U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 OR 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1999
Transition report under Section 13 OR 15(d) of the Exchange Act
For the transition period from __________ to ________
Commission File Number 000-21729
The viaLink Company
(Exact Name of Small Business Issuer 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, Suite 100
Edmond, Oklahoma 73013
(Address of Principal Executive Offices)
(405) 936-2500
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No __
As of July 31, 1999 there were 3,075,718 outstanding shares of the
issuer's Common Stock, par value $.001 per share.
Transitional Small Business Disclosure Format: Yes ___ No X
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
The viaLink Company
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
ASSETS June 30, December 31,
1999 1998
----------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,707 $ 715,446
Short-term investments 3,033,960 -
Accounts receivable-trade, net of allowance
for doubtful accounts of $32,841 and $7,841 61,354 158,117
Other receivables 392,662 585,778
Prepaid expenses 149,207 16,716
Marketable securities, available-for-sale 2,132,183 684,327
Deferred offering costs 203,759 -
----------- ----------
Total current assets 5,987,832 2,160,384
Furniture, equipment & leasehold improvements, net 2,156,646 719,910
Software development costs, net 1,412,438 1,340,230
Note receivable, net of deferred gain on sale - 337,958
Other assets 66,111 38,564
----------- ----------
Total assets $ 9,623,027 $4,597,046
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 1,439,347 $1,066,273
Current portion of capital lease obligation 6,440 44,194
----------- ----------
Total current liabilities 1,445,787 1,110,467
Long-term debt 1,590,494 -
----------- ----------
Total liabilities 3,036,281 1,110,467
Stockholders' equity:
Common stock, $.001 par value; 30,000,000
shares authorized; 2,907,418 and 2,826,613
shares issued and outstanding at June 30,
1999 and December 31, 1998, respectively 2,907 2,827
Additional paid-in capital 13,623,202 4,763,569
Unearned stock compensation (2,438,987) -
Accumulated deficit (5,732,559) (964,144)
Accumulated other comprehensive income (loss) 1,132,183 (315,673)
----------- ----------
Total stockholders' equity 6,586,746 3,486,579
----------- ----------
Total liabilities and stockholders' equity $ 9,623,027 $4,597,046
=========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<TABLE>
The viaLink Company
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)
(Unaudited)
For the Three Months Ended June 30, 1999 and 1998
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Revenues $ 117,220 $3,047,299
Expenses:
Direct cost of sales - 604,046
Salaries and benefits 955,476 1,605,830
Selling, general and
administrative 1,285,877 587,652
Interest expense, net 1,136,179 64,538
Depreciation and amortization 185,810 253,735
----------- ----------
Total expenses 3,563,342 3,115,801
----------- ----------
Income (loss) from operations (3,446,122) (68,502)
Gain on sale of assets - -
Other income 300,000 -
----------- ----------
Income (loss) before income taxes (3,146,122) (68,502)
Provision (benefit) for income taxes - (26,031)
----------- ----------
Net income (loss) (3,146,122) (42,471)
Other comprehensive income (loss):
Unrealized gain on securities - -
----------- ----------
Comprehensive income (loss) $(3,146,122) $ (42,471)
=========== ==========
Weighted average shares outstanding-
Basic 2,880,343 2,732,629
Diluted 2,880,343 2,732,629
Net income (loss) per common share-
Basic $ (1.09) $ (0.02)
Diluted $ (1.09) $ (0.02)
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<TABLE>
The viaLink Company
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)
(Unaudited)
For the Six Months Ended June 30, 1999 and 1998
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Revenues $ 225,398 $6,145,703
Expenses:
Direct cost of sales - 981,114
Salaries and benefits 1,456,834 3,393,260
Selling, general and
administrative 2,436,699 1,146,251
Interest expense, net 1,770,677 100,654
Depreciation and amortization 364,644 502,187
----------- ----------
Total expenses 6,028,854 6,123,466
----------- ----------
Income (loss) from operations (5,803,456) 22,237
Gain on sale of assets 462,041 -
Other income 573,000 -
----------- ----------
Income (loss) before income taxes (4,768,415) 22,237
Provision (benefit) for income taxes - 8,450
----------- ----------
Net income (loss) (4,768,415) 13,787
Other comprehensive income (loss):
Unrealized gain on securities 1,447,856 -
----------- ----------
Comprehensive income (loss) $(3,320,559) $ 13,787
=========== ==========
Weighted average shares outstanding-
Basic 2,873,610 2,731,083
Diluted 2,873,610 2,789,518
Net income (loss) per common share-
Basic $ (1.66) $ 0.01
Diluted $ (1.66) $ 0.01
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<TABLE>
The viaLink Company
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
For the Six Months Ended June 30, 1999
<CAPTION>
Accumulated
Common Stock Additional Unearned Accumu- Other
----------------- Paid-in Stock lated Comprehensive
Shares Amount Capital Compensation (Deficit)Income(Loss)
--------- ------ ----------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1998 2,826,613 $2,827 $ 4,763,569 $ - $ (964,144) $ (315,673)
Exercise of
stock options 62,633 62 132,946
Stock issued under
employee stock
purchase plans 172 - 1,891
Proceeds from Hewlett-
Packard note 6,000,000
Issuance of stock
options 2,615,614 (2,615,614)
Amortization of
unearned stock
compensation 176,627
Proceeds from
redemption of
common stock
warrants 18,000 18 109,182
Net loss (4,768,415)
Unrealized gain on
securities available
for sale 1,447,856
---------- ------- ----------- ----------- ----------- ----------
Balance,June 30,
1999 2,907,418 $ 2,907 $13,623,202 $(2,438,987)$(5,732,559)$1,132,183
========== ======= =========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<TABLE>
The viaLink Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended June 30, 1999 and 1998
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(4,768,415) $ 13,787
Adjustments to reconcile net income (loss) to
Net cash provided by (used in) operating
activities:
Depreciation and amortization 364,644 502,187
Gain on sale of ijob (462,041) -
Amortization of unearned stock compensation 176,627 -
Deferred income tax provision (benefit) - 8,450
Non-cash interest expense on convertible debt 1,590,494 -
Increase (decrease) in cash for changes in:
Accounts receivable, net 96,763 (386,020)
Other receivables 193,115 (2,520)
Increase in inventory - 1,280
Prepaid expenses and other assets (160,038) (102,401)
Accounts payable and accrued liabilities 373,074 224,956
Deferred revenue - 18,433
---------- -----------
Net cash provided by (used in) operating
activities (2,595,777) 278,152
Cash flows from investing activities:
Capital expenditures (1,606,081) (30,679)
Short-term investments, net (3,033,960) -
Capitalized expenditures for software
development (267,507) (346,496)
Collection on note receivable from ijob 800,000 -
---------- -----------
Net cash used in investing activities (4,107,548) (377,175)
Cash flows from financing activities:
Decrease in book overdraft - (23,619)
Payment of deferred offering costs (203,759) -
Proceeds from convertible debt 6,000,000 -
Proceeds from long-term debt 2,740,116
Proceeds from exercise of stock options,
stock bonus and stock purchase plans 134,899 27,018
Proceeds from exercise of common stock warrants 109,200 -
Payments of capital lease obligations (37,754) (72,003)
Payments on long-term debt - (2,476,920)
---------- -----------
Net cash provided by financing activities 6,002,586 194,592
---------- -----------
Net increase (decrease)in cash and cash
equivalents (700,739) 95,569
Cash and cash equivalents at beginning of
period 715,446 80,769
---------- -----------
Cash and cash equivalents at end of period $ 14,707 $ 176,338
========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
The viaLink Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1999
NOTE 1. DESCRIPTION OF BUSINESS
The viaLink Company provides a business-to-business
electronic commerce solution for the food and consumer packaged
goods industries. We have developed a cost-effective, Internet-
accessible shared database, the viaLink(trademark) Item Catalog, that
enables subscribing manufacturers, suppliers and retailers to
exchange product, pricing and promotional information. Our
viaLink services offer a single interface solution for retailers
to receive product, pricing and promotion information from all
their suppliers, regardless of the technological capabilities of
the retailer or the supplier. Using the Item Catalog, suppliers
and manufacturers are able to efficiently communicate product and
pricing information to their customers, significantly reducing
the operational and administrative costs of supply chain
management. Product, pricing and promotional information
contained in the viaLink database is secured with firewalls and
password protections. With the use of a personal computer and
commonly available software and a Web browser, viaLink enables
its subscribers to improve management of information flow, reduce
errors and invoice discrepancies, enhance the accounts receivable
collection process, achieve administrative efficiencies and
reduce redundant information processing.
Our strategy is to continue our investment in marketing and
sales activities, development of our viaLink services, and
customer support services to facilitate our plan to rapidly
penetrate the market and build recurring revenues generated from
subscriptions to our viaLink services. In order to implement this
strategy, we believe that we will need significant additional
capital resources and we are seeking additional financing sources
and other potential technology, strategic and marketing partners.
Consequently, we resemble a development stage company and will
face many of the inherent risks and uncertainties that
development stage companies face. There can be no assurance,
however, that these efforts will be successful or that we will be
able to obtain additional financing or agreements with other
partners on commercially reasonable terms, if at all. Our
failure to successfully negotiate such arrangements would have a
material adverse affect on our business, financial condition and
results of operations, including our viability as an enterprise.
As a result of the high level of expenditures for investment in
technology development, implementation, customer support
services, and selling and marketing expenses, we expect to incur
losses in the foreseeable future periods until such time, if
ever, as the recurring revenues from our viaLink services are
sufficient to cover the expenses.
Our clients and customers range from small, rapidly growing
companies to large corporations in the consumer packaged goods
industries, and are geographically dispersed throughout the
United States.
NOTE 2. BASIS OF PRESENTATION
Reference is made to the Company's Annual Report on Form 10-
KSB for the year ending December 31, 1998.
We have prepared the accompanying unaudited consolidated
financial statements in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-QSB. Accordingly, they do not include
all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of our management, the accompanying unaudited
financial statements contain all adjustments (consisting solely
of normal recurring adjustments) considered necessary to present
fairly our financial position and results of operations and cash
flow. These interim unaudited consolidated financial statements
should be read in conjunction with the audited consolidated
financial statements and related notes included in our Annual
Report on Form 10-KSB, for the year ended December 31, 1998, as
filed with the Securities and Exchange Commission on March 4,1999.
Operating results for the six month period and three month
period ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the full year ending December
31, 1999.
NOTE 3. DIVESTITURES
On December 31, 1998, we sold our wholly-owned subsidiary,
ijob, Inc. to DCM Company ("DCM"), a corporation wholly-owned by
David C. Mitchell, the President and a member of the Board of
Directors of ijob at the time of the sale. DCM purchased all of
the outstanding stock of ijob for a collateralized, ten-year
$800,000 promissory note that accrued interest at 8% per annum.
The promissory note was collateralized by substantially all of
ijob's fixed assets, contract rights, accounts receivable and
general intangibles. The net gain of $462,041 on the sale was
deferred and netted against the $800,000 promissory note at
December 31, 1998, as DCM was considered to be a highly leveraged
entity. On March 11, 1999, the promissory note and accrued
interest was paid in full. Accordingly, we have recognized the
gain on the sale of $462,041 in the consolidated statement of
operations for the six months ending June 30, 1999.
Effective September 1, 1998, we sold the assets related to
our management consulting and systems integration services
(including our proprietary Retail Services Application software)
to The Netplex Group, Inc (the "Consulting Assets Sale"). We
received $3.0 million in cash and 643,770 shares of Netplex
preferred stock, with a market value of $1.0 million on the date
of the sale. In conjunction with the Consulting Assets Sale, we
entered into an earn-out agreement that may provide us with
quarterly cash payments up to $1.5 million in aggregate generated
from the assets sold to Netplex until March 31, 2000. The cash
proceeds from the sale were used to repay (a) $551,062 of long-
term debt, (b) $565,094 of shareholder loans including interest
and (c) expenses attributable to the Consulting Assets Sale. The
net gain from the Consulting Assets Sale was $2,998,453. As of
June 30, 1999, the market value of the 643,770 shares of NetPlex
preferred stock was $2,132,183, yielding an unrealized gain of
$1,447,856, which has been included in comprehensive income in
our consolidated statement of operations for the six months ended
June 30, 1999. In the first and second quarter of 1999, we
accrued payments in accordance with the Consulting Assets Sale
earn-out agreement in the amount of $273,000 and $300,000, respectively.
Accordingly, our consolidated balance sheet as of June 30,
1999 and the consolidated statements of operations for the three
and six months ended June 30, 1999, do not include the assets
and operations of the consulting and systems integration business,
nor do they include the assets and operations of ijob, which are
included in the comparable period of 1998. Therefore, the periods
presented are not comparable.
We expect to report losses from operations throughout 1999.
We expect to continue our high level of expenditures for selling
and marketing and continued investment in our viaLink services.
The extent of our quarterly losses will depend on revenues
generated from subscriptions to our viaLink services, which have
not yet achieved market acceptance, and the Earn-out payments
from NetPlex. To date, gross revenues from these subscription
services have not been significant.
Our strategy is to continue our investment in marketing and
sales activities, development of our viaLink services, and
customer support services to facilitate our plan to rapidly
penetrate the market and build recurring revenues generated from
subscriptions to our viaLink services.In order to implement this
strategy, we believe that we will need significant capital
resources in addition to our $6 million financing arrangement
with Hewlett-Packard and exercise of warrants. We are also
seeking additional financing sources and negotiating with other
potential technology, strategic and marketing partners. There
can be no assurance, however, that these efforts will be
successful or that we will be able to obtain additional financing
or agreements with other partners on commercially reasonable
terms, if at all. Our failure to successfully negotiate such
arrangements would have a material adverse affect on our
operations and business, financial condition and results of
operations, including our viability as an enterprise. As a
result of the high level of expenditures for selling and
marketing and investment in our viaLink services, we expect to
incur losses in the foreseeable future periods until such time,
if ever, as the recurring revenues from subscriptions to our
viaLink services are sufficient to cover the expenses.
Note 4. RECONCILIATION FOR BASIC AND DILUTIVE EARNINGS PER SHARE ("EPS")
[CAPTION]
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic:
Net Income (loss) $(3,146,122) $ (42,471) $(4,768,415) $ 13,787
Weighted average shares
outstanding 2,880,343 2,732,629 2,873,610 2,731,083
----------- ----------- ----------- -----------
Earnings per share $ (1.09) $ (0.02) $ (1.66) $ 0.01
=========== =========== =========== ===========
Diluted:
Net Income (loss) $(3,146,122) $ (42,471) $(4,768,415) $ 13,787
Weighted average shares
outstanding 2,880,343 2,732,629 2,873,610 2,731,083
Add: Net effect of
dilutive stock options - - - 58,435
----------- ----------- ----------- -----------
Total 2,880,243 2,732,629 2,873,610 2,789,518
----------- ----------- ----------- -----------
Earnings per share $ (1.09) $ (0.02) $ (1.66) $ 0.01
=========== =========== =========== ===========
</TABLE>
Options to purchase 462,500 shares of common stock at a
weighted average exercise price of $4.75 per share were outstanding during
the first six months of 1998 but were not included in the computation of
diluted earnings per share because the options' exercise prices were greater
than the average market price of the common shares. These options expire on
November 30, 2001 and March 1, 2007. In addition, options to purchase 666,197
and 578,697 shares at a weighted average exercise price of $4.07 and $4.21,
respectively, were outstanding during the three and six month periods ending
June 30, 1998, but were not included in the computation of diluted earnings
per share because the effect of these outstanding options would be
antidilutive. These options expire at various times through March 1, 2007.
At June 30, 1999, options to purchase 2,343,000 shares at a weighted
average exercise price of $7.20, warrants to purchase 920,000, 162,000 and
250,000 shares of common stock at $5.00, $6.00 and $8.00, respectively, and
857,143 shares of common stock to be issued upon the conversion of the note
we issued to Hewlett-Packard, were outstanding, but were not included in the
computation of diluted earnings per share because the effect of these
outstanding options, warrants and stock issuable upon conversion of debt
would be antidilutive.
NOTE 5. CONVERTIBLE DEBT
On February 4, 1999, we entered into a financing agreement
and note purchase agreement with Hewlett-Packard pursuant to
which Hewlett-Packard purchased from us a $6.0 million secured
subordinated promissory note. This note bears interest at 11.5%
per annum, with interest payments deferrable to maturity in
February 2004. We received the approval of our shareholders at
our 1999 annual meeting to exchange the original note for a
subordinated secured convertible promissory note, convertible
into our common stock at a conversion price of $7.00 per share.
The closing of the purchase of the note occurred as of February
5, 1999 (the "Effective Date").
The Emerging Issues Task Force ("EITF")Topic D-60 requires
that beneficial conversion features present in convertible
securities should be recognized and measured by allocating a
portion of the proceeds equal to the value of that feature to
additional paid-in capital. The value of the beneficial
conversion feature was approximately $20,000,000 at the
commitment date. However, the value is limited to the $6,000,000
proceeds based on the prescribed accounting. Accordingly, we
have allocated the full amount of proceeds to the beneficial
conversion feature and recorded $6,000,000 as additional paid-in
capital as of June 30, 1999, and recognized an additional non-
cash interest charge of $592,000 and $1.0 million for interest
expense during the first and second quarter 1999, respectively,
through establishing long-term debt in the same amount. We
expect to recognize $1.0 million in non-cash interest expense,
per quarter, through August 2000.
Note 6. TAX PROVISION
SFAS 109, Accounting for Income Taxes, requires, among other things,
the separate recognition, measured at currently enacted tax rates, of
deferred tax assets and deferred tax liabilities for the tax effect of
temporary differences between the financial reporting and tax reporting
bases of assets and liabilities, and net operating loss and tax
credit carryforwards for tax purposes. A valuation allowance must
be established for deferred tax assets if it is "more likely than
not" that all or a portion will not be realized. The deferred tax
asset at December 31, 1998 and June 30, 1999, generated by losses
recorded in the fourth quarter of 1998 during the six months
ended June 30, 1999, respectively, was offset by a full valuation
allowance. We will continue to provide a full valuation
allowance for future and current net deferred tax assets until
such time as management believes it is more likely than not that
the asset may be realized.
Note 7. CONSULTING AND INTEGRATION SERVICES AGREEMENT
On May 3, 1999, we entered into an agreement with Ernst &
Young LLP, pursuant to which Ernst & Young will provide us with
consulting and integration services and sales and marketing
support, to assist in the development and market penetration of
our viaLink services. In connection with this agreement, we
issued Ernst & Young a warrant to purchase up to 250,000 shares
of our common stock at a price of $8.00 per share contingent upon
our ability to register the common stock underlying the warrant
agreement. Additionally, we have agreed to pay a royalty of 7.0%
of our service revenues to Ernst & Young for a period of two
years and in the event that at least ten "significant clients" of
Ernst & Young become subscribers to our services during this two
year period, we will be obligated to continue this royalty
payment in perpetuity. As of the date of the issuance of the
warrant, the warrant conversion price was below the value of our
stock. The issuance of this warrant will result in significant
non-cash charges to our statement of operations when criteria, as
established by the agreement, are met. No such charges were
recorded for the six month period ended June 30, 1999, as we had
not yet completed the registration of the common stock underlying
the warrant agreement. On August 9, 1999, Ernst & Young
exercised warrants to purchase 62,500 shares of common stock
resulting in net proceeds received by us of $500,000.
Note 8. REGISTRATION STATEMENTS
On June 29, 1999, the Securities and Exchange Commission
declared effective a post effective amendment to our registration
statement on Form SB-2 thereby permiting holders of viaLink's
920,000 redeemable common stock purchase warrants to voluntarily
exercise the warrants, subject to specific state approvals. Each
warrant allows the holder to purchase one share of viaLink common
stock at a price of $5 per share, on or before November 20, 1999.
As of June 30, 1999, none of the 920,000 redeemable stock
purchase warrants had been exercised. As of June 30, 1999,
18,000 underwriter warrants and warrant underwriter warrants had
been exercised resulting in proceeds of $109,000 to the Company.
On August 5, 1999, the Securities and Exchange Commission
declared effective the Company's registration statement to
register 410,000 shares of common stock issuable upon the
exercise of certain options, 360,000 of which are subject to a
promotional sales escrow agreement until November 20, 1999, and
62,500 shares exercisable under the Ernst & Young warrant. The
registration statement offers for public sale up to 112,500 of
shares held by shareholders for which we will not receive any
proceeds from such sale.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Statements of our management's intentions, beliefs,
anticipations, expectations and similar expressions concerning
future events contained in this Report constitute "forward-
looking statements" as defined in the Private Securities
Litigation Reform Act of 1995 ("Act"). Any forward-looking
statements are made by us in good faith, pursuant to the safe-
harbor provisions of the Act. As with any future event, we cannot
assure you that the events described in forward-looking
statements made in this Report will occur or that the results of
future events will not vary materially from those described in
the forward-looking statements. These forward-looking statements
reflect our management's current views and projections regarding
economic conditions, industry environments and our performance.
Important factors that could cause our 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 us,
introduction of new products or services by competitors, sales
performance, expense levels, interest rates, changes in our
financial condition, availability of capital sufficient to
support our anticipated level of activity, delays in
implementing further enhancements to our viaLink service and
other services, and our ability to implement our business
strategies.
Our 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 our realization of such expectations. Our actual
results could differ materially. Factors that could cause or
contribute to such differences include, but are not limited to,
those discussed in Item 5 of Part II of this Report.
OVERVIEW
We provide a business-to-business electronic commerce
solution for the food and consumer packaged goods industries. We
have developed a cost-effective, Internet-accessible shared
database, the viaLink Item Catalog, that enables subscribing
manufacturers, suppliers and retailers to exchange product,
pricing and promotional information. Our solution offers a
single interface solution for retailers to receive product,
pricing and promotion information from all their suppliers,
regardless of the technological capabilities of the retailer or
the supplier. Using the Item Catalog, suppliers and
manufacturers are able to efficiently communicate product and
pricing information to their customers, significantly reducing
the operational and administrative costs of supply chain
management. Product, pricing and promotional information
contained in the viaLink database is secured with firewalls and
password protections. With the use of a personal computer,
commonly available software and a Web browser, we enable our
subscribers to improve management of information flow, reduce
errors and invoice discrepancies, enhance the accounts receivable
collection process, achieve administrative efficiencies and
reduce redundant information processing.
We expect that our future revenues will be generated
primarily from monthly subscriptions to our services. Our
pricing for these services is based on a flat monthly rate with a
variable component based on the level of service utilized. The
variable portion of each subscriber's monthly service fee is
calculated based on the type of service and amount of service the
subscriber uses. For example, for the use of the Item Catalog
service, retailers pay based on the number of suppliers from whom
they receive data at the rate of either $1 per store or $25 per
warehouse, per month, as applicable; suppliers and manufacturers
pay based on the number of retailers that download their data at
the rate of $1 per store or $25 per warehouse, per month, as
applicable. We price our other services based on the number of
stores or warehouses supported or the amount of data stored and
retrieved.
In order to achieve market penetration, we expect to
continue our high level of expenditures for selling and marketing
and investment in the continued development of our viaLink
services. These expenses substantially exceed our revenues,
which to date have been minimal. One of our strategies is to
invest in new technology to facilitate deployment and acceptance
of our viaLink services. However, in order to implement this
strategy, we believe that we will need significant additional
capital resources, as well as hosting, technology, applications
and marketing partners for our viaLink services. We are
currently seeking additional capital financing and negotiating
with additional potential alliance partners.
Until March 31, 2000, we will also receive quarterly
payments up to $1.5 million in aggregate pursuant to our earn-out
agreement with Netplex. We have recorded and received 1998 earn-
out payments of $340,670, which we recorded as other income in
the fourth quarter 1998. We received earnout payments of
$289,000 for the first quarter 1999. A receivable for $300,000
for the earn-out payment for the second quarter of 1999 is
included in Other Receivables on the consolidated balance sheet
at June 30, 1999. Additionally, we currently receive revenues
from certain Web hosting services we perform, but expect to
reduce our focus and reliance on this service in the future. In
the second quarter of 1999, revenues pursuant to these Web-
hosting services were approximately $80,000.
On February 4, 1999, we entered into a Note Purchase
Agreement with Hewlett-Packard pursuant to which Hewlett-Packard
purchased from us a $6.0 million Secured Subordinated Promissory
note. This note bears interest at 11.5% per annum, with interest
payments deferrable to maturity in February 2004. Upon approval
by our shareholders, in May 1999, the note was exchanged for a
Subordinated Secured Convertible Promissory Note, convertible
into our common stock at a price of $7.00 per share. The closing
of the purchase of the note occurred on February 5, 1999.
Hewlett-Packard may convert the note to common stock beginning on
August 5, 2000.
As discussed more fully in Note 5 to the financial
statements, we have adopted a policy regarding the accounting
required for such convertible securities. Based on the price of
our common stock at the commitment date and the conversion price
of the debt into our common stock by Hewlett-Packard at $7.00 per
share, the value of the conversion feature at the commitment date
was approximately $20,000,000. However, the value is limited by
the amount of the proceeds and we have allocated the full amount
of proceeds to the beneficial conversion feature and recorded the
$6,000,000 as additional paid-in capital. Furthermore, we have
recognized a non-cash interest charge of the beneficial
conversion feature in the amount of $592,000 and $1,000,000
during the first and second quarter of 1999,respectively, by
establishing long-term debt in the same amount. We will continue
to record a non-cash interest charge and increase long-term debt
by approximately $1,000,000 each quarter until the conversion
date of August 5, 2000, 18 months after the effective date of the
transaction with Hewlett-Packard, at which date the amount of the
principal balance of the long-term debt will be $6,000,000.
On May 3, 1999, we entered into an agreement with Ernst &
Young LLP, pursuant to which Ernst & Young will provide us with
consulting and integration services and sales and marketing
support, to assist in the development of the viaLink services.
In connection with this agreement, we issued Ernst & Young a
warrant to purchase up to 250,000 shares of our common stock at a
price of $8.00 per share based upon certain criteria established
in the agreement. Additionally, we have agreed to pay a royalty
of 7.0% of our service revenues to Ernst & Young for a period of
two years and in the event that at least ten "significant
clients" of Ernst & Young become subscribers to our services
during this two year period, we will be obligated to continue
this royalty payment in perpetuity. As of the date of the
issuance of the warrant, the warrant conversion price was below
the value of our stock. The issuance of this warrant will result
in significant non-cash charges to our statement of operations.
On August 9, 1999, Ernst & Young exercised warrants to purchase
62,500 shares of common stock resulting in net proceeds to the
Company of $500,000.
We expect to report substantial losses from operations in
1999. The extent of these losses will depend primarily on the
amount of revenues generated from subscriptions to our viaLink
services, which have not yet achieved market acceptance or
significant market penetration. To date, revenues from these
services have not been significant. As a result of our high
level of expenditures for selling and marketing and continued
investment in the development of the suite of viaLink services,
we expect to incur losses in future periods until such time as
the recurring revenues from these services are sufficient to
cover expenses.
At our 1999 annual meeting of Shareholders, our Shareholders
approved the reincorporation of viaLink from Oklahoma to
Delaware. We intend to effect the reincorporation after November
20, 1999, the date on which our redeemable common stock purchase
warrants expire. However, we retain the discretion to delay our
reincorporation until such time as the registration statement for
the resale of 472,500 shares of common stock issuable upon the
exercise of certain options and the 62,500 shares held by Ernst &
Young U.S. LLP, is no longer effective.
SALE OF CONSULTING ASSETS AND ijob, INC.
In order to focus on the development and deployment of our
viaLink services, we recently sold the assets related to our
management consulting and systems integration services (including
our proprietary Retail Services Application software) to Netplex
in September 1998 and the assets associated with our wholly owned
subsidiary, ijob, Inc. in December 1998. Historically,
approximately 97% of our revenues were generated from our
consulting assets and ijob. As a result of these sales, we
resemble a development stage company since our planned principal
operations are underway, but have not yet generated significant
revenues.
We received $3.0 million in cash and 643,770 shares of
Netplex preferred stock, having a market value at the time of the
sale of $1.0 million. The cash proceeds from the sale were used
to pay (i) $551,062 of long-term debt, (ii) $565,094 of
shareholder loans, including interest, and (iii) expenses
attributable to the sale. The net gain from the consulting
assets sale was $2,998,453. In conjunction with the consulting
asset sale, viaLink entered into an earn-out agreement with
Netplex. Under the earn-out agreement, we are entitled to
receive a cash payment equal to the lesser of $1.5 million or 50%
of any net profits generated from the consulting and systems
integration assets until March 31, 2000. We also have entered
into a remarketing and relicensing agreement with Netplex to sell
CHAINLINK (trademark), our proprietary communications software product.
Under the remarketing and relicensing agreement, we have agreed
to cease our own marketing and selling of CHAINLINK.
On December 31, 1998, we sold our wholly-owned subsidiary,
ijob, to DCM Company, Inc., a corporation wholly-owned by David
C. Mitchell, the President and a member of the Board of Directors
of ijob at the time of the sale. DCM purchased all of the
outstanding stock of ijob for a collateralized, ten-year $800,000
promissory note that accrued interest at 8%. A gain on the sale
of ijob, of $462,000 was deferred at December 31, 1998, due to
the highly leveraged nature of DCM. On March 11, 1999, the
promissory note plus accrued interest was paid in full, and the
deferred gain on the sale of $462,000 was recognized in the
consolidated statement of operations in the first quarter of
1999.
RESULTS OF OPERATIONS
Introduction. The sale of our consulting and systems
integration business to NetPlex was effective September 1, 1998,
and the sale of ijob, Inc. was effective December 31, 1998.
Consequently, our results of operations for the three and six
months ended June 30, 1999 do not include the sales, expenses and
results of operations related to the consulting and systems
integration operations and for the operations of ijob, Inc. Our
results of operations for the three and six months ended June 30,
1998 include the sales, expenses and results of operations
related to the consulting and systems integration business and
the operations of ijob. Therefore, the results of operations for
the three and six months ended June 30, 1999 are not comparable
to the same periods in 1998.
Revenues. Prior to the sale of our consulting and systems
integration business and ijob, revenues consisted primarily of
management consulting and system integration fees as well as
sales of proprietary software licenses and hardware and the ijob
services. Therefore, without those revenue sources, our total
revenues decreased 96%, or $2.9 million to $117,000 in the three
months ended June 30, 1999, from $3.0 million for the same period
in 1998. Revenues for the second quarter 1999 were up slightly
from revenues of $108,000 in the first quarter 1999. Our total
revenues decreased 96%, or $5.9 million to $225,000 in the six
months ended June 30, 1999, from $6.1 million for the same period
in 1998.
Direct Cost of Sales. Direct cost of sales, which consist
of purchased hardware and certain software for resale, and costs
associated with viaLink's proprietary software products have been
eliminated in 1999 with the sale of our consulting business in
1998.
Salaries and Benefits Expense. Salaries and benefits
expense consists of direct payroll costs for salaries and wages,
benefits, employment taxes, contract programmers, and amortized
stock compensation expense related to the Company's issuance of
options to purchase the Company's common stock to employees.
With the sale of our consulting business effective September 1,
1998, and the sale of ijob effective December 31, 1998, our
employee count has decreased from a staff level of approximately
109 at June 30, 1998 to approximately 61 at June 30, 1999. The
decrease in headcount, offset in part by amortization of stock
option compensation of $100,000 in 1999, resulted in the decrease
in overall salaries, wages, taxes and benefits expense of
approximately 40%, or $650,000 to $955,000 in the three months
ended June 30, 1999, from $1.6 million for the same period in
1998. Salaries and benefits expense decreased 57%, or $1.9
million to $1.5 million in the six months ended June 30, 1999,
from $3.4 million for the same period in 1998.
Selling, General and Administrative ("SG&A")Expense. SG&A
expense increased 119%, or $698,000, to $1.3 million in the
second quarter 1999, from $588,000 in the second quarter of 1998.
SG&A expense increased 113%, or $1.3 million to $2.4 million in
the six months ended June 30, 1999, from $1.1 million in the same
period in 1998. The increase in SG&A is primarily attributable
to increased expenses for recruiting and staffing of key
executive and management staff, legal and professional fees,
insurance costs associated with increased coverage, and travel
expenses related to the Company's increased sales and marketing
efforts. Professional recruiting fees were $422,000 in the six
months ended June 30, 1999 compared to only $34,000 in the same
period in 1998. Legal and professional fees were $665,000 in the
six months ended June 30, 1999 compared to $167,000 in the same
period in 1998. Insurance costs and travel expenses were $154,000
and $248,000, respectively, for the six months ended June 30,
1999 compared to $42,000 and $172,000, respectively for the same
period in 1998. Also included in SG&A expense in 1999 is
approximately $189,000 for trade show and marketing expenses that
were not incurred for the same period in 1998.
Interest Expense, Net. Interest expense, net, increased
$1.0 million, to $1.1 million for the three months ended June 30,
1999 from $64,000 for the same period in 1998. Interest expense,
net, increased $1.7 million, to $1.8 million for the six months
ended June 30, 1999 from $101,000 for the same period in 1998.
These increases are due to the February 5, 1999 Hewlett-Packard
promissory note and borrowing of $6,000,000 at 11.5% interest,
plus the accounting for the beneficial conversion feature of the
proceeds as more fully discussed in Note 5 to the unaudited
interim financial statements. We will record a non-cash interest
charge of approximately $1,000,000 per quarter until the
conversion date of August 5, 2000. Monthly interest expense is
offset by interest income on short-term investments.
Depreciation and Amortization. Depreciation and
amortization expense decreased $68,000, or 27%, to $186,000 for
the three months ended June 30, 1999, compared to $254,000 for
the same period in 1998. Depreciation and amortization expense
decreased $138,000 or 27%, to $364,000 for the six months ended
June 30, 1999, compared to $502,000 for the same period in 1998.
This decrease was due to the sale of the consulting division and
ijob assets in 1998.
Gain on Sale of Assets and Other Income. On March 11, 1999,
DCM paid the note receivable of $800,000 plus accrued interest in
full and we recognized the deferred gain of $462,000 during the
first quarter of 1999. We have also recorded $573,000 of income
under the earn-out agreement with NetPlex during the six months
ended June 30, 1999.
Tax Provision. SFAS 109, Accounting for Income Taxes,
requires, among other things, the separate recognition, measured
at currently enacted tax rates, of deferred tax assets and
deferred tax liabilities for the tax effect of temporary
differences between the financial reporting and tax reporting
bases of assets and liabilities, and net operating loss and tax
credit carryforwards for tax purposes. A valuation allowance
must be established for deferred tax assets if it is "more likely
than not" that all or a portion will not be realized. Prior to
the third quarter of 1998, we had recorded a tax benefit of $1.0
million related to the pre-tax losses incurred in prior years,
and no valuation allowance had been established prior to the
third quarter of 1998. As a result of the net gain on the
consulting business sale, the deferred tax asset of $1.0 million
was realized and a valuation allowance of $190,000 was
established for the remaining net deferred tax asset as of
September 30, 1998. The deferred tax asset at December 31, 1998
and June 30, 1999, generated by losses recorded in the fourth
quarter of 1998 and during the six months ended June 30, 1999,
respectively, was offset by a full valuation allowance. We will
continue to provide a full valuation allowance for future and
current net deferred tax assets until such time as management
believes it is more likely than not that the asset may be
realized.
Other Comprehensive Income. During the second quarter of
1999 we converted the 643,770 shares of preferred stock received
as consideration of the sale of the consulting division to
643,770 shares of freely tradable common stock of Netplex which
was underlying the preferred shares. Due to the increase in the
market value at June 30, 1999, of the common stock of NetPlex, we
have recorded other comprehensive income of $1.4 million.
LIQUIDITY AND CAPITAL RESOURCES
Due to the sale of our consulting business and the sale of
ijob, we expect that revenues in the foreseeable future will be
substantially less than historical revenues and cash requirements
in connection with selling and marketing and investment in our
viaLink services will be substantial. As a result of these
sales, we now resemble a development stage company since our
planned principal operations are underway, but have not yet
generated significant revenues.
On February 4, 1999, we completed the financing agreements
with Hewlett-Packard, whereby Hewlett-Packard provided us with
$6.0 million in financing through a Secured Subordinated
Promissory Note bearing interest at 11.5%, with interest payments
deferred until maturity of the note in February 2004. This note
was converted into a Subordinated Secured Convertible Promissory
Note, convertible into shares of our common stock at a price of
$7.00 per share. Furthermore, on March 11, 1999, we received
proceeds of $812,444 in payment of the note receivable and
accrued interest due us in connection with the sale of ijob. As
of July 31, 1999, we had cash and cash equivalents, and short-
term investments totaling approximately $2.4 million.
Our working capital position was significantly enhanced as a
result of the receipt of the above funds. On June 30, 1999, we
had $6.0 million in current assets and $1.4 million in current
liabilities, with working capital of approximately $4.6 million.
During the six months ended June 30, 1999, net cash and short
term investments increased $2.3 million, compared to $95,000 in
the same period in 1998. Net cash used in operating activities in
1999 was $2.6 million, compared to net cash provided by operating
activities in 1998 of $278,000. We are currently spending
approximately $850,000 per month in excess of revenues, excluding
any amounts received from the earnout agreement with Netplex, and
expect this expenditure level to increase steadily over the next
several months for further technology development spending to
enhance our viaLink services, increased marketing expenditures,
and other technology and database licensing costs. We also
expect to spend more for additional management and
support/service employees. To support this level of spending, we
must use our current cash, cash equivalents and collection of
accounts receivable to operate the business and/or obtain
additional financing. We cannot predict when operating revenues
will exceed operating costs, if ever.
During the six months ended June 30, 1999, we invested
$970,000 in computer hardware, $400,000 in computer software and
$230,000 in various other fixed assets, compared to $30,000 in
total expenditures for the same period in 1998. We also invested
$268,000 in software development costs during the six months
ended June 30, 1999, compared to $346,000 for the same period in
1998. We expect our cash requirements for capital expenditures
and increased operating expenses for the remainder of fiscal 1999
to be substantial.
During the six months ended June 30, 1999, financing
activities provided net cash of $6.0 million, primarily the
result of the $6 million in financing from Hewlett-Packard,
offset in part by $204,000 of costs incurred to affect the
registration of the Company's common stock purchase warrants and
proceeds from the Company's stock options and warrants of
$245,000.
On June 29, 1999, the Securities and Exchange Commission
declared effective a post-effective amendment to our registration
statement on Form SB-2, permitting holders of our 920,000
redeemable common stock purchase warrants to voluntarily exercise
the warrants. Each warrant allows the holder to purchase one
share of viaLink common stock at a price of $5 per share, on or
before November 20, 1999. As of June 30, 1999, no redeemable
common stock warrants had been exercised, however, 18,000
underwriter and warrant underwriter warrants had been exercised.
As of July 31, 1999, warrants to purchase 186,300 shares of
common stock had been exercised, including 20,250 underwriter
warrants and warrant underwriter warrants. On August 5, 1999, the
Securities and Exchange Commission declared effective the
Company's registration statement to register 472,500 shares of
common stock, 360,000 of which are subject to a promotional sales
escrow agreement until November 20, 1999. The registration
statement, allows the resale of up to 112,500 of shares issuable
upon exercise of certain options and a warrant to purchase common
stock. We will not receive any proceeds from such sale.
During the remainder of 1999, we expect to receive net
proceeds of approximately $4.5 million from the exercise of our
redeemable common stock purchase warrants, net proceeds of
approximately $1.0 million from the exercise of our underwriter
warrants and warrant underwriter warrants, and net proceeds of
approximately $1.6 million from the exercise of the options to
purchase 360,000 shares which have been subject to a promotional
sales escrow agreement which expires November 20, 1999.
We currently do not have any available working capital
borrowing or credit facility available for additional borrowings.
We have borrowed $6.0 million from Hewlett-Packard, under a five
year Subordinated Secured Convertible Promissory Note, bearing
interest at 11.5%, with interest and principal payable at
maturity in February 2004. The note is also convertible into
shares of our common stock at a price of $7.00 per share
beginning in August 2000. We have incurred operating losses and
negative cash flow in the past and expect to incur operating
losses and negative cash flow in the foreseeable future. We
anticipate that we will fund our operations for the next 9 to 12
months from the cash we received in the Hewlett-Packard financing
and cash we may receive upon exercise of our outstanding
redeemable warrants expiring in November 1999, which will enable
us to meet our working capital and capital expenditure
requirements through 1999 and into 2000. After that time, our
future capital requirements will depend on our revenue growth,
profitability, working capital requirements, level of investment
in long term assets or other financing sources. Increases in
these capital requirements or a lack of revenue due to delayed or
lower market acceptance of our viaLink services would accelerate
our use of our cash and cash equivalents.
YEAR 2000 PLAN
Many currently installed computer systems and software
products are coded to accept only two-digit entries in the date
code field. These date code fields will need to accept four-
digit entries to distinguish 21st century dates from 20th century
dates. This problem could result in system failures or
miscalculations causing disruptions of business operations. As a
result, in approximately five months, computer systems and/or
software used by many companies may need to be upgraded to comply
with such "Year 2000" requirements. Significant uncertainty
exists in the software industry concerning the potential effects
associated with such compliance.
Our vendors, customers, suppliers and service providers are
under no contractual obligation to provide Year 2000 information
to us. Generally, we believe our key internal software systems
are either compliant, or the problems can be corrected by
purchasing small amounts of hardware, software or software
upgrades, where necessary. We are also continuing our assessment
of the readiness of external entities, such as subcontractors,
suppliers, vendors and service providers that interface with us.
Based on our assessments and current knowledge, we believe
we will not, as a result of the Year 2000 issue, experience any
material disruptions in internal processes, information
processing or services from outside relationships. We presently
believe that the Year 2000 issue will not pose significant
operational problems and that we will be able to manage our total
Year 2000 transition without any material effect on our results
of operations or financial condition. The most likely risks to
us from Year 2000 issues are external, due to the difficulty of
validating all key third parties' readiness for Year 2000. We
have sought and will continue to seek confirmation of such
compliance and seek relationships that are compliant.
We currently believe that substantially all of our internal
systems and equipment is Year 2000 compliant. We anticipate that
any remaining remediation required will be completed by the end
of the third quarter of 1999 and that the remaining costs of
remediation will not have a material adverse effect on our
results of operations and financial condition. However, the
failure to properly assess or timely implement a remediation plan
to address a material Year 2000 problem could result in a
disruption in our normal business activities or operations. Such
failures, depending on the extent and nature, could materially
and adversely effect our operations and financial condition. We
are currently developing a contingency plan which will include
actions to minimize any disruption in our normal business
activities or operations caused by systems and equipment that may
not be Year 2000 compliant. We expect the contingency plan to be
in place by the end of the third quarter of 1999.
Under the terms of the sale of our consulting business to
Netplex, we retain the liability and responsibility for software
programs developed and installed in customer sites by us prior to
September 1, 1998. We are unable to determine at this time the
extent to which potential liability for Year 2000 requirements
from those previous installations may exist. We could incur
substantial costs, which would potentially have a material
adverse effect on our business, financial condition and operating
results.
We do not believe that the costs of our Year 2000 program
have been or are material to our financial position or results of
operations. All expenses have been charged against earnings as
incurred, and we intend to continue to charge such costs against
earnings as the costs are incurred.
The estimates and conclusions set forth herein regarding
Year 2000 compliance contain forward-looking statements and are
based on management's estimates of future events and information
provided by third parties. In the ordinary course of business we
test and evaluate our own software products on a continuous
basis. We believe that our own developed software products are
generally Year 2000 compliant, meaning that the use or occurrence
of dates on or after January 1, 2000 will not materially affect
the performance of our software and network services products
with respect to four digit date dependent data or the ability of
such products to correctly create, store, process and output
information related to such date data. Notwithstanding such
belief by management, the products being tested for compliance
include all of the services and systems included in the viaLink
services. Since these are network database systems, there is
not an issue of earlier versions that will require upgrade to be
Year 2000 compliant.
The estimates and conclusions set forth herein regarding
Year 2000 compliance contain forward-looking statements and are
based on management's estimates of future events and information
provided by third parties. There can be no assurance that such
estimates and information provided will prove to be accurate.
Risks to completing the Year 2000 project include the
availability of resources, our ability to discover and correct
potential Year 2000 problems and the ability of suppliers and
other third parties to bring their systems into Year 2000
compliance.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December of 1998, the AICPA Accounting Standards
Executive Committee issued Statement of Position 98-9 ("SOP 98-
9"), "Software Revenue Recognition with Respect to Certain
Transactions." SOP 98-9 amends certain provisions of SOP 97-2
"Software Revenue Recognition" and extends the deferral of the
application of certain provisions of SOP 97-2 through fiscal
years beginning on or before March 15, 1999. We do not believe
that the adoption of SOP 98-9 will have a material impact on our
financial position and results of operations.
CONSULTING ASSETS AND IJOB SALES; CHANGE IN BUSINESS; EXPECTED LOSS
With the Consulting Asset Sale and the ijob sale in 1998,
approximately 97 percent of our historical revenues will not be
available to the Company in the future. In fact, as a result of
these sales, we should fundamentally be viewed as a development
stage company since our planned principal operations are
underway, but we have not yet generated significant revenues. We
expect to report losses from operations throughout 1999.
We expect to continue our high level of expenditures for
selling and marketing and continued investment in the suite of
viaLink services. The extent of our quarterly losses will depend
on revenues generated from subscriptions to our viaLink services,
which have not yet achieved market acceptance, and the earn-out
payments from NetPlex. To date, gross revenues from these
sources have not been significant. Our strategy is to invest in
new network information systems to facilitate our plan to build
recurring network service revenues with higher profit margins. In
order to implement this strategy, we believe that we will need
significant additional capital resources and we are seeking
additional financing sources and negotiating with other potential
technology, strategic or marketing partners. There can be no
assurance, however, that these efforts will be successful or that
we will be able to obtain additional financing or agreements with
other partners on commercially reasonable terms, if at all. Our
failure to successfully negotiate such arrangements would have a
material adverse affect on our operations and business, financial
condition and results of operations, including our viability as
an enterprise. As a result of the high level of expenditures for
investment in technology development, implementation, customer
support services, and selling and marketing expenses, we expect
to incur losses in the foreseeable future periods until such
time, if ever, as the recurring revenues from these systems are
sufficient to cover the expenses.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At June 30, 1999, we had no derivative financial instruments.
Furthermore, our indebtedness bears a fixed interest rate. Therefore,
we are not sensitive to changes in market interest rates as it relates
to our indebtedness.
As with any entity's investment in marketable securities, we
are subject to the risk that certain unpredictable conditions can
exist which combine to have the effect of limiting our ability to
liquidate our investment in marketable securities through sale.
We believe that our exposure to this type of market risk is
remote and limited only to our investment in marketable
securities received in connection with our Consulting Assets Sale.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 21, 1999, the Company held its 1999 Annual Meeting of
stockholders at which the matters set forth below were considered
and voted upon. Set forth below is a summary of the voting
results:
1. Election of one (1) Class III director to the Company's
Board of Directors to serve a three-year term ending in the year
2002 or until his successor is duly elected and qualified:
[CAPTION]
<TABLE>
NOMINEE FOR AGAINST ABSTAINED NON-VOTES
<S> <C> <C> <C> <C>
Jimmy M. Wright 2,855,773 - 3,815 14,754
2. Approval of the adoption of The viaLink Company 1999 Stock
Option/Stock Issuance Plan:
FOR AGAINST ABSTAINED NON-VOTES
1,911,414 15,100 3,300 944,528
3. Approval of the adoption of The viaLink Company 1999
Employee Stock Purchase Plan:
FOR AGAINST ABSTAINED NON-VOTES
1,915,410 13,104 1,300 944,528
4. Approval of the issuance to Hewlett-Packard Company of a
$6.0 million Convertible Subordinated Secured Promissory Note,
convertible into Common Stock at $7.00 per share beginning August
2000, to replace a $6.0 million Subordinated Secured Promissory
Note originally issued to Hewlett-Packard on February 4, 1999:
FOR AGAINST ABSTAINED NON-VOTES
1,922,044 7,270 500 944,528
5. Approval of the Company's reincorporation from an Oklahoma
corporation to a Delaware corporation:
FOR AGAINST ABSTAINED NON-VOTES
1,925,494 4,020 300 944,528
</TABLE>
ITEM 5. OTHER INFORMATION
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR COMPLIANCE
STATEMENT FOR FORWARD-LOOKING STATEMENT
In passing the Private Securities Litigation Reform Act of
1995, Congress encouraged public companies to make "forward-
looking statements" by creating a safe harbor to protect
companies from securities law liability in connection with
forward looking statements. We intend to qualify both our
written and oral forward-looking statements for protection under
the Reform Act.
In addition to the other information in this Quarterly
Report on Form 10-QSB, shareholders should carefully consider the
following factors in evaluating us and our business.
To qualify oral forward-looking statements for protection
under the Reform Act, a readily available written document must
identify important factors that could cause actual results to
differ materially from those in the forward-looking statements.
We provide the following information in connection with our
continuing effort to qualify forward-looking statements for the
safe harbor protection of the Reform Act.
DUE TO THE SALE OF OUR CONSULTING ASSETS TO NETPLEX, WE NEED TO
REPLACE MOST OF OUR REVENUE WITH OUR VIALINK SERVICES. SINCE OUR
SERVICES ARE UNPROVEN, OUR BUSINESS, FINANCIAL RESULTS AND STOCK
PRICE COULD BE ADVERSELY AFFECTED
We have historically derived substantially all of our
revenues from providing management consulting services and
computer system integration services to the retail and wholesale
distribution industries. In order to permit us to focus our
resources solely on developing and marketing our viaLink
services, we sold the assets underlying our management consulting
services and computer integration services to Netplex. We had
previously generated approximately 97% of our total revenues from
the assets sold to Netplex and from the ijob assets sold to DCM.
As a result of these sales, we are now substantially
dependent on revenues generated from our viaLink services. Our
viaLink services have achieved only limited market acceptance
and, to date, have accounted for an insubstantial amount of our
historical revenues. Consequently, we resemble a development
stage company and will face many of the inherent risks and
uncertainties that development stage companies face. These risks
include our:
Need for our services to achieve market acceptance and
produce a sustainable revenue stream;
Need to expand sales and support and product development
organizations;
Need to manage rapidly changing operations;
Dependence upon key personnel;
Reliance on strategic relationships; and
Competition.
Our business strategy may not successfully address these
risks, and our viaLink services may not achieve market
acceptance. If our viaLink services fail to achieve market
acceptance or if we fail to recognize significant revenues to
replace the revenues lost in the sale to Netplex, our business,
financial condition and operating results would be materially
adversely affected.
WE HAVE A HISTORY OF LOSSES AND EXPECT FUTURE LOSSES
By selling our consulting business and ijob, we lost the
source of over 97% of our historical revenues. To date, revenues
from our viaLink services have been insignificant. Moreover, we
expect to expend significant resources in aggressively developing
and marketing these services into an unproven market. Therefore,
we expect to incur negative cash flow and net losses for the
foreseeable future. We may not ever generate sufficient revenues
to achieve or sustain profitability or generate positive cash
flow. We have incurred net operating losses of approximately
$1.0 million in 1996, $3.0 million in 1997 and $1.6 million in
1998. As of June 30, 1999, we had an accumulated deficit of
approximately $5,732,000, representing the sum of our historical
net operating losses.
WE RELY SOLELY ON OUR VIALINK SERVICES. IF OUR VIALINK SERVICES
FAIL TO BECOME ACCEPTED BY THE FOOD AND CONSUMER PACKAGED GOOD
INDUSTRIES, OUR BUSINESS WILL BE MATERIALLY AND ADVERSELY AFFECTED
Virtually all of our revenues for the foreseeable future
will be derived from a single source: subscription sales of our
viaLink services. We have only recently introduced these
services. They may not achieve market acceptance. To date we
have received only an insignificant amount of revenues from these
services. The market acceptance of our Item Catalog service as
an industry-wide shared database will depend upon subscriptions
from a large number of industry manufacturers, suppliers and
retailers. A large number of manufacturers, suppliers and
retailers may not subscribe to our services. Furthermore, we
cannot predict the amount of time required for a significant
number of manufacturers, suppliers and retailers to subscribe to
our services. If our services do not achieve market acceptance,
or if market acceptance develops more slowly than expected, our
business, operating results and financial condition will be
seriously damaged.
A number of factors will determine whether our services will
achieve market acceptance, including:
Performance and functionality of our viaLink services;
Ease of adoption;
Satisfaction of our initial subscribers;
Success of our marketing efforts;
Success of our strategic relationships and alliances;
Improvements in technological performance; and
Continued acceptance of the Internet for business use.
The markets for business-to-business electronic commerce
evolve rapidly. If new markets evolve, customers in those
markets, including our current customers, may not choose our
services.
THE UNPREDICTABILITY OF OUR QUARTER-TO-QUARTER RESULTS COULD
CAUSE OUR STOCK PRICE TO BE VOLATILE OR TO DECLINE
Our future operating results may vary significantly from
quarter to quarter due to a variety of factors, many of which are
outside our control. Our expense levels are based primarily on
our estimates of future revenues and are largely fixed in the
short term. We may be unable to adjust spending rapidly enough
to compensate for any unexpected revenue shortfall, including as
a result of delayed or lack of market acceptance of our viaLink
services. Accordingly, any significant shortfall in revenues in
relation to our planned expenditures would materially adversely
affect our business, operating results and financial conditions.
Due in large part to our uncertainty regarding the success
of the viaLink services, we cannot predict with certainty our
quarterly revenues and operating results. Further, we believe
that period-to-period comparisons of our operating results are
not necessarily a meaningful indication of future performance,
especially in light of the significant changes in business, which
we have undertaken. It is likely that in one or more future
quarters our results may fall below the expectations of
securities analysts and investors. If this occurs, the trading
price of our common stock would likely decline.
WE HAVE RECENTLY ENTERED INTO TWO STRATEGIC RELATIONSHIPS AND MAY
ENTER INTO MORE IN THE FUTURE. IF THESE STRATEGIC RELATIONSHIPS
DO NOT PRODUCE THE ANTICIPATED BENEFITS OR IF WE ARE UNABLE TO
ENTER INTO ADDITIONAL FUTURE STRATEGIC RELATIONSHIPS, OUR VIALINK
SERVICES MAY NOT ACHIEVE MARKET ACCEPTANCE
Our current strategic relationships may not prove to be
beneficial to us, and they may not be sustained. Further we may
not be able to enter into successful new strategic relationships
in the future, which could have a material adverse effect on our
business, operating results and financial condition. We
currently have formed strategic relationships with Ernst & Young
and Hewlett-Packard. Ernst and Young may provide us with sales
and marketing support as well as consulting and integration
services. Hewlett-Packard has agreed to provide us with a
technological platform to host our services. Maintaining these
and other relationships will help us to validate our technology,
facilitate broad market acceptance of our services and enhance
our sales and marketing. However, these relationships are
informal or, if written, terminable with little or no notice. We
may not be able to enter into new strategic relationships in the
future. If we are unable to develop key relationships or
maintain and enhance existing relationships, we may have
difficulty achieving market acceptance for our viaLink services.
THE HEWLETT-PACKARD NOTE WILL LEVERAGE US CONSIDERABLY, CAUSING
FINANCIAL AND OPERATING RISK, AND MAY RESULT IN SIGNIFICANT DILUTION
As a result of our issuing a $6.0 million Subordinated
Secured Convertible Promissory Note to Hewlett-Packard, our debt
service requirements will increase substantially when we are
required to begin making repayments in February 2004. The degree
to which we are leveraged could materially adversely affect our
ability to obtain future financing and could make us more
vulnerable to industry downturns and competitive pressures. Our
ability to meet our debt obligations will be dependent upon our
future performance, which will be subject to financial, business
and other factors affecting our operations. All principal and
interest due under the note could be converted into shares of our
common stock at $7.00 per share, a substantial discount from our
current stock price, resulting in substantial dilution to our
current shareholders.
WE MAY BE UNABLE TO OBTAIN THE ADDITIONAL CAPITAL REQUIRED TO GROW
OUR BUSINESS
We intend to spend large amounts of capital to fund our
growth and develop a market and market acceptance for our Item
Catalog service and other viaLink services. We have incurred
operating losses and negative cash flow in the past and expect to
incur operating losses and negative cash flow in the future. We
expect that the cash we received in the Hewlett-Packard financing
and cash we may receive upon exercise of our outstanding
redeemable common stock purchase warrants expiring in November
1999 will enable us to meet our working capital and capital
expenditure requirements throughout 1999 and into early 2000.
After that time, our ability to fund our planned working capital
and capital expenditures will depend largely upon our ability to
obtain sufficient financing. Our future financing requirements
will depend on a number of factors, including our:
Achieving and sustaining profitability;
Growth rate;
Working capital requirements;
Market acceptance; and
Costs of future research and development activities.
We may not be able to obtain the additional financing
necessary to satisfy our cash requirements or to implement our
growth strategy successfully. Moreover, if our stock price drops
significantly, the warrant holders may choose not to exercise
their warrants and purchase the underlying shares of our common
stock, which will adversely affect our 1999 cash flow. If we
cannot obtain adequate additional financing, we will be forced to
curtail our planned business expansion and may be unable to fund
our ongoing operations, including the marketing and development
of our Item Catalog service and our other viaLink services. If
adequate additional financing is not available, we may also be
required to license our rights to commercialize our proprietary
technologies to third parties, and we may not be able to acquire
complementary businesses and technologies.
Pursuant to an agreement with Barron Chase Securities, Inc.,
the underwriter of our initial public offering, we have agreed
not to issue any preferred stock until November 20, 1999 without
their prior written consent. This could further limit our
ability to obtain additional financing.
IF WE FACE INCREASED COMPETITION, WE MAY BE FORCED TO REDUCE THE PRICES
OF OUR SERVICES IN AN ATTEMPT TO GAIN OR PROTECT OUR MARKET SHARE
If we face increased competition, we may not be able to sell
our viaLink services on terms favorable to us. Furthermore,
increased competition could reduce our market share or require us
to reduce the price of our services. We currently compete
principally on the basis of the specialized and unique features
and functions of the viaLink services including their:
Ability to operate with other network products and operating
systems;
Product quality;
Ease-of-use;
Reliability; and
Performance.
To achieve market acceptance and thereafter to increase our
market share, we will need to continually develop additional
services and introduce new features and enhancements. Many of
our competitors and potential competitors have significant
advantages that we do not, including:
Significantly greater financial, technical and marketing
resources;
Greater name recognition;
A broader range of products and services; and
More extensive customer bases.
Consequently, they may be able to respond more quickly than we
can to new or emerging technologies and changes in customer
requirements.
WE MUST ADAPT TO TECHNOLOGY TRENDS AND EVOLVING INDUSTRY STANDARDS
TO REMAIN COMPETITIVE
Our market is susceptible to rapid changes due to
technological innovation, evolving industry standards and changes
in subscriber needs. If our competitors introduce new products
and services embodying new technologies, our existing services
may become obsolete. Our future success will depend upon our
ability to continue to develop and introduce a variety of new
services and enhancements, which respond to technological change,
evolving industry standards and customer requirements on a timely
basis to address the increasingly sophisticated needs of our
customers.
IF INTERNET USAGE DOES NOT CONTINUE TO GROW, WE MAY NOT BE ABLE TO
CONTINUE OUR BUSINESS PLAN
Our ability to achieve market acceptance depends upon the
food and consumer packaged goods industries' widespread
acceptance of the Internet as a vehicle for business-to-business
electronic commerce. There are a number of critical issues
concerning commercial use of the Internet, including security,
reliability, cost, quality of service and ease of use and access.
Organizations that have already invested substantial resources in
other means of exchanging information may be reluctant to
implement Internet-based business strategies. There can be no
assurance that Internet-based information management utilizing
viaLink, or any other product, will become widespread. If the
Internet fails to become widely accepted by the food and consumer
packaged goods industries, viaLink subscribers may be required to
utilize private communications networks, at comparatively higher
cost.
UNDETECTED SOFTWARE ERRORS OR FAILURES FOUND IN NEW PRODUCTS MAY RESULT
IN LOSS OF OR DELAY IN MARKET ACCEPTANCE OF OUR PRODUCTS WHICH COULD
MATERIALLY ADVERSELY AFFECT OUR OPERATING RESULTS
Errors or defects in our products may result in loss of
revenues or delay in market acceptance and could materially
adversely affect our business, operating results and financial
condition. Software products such as ours may contain errors or
defects, sometimes called "bugs," particularly when first
introduced or when new versions or enhancements are released. In
the past, we have discovered software errors in certain of our
new products after their introduction. Despite our testing,
current versions, new versions or enhancements of our products
may still have defects and errors after commencement of
commercial operation.
WE MAY BECOME SUBJECT TO PRODUCT LIABILITY CLAIMS WHICH, WHETHER OR
NOT SUCCESSFUL, COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS
A product liability claim, whether or not successful, could
damage our reputation and our business, operating results and
financial condition. Our license agreements with our customers
typically contain provisions designed to limit our exposure to
potential product liability claims. However, these contract
provisions may not preclude all potential claims. Product
liability claims in excess of insurance limits could require us
to spend significant time and money in litigation or to pay
significant damages.
IF THE SECURITY MEASURES PROTECTING OUR SERVICES ARE INADEQUATE, OUR
BUSINESS WILL BE ADVERSELY AFFECTED
Our Item Catalog service and other viaLink services contain
security protocols. We have also contracted with third party
providers to provide security protocols for the transmission of
data over the Internet. However, our database and these services
may be vulnerable to break-ins and similar security breaches that
jeopardize the security of the information stored in, and
transmitted through, the computer systems of our subscribers. Any
security breach could result in significant liability to us and
also deter potential subscribers. Moreover, the security and
privacy concerns of potential subscribers, as well as concerns
related to computer viruses, may inhibit the marketability of the
viaLink services.
OUR PLANNED AGGRESSIVE GROWTH WILL STRAIN OUR RESOURCES
We intend to expand our operations rapidly in the
foreseeable future to pursue existing and potential market
opportunities. If this rapid growth occurs, it will place
significant demand on our management and operational resources.
We will need to hire additional sales and marketing, research and
development and technical personnel to increase and support our
sales. We will also need to hire additional support and
administrative personnel, expand customer service capabilities
and expand our information management systems. From time to
time, we have experienced, and we expect to continue to
experience, difficulty in hiring and retaining talented and
qualified employees. Our failure to attract and retain the
highly trained technical personnel that are essential to our
product development, marketing, service and support teams may
limit the rate at which we can generate revenue and develop new
products or product enhancements. In order to manage our growth
effectively, we must implement and improve our operational
systems, procedures and controls on a timely basis. If we fail
to implement and improve these systems, our business, operating
results and financial condition will be seriously damaged.
OUR SUCCESS IS SUBSTANTIALLY DEPENDENT ON OUR ABILITY TO RETAIN OUR
KEY PERSONNEL
The loss of services of our key technical, sales and senior
management personnel would seriously damage our business, results
of operations and financial condition. On October 1, 1998, we
entered into employment agreements with both Lewis B. Kilbourne,
our Chief Executive Officer, and Robert N. Baker, our President
and Chief Operating Officer. Both of these agreements have a
term of three years, with year-to-year renewals. We also
maintain a key man life insurance policy for Mr. Baker.
WE MAY MAKE FUTURE ACQUISITIONS OR ENTER INTO ADDITIONAL JOINT
VENTURE ARRANGEMENTS. THESE ACTIONS MAY DIVERT MANAGEMENT
ATTENTION FROM OUR OPERATIONS AND MAY BE UNSUCCESSFUL, EITHER OF
WHICH COULD HAVE A MATERIAL ADVERSE AFFECT ON OUR BUSINESS
In the future, we may acquire additional businesses,
products and technologies, or enter into joint venture
arrangements, that could complement or expand our business.
Management's negotiations of potential acquisitions or joint
ventures and management's integration of acquired businesses,
products or technologies could divert their time and resources.
Any future acquisitions could require us to issue dilutive equity
securities, incur debt or contingent liabilities, amortize
goodwill and other intangibles, or write-off in-process research
and development and other acquisition-related expenses. Further,
we may not be able to successfully integrate any acquired
business, products or technologies with our existing operations
or retain key employees. If we are unable to fully integrate an
acquired business, product or technology, we may not receive the
intended benefits of that acquisition.
If we fail to adequately protect our intellectual property rights
or face a claim of intellectual property infringement by a third-
party, we could lose our intellectual property rights or be
liable for significant damages
Our success is in part dependent upon our proprietary
software technology. Companies in the software industry have
experienced substantial litigation regarding intellectual
property. We license our products under agreements containing
provisions prohibiting the unauthorized use, copying and transfer
of the licensed program. In addition, we rely on a combination of
trade secret, copyright and trademark laws as well as non-
disclosure and confidentiality agreements to protect our
proprietary technology. We own no patents. However, these
measures provide only limited protection, and we may not be able
to detect unauthorized use or take appropriate steps to enforce
our intellectual property rights.
Any litigation to enforce our intellectual property rights
may divert management resources and may not be adequate to
protect our business. We also could be subject to claims that we
have infringed the intellectual property rights of others. In
addition, we may be required to indemnify our end-users for
similar claims made against them. Any claims against us could
require us to spend significant time and money in litigation, pay
damages, develop new intellectual property or acquire licenses to
intellectual property that is the subject of the infringement
claims. These licenses, if required, may not be available on
acceptable terms. As a result, intellectual property claims
against us could have a material adverse effect on our business,
operating results and financial condition.
WE DEPEND ON THIRD-PARTY TECHNOLOGY FOR USE IN OUR PRODUCTS. IF
WE ARE UNABLE TO CONTINUE TO USE THESE SOFTWARE LICENSES OUR
BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED
We rely upon certain software that we license from third
parties, including software that is integrated with our
internally developed software and used in our products to perform
key functions. These third-party software licenses may not
continue to be available to us on commercially reasonable terms.
The loss of, or inability to maintain or obtain any of these
software licenses, could result in delays in our ability to
provide our services or in reductions in the services we provide
until we integrate equivalent software that we internally
develop, or identify and license software from a third-party. Any
delay in product development or in providing our services could
damage our business, operating results and financial
condition.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE
Some computers, software and other equipment include
programming code in which calendar year data is abbreviated to
only two digits. As a result of this design decision, some of
these systems could fail to operate or fail to produce correct
results if "00" is interpreted to mean 1900, rather than 2000.
These problems are widely expected to increase in frequency and
severity as the year 2000 approaches and are commonly referred to
as the "Year 2000 Problem."
The Year 2000 Problem presents us with several potential
risks including the following:
Internal infrastructure. The Year 2000 Problem could affect
computers, software and other equipment that we use internally as
well as divert management's attention from ordinary business
activities. In addition to computers and related systems, the
operation of our office and facilities equipment, such as fax
machines, photocopiers, telephone switches, security systems,
elevators and other common devices, may be affected by the
Year 2000 problem.
Suppliers/third-party relationships. There can be no
assurance that our vendors, customers, suppliers, service
providers or other third parties that we rely upon will resolve
any or all Year 2000 Problems with their systems on a timely
basis.
Software/services. We believe that it is not possible to
determine with complete accuracy that all Year 2000 Problems
affecting the software used in providing our services have been
identified or corrected due to the complexity of this software.
Consulting services. We may be subject to Year 2000 Problem
claims in connection with software programs developed and
previously installed on customer sites through our recently
discontinued consulting services. Under our asset sale agreement
with Netplex, we are responsible, and potentially liable, for
problems with the software installed by us in customer sites
prior to September 1, 1998.
We currently believe that substantially all of our internal
systems and equipment is Year 2000 compliant. We anticipate that
any remaining remediation required will be completed by the end
of the third quarter of 1999 and that the remaining costs of
remediation will not have a material adverse effect on our
results of operations and financial condition. We are currently
developing a contingency plan to be implemented as part of our
efforts to identify and correct Year 2000 Problems affecting our
internal systems. We expect the contingency plan to be in place
by the end of the third quarter of 1999. However, we believe that
it is not possible to determine with complete certainty that all
Year 2000 Problems affecting us will be identified or corrected
in a timely manner. If we fail to identify and correct all Year
2000 Problems affecting our internal systems, or if we are forced
to implement our contingency plans, our business, financial
condition or results of operations could be materially adversely
affected.
AS AN INTERNET COMPANY, OUR STOCK AND WARRANTS MAY EXPERIENCE
EXTREME PRICE AND VOLUME FLUCTUATIONS
The market prices for our common stock and redeemable
warrants have fluctuated in the past and are likely to continue
to be highly volatile and subject to wide fluctuations. In
addition, the stock market has experienced extreme price and
volume fluctuations. The market prices of the securities of
Internet-related companies have been especially volatile. In the
past, companies that have experienced volatility in the market
price of their stock have been the object of securities class
action litigation. If we were to be the object of securities
class action litigation, it could result in substantial costs and
a diversion of management's attention and resources.
THE PRICE OF OUR COMMON STOCK MAY DECLINE DUE TO SHARES ELIGIBLE FOR
FUTURE SALE
Sales of a substantial number of shares of common stock
could adversely affect the market price of the common stock and
could impair our ability to raise capital through the sale of
equity securities.
OUR OFFICERS AND DIRECTORS OWN A SIGNIFICANT PERCENTAGE OF OUR
COMPANY, AND WILL BE ABLE TO EXERCISE SIGNIFICANT INFLUENCE OVER
OUR COMPANY
Our executive officers and directors, in the aggregate,
beneficially own approximately 40% of our outstanding common
stock. As a result, these shareholders, if they act together,
could control all matters submitted to our shareholders for a
vote, including the election of directors and the approval of
mergers and other business combination transactions.
SECURITIES LAWS RESTRICTIONS ON EXERCISE OF REDEEMABLE WARRANTS
The sale of our common stock upon exercise of the redeemable
warrants could violate the securities laws of certain states or
other jurisdictions. We have and will use our best efforts to
cause the sale of the common stock to be lawful upon exercise of
redeemable warrants. However, we are not required to accept the
exercise of the redeemable warrants if, in the opinion of
counsel, the sale of the common stock upon such exercise would be
unlawful under applicable securities laws. In this case, the
redeemable warrants will not be accepted for exercise.
Consequently, the redeemable warrant holder will be required to
sell the redeemable warrants in the open market, if a public
trading market exists, or hold the redeemable warrants until they
expire or, if applicable, we redeem the warrants for $.125 per
redeemable warrant.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Asset Acquisition Agreement dated August 31, 1998 by and
between Registrant and The Netplex Group, Inc. (filed as
Appendix A to Definitive 14-C Information Statement
dated October 15, 1998 (the "1998 14-C") and
incorporated herein by reference)
2.2 First Amendment to Asset Acquisition Agreement dated
September 9, 1998 by and between Registrant and The
Netplex Group, Inc. (filed as Appendix A-2 to the 1998
14-C and incorporated herein by reference)
2.3 Stock Purchase Agreement dated December 31, 1998 by and
among Registrant, DCM Company, Inc., David C. Mitchell
and ijob, Inc. (filed as Exhibit 2.5 to Registrant's
Annual Report on Form 10-KSB for the year ending
December 31, 1998 (the "1998 10-KSB") and incorporated
herein by reference)
3.1 Registrant's Certificate of Incorporation, as amended
and restated (filed as Exhibit 3.1 to Registrant's
Registration Statement on Form S-8 (Reg. No. 333-69203)
(the "December 1998 Form S-8") and incorporated herein
by reference)
3.2* Registrant's Bylaws (filed as Exhibit 3.2 to
Registrant's Registration Statement on Form SB-2 (Reg.
No. 333-5038-D) and incorporated herein by reference)
4.1 $8.00 Warrant to Purchase Common Stock of the viaLink
Company dated May 3, 1999 Issued by Registrant to Ernst
& Young U.S. LLP (filed as Exhibit 4.1 to Registrant's
Current Report on Form 8-K dated May 3, 1999 (the "May
1999 8-K") and incorporated herein by reference.
4.2 Registration Rights Agreement dated May 3, 1999 by and
between Registrant and Ernst & Young U.S. LLP (filed as
Exhibit 4.2 to the May 1999 8-K and incorporated herein
by reference).
10.1 Note Purchase Agreement dated as of February 4, 1999 by
and between Registrant and Hewlett-Packard Company
(filed as Exhibit 10.1 to Registrant's Current Report on
Form 8-K dated February 4, 1999 (the "February 1999 8-
K") and incorporated herein by reference)
10.2 Subordinated Secured Convertible Promissory Note dated
February 4, 1999 issued by Registrant in favor of
Hewlett-Packard Company (filed as Appendix C to the
Registrant's Definitive 14-A Proxy Statement dated April
19, 1999 and incorporated herein by reference).
10.3 Security Agreement dated as of February 4, 1999 by and
between Registrant and Hewlett-Packard Company (filed as
Exhibit 10.3 to the February 1999 8-K and incorporated
herein by reference)
10.4 Earn-out Agreement dated September 30, 1998 by and
between Registrant and The Netplex Group, Inc (filed as
Exhibit 10.49 to the 1998 14-C and incorporated herein
by reference)
10.5 Software Remarketing and Reselling Agreement effective
as of September 1, 1998 by and between Registrant and
The Netplex Group, Inc. (filed as Exhibit 10.53 to the
October 1998 8-K and incorporated herein by reference)
10.6 Form of Indemnification Agreement dated February 9, 1998
by and between Registrant and Registrant's executive
officers (filed as Exhibit 10.16 to the 1998 10-KSB and
incorporated herein by reference)
10.7 Amended and Restated Alliance Agreement dated as of May
3, 1999 by and between Registrant and Ernst & Young LLP
(filed as Exhibit 10.1 to the May 1998 8-K and
incorporated herein by reference)
10.8 Master Services Agreement dated May 3, 1999 by and
between Registrant and Ernst & Young LLP (filed as
Exhibit 10.2 to the May 1999 8-K and incorporated herein
by reference)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Report on Form 8-K dated May 3, 1999, reporting that viaLink
had entered into a strategic relationship with Ernst & Young LLP
pursuant to which Ernst & Young has agreed to provide us with
marketing and sales support and consulting and integration
services in connection with the deployment of our Item Catalog
service and we issued to Ernst & Young a warrant to purchase up
to 250,000 shares of our common stock at a price of $8.00 per
share.
SIGNATURES
In accordance with the requirements of the Securities
Exchange Act of 1934, as amended, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
The viaLink Company
(formerly APPLIED INTELLIGENCE GROUP, INC.)
By: _/s/Lewis B. Kilbourne_______
Lewis B. Kilbourne
Chief Executive Officer
August 13, 1999
By: _/s/J. Andrew Kerner___________
J. Andrew Kerner
Vice President, Finance and Chief
Financial Officer
August 13, 1999
EXHIBIT INDEX
2.1 Asset Acquisition Agreement dated August 31, 1998 by and
between Registrant and The Netplex Group, Inc. (filed as
Appendix A to Definitive 14-C Information Statement
dated October 15, 1998 (the "1998 14-C") and
incorporated herein by reference)
2.2 First Amendment to Asset Acquisition Agreement dated
September 9, 1998 by and between Registrant and The
Netplex Group, Inc. (filed as Appendix A-2 to the 1998
14-C and incorporated herein by reference)
2.3 Stock Purchase Agreement dated December 31, 1998 by and
among Registrant, DCM Company, Inc., David C. Mitchell
and ijob, Inc. (filed as Exhibit 2.5 to Registrant's
Annual Report on Form 10-KSB for the year ending
December 31, 1998 (the "1998 10-KSB") and incorporated
herein by reference)
3.1 Registrant's Certificate of Incorporation, as amended
and restated (filed as Exhibit 3.1 to Registrant's
Registration Statement on Form S-8 (Reg. No. 333-69203)
(the "December 1998 Form S-8") and incorporated herein
by reference)
3.2* Registrant's Bylaws (filed as Exhibit 3.2 to
Registrant's Registration Statement on Form SB-2 (Reg.
No. 333-5038-D) and incorporated herein by reference)
4.1 $8.00 Warrant to Purchase Common Stock of the viaLink
Company dated May 3, 1999 Issued by Registrant to Ernst
& Young U.S. LLP (filed as Exhibit 4.1 to Registrant's
Current Report on Form 8-K dated May 3, 1999 (the "May
1999 8-K") and incorporated herein by reference.
4.2 Registration Rights Agreement dated May 3, 1999 by and
between Registrant and Ernst & Young U.S. LLP (filed as
Exhibit 4.2 to the May 1999 8-K and incorporated herein
by reference).
10.1 Note Purchase Agreement dated as of February 4, 1999 by
and between Registrant and Hewlett-Packard Company
(filed as Exhibit 10.1 to Registrant's Current Report on
Form 8-K dated February 4, 1999 (the "February 1999 8-
K") and incorporated herein by reference)
10.2 Subordinated Secured Convertible Promissory Note dated
February 4, 1999 issued by Registrant in favor of
Hewlett-Packard Company (filed as Appendix C to the
Registrant's Definitive 14-A Proxy Statement dated April
19, 1999 and incorporated herein by reference).
10.3 Security Agreement dated as of February 4, 1999 by and
between Registrant and Hewlett-Packard Company (filed as
Exhibit 10.3 to the February 1999 8-K and incorporated
herein by reference)
10.4 Earn-out Agreement dated September 30, 1998 by and
between Registrant and The Netplex Group, Inc (filed as
Exhibit 10.49 to the 1998 14-C and incorporated herein
by reference)
10.5 Software Remarketing and Reselling Agreement effective
as of September 1, 1998 by and between Registrant and
The Netplex Group, Inc. (filed as Exhibit 10.53 to the
October 1998 8-K and incorporated herein by reference)
10.6 Form of Indemnification Agreement dated February 9, 1998
by and between Registrant and Registrant's executive
officers (filed as Exhibit 10.16 to the 1998 10-KSB and
incorporated herein by reference)
10.7 Amended and Restated Alliance Agreement dated as of May
3, 1999 by and between Registrant and Ernst & Young LLP
(filed as Exhibit 10.1 to the May 1998 8-K and
incorporated herein by reference)
10.8 Master Services Agreement dated May 3, 1999 by and
between Registrant and Ernst & Young LLP (filed as
Exhibit 10.2 to the May 1999 8-K and incorporated herein
by reference)
27.1 Financial Data Schedule
EXHIBIT 27.1
FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTH
PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
[CAPTION]
<TABLE>
ITEM NUMBER ITEM DESCRIPTION AMOUNT
<S> <C> <C>
5-02(1) Cash and cash items. $ 14,707
5-02(2) Marketable securities. 2,132,183
5-02(3)(a)(1)Notes and accounts-receivable-trade. 94,195
5-02(4) Allowances for doubtful accounts. 32,841
5-02(6) Inventory.
5-02(9) Total current assets. 5,987,832
5-02(13) Property, plant and equipment. 3,867,900
5-02(14) Accumulated depreciation. 1,711,254
5-02(18) Total assets. 9,623,027
5-02(21) Total current liabilities. 1,445,787
5-02(22) Bonds, mortgages and similar debt. 1,590,494
5-02(28) Preferred stock-mandatory redemption.
5-02(29) Preferred stock-no mandatory redemption.
5-02(30) Common stock. 2,907
5-02(31) Other stockholders equity. 6,583,839
5-02(32) Total liabilities and stockholders'
equity. 9,623,027
5-03(b)1(a) Net sales of tangible products.
5-03(b)1 Total revenues. 225,398
5-03(b)2(a) Cost of tangible goods sold.
5-03(b)2 Total costs and expenses applicable to sales
and revenues.
5-03(b)3 Other costs and expenses. 1,456,834
5-03(b)5 Provision for doubtful accounts
and notes.
5-03(b)(8) Interest and amortization of
debt discount. 1,770,677
5-03(b)(10) Income before taxes and other items. (4,768,415)
5-03(b)(11) Income tax expense.
5-03(b)(14) Income/loss continuing operations. (4,768,415)
5-03(b)(15) Discontinued operations.
5-03(b)(17) Extraordinary items.
5-03(b)(18) Cumulative effect-changes in accounting
principles.
5-03(b)(19) Net income or loss (4,768,415)
5-03(b)(20) Earnings per share-basic (1.66)
5-03(b)(20) Earnings per share-diluted (1.66)
</TABLE>
