[PP&E] 3,225,959
[DEPRECIATION] 1,763,384
[TOTAL-ASSETS] 5,804,153
[CURRENT-LIABILITIES] 1,899,193
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 2,730
[OTHER-SE] 2,885,206
[TOTAL-LIABILITY-AND-EQUITY] 5,804,153
[SALES] 0
[TOTAL-REVENUES] 9,022,842
[CGS] 0
[TOTAL-COSTS] 0
[OTHER-EXPENSES] 11,922,206
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 73,581
[INCOME-PRETAX] (2,972,945)
[INCOME-TAX] (1,112,127)
[INCOME-CONTINUING] 0
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (1,860,818)
[EPS-PRIMARY] (.68)
[EPS-DILUTED] 0
