<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 20, 1999
REGISTRATION NO. 333-5038-D
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST EFFECTIVE AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
THE VIALINK COMPANY
(Formerly APPLIED INTELLIGENCE GROUP, INC.)
(Name of Small Business Issuer in Its Charter)
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<S> <C> <C>
OKLAHOMA 7372 73-1247666
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
13800 BENSON ROAD
EDMOND, OKLAHOMA 73013-6417
TELEPHONE: (405) 936-2500
FACSIMILE: (405) 936-2599
(Address and telephone number of principal executive offices)
LEWIS B. KILBOURNE
Chief Executive Officer
THE VIALINK COMPANY
13800 BENSON ROAD
EDMOND, OKLAHOMA 73013-6417
TELEPHONE: (405) 936-2500
FACSIMILE: (405) 936-2599
(Name, address and telephone number of agent for service)
____________________
COPY TO:
J. MATTHEW LYONS
BROBECK, PHLEGER & HARRISON LLP
301 CONGRESS AVE., SUITE 1200
AUSTIN, TEXAS 78701
TELEPHONE: (512) 477-5495
FACSIMILE: (512) 477-5430
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the Registration Statement is expected to be made pursuant
to Rule 434, check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
===============================================================================
<PAGE>
EXPLANATORY NOTE
This registration statement is a post-effective amendment to the
registration statement on form SB-2, Registration No. 333-5038-D, declared
effective by the U.S. Securities and Exchange Commission on November 20, 1996,
which registered a primary offering of securities by The viaLink Company.
Pursuant to that registration statement, we registered our initial public offer,
issuance and sale of 1,000,000 shares of common stock. par value $0.001 per
share; the offer, issuance and sale of 920,000 redeemable warrants and 920,000
shares of common stock underlying the redeemable warrants; the offer, issuance
and sale of 100,000 underwriter warrants and 100,000 shares of common stock
underlying the underwriter warrants; and the offer, issuance and sale of 80,000
warrant underwriter warrants and 80,000 shares of common stock underlying the
warrant underwriter warrants. This post-effective amendment relates to all of
the above noted securities, excluding the initial public offering of the
1,000,000 shares of our common stock.
<PAGE>
SUBJECT TO COMPLETION - MAY 20, 1999
Prospectus
MAY ___, 1999
THE VIALINK COMPANY
1,100,000 Shares of Common Stock
UNDERLYING REDEEMABLE COMMON STOCK PURCHASE WARRANTS,
UNDERWRITER WARRANTS AND WARRANT UNDERWRITER WARRANTS
- -------------------------------------------------------------------------------
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THE VIALINK COMPANY:
<S> <C>
. We are a leading provider of . There is an existing trading market
subscription-based electronic for our common stock. The reported last
commerce services, designed sale price on May 18, 1999 was $21.00 per
specifically for the food and share.
consumer packaged goods industries.
THE OFFERING: . There is an existing trading market
for our redeemable warrants. The
. We are offering up to 920,000 reported last sale price May 18, 1999 was
shares of common stock to the $16.00 per warrant.
holders of redeemable common stock
purchase warrants. These shares Our securities are quoted on the Nasdaq
of Common Stock may be, but do not SmallCap Market:
have to be, sold by these holders. common stock: iqiq
redeemable warrants: iqiqw
. The selling shareholders are
offering up to 180,000 shares of
common stock underlying
underwriter warrants and warrant
underwriter warrants. We are
hereby registering the resale of
these shares by the selling
shareholders.
. Each one of our redeemable
common stock purchase warrants is
exercisable for one share of
common stock at a price of $5.00
per share on or before November
20, 1999.
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AN INVESTMENT IN OUR COMMON STOCK INVOLVES SUBSTANTIAL RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved of these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
We will amend and complete the information in this prospectus. Although we
are permitted by U.S. federal securities laws to offer these securities using
this prospectus, neither we nor the selling stockholders may sell them or accept
your offer to buy them until the documentation filed with the SEC relating to
these securities has been declared effective by the SEC. This prospectus is not
an offer to sell these securities or our solicitation of your offer to buy these
securities in any jurisdiction where that would not be permitted or legal.
<PAGE>
This prospectus does not constitute an offer to sell or a solicitation of
an offer to buy any securities to any person in any jurisdiction where it is
unlawful to make such an offer or solicitation.
We have neither registered these securities under the following state's
securities laws nor are they subject to an exemption thereunder. Therefore,
these securities may not be purchased nor is a solicitation of an offer to
purchase to be made in the District of Columbia, Guam, Michigan, Missouri,
Nebraska, New Mexico, North Carolina, Puerto Rico, Tennessee or Washington.
TABLE OF CONTENTS
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Page
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Prospectus Summary..................................................................... 3
Risk Factors........................................................................... 7
Special Cautionary Note Regarding Forward Looking Statements........................... 16
Use of Proceeds........................................................................ 17
Dilution............................................................................... 17
Dividend Policy........................................................................ 17
Market Prices.......................................................................... 18
Selected Financial Data................................................................ 19
Management's Discussion and Analysis of Financial Condition and Results of Operations.. 20
Business............................................................................... 28
Management............................................................................. 37
Certain Transactions................................................................... 45
Principal and Selling Shareholders..................................................... 46
Description of Securities.............................................................. 48
Shares Eligible for Future Sale........................................................ 53
Plan of Distribution................................................................... 55
Legal Matters.......................................................................... 56
Experts................................................................................ 56
Available Information.................................................................. 56
Index to Consolidated Financial Statements............................................. F-1
</TABLE>
WE HAVE NOT AUTHORIZED ANY DEALER, SALES PERSON OR OTHER PERSON TO GIVE YOU
WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO
MATTERS NOT STATED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES OR OUR
SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE
THAT WOULD NOT BE PERMITTED OR LEGAL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER AFTER THE DATE OF THIS PROSPECTUS SHALL CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THE AFFAIRS OF VIALINK HAVE
NOT CHANGED SINCE THE DATE HEREOF.
2
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified by more detailed information appearing in other
sections of this prospectus. The other information is important, so please read
this entire prospectus carefully. You should completely and carefully read this
prospectus, including the more detailed information and financial statements and
the notes thereto.
THE VIALINK COMPANY
We provide subscription-based electronic commerce services, designed
specifically 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 services offer a
single interface solution for retailers to receive product information from all
their suppliers, regardless of the technological capabilities of the retailer or
the supplier.
Our Item Catalog service offers benefits to every member of the supply
chain. Retailers can reduce costs associated with manual entry of item and cost
data, wholesalers can eliminate the costs associated with maintaining interfaces
with multiple retailer systems, distributors will receive timely and accurate
product information and manufacturers can consistently and efficiently
communicate with their entire supply chain. Product, pricing and promotional
information contained in our database is secured with state-of-the-art 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 and reduce redundant information
processing.
RECENT DEVELOPMENTS
On May 3, 1999, we entered into an agreement with Ernst & Young LLP whereby
Ernst & Young will perform certain consulting and integration services for us
and provide us with marketing and sales support to assist in the development of
our viaLink services. In connection with this transaction, we have 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. Additionally, under certain circumstances, we have
agreed to pay a royalty to Ernst & Young equal to seven percent of our services
revenues.
On February 4, 1999, we entered into an agreement with Hewlett-Packard
Company whereby Hewlett-Packard has agreed to provide us with hosting, co-
marketing and consulting support for our Item Catalog service. In addition,
Hewlett-Packard will provide us with the technological platform to power our
Item Catalog service and $6.0 million of financing through a secured, high-yield
subordinated note which bears interest at 11.5% per annum and is secured by a
lien on our intellectual property. We are seeking shareholder approval at our
1999 annual meeting of shareholders to exchange this initial note for a
substantially similar note which would be convertible beginning in August 2000,
into our common stock at a price of $7.00 per share.
On December 31, 1998, we sold our wholly-owned subsidiary, ijob, Inc., to
DCM Company, Inc., a corporation wholly owned by David C. Mitchell, the
president of ijob, in exchange for an $800,000 promissory note. On March 11,
1999, we received $800,000 plus accrued interest from DCM in full payment of the
promissory note.
Effective September 1, 1998, we sold the assets underlying our management
consulting services to The Netplex Group, Inc. Netplex paid $3.0 million in
cash and issued to us 643,770 shares of their preferred stock,
3
<PAGE>
which was valued at $1.0 million on the date of the sale. In conjunction with
the sale of our consulting assets, we entered into an earn-out agreement that
may provide us with cash payments up to $1.5 million generated from the assets
sold to Netplex until March 31, 2000. Historically, we have generated
approximately 90% of our revenues from the assets sold to Netplex.
HOW TO CONTACT US
Our principal executive offices and headquarters are located at 13800
Benson Road, Edmond, Oklahoma 73013-6417, and our telephone number is (405) 936-
2500. Our World Wide Web home page is located at http://www.vialink.com.
Information contained in, or linked to, our Website does not constitute part of
this prospectus.
THE OFFERING
The following information regarding shares outstanding is as of April 30,
1999. It excludes an aggregate of 1,592,125 shares of common stock issuable
upon the exercise of stock options outstanding as of April 30, 1999, with a
weighted average exercise price of $3.65 per share and 93,878 shares of common
stock reserved for issuance pursuant to our employee stock purchase plan as of
April 30, 1999.
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<S> <C>
Common Stock outstanding prior
to this offering................................ 2,874,342 shares
Common Stock offered:
By viaLink.................................... 920,000 shares
By the selling shareholders................... 180,000 shares
----------------
Total........................................ 1,100,000 shares
Common Stock to be outstanding after this
offering assuming the redeemable warrants,
underwriter warrants and warrant underwriter
warrants are exercised in full................. 3,974,342 shares
Use of Proceeds................................. We intend to use the estimated
net proceeds of $4.5 million
that we will receive from this
offering for the enhancement
and development of our
services, acquisition of other
hardware and software and
working capital and other
general corporate purposes. We
will not receive any proceeds
from the shares sold by the
selling shareholders. See "Use
of Proceeds."
Nasdaq SmallCap Market Symbols.................. common stock: IQIQ
redeemable warrants: IQIQW
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4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(unaudited)
This information was derived from our audited financial statements. You
should read the following summary consolidated data together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and notes thereto included elsewhere in
this prospectus. The pro forma as adjusted balance sheet gives effect to the
exercise of the redeemable warrants at an exercise price of $5.00 per share, the
underwriter warrants and the warrant underwriter warrants at a price of $6.00
per share, net of the costs of this offering, estimated at $110,000. See
"Description of Securities -- Redeemable Common Stock Purchase Warrants" and "--
Underwriter Warrants and Warrant Underwriter Warrants."
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YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1998 1997 1996 1999 1998
----------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues................................ $ 8,230,628 $ 9,022,842 $ 9,507,370 $ 108,178 $3,098,403
Expenses................................ 9,870,673 11,995,787 10,556,704 2,465,512 3,007,665
Loss from operations.................... (1,640,045) (2,972,945) (1,049,334) (2,357,334) 90,739
Gain on sale of assets.................. 2,998,453 -- -- 462,041 --
Other income............................ 340,670 -- -- 273,000 --
Income (loss) before income taxes....... 1,699,078 (2,972,945) (1,049,334) (1,622,293) 90,739
Provision (benefit) for income taxes.... 1,049,440 (1,112,127) (366,925) -- 34,481
Net income (loss)....................... 649,638 (1,860,818) (682,409) (1,622,293) 56,258
Other comprehensive income (loss)....... (315,673) -- -- 1,447,856 --
Comprehensive income (loss)............. $ 333,965 $(1,860,818) $ (682,409) $ (174,437) $ 56,258
=========== =========== =========== =========== ==========
Net income (loss) per common share:
Basic................................. $ 0.24 $ (0.68) $ (0.37) $ (0.57) $ 0.02
=========== =========== =========== =========== ==========
Diluted............................... $ 0.21 $ (0.68) $ (0.37) $ (0.57) $ 0.02
=========== =========== =========== =========== ==========
Weighted average shares outstanding:
Basic................................. 2,741,041 2,727,438 1,838,522 2,866,802 2,729,521
Diluted............................... 3,102,443 2,727,438 1,838,522 2,866,802 2,779,665
<CAPTION>
AS OF MARCH 31, 1999
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED
---------- -------------
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Balance Sheet Data:
Total current assets.......................................................... $ 8,996,208 $14,566,208
Working capital............................................................... 7,836,030 13,406,030
Total assets.................................................................. 11,151,733 16,721,733
Current liabilities........................................................... 1,160,178 1,160,178
Long-term debt................................................................ 592,322 592,322
Stockholders' equity.......................................................... 9,399,233 14,969,233
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5
<PAGE>
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
You should read the following summary unaudited pro forma consolidated
financial data together with our consolidated financial statements and unaudited
pro forma consolidated financial statements and notes thereto included elsewhere
in this prospectus. This pro forma financial data assumes that both the sale of
ijob and the asset sale to Netplex occurred upon December 31, 1997 and at the
beginning of each period for which statements of operations are presented. This
pro forma information does not give effect to the exercise of the redeemable
warrants, the underwriter warrants, the warrant underwriter warrants or
outstanding stock options exercisable for the purchase of 1,574,989 common stock
or to the 93,974 shares of common stock reserved for issuance pursuant to our
employee stock purchase plan as of December 31, 1998. We have presented the
unaudited pro forma consolidated financial statements merely for illustrative
purposes. This information is not indicative of the financial condition and
results of operations we would have achieved had the sale of ijob and the assets
to Netplex actually been consummated in accordance with the assumption described
in the notes to the unaudited pro forma consolidated financial statements.
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<CAPTION>
PRO FORMA
-----------------
YEAR ENDED
DECEMBER 31, 1998
-----------------
Statements of Operations Data:
<S> <C>
Revenues......................................................................... $ 732,587
Expenses......................................................................... 2,287,401
Loss from operations............................................................. (2,935,305)
Gain on sale of assets........................................................... 2,998,453
Other income..................................................................... 1,106,670
Income before income taxes....................................................... 1,169,818
Provision for income taxes....................................................... 1,049,440
Net income....................................................................... 120,378
Other comprehensive loss......................................................... (315,673)
Comprehensive loss............................................................... (195,295)
Net income per common share:
Basic.......................................................................... $ .04
===========
Diluted........................................................................ $ .04
===========
Weighted average shares outstanding:
Basic.......................................................................... 2,741,041
Diluted........................................................................ 3,102,443
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6
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RISK FACTORS
Before you invest in our common stock, you should be aware of various
risks, including those discussed below. You should carefully consider these
risk factors, together with all of the other information included in this
prospectus, before you decide whether to purchase shares of our common stock.
DUE TO THE SALE OF OUR CONSULTING ASSETS TO NETPLEX, WE NEED TO REPLACE MOST OF
OUR HISTORICAL REVENUE WITH REVENUE FROM 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 90% of our total revenues from the assets sold to Netplex. We
also sold our wholly owned subsidiary, ijob.
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 NEGATIVE CASH FLOW FROM OPERATIONS AND OPERATING LOSSES AND
EXPECT FUTURE OPERATING LOSSES
By selling our consulting business and ijob, we lost the source of
approximately 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 from
operations and net operating 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. On a pro forma
basis giving effect to the sale of our consulting business and ijob, as if sold
on January 1, 1998, we had pre-tax income of approximately $1.2 million for
1998. However, this $1.2 million pro forma pre-tax income includes an
approximate $3.0 million one-time gain on the sale of assets from our consulting
business, and therefore should not be construed as representative of future
operations. As of March 31, 1999, we had an accumulated deficit of
approximately $2,586,000 representing the sum of our historical net losses.
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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 this service. 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;
. Our ability to successfully manage the transition of our database to the
Hewlett-Packard hosting facility;
. Success of our strategic relationships;
. Improvements in technological performance; and
. Continued acceptance of the Internet for business use.
The markets for business-to-business electronic commerce services evolve
rapidly. If new markets evolve, customers in those markets, including our
current customers, may not choose our viaLink services.
THE UNPREDICTABILITY OF OUR QUARTER-TO-QUARTER RESULTS COULD CAUSE OUR STOCK
PRICE TO BE VOLATILE OR 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 our 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 has agreed to provide us
8
<PAGE>
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 existing strategic relationships may not
bring us the anticipated benefits and 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 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. Moreover, we
are seeking shareholder approval for the issuance of shares upon conversion of
the $6.0 million note. Upon shareholder approval, 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 ARE DEPENDENT UPON THE OPERATION OF THE PRODUCTION AND DATA CENTER BY
HEWLETT-PACKARD FOR THE TIMELY AND SECURE DELIVERY OF OUR SERVICES
As part of our strategic relationship, we utilize Hewlett-Packard's data
center as the host for our viaLink services. We are dependent on our continued
relationship with Hewlett-Packard and on their data center for the timely and
secure delivery of our services. In the event our agreement with Hewlett-Packard
is terminated, we may not be able to find an alternative source to host our
services on a timely basis or on comercially reasonable terms.
THE SEVEN PERCENT ROYALTY WE MUST PAY TO ERNST & YOUNG COULD ADVERSELY
AFFECT OUR ABILITY TO BECOME PROFITABLE
Pursuant to our alliance agreement between Ernst & Young and us, we must
pay a royalty of seven percent (7%) of our service revenues to Ernst & Young
until May 2001. Upon meeting certain objectives relating to certain significant
Ernst & Young's clients becoming our customers, these royalty payments will
continue in perpetuity. These royalty payments could inhibit our ability become
profitable and could have an adverse effect on our operating results and
financial condition.
THE ISSUANCE OF THE WARRANT TO ERNST & YOUNG COULD RESULT IN SUBSTANTIAL
DILUTION TO OUR CURRENT SHAREHOLDERS
The issuance of the warrant to Ernst & Young to purchase 250,000 shares of
our common stock could cause substantial dilution to our current shareholders.
Out common stock was trading at $21.25 on May 17, 1999 and the warrant is
exercisable for a price of $8.00 per share of our common stock.
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 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 warrants will enable us to meet our working
capital and capital expenditure requirements throughout 1999 and into 2000.
After that time, our ability to fund our planned working capital and capital
expenditures will depend upon our ability to obtain sufficient equity or debt
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 which could further our growth strategy.
We do not have any current plans to acquire other businesses or
technologies. However, if we do decide to acquire other businesses or
technologies, up to 30% of the proceeds from the exercise of the warrants could
be used for this purpose.
9
<PAGE>
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 our 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.
10
<PAGE>
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. 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 our viaLink services.
11
<PAGE>
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 demands 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 MANAGEMENT TEAM MAY NOT BE ABLE TO WORK TOGETHER EFFECTIVELY TO IMPLEMENT
OUR BUSINESS MODEL
We have recently hired many of our current executive officers to establish
a team to manage our operations. These newly hired officers include our Chief
Executive Officer, hired in October 1998, our Chief Operating Officer, hired in
October, 1998, our Executive Vice President of Business Development, hired in
April 1999, our Chief Financial Officer, hired in April 1999, our Vice President
of Strategic Products, hired in March 1999, our Vice President of Human
Resources, hired in April 1999 and our Vice President of Operations, promoted to
this position in February 1999. These individuals had not previously worked
together and are in the process of integrating as a management team.
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 has 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
Although we do not have any current plans for future acquisitions, 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. The decision to make any future acquisitions
could require us to use up to 30% of the proceeds we receive from the exercise
of the warrants, 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.
12
<PAGE>
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 develop, identify, license and integrate equivalent
software. 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 expect to identify and resolve all Year 2000 Problems by the end of the
second quarter of 1999, that could materially adversely affect our business,
financial condition or results of operations. We are currently developing
contingency plans to be implemented as part of our efforts to identify and
correct Year 2000 Problems affecting our internal systems and expect to complete
our contingency plans by June 30, 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.
13
<PAGE>
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. If all of our warrants are
exercised, we will have outstanding 3,974,342 shares of common stock, assuming
no exercise of outstanding options after April 30, 1999. Of these shares:
. 2,777,691 shares will be freely tradable without restriction or
further registration under the Securities Act unless purchased by our
"affiliates";
. 74,861 shares will be freely tradable without restriction or further
registration under the Securities Act following the termination of the
lock-up arrangement under the promotional shares escrow agreement
described below;
. 1,065,139 shares held by affiliates will become available for sale
pursuant to the volume and manner of sale provisions of Rule 144
following the termination of the promotional shares escrow agreement
described below; and
. 1,481,790 shares of common stock will be "restricted securities" as
defined in Rule 144 of the Securities Act.
An additional 507,341 shares of common stock are issuable upon the exercise
of currently exercisable options. Substantially all shares issued following the
exercise of these options will be freely tradable.
The 920,000 outstanding redeemable warrants are currently in-the-money and
exercisable. The closing price of our common stock on May 12, 1999 was $20.50
per share and the warrants may be exercised to purchase one share of common
stock at a price of $5 per share.
In connection with our initial public offering of common stock, our
executive officers, certain former executive officers and certain holders of
stock options entered into a Promotional Shares Escrow Agreement. Under this
agreement, they agreed until November 19, 1999 not to sell or otherwise dispose
of any shares of our common stock, unless the subsequent holder agrees to take
such securities subject to the agreement.
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.
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US DUE TO CERTAIN PROVISIONS IN
OUR CHARTER AND BYLAWS
Provisions of our charter and bylaws as well as the Oklahoma General
Corporation Act could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our shareholders. We are subject to the
business combination provisions of the Oklahoma General Corporation Act which
restrict certain business combinations with interested shareholders. These
provisions may have the effect of inhibiting a non-negotiated merger or other
business combinations.
THE SALE OF SHARES OF OUR COMMON STOCK ISSUABLE UPON THE EXERCISE OF OUR
WARRANTS IS CONTINGENT UPON CONTINUING REGISTRATION REQUIREMENTS
We will only be able to issue shares of common stock upon exercise of the
redeemable warrants if the sale of the common stock underlying the redeemable
warrants is lawful under applicable federal and state securities laws. To be
lawful, we must maintain effectiveness of the registration statement of which
this prospectus is a part. In addition, we must register or qualify the common
stock underlying the redeemable warrants for sale in the states in which the
redeemable warrant holders reside. We have agreed to maintain effectiveness of
the registration statement
14
<PAGE>
to permit sale of the common stock upon exercise of the redeemable warrants.
However, we may decide not to seek to qualify the common stock underlying the
redeemable warrants for sale in all of the states in which the redeemable
warrant holders reside. Even if we seek to qualify the common stock, we cannot
be sure that such qualification will occur. If we are unable to qualify the
common stock for sale or fail to maintain an effective registration statement,
the market value of the redeemable warrants may be diminished and the market for
the redeemable warrants may be limited.
CERTAIN INVESTORS MAY BE UNABLE TO SELL SHARES OF OUR COMMON STOCK ISSUABLE UPON
EXERCISE OF OUR 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.
OUR REDEMPTION OF THE REDEEMABLE WARRANTS COULD RESULT IN THE LOSS OF A
SUBSTANTIAL PORTION OF YOUR INVESTMENT OR FORCE YOU TO EXERCISE OR SELL THE
WARRANTS
Redeemable warrant holders who do not exercise their redeemable warrants
prior to the time the redeemable warrants are redeemed will forfeit their rights
to purchase the shares of common stock underlying the redeemable warrants. In
the event that we elect to redeem the redeemable warrants, the redeemable
warrant holders will be confronted with several alternatives:
. Holders may be forced to exercise the redeemable warrants at a time
that may be financially disadvantageous;
. Holders may be forced to sell the redeemable warrants,
notwithstanding possible adverse market conditions; or
. Holders will be required to accept the redemption price of $.125 per
redeemable warrant, which may be an amount substantially less than the
purchase price of the redeemable warrant.
THE EXERCISE OF WARRANTS AND STOCK OPTIONS MAY HAVE A DILUTIVE EFFECT ON THE
PRICE OF OUR STOCK
Investors purchasing shares of common stock in the offering will incur
immediate and substantial dilution in net tangible book value per share.
IF THE REDEEMABLE WARRANTS AND UNDERWRITER WARRANTS ARE NOT EXERCISED, WE WILL
NEED TO SEEK OTHER SOURCES OF CAPITAL
In the event that the holders of our redeemable warrants and underwriter
warrants choose not to exercise the warrants, we will not receive any proceeds.
This would force us to find additional sources of capital to fund our
growth.
OUR SECURITIES MAY BE DELISTED FROM THE NASDAQ SMALLCAP MARKET.
Shares of our common stock and redeemable warrants are quoted on the Nasdaq
SmallCap market. For continued listing on the Nasdaq SmallCap Market, we must
maintain compliance with certain standards set forth by Nasdaq. We must meet
the following standards: (i) have net tangible assets of at least $2 million,
market capitalization of at least $35 million or net income of at least
$500,000; (ii) market value of public float of at least $1 million; (iii) a
minimum bid price per share of our common stock of $1; (iv) at least two market
makers in our securities; and (v) at least 300 shareholders. If we fail to
continue to meet the requirements for listing our securities on the Nasdaq
SmallCap market, we may be delisted. If we are delisted, we may be forced to
list our shares on the OTC Bulletin Board
15
<PAGE>
or some other quotation medium, such as "pink sheets," depending on our ability
to meet the specific listing requirements of those quotation systems. As a
result, an investor would find it more difficult to dispose of, or to obtain
accurate quotations of the price of our securities. Such delisting may also have
the adverse effect of reducing the visibility, liquidity and prestige of our
common stock.
OUR COMMON STOCK MAY BECOME SUBJECT TO "PENNY STOCK" REGULATIONS
In the event our common stock is delisted from the Nasdaq SmallCap Market
and does not trade on another national securities exchange, we may become
subject to "penny stock" regulations that impose additional sales practice and
market making requirements on broker-dealers who sell or make a market in our
securities. A "penny stock" is generally a stock that is not listed on a
national securities exchange or NASDAQ, is listed in "pink sheets" or on the
NASD OTC Bulletin Board, have a price per share of less than $5 per share and
are issued by a company with net tangible assets less than $5 million. The
penny stock trading rules impose additional duties and responsibilities upon
broker-dealers recommending the purchase of a penny stock (by a purchaser that
is not an accredited investor as defined by Rule 501(a) promulgated under the
Securities Act of 1933) or the sale of a penny stock. Among such duties and
responsibilities, with respect to a purchaser who has not previously had an
established account with the broker-dealer, the broker-dealer is required to
obtain information concerning the purchaser's financial situation, investment
experience and investment objection, and make a reasonable determination
that transactions in the penny stock are suitable for the purchase and the
purchaser has sufficient knowledge and experience in financial matters. The
broker-dealer must also receive a signed written statement setting forth the
basis for such determination. If our securities become subject to penny stock
regulations, it would adversely affect the ability and willingness of broker-
dealers who sell or make a market in our common stock and of investors to sell
our securities in the secondary market.
--------------------------
SPECIAL CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue" or similar words. You should
read statements that contain these words carefully because they discuss our
future expectations, contain our projections of the future operating results of
our operations or of our financial condition or state other forward-looking
information. We believe that it is important to communicate our future
expectations to our investors. However, there may be events in the future that
we are not able to accurately predict or control. The risk factors listed in
this section, as well as any cautionary language in this prospectus, provide
examples of risks, uncertainties and events that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. Before you invest in our common stock, you should be aware that the
occurrence of the events described in these risk factors and elsewhere in this
prospectus could have a material adverse effect on our business, operating
results and financial condition.
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<PAGE>
USE OF PROCEEDS
If all the redeemable warrants are exercised, we will receive approximately
$4.5 million after deducting our estimated offering expenses. Warrant exercise,
however, is at the option of the warrant holders. Some or all of the warrant
holders may decide not to exercise their warrants. Should warrant holders
choose not to exercise their warrants, we will not receive proceeds from these
holders, and we will therefore receive less than $4.5 million in net proceeds.
Pending the following uses, we will invest the net proceeds in government
securities and other short-term, investment-grade, interest-bearing instruments.
The proceeds received from the exercise of the warrants will be used entirely by
us and will not benefit parties affiliated with us.
We currently intend to use the proceeds, assuming all redeemable warrants
are exercised, as follows:
<TABLE>
<CAPTION>
Use Amount Percent
--- ------ -------
<S> <C> <C>
Enhancement and Further Development of Our viaLink Services $3,200,000 71.0%
(Internal Software Development Costs,
Acquisition of Computer Hardware and Software;
Sales and Marketing Expenses and
Operational and Administrative Expenses)
Acquisition of Other Computer Hardware and Software 550,000 12.2
SEC, Nasdaq, Accounting, Legal and Blue Sky Fees 150,000 3.3
Working Capital and Other General Corporate Purposes 600,000 13.3
Total $4,500,000 100.0%
</TABLE>
We will receive an exercise price per share of $6.00 if a selling
shareholder decides to exercise our underwriter warrants, provided that the
selling shareholder does not purchase the shares by using the net exercise
feature of the underwriter warrants. Any proceeds we receive from the exercise
of the underwriter warrants will be used for the purposes stated above and in
the same percentages as stated above.
We will not receive any proceeds from the sale of common stock by the
selling shareholders.
DILUTION
Our net tangible book value as of March 31, 1999 was $8,025,799 or $2.79
per share of common stock. Net tangible book value per share represents the
amount of our total tangible assets less total liabilities, divided by the
number of shares of our common stock outstanding. Assuming the exercise of the
920,000 redeemable warrants at the exercise price of $5.00 per share and the
application of the estimated net proceeds therefrom, our net tangible book value
as of March 31, 1999 would have been $12,625,799, or $3.33 per share of common
stock. This represents an immediate increase in the net tangible book value of
$0.54 per share to our existing shareholders and an immediate dilution in the
net tangible book value of $1.67 per share to new investors of common stock in
this offering. The following table illustrates this per share dilution:
<TABLE>
Percentage of
Exercise Price
--------------
<S> <C> <C> <C>
Exercise price per share........................................................ $5.00 -
-----
Net tangible book value per share as of March 31, 1999....................... $2.79 56%
-----
Increase per share attributable to new investors............................. .54 11
-----
Net tangible book value per share after this offering........................... 3.33 67
-----
Dilution per share to new investors............................................. $1.67 33
=====
</TABLE>
DIVIDEND POLICY
We intend to retain any future earnings to finance the expansion of our
business and do not anticipate paying cash dividends for the foreseeable future.
Any future determination as to the payment of dividends will be at the
discretion of our board of directors. In addition, the terms of the secured
subordinated
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<PAGE>
promissory note we issued to Hewlett-Packard prohibit us from paying any
dividends while any amounts remain outstanding under this note.
MARKET PRICES
The common stock and the redeemable warrants have been quoted on the Nasdaq
SmallCap Market under the symbols "IQIQ" and "IQIQW," respectively, since
November 1996. The following table sets forth the high and low sale prices of
the common stock and redeemable warrants as reported by the Nasdaq SmallCap
Market.
<TABLE>
<CAPTION>
COMMON STOCK PRICE REDEEMABLE WARRANT PRICE
------------------------------ -----------------------------
HIGH LOW HIGH LOW
--------- ------ -------- --------
<S> <C> <C> <C> <C>
1997:
First Quarter $ 5.38 $ 3.63 $ 1.69 $0.63
Second Quarter 4.50 2.88 1.00 0.38
Third Quarter 5.88 3.00 1.50 0.50
Fourth Quarter 4.50 2.94 1.13 0.50
1998: 4.50 2.88 1.00 0.38
First Quarter
Second Quarter 5.13 2.38 1.19 0.44
Third Quarter 3.69 2.13 1.00 0.38
Fourth Quarter 14.50 2.44 9.25 0.44
1999:
First Quarter 33.00 10.56 26.63 7.25
Second Quarter (through May 18, 1999) 24.88 12.25 18.81 8.06
</TABLE>
We believe there are currently approximately 1,300 record holders of common
stock and approximately 260 record holders of redeemable warrants. On May 18,
1999, the closing sale prices of our common stock and redeemable warrants as
reported on the Nasdaq SmallCap Market were $21.00 and $16.00,
respectively.
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<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to, and
should be read in conjunction with, the financial statements and related notes
of viaLink contained elsewhere in this prospectus and "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The selected
financial data presented below is not necessarily indicative of the future
results of operations or financial performance of viaLink. The selected
financial information as of and for the years ended December 31, 1996, 1997 and
1998, is derived from viaLink's audited financial statements appearing
elsewhere in this prospectus. For the three months ended March 31, 1999 and 1998
and as of March 31, 1999, this information is derived from our unaudited
financial statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------------------------------ ------------------------------
1998 1997 1996 1999 1998
------------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(unaudited)
STATEMENTS OF INCOME DATA:
Revenues.............................. $ 8,230,628 $ 9,022,842 $ 9,507,370 $ 108,178 $3,098,404
Expenses:
Direct cost of sales................. 1,563,757 2,211,956 2,570,840 -- 377,068
Salaries and benefits................ 5,256,247 6,174,503 5,167,571 501,358 1,787,430
Selling, general and administrative.. 1,964,180 2,708,351 2,007,999 1,150,822 558,599
Interest expense, net................ 161,355 73,581 219,089 634,498 36,116
Depreciation and amortization........ 925,134 827,396 591,205 178,834 248,452
----------- ----------- ----------- ----------- ----------
Total expenses...................... 9,870,673 11,995,787 10,556,704 2,465,512 3,007,665
Loss from operations.................. (1,640,045) (2,972,945) (1,049,334) (2,357,334) 90,739
Gain on sale of assets................ 2,988,453 -- -- 462,041 --
Other income.......................... 340,670 -- -- 273,000 --
----------- ----------- ----------- ----------- ----------
Income (loss) before income taxes..... 1,699,078 (2,972,945) (1,049,334) (1,622,293) 90,739
Provision (benefit) for income taxes.. 1,049,440 (1,112,127) (366,925) -- 34,481
----------- ----------- ----------- ----------- ----------
Net income (loss)..................... 649,638 (1,860,818) (682,409) (1,622,293) 56,258
Other comprehensive income (315,673) -- -- 1,447,856 --
----------- ----------- ----------- ----------- ----------
(loss)--unrealized loss on securities
Comprehensive income (loss)........... $ 333,965 $(1,860,818) $ (682,409) $ (174,437) $ 56,258
=========== =========== =========== =========== ==========
Net income (loss) per common share:
Basic................................. $ 0.24 $ (0.68) $ (0.37) $ (0.57) $ 0.02
=========== =========== =========== =========== ==========
Diluted............................... $ 0.24 $ (0.68) $ (0.37) $ (0.57) $ 0.02
=========== =========== =========== =========== ==========
Weighted average shares outstanding:
Basic................................. 2,741,041 2,727,438 1,838,522 2,866,802 2,729,521
Diluted............................... 3,102,443 2,727,438 1,838,522 2,866,802 2,779,665
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, MARCH 31,
---------------------------- ---------------
1998 1997 1999
----------- ---------- ---------------
<S> <C> <C> <C>
(unaudited)
Balance Sheet Data:
Current assets............................................... $2,160,384 $1,567,827 $ 8,996,208
Working capital (deficit).................................... 1,049,917 (331,366) 7,836,030
Total assets................................................. 4,597,046 5,804,153 11,151,733
Short-term debt.............................................. 44,194 132,422 1,160,178
Long-term debt............................................... -- 1,017,024 592,322
Stockholders' equity......................................... 3,486,579 2,887,936 9,399,233
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and the notes thereto appearing elsewhere
in this prospectus.
OVERVIEW
viaLink 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 Item Catalog, that enables
subscribing manufacturers, suppliers and retailers to exchange product, pricing
and promotional information. Our solution offers a single interface solution
whereby retailers can receive product information from all of their suppliers,
regardless of the technological capabilities of the retailer or the supplier.
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. We also offer the Exchange
Manager and ItemXpress services to complement our Item Catalog service.
Exchange Manager allows subscribers to exchange order and invoice transactions
through a single interface, regardless of their number of trading partners.
ItemXpress allows subscribers to quickly and accurately create an initial setup
of their pricebook through a custom load for each retailer's system.
We expect that our future revenues will be generated primarily from monthly
subscriptions to the Item Catalog, Exchange Manager and ItemXpress services.
Under our former pricing model, monthly subscription fees collected from
retailers, wholesalers and manufacturers in the food and consumer packaged goods
industries were calculated based on the amount of each service the subscriber
used. Fees were generated when retailers and suppliers would "match"
transactions through the Item Catalog service system. We have recently changed
our pricing model to begin pricing our services based on a flat monthly rate
with a variable component based on usage. The variable portion of each
subscriber's monthly service fee is calculated based on the service and amount
of service the subscriber uses. For example, for use of the Item Catalog
service, retailers pay based on the number of suppliers from whom they receive
data; suppliers pay based on the number of retailers that download their data;
and manufacturers pay based on the number of retailers that subscribe to the
service. We price our other services based on the number of stores supported or
the amount of data stored and retrieved.
Until March 31, 2000, we may also receive quarterly payments of up to $1.5
million pursuant to an earn-out agreement with Netplex. We currently receive
revenues from certain Web hosting services we perform, but expect to reduce our
focus on this service.
In order to achieve market acceptance, we expect to continue our high level
of expenditures for investment in, and sales and marketing of, our viaLink
services. 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 and marketing partners for our viaLink
services. We are currently seeking additional equity or debt financing and
negotiating with potential hosting and marketing partners.
On February 4, 1999, we entered into financing agreements and 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. Subject to approval by our
shareholders, the note will be exchanged for a subordinated secured convertible
promissory note, which is convertible into our common stock at a conversion
price of $7.00 per share. The purchase of the note occurred on February 5,
1999. As of April 30, 1999, we had cash and cash equivalents and short-term
investments totaling $5.1 million.
In connection with the note we issued to Hewlett-Packard, 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
intrinsic 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 $592,322 during
20
<PAGE>
the first quarter of 1999, by establishing long-term debt in the same amount. We
will continue to record a non-cash interest charge of approximately $1,000,000
and increase the long-term debt 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 February 4, 1999, we entered into financing agreements and 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. Subject to approval by our
shareholders, the note will be exchanged for a subordinated secured convertible
promissory note, which is convertible into our common stock at a conversion
price of $7.00 per share. The purchase of the note occurred on February 5,
1999. As of April 30, 1999, we had cash and cash equivalents and short-term
investments totaling $5.1 million.
On May 3, 1999, we entered into an agreement with Ernst & Young whereby
Ernst & Young will provide us with consulting and integration services and sales
and marketing support, to assist us in the development of our viaLink services.
In connection with this agreement, we issued Ernst & Young warrants to purchase
up to 250,000 shares of our common stock at a price of $8.00 per share.
Additionally, under certain circumstances, we have agreed to pay a royalty of
seven percent of our service revenues to Ernst & Young. As of the date of the
issuance of the warrant, the warrant conversion price was below the value of our
stock. The difference will result in a non-cash charge to our statement of
operations.
We expect to report substantial losses from operations in 1999. The extent
of these losses will depend substantially on the amount of revenues generated
from subscriptions to our viaLink services, which have not yet achieved market
acceptance. To date, revenues from these services have not been significant.
As a result of our high level of expenditures for selling and marketing and
investments in these services, we expect to incur losses in future periods until
such time as the recurring revenues from these services are sufficient to cover
expenses.
We recognize revenue from subscriptions to our Item Catalog, Exchange
Manager and ItemXpress services as the services are performed. Revenue from the
earn-out agreement with Netplex, which is expected to pay us approximately $1.5
million over the next 18 months, is recognized quarterly as earned. Actual
payments are rendered to us from Netplex, according to the terms of the earn-out
agreement. Web site hosting and other miscellaneous revenues are recognized as
services are performed.
SALE OF CONSULTING BUSINESS 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. Historically, approximately 90% of our
revenues were generated from our consulting business. As a result of the sales
of assets, we resemble a development stage company since our planned principal
operations are underway, but have not yet generated significant revenues.
Netplex paid us $3.0 million in cash and issued us 643,770 shares of
Netplex preferred stock, having a then market value of approximately $1.0
million. We used certain of the cash proceeds from the sale to pay (1) $551,062
of long-term debt, (2) $565,094 of shareholder loans, including interest, and
(3) 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 recorded and received a September 1998 earn-out
payment of $132,770, which we recorded as other income. A receivable for
$207,900 for the earn-out payment for the fourth quarter of 1998 is included in
Other Receivables on the balance sheet at December 31, 1998 which was received
on March 12, 1999. We also have entered into a remarketing and relicensing
agreement with Netplex to sell CHAINLINK, our proprietary communications
software product. Under the remarketing and relicensing agreement, we have
agreed to cease our own marketing and selling of CHAINLINK. Beginning January
1, 2002, Netplex has the irrevocable right to purchase CHAINLINK from us.
On December 31, 1998, we sold our wholly-owned subsidiary, ijob to DCM
Company, 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. ijob is an
Internet-based, human resource screening and acquisition Company. We had
incurred substantial losses in connection with ijob and had provided significant
cash support for its operations. The sale of ijob enables us to focus on
developing our Item Catalog service and other viaLink services. DCM purchased
all of the outstanding stock of ijob for a collateralized, ten-year
$800,000
21
<PAGE>
secured promissory note that accrues interest at 8%. A gain on the sale of ijob
of $462,000 has been deferred at December 31, 1998, due to the highly leveraged
nature of DCM. On March 11, 1999, we received $800,000 plus accrued interest
from DCM in full payment of the promissory note we were issued by DCM upon our
sale of ijob. We have released all security interests which we held pursuant to
a security and pledge agreement in the fixed assets, contract rights, accounts
receivable and general intangibles of ijob. Accordingly, 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
The following table sets forth, for the periods illustrated, certain
statements of operations data expressed as a percentage of total revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------ ------------------
1998 1997 1996 1999 1998
----- ----- ------ -------- ------
<S> <C> <C> <C> <C> <C>
Revenues.............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Expenses:
Direct cost of sales................................. 19.0 24.5 27.0 -- 12.2
Salaries and benefits................................ 63.9 68.4 54.4 463.5 57.7
Selling, general and administrative.................. 23.9 30.0 21.1 1,063.8 18.0
Interest expense, net................................ 2.0 0.8 2.3 586.5 1.2
Depreciation and amortization........................ 11.2 9.2 6.2 165.3 8.0
Total expenses....................................... 120.0 132.9 111.0 2,279.1 97.1
Loss from operations.................................. (20.0) (32.9) (11.0) (2,179.1) 2.9
Gain on sale of assets and other (40.6) -- -- 679.5 --
income...............................................
Income (loss) before income taxes..................... 20.6 (32.9) (11.0) (1,499.7) 2.9
Provision (benefit) for income taxes................. 12.8 (12.3) (3.9) -- 1.1
Net income (loss)..................................... 7.8 (20.6) (7.1) (1,499.7) 1.8
Other comprehensive loss............................. 3.8 -- -- 1,338.4 --
Comprehensive income (loss)........................... 4.0% (20.6)% (7.1)% (161.2)% 1.8%
</TABLE>
FIRST QUARTER 1999 COMPARED TO FIRST QUARTER 1998
Introduction
The sale of our consulting and systems integration business to Netplex was
effective September 1, 1998, and the sale of ijob was effective December 31,
1998. Consequently, our results of operations for the three months ended March
31, 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. Our results of operations for the three months ended March 31, 1998
include the sales, expenses and results of operations related to the consulting
and systems integration assets and the ijob assets. Therefore, the results of
operations for the three months ended March 31, 1999 are not comparable to the
three months ended March 31, 1998.
Results of Operations
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 97%, or $3.0 million to $108,000 in the three months
ended March 31, 1999, from $3.1 million for the three months ended March 31,
1998.
22
<PAGE>
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 and
contract programmers. 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 of approximately 146 at the end of the
first quarter of 1998 to approximately 45 at the end of the first quarter of
1999. Therefore, overall salaries, wages, taxes and benefits expense decreased
by 72%, or $1.3 million to $501,000 in the three months ended March 31, 1999.
Selling, General and Administrative Expense. SG&A increased 106%, or
$590,000, to $1.2 million in the first quarter 1999, from $559,000 in the first
quarter of 1998. The increase in SG&A is primarily attributable to increased
expenses for recruiting and staffing and professional fees associated with the
Hewlett-Packard financing arrangement and regulatory filings. Professional
recruiting fees were $223,000 in the first quarter of 1999 compared to only
$11,000 in the first quarter of 1998. Also included in professional fees in the
first quarter of 1999 is approximately $189,000 for trade show and marketing
expenses that were not incurred in the first quarter of 1998.
Interest Expense, Net. Interest expense, net, increased 1657%, or
$598,000, to $634,000 for the three months ended March 31, 1999, from $36,000
for the same period in 1998. This increase was 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 financial statements for the
quarter order March 31, 1999, contained elsewhere in this prospectus. 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 $70,000, or 28%, to $179,000 for the three months ended March 31,
1999, compared to $249,000 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 $273,000 of income under the earn-out agreement with Netplex.
Tax Provision (Benefit). SFAS 109, Accounting for Income Taxes, requires,
among other things, the separate recognition, measured at currently enacted tax
rates, of deferred tax assets and deferred tax liabilities for the tax effect of
temporary differences between the financial reporting and tax reporting bases of
assets and liabilities, and net operating loss and tax credit carryforwards for
tax purposes. A valuation allowance must be established for deferred tax assets
if it is "more likely than not" that all or a portion will not be realized.
Prior to the third quarter of 1998, 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, generated by losses recorded in the fourth quarter of 1998, 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. Due to the increase in the market value at
March 31, 1999, of the common stock of Netplex underlying the 643,770 shares of
preferred stock received as consideration of the sale of our consulting assets,
we have recorded other comprehensive income of $1.4 million. Reporting of
comprehensive income in the current period is a result of the adoption of SFAS
130 in 1998.
1998 COMPARED TO 1997
The sale of our consulting business was effective as of September 1, 1998.
Consequently, our results of operations in 1998 do not include the sales,
expenses and results of operations related to the consulting and systems
integration operations for September through December 1998. Our results of
operations in 1997 include the sales, expenses and results of operations related
to the consulting and systems integration assets. Therefore, the results of
operations in 1998 compared to 1997 are not comparable. Prior to the sale of our
consulting business, we were operating under very restricted cash flow
capabilities and much of the decrease in expenses was due to this restriction on
cash flow.
23
<PAGE>
Revenues. Prior to the sale of our consulting business, revenues consisted
of management consulting and system integration fees as well as sales of
proprietary software licenses and hardware. Revenues decreased 9%, or $792,000,
to $8.2 million in 1998, from $9.0 million in 1997. This decrease in gross
revenues was primarily attributable to the reduction in revenues resulting from
the consulting business sale. Hardware and product sales, including commissions
received on referral of such sales, decreased a total of 37%, or $1.1 million,
to $1.8 million in 1998, compared to $2.8 million in 1997. These decreases were
offset by an overall combined increase of $271,000 in all other revenue areas.
Direct Cost of Sales. Direct cost of sales consisted of purchased hardware
and certain software for resale, and costs associated with viaLink's proprietary
software products. Direct cost of sales decreased 29%, or $648,000, to $1.6
million in 1998, from $2.2 million in 1997. This decrease corresponded with the
decrease in hardware and product sales, offset by the increase in solution sales
in 1998. As a result of the consulting business sale, we will no longer be a
reseller of hardware and software and will no longer incur these expenses.
Salaries and Benefits Expense. Salaries and benefits expense consists of
direct payroll costs of salaries and wages, benefits, and employment taxes as
well as contract programmers. Salaries and benefits expense decreased by 15%,
or $918,000, to $5.3 million in 1998, from $6.2 million in 1997. These
decreased expenses were due to the consulting business sale.
Selling, General and Administrative Expense. SG&A decreased 27%, or
$744,000, to $2.0 million in 1998, from $2.7 million in 1997. Virtually every
area of SG&A decreased from 1997 to 1998 as a result of the overall concentrated
effort of management, due to cash flow restrictions, to better control and
reduce these expenses, and to some degree to the consulting business sale.
Travel and training expenses decreased 30%, or $183,000, from 1997 to 1998,
primarily due to the consulting business sale, as the majority of travel related
to the consulting business. Advertising and promotion, primarily as a result of
cash flow restrictions, decreased in 1998 by $129,000 from 1997, as did supplies
and resources, decreasing a total of $148,000 in 1998 for the same reason.
Professional fees decreased $126,000 in 1998 to $373,000, from $499,000 in 1997,
primarily the result of extraordinary level of expenditures in 1997, not
recurring in 1998, and to cash flow restrictions.
Interest Expense, Net. Interest expense, net, increased 119%, or $88,000,
to $161,000 in 1998, from $74,000 in 1997. This increase was due to increased
borrowing under our line of credit in 1998. We currently have no line of
credit, but expect to incur interest expense under our $6.0 million note with
Hewlett-Packard, which bears interest at a rate of 11.5% per annum.
Depreciation and Amortization. Depreciation and amortization expense
increased $98,000, or 12%, to $925,000 in 1998, compared to $827,000 in 1997.
This increase was due to $1.1 million of total capital asset expenditures during
1997 and does not include depreciation and amortization related to the assets
sold in the consulting business sale from the date of sale.
Gain on Sale of Consulting Business and Other Income. As a result of the
consulting business sale, we incurred a one-time net gain of $3.0 million.
Other income received or accrued under the earn-out agreement with Netplex
totaled $341,000 for 1998.
Tax Provision (Benefit). SFAS 109, Accounting for Income Taxes, requires,
among other things, the separate recognition, measured at currently enacted tax
rates, of deferred tax assets and deferred tax liabilities for the tax effect of
temporary differences between the financial reporting and tax reporting bases of
assets and liabilities, and net operating loss and tax credit carryforwards for
tax purposes. A valuation allowance must be established for deferred tax assets
if it is "more likely than not" that all or a portion will not be realized.
Prior to the third quarter of 1998, 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 in the third quarter of 1998,
the deferred tax assets 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. Losses were recorded in the fourth quarter of 1998, which
no net deferred tax asset was recorded. We will not record any further tax
benefits and deferred tax assets until such time as management believes it is
more likely than not that viaLink will be profitable in the future.
Other Comprehensive Loss. Other comprehensive loss of $316,000 is the
result of the write-down to market value at December 31, 1998 of the Netplex
preferred stock received in connection with the consulting business sale to
Netplex. As of December 31, 1998, the Netplex preferred stock is carried on the
books at a value of $684,000. As of March 19, 1999, the market value of the
643,770 common shares of Netplex underlying the preferred stock owned was $1.8
million. Reporting of comprehensive loss in the current year is a result of the
adoption of SFAS 130.
24
<PAGE>
1997 COMPARED TO 1996
Revenues. Revenues decreased 5%, or $485,000, to $9.0 million in 1997,
from $9.5 million in 1996. Solutions and license revenues decreased 87%, or
$866,000, to $132,000 in 1997 from $997,000 in 1996. This decrease was due
primarily to a $898,000 single sale of our RSA product that occurred in 1996.
Management consulting and system integration and customer support fees decreased
$491,000, or 9%, to $5.0 million in 1997 from $5.5 million in 1996. This
decrease was due, in part, to the completion of several large consulting
projects in the first and second quarters of 1997. Revenues from network
services and network based computer applications increased 439%, or $817,000, to
$1.0 million in 1997 from $186,000 in 1996. Of this increase, $568,000 was
generated from ijob, and the remainder was derived from Web site maintenance and
hosting fees and Item Catalog service fees. Hardware and product sales
decreased 4%, or $120,000, to a total of $2.7 million in 1997, from $2.8 million
in 1996.
Direct Cost of Sales. Direct cost of sales decreased 14%, or $359,000, to
$2.2 million in 1997 from $2.6 million in 1996. This decrease was due to
decreases sales of product and hardware and solutions and licenses in 1997.
Salaries and Benefits. Salaries and benefits increased 19%, or $1.0
million, to $6.2 million in 1997 from $5.2 million in 1996. Direct payroll
costs of salaries, wages, benefits and employment taxes increased 14%, or
$677,000, to $5.6 million in 1997 from $4.9 million in 1996. This increase was
due primarily to the addition of 21 new employees in 1997. Contract labor
expenses totaled $489,000 in 1997 compared to $85,000 in 1996, an increase of
477%, or $404,000. Start-up costs and expenses from ijob accounted for $135,000
of the contract labor expense increase. During 1997, we significantly increased
our use of contract programmers for client engagements. Previously, we had
rarely used contract programmers. These cost increases were offset by an
increase of 31%, or $174,000, in capitalized software development costs, which
consist of salaries, wages and benefits expended to further develop and enhance
the viaLink services, to a total of $743,000 in 1997 from $569,000 in 1996.
Selling, General and Administrative. SG&A increased 35%, or $700,000, to
$2.7 million in 1997 from $2.0 million in 1996. Over half of the increase in
SG&A was due to the start-up costs and ongoing operations of ijob. Professional
fees increased 104%, or $254,000, to $499,000 in 1997 from $244,000 in 1996.
ijob accounted for $138,000 of the increase in professional fees and the
remainder was attributable to development of our Item Catalog service.
Advertising and promotion expenses increased $147,000 to $217,000 in 1997 from
$70,000 in 1996. ijob accounted for $54,000 of the increase in advertising and
promotional expenses and the balance was due to increased sales and marketing
promotion activities of the Item Catalog service. During 1997, we intensified
our marketing and sales activities related to our Item Catalog service,
resulting in increased travel, long distance, advertising and promotion
expenses. Occupancy expenses and insurance increased 25%, or $119,000, to
$599,000 in 1997 from $481,000 in 1996. ijob accounted for $52,000 of this
increase, and the remainder was primarily due to the continued development of
our Item Catalog service. Telecommunications expense increased 68%, or
$106,000, to $261,000 in 1997 from $155,000 for 1996. ijob accounted for
$52,000 of this increase, and the remaining increase was due to the expansion of
communication systems and Web site hosting services related to our Item Catalog
service.
Interest Expense, Net. Interest expense, net decreased 66%, or $146,000,
to $74,000 in 1997 from $219,000 for 1996. This decrease was generally due to
the repayment of outstanding bank debt in the fourth quarter of 1996.
Depreciation and Amortization. Depreciation and amortization expense
increased 40%, or $236,000, to $827,000 in 1997 from $591,000 in 1996. This
increase was due to capital asset expenditures made during 1997 and 1996
totaling $333,000 and $626,000, respectively, and capitalized software
development costs of $752,000 and $655,000, respectively. Of the total
capitalized costs in 1997, $104,000 of the costs were associated with the
development of ijob.
Provision (Benefit) for Income Taxes. We recorded a tax benefit of $1.1
million related to the pre-tax loss of $3.0 million in 1997 and a tax benefit of
$367,000 related to the pre-tax loss of $1.0 million in 1996. These tax
benefits were the results of net operating loss carryforwards totaling $4.5
million which, if not utilized, will expire in 2011 and 2012. The cumulative
net deferred tax asset at December 31, 1997 was $1.0 million.
LIQUIDITY AND CAPITAL RESOURCES
On March 11, 1999 we received $800,000 plus accrued interest from DCM in
full payment of the promissory note we were issued by DCM in connection with our
sale of ijob.
25
<PAGE>
Due to the sale of our consulting business to Netplex in the third quarter
of 1998, we anticipate that future revenues will be substantially less than
historical revenues and that cash requirements in connection with developing,
selling and marketing will be substantial. 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 collateralized, subordinated
promissory note, bearing interest at 11.5%. As of March 19, 1999, we had cash
and cash equivalents totaling approximately $6.2 million.
Our working capital position was significantly enhanced as a result of the
consulting business sale. On December 31, 1998, we had $2.2 million in current
assets and $1.1 million in current liabilities, with working capital of
approximately $1.1 million. During 1998, net cash increased $635,000. Net cash
used in operating activities in 1998 was $450,000, compared to net cash used in
operating activities in 1997 of $743,000. For the next six to nine months, we
do not expect significant cash flow to be generated from operations. Therefore,
we must use our current cash, cash equivalents and collection of accounts
receivable to operate the business and/or obtain additional financing.
During 1998, we invested $42,000 in various fixed assets and $617,000 for
software development costs, compared to total expenditures of $333,000 and
$752,000, respectively, for the same items in 1997. As of February 28, 1999, we
had no material firm cash commitments for capital expenditures other than
capitalized internal staff costs for further development of our viaLink
services, but expect our cash requirements for capital expenditures for 1999 to
be substantial.
During 1998, financing activities used net cash of $864,000, which
consisted primarily of payments on the shareholder notes in the principal amount
of $482,830, plus the repayment in full of the outstanding balance on the line
of credit. Payments on our capital lease obligations of $132,000 offset
receipts of $265,000 from the exercise of stock options and purchases under our
stock purchase plan and stock bonus plan.
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 secured subordinated promissory note,
bearing interest at 11.5%, with interest and principal payable at maturity in
February 2004. 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 anticipate that we will fund our operations for the next 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
throughout 1999 and into 2000. After that time, our future capital requirements
will depend on our revenue growth, profitability, working capital requirements
and level of investment in long term assets. Increases in these capital
requirements or a lack of revenues 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 one year, computer systems and/or software used by many companies
may need to be upgraded to comply with such "Year 2000" requirements.
Significant uncertainty exists in the software industry concerning the potential
effects associated with such compliance.
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
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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 which are compliant.
We currently anticipate that all of our internal systems and equipment will
be Year 2000 compliant by the end of the second quarter of 1999 and that the
associated costs will not have a material adverse effect on our results of
operations and financial condition. However, the failure to properly assess or
timely implement 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 and expect
to have such a plan in place by June 30, 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.
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 which will
require upgrade to be Year 2000 compliant.
The estimates and conclusions set forth herein regarding Year 2000
compliance contain forward-looking statements and are based on management's
estimates of future events and information provided by third parties. There can
be no assurance that such estimates and information provided will prove to be
accurate. Risks to completing the Year 2000 project include the availability of
resources, 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 October 1997, the AICPA Accounting Standards Executive Committee issued
Statement of Position 97-2, Software Revenue Recognition ("SOP 97-2"), which
supercedes Statement of Position 91-1, Software Revenue Recognition. SOP 97-2
focuses on when and in what amounts revenue should be recognized for licensing,
selling, leasing, or otherwise marketing computer software and is effective for
transactions entered into in fiscal years beginning after December 15, 1997. In
March 1998, the AICPA Accounting Standards Executive Committee issued Statement
of Position 98-4, Deferral of the Effective Date of Provision of SOP 97-2,
Software Revenue Recognition ("SOP 98-4"). SOP 98-4 defers for one year certain
previsions of SOP 97-2. In December of 1998, the AICPA Accounting Standards
Executive Committee issued Statement of Position 98-9, Modification of SOP 97-2,
Software Revenue Recognition, with respect to Certain Transactions ("SOP 98-9").
SOP 98-9, also amends certain provisions of SOP 97-2 and extends the deferral of
the application of certain provisions of SOP 97-2 as amended by SOP 98-4 through
fiscal years beginning on or before March 15, 1999. We do not believe that the
adoption of SOP 97-2, including the effects of these amendments, will have a
material impact on its financial position and results of operations.
27
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BUSINESS
GENERAL
Overview
We provide a set of subscription-based electronic commerce services,
designed specifically for the food and consumer packaged goods industries. The
viaLink Item Catalog service provides a secure, low-cost, consistent way for the
participants in the retail supply chain -- manufacturers, wholesalers
distributors and retailers -- to communicate item and pricing information. Item
Catalog manages all of the complexity of the trading relationship, including new
and deleted items, costs and promotions. On-network data translations allow
seamless electronic connections directly into the subscribers' systems.
Our viaLink services allow subscribers to more efficiently manage
information flows to and from their trading partners through a single interface.
Instead of making many electronic data interchange, or EDI, connections to reach
many trading partners, each participant only makes one electronic connection to
the viaLink services, in EDI or some other convenient format. Retailers can
reduce costs by avoiding time-intensive, error-prone manual entry of item and
cost data. Wholesalers avoid the cost of creating multiple interfaces to
retailer systems. Distributors are assured of timely and accurate flow of new
and updated product information. Manufacturers have a consistent and cost-
effective way of communicating with their entire supply chain.
Company Background and Development
We were formed in 1985 as Applied Intelligence Group, Inc. From inception
until the sale of our consulting business in 1998, our operations consisted
primarily of consulting services related to the planning, designing, building
and installation of computerized information management systems and computerized
checkout or point-of-sale systems in the retail and distribution industry.
In 1993, we began the design and development of viaLink, an Internet-based
subscription service. We introduced the viaLink Item Catalog service in January
1997. Since the introduction of Item Catalog and the related viaLink services,
we have made the strategic decision to shed all other non-core assets in order
to permit us to focus exclusively on the development, marketing and
implementation of our viaLink services.
We sold our consulting business to Netplex in September 1998 and changed
our name to The viaLink Company in October 1998. In December 1998, we sold our
ijob subsidiary to a company controlled by David C. Mitchell, the President of
ijob. On March 11, 1999, we received payment in full plus accrued interest on
the $800,000 promissory note which was issued to us by DCM upon our sale of
ijob.
Historically, our consulting business had provided substantially all of our
revenues. As a result of the sale of these assets, we resemble a development
stage company since our planned principal operations are underway, but have not
yet generated significant revenues. This fundamental change in our business is
extremely risky, and there can be no assurance that our strategic decision to
shift our focus from our historical businesses to the viaLink services
ultimately will be successful. For more information on our development and the
sale of our consulting business and ijob, please see "--Purchase and Sale of
Significant Assets" below.
INDUSTRY BACKGROUND AND LIMITATIONS OF HISTORICAL APPROACHES
The food and consumer packaged goods industries are among the last
industries to become fully automated and have only begun to take advantage of
the Internet. These industries are looking for ways to support a greater number
of services and increase margins and turnover. Currently there is no
established universal, low-cost method for manufacturers, wholesalers, and other
suppliers serving the food and consumer packaged goods industries to share data
easily and efficiently with their retail customers, or for retail headquarters
to share this data with their stores.
Retailers in both the food and consumer packaged goods industries,
consisting primarily of convenience and grocery stores, order their inventory
from a large number of manufacturers, wholesalers and direct store delivery
companies. For example, a convenience store may have up to 5,000 items in
inventory supplied by up to 50 suppliers, and a grocery store may have up to
50,000 items in inventory supplied by up to 75 suppliers. Despite each
retailer's large number of suppliers, and the large number of inventory items
each store has on hand, retail organizations have generally continued to utilize
a paper-based order and supply chain. The inefficiencies of the
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paper system are time consuming and often result in operational and
administrative errors, increasing cost for all parties in the supply chain. This
provides a significant challenge to paper intensive and data challenged
industries in which better, faster and more accurate information sharing could
help to reduce costs, and increase margins and turnover.
One of the most significant challenges facing a retail organization is
maintenance of its "pricebook." The pricebook typically contains descriptions
of each item in a store's inventory, along with the item's universal product
code (UPC), purchase cost, retail sales price and any discounts to be received
from the item supplier. Because many retail organizations do not communicate
electronically with their supply chain, managers operating retail stores must
maintain their pricebook by manually keying item and price information from
suppliers' reports, catalogs, e-mails and faxes into their pricebook. A retail
organization may have hundreds of suppliers, and each supplier may have
different prices on the items it supplies to different stores operated by the
same retail organization, depending upon the location of the store. For
instance, an item supplied to a store in New York City may have a higher price
than the same item supplied to a store in Macon, Georgia, even though the two
stores are operated by the same organization. The large number of items and
variability of pricing makes pricebook maintenance extremely difficult, and
manual pricebook maintenance produces a high number of errors. According to the
National Association of Convenience Stores, pricebook maintenance often poses
the most significant challenge to computerization of the retail store's
purchases and sales.
Although electronic data interchange, or EDI, technology has been
available, many retail organizations have found it technologically and
financially unreasonable to create hundreds of point-to-point EDI connections to
their numerous distributors and suppliers. In the traditional EDI model, each
participant creates, or "maps", an EDI conversation with every one of its supply
chain partners. The result of this is that a tiny fraction of the core business
interactions are conducted electronically, and virtually all advanced supply
chain applications have been inaccessible to these organizations. Furthermore,
even if retail organizations found it feasible to electronically link to each of
their suppliers, many of their suppliers are not electronically linked to their
manufacturers. Therefore, communication among manufacturers, suppliers and
retailers have remained paper intensive.
Moreover, the unavailability of basic electronic commerce capabilities,
such as timely electronic distribution of product and pricing information, has
impeded the deployment of more advanced supply chain concepts, such as
Collaborative Planning, Forecasting and Replenishment and Scan-Based-Trading.
For example, while each store may and often does have automatic scanning
capabilities at check-out, the data from the check-out is usually deleted, and
the communication among the manufacturers, suppliers and retailers remains
largely paper driven. Only a small percentage of the information captured from
a retail sale in a grocery store ever finds its way back up the supply chain to
the manufacturers.
As a result, retailers desiring to implement point-of-sale, in-store
technologies and other inventory, pricing and purchasing applications generally
are confronted with:
. The need for substantial additional investments in computer hardware,
software, training and technological obsolescence;
. The challenge of managing information related to up to tens of
thousands of product items from hundreds of suppliers and distributors;
. Technological and system operation complexities, demanding additional
personnel resources, training, skills and technical expertise;
. The lack of industry standards for information sharing among
retailers and their suppliers and distributors;
. The difficulty in obtaining information from suppliers and
distributors and maintaining such information on a current basis; and
. The lack of a scalable shared industry network.
THE VIALINK SOLUTION
We offer a set of subscription-based electronic commerce services designed
specifically for the food and consumer packaged goods industries. The viaLink
Item Catalog Service provides a secure, low-cost, consistent way for
participants in the retail supply chain to communicate about items and costs.
This service allows subscribers to efficiently manage information flows to and
from their trading partners through a single
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interface. Instead of making many EDI connections to reach many trading
partners, each participant only makes one electronic connection to the viaLink
services, in EDI or some other convenient format. The viaLink Item Catalog
Service manages all of the complexity of the trading relationship, including new
and deleted items, costs and promotions. On-network data translations allow
seamless electronic connections directly into the subscribers' systems.
We believe that our services offer significant benefits to every
participant in the grocery supply chain. With the use of a personal computer,
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 and reduce
redundant information processing. Retailers avoid the cost and hassle of manual
entry of item and cost data. Wholesalers avoid the cost of creating multiple
interfaces to retailer systems. Distributors receive a timely and accurate flow
of new and updated product information. Manufacturers have a consistent and
cost-effective way of communicating with their entire supply chain.
Our viaLink services have the following key features and benefits:
Key Features
. Subscription-Based. Through our partner Hewlett-Packard, we will serve
------------------
as the database host and provide the viaLink services on a subscription
basis, so that each subscriber's technology and capital investments are
minimized.
. Single Interface. Allows retailers and suppliers to share and manage
----------------
information on a real-time basis through one, easy-to-learn, industry-
standard Web browser interface.
. EDI Capabilities. For those suppliers who utilize EDI, the viaLink
----------------
services can map to whatever format is needed to download into the
existing system, while adhering to EDI standards.
. Secured Network. Information is protected from unauthorized users with
---------------
a series of firewalls and passwords.
Benefits
. Reduced Invoice Errors. Having the correct pricing information before
----------------------
the product arrives alleviates invoice discrepancies.
. More Efficient Promotions. Promotion information can be delivered on a
-------------------------
timely basis.
. Reduced Workload. Moving information electronically eliminates
----------------
redundant data entry for all trading partners using the system, allowing
resources to be reallocated.
. Faster Product Introductions. Information on new products is available
----------------------------
to existing systems before the products arrive at the back door allowing
them to be placed on the selling floor immediately upon receipt.
THE VIALINK SERVICES
Our viaLink services consist of the following components:
Item Catalog. The viaLink Item Catalog allows retailers and suppliers to
exchange product, price, and promotion information electronically. This Web-
accessible shared database and multiple interface formats, make real electronic
commerce available to the grocery supply chain.
The viaLink Item Catalog service offers subscribers the following key
advantages:
. Shared Database. Shared database provides more accurate data. Because
---------------
product description, UPC and case make-up is stored in our database, all
users share the same copy of the item data. This reduces the number of in-
store and delivery errors caused by incorrect or incomplete product
information.
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. Single Interface. Allows retailers and suppliers to exchange product
----------------
information through a single interface. Suppliers can use EDI or
proprietary batch files, or simply log on to our Web site and key in the
information. Retailers can choose one of several output formats, including
direct interfaces to many of the most popular retail software systems. All
data is transferred in a single format, regardless of the formats chosen
by trading partners. This eliminates the time required to establish
specific formats with each trading partner.
. Cost Maintenance. Provides flexibility to simplify the task of
----------------
delivering and receiving cost and promotion information. This reduces time
spent correcting delivery and receiving errors, researching disputed
invoices and locating late or missing promotion information.
ItemXpress. The viaLink ItemXpress can provide subscribers with the
foundation for a strong pricebook in less than a week. viaLink ItemXpress
dramatically reduces the time and cost associated with the initial item setup of
a retailer's pricebook, while increasing data accuracy. Item information can be
extracted from our extensive database to create a custom load for each
retailer's system.
The principal advantages the viaLink ItemXpress service offers subscribers
are:
. Shorter Set-up Time. Enables retailers to begin using their pricebooks
-------------------
as early as one week after implementation. Traditional approaches to
building item files often take six months or longer and require several
cycles of requesting information, researching and correcting errors.
. Fewer Staff Hours. Allows retailers to load thousands of items into
-----------------
their pricebook, often in 50 or fewer staff hours. Retailers currently
typically spend thousands of hours of their staff's valuable time
compiling item information and entering it into their pricebook.
. Increased Accuracy. Allows retailers to use an extensive database of
------------------
pre-verified item data to produce a custom download of items. This product
information is accurate and ready-to-use.
Exchange Manager. The viaLink Exchange Manager allows companies to
exchange order and invoice transactions through a single interface, regardless
of the number of trading partners. Built on the viaLink Item Catalog, Exchange
Manager verifies order and invoice information against the Item Catalog and
creates exception reports.
Exchange Manager offers the following principal advantages over the
traditional method of exchanging electronic orders and invoices:
. Exception Reporting. Identifies items that are not authorized in the
-------------------
catalog, as well as costs that are different from those already in the
catalog. These exception reports allow retailers and suppliers to take
corrective action before the order or shipment is processed, eliminating
operational problems.
. Retrieval and Reporting. Stores orders and invoices in the viaLink
-----------------------
database for easy retrieval and reporting. This shared database gives
retailers and suppliers a similar view of the information.
. Historical Reporting. Allows retailers and suppliers to access a
--------------------
history of previous purchases. This common-view feature aids joint
projects and refines merchandising and operational programs.
. On-line Interface. Available via the Web, the on-line interface allows
-----------------
retailers and suppliers to access their order and invoice information with
only a minor investment in technology.
Pricing
We have recently changed our pricing model to begin pricing our services
based on a flat monthly rate with a variable component based on usage. We
calculate the variable portion of each subscriber's monthly service fee based on
the service and amount of service the subscriber uses. For example, for use of
our Item Catalog service, retailers pay based on the number of suppliers from
whom they receive data; suppliers pay based on the
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number of retailers that download their data; and manufacturers pay based on the
number of retailers that subscribe to the service. We price our other services
based on the number of stores supported or the amount of data stored and
retrieved.
Security
To minimize the security risks associated with a shared network on the
Internet, we have implemented extensive security protocols in our services. The
services provide encryption protection of confidential information as it passes
through the Internet. We also have constructed a double "firewall" between our
services and the Internet, which is intended to restrict unauthorized use and
prevent security breaches. We believe that the relocation of our services to
the Hewlett-Packard database platform will enable us to further improve our
system security and customer data integrity.
Although we have implemented numerous security measures, our service
remains 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 users, which may result in significant liability to us and also
deter potential customers. Moreover, the security and privacy concerns of
potential customers, as well as concerns related to computer viruses, may
inhibit the marketability of our services. Although we maintain insurance to
protect against these risks, there can be no assurance that such insurance will
remain available to us on commercially reasonable terms or at all, or that any
claims against us would not exceed the coverage.
STRATEGIC RELATIONSHIPS
We believe that forming relationships with significant industry leaders
will be critical to achieving market penetration and acceptance of our services.
We believe that leveraging such relationships will enable us to more quickly
penetrate our target market. To date, we have formed relationships with
Hewlett-Packard and Ernst & Young. In February 1999, we created the position of
Vice President of Strategic Development to further develop the Hewlett-Packard
and Ernst & Young relationships and to pursue additional relationships.
Hewlett-Packard
In addition to financing in the form of a $6.0 million note, Hewlett-
Packard has agreed to provide us with the database platform to host viaLink's
Item Catalog and other services. To evidence that the viaLink services reside
on a Hewlett-Packard database, we have agreed that our Web-based user interface
will display a "Powered by HP" icon. Hewlett-Packard also may provide us with
co-marketing and consulting support from time to time. The terms of our loan
from Hewlett-Packard contemplates that we will use up to 50% of the loan amount
to purchase Hewlett-Packard products and services. In addition, Hewlett-Packard
may have an advisor present at our board meetings.
Ernst & Young
On May 3, 1999 we entered into a strategic relationship with Ernst & Young
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. This strategic relationship consists of
four agreements: an Alliance Agreement, a Warrant Agreement, a Master Services
Agreement and a Registration Rights Agreement.
Alliance Agreement. The Alliance Agreement is a non-exclusive agreement by
which Ernst & Young will provide us with its consulting services, including
services related to general systems integration, implementation, project
management and training, in connection with our Item Catalog service and other
viaLink services.
We have agreed to pay Ernst & Young a royalty for a period of two years
beginning on the date of the agreement which may be extended in perpetuity upon
the achievement of certain milestones. This royalty will be equal to seven
percent of our revenues from our subscription services which we provide to
suppliers and retailers of food and consumer packaged goods. Ernst & Young will
not receive any royalties for services we provide to clients for which Ernst &
Young serves as the principal independent auditor and which are subject to the
SEC's periodic reporting requirements.
During this two-year term, if at least ten "significant clients" subscribe
to our services, we will be required to continue the royalty payment in
perpetuity. A significant client is defined to mean any present or future client
of Ernst & Young reasonably
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considered (upon the mutual agreement of Ernst & Young and us) to be "Tier 1"
clients based on sales, revenues, income, market capitalization and stature in
the industry and markets for suppliers and retailers of consumer packaged goods
for food, grocery, drug store, convenience store and mass merchandise chains and
food service operators. However, a significant client shall not include any
client for which Ernst & Young serves as the principal independent auditor and
which are subject to the SEC's periodic reporting requirements.
Warrant. In connection with the Alliance Agreement, we issued a warrant to
Ernst & Young pursuant to which it may purchase up to 250,000 shares of our
common stock at a price of $8.00 per share.
Master Services Agreement. Under the Master Services Agreement, Ernst &
Young has agreed to provide professional services to us to further the
implementation of our viaLink services. We may pay for Ernst & Young's services
either in cash or in shares of our common stock. If we pay with our common
stock, we will receive a substantial discount from the standard rates Ernst &
Young charges for such services. Our common stock will be valued at 85% of the
average closing bid prices for the five trading days prior to the date the
invoice for these services is rendered to us by Ernst & Young. However, if Ernst
& Young is the beneficial owner of more than 9.99% of the voting power of our
common stock on a fully-diluted basis, we will not have the option to pay for
such services with our common stock.
Initially, we may request up to $500,000 in value of Ernst & Young's
services pursuant to this agreement. At such times as we enter into binding
agreements for our services with an aggregate of one, five and ten significant
clients of Ernst & Young, we may request an additional $500,000 in value of
Ernst & Young's services, up to a total of $2 million in the aggregate.
CUSTOMERS
Our viaLink services have been operational for over a year, and as of
December 31, 1998 had more than 200 subscribers. The following is a
representative list of the retailer and supplier customers of our viaLink
services as of the date of this prospectus:
SUPPLIERS RETAILERS
--------- ---------
Buffalo Rock Pepsi of Newnan Andronico's Market
Charles E. Brown Beverage Co. Baker's Supermarkets
Fleming Companies of Altoona NOCO Express Shops
Frito-Lay, Inc. (Corporate) Store 24 Companies, Inc.
Great Plains Coca-Cola Bottling Co. Texaco Refining & Marketing, Inc.
J. T. Davenport & Sons, Inc.
McKee Foods Corporation
Pepsi Cola Marketing Group
S. J. McCullagh, Inc.
Tom's Foods, Inc.
We also currently provide Web hosting activities unrelated to our viaLink
services. We intend to continue to provide Web hosting for certain of our
customers until such time, if ever, as we can begin to generate substantial
revenue from our viaLink services. After the sale of our consulting business
and of ijob, our Web hosting services for two customers, UROCOR and the National
Association of Convenience Stores, account for approximately 80% of our current
revenues.
Historically, due primarily to our consulting business which we sold in
1998, we had significant customer concentration. In 1998, 1997 and 1996, three
customers individually accounted for 13%, 11% and 11%, 20%, 13% and 10%, and
17%, 14% and 10% of our total revenues, respectively. In 1998, 1997 and 1996,
approximately 49%, 57% and 57%, respectively, of our total revenues were
attributable to five clients. Due to the sale of our consulting business, we
believe that our historic customer concentration levels are no longer relevant
to an understanding of our business. However, we lost 90% of our historical
revenue sources with the sale. We are unable at this time to predict whether
customer concentration in our viaLink services will develop in the future.
SALES AND MARKETING
We market our services to food and consumer packaged goods manufacturers,
suppliers and retailers directly through our sales and marketing support group
and senior staff members and indirectly through our partners, particularly Ernst
& Young, if such agreement is consummated. As of April 30, 1999, our sales and
marketing support group consisted of only four full-time employees. We intend
to substantially expand our sales
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and marketing team in 1999 and attempt to further leverage our relationships
with Ernst & Young and Hewlett-Packard.
Our sales and marketing team is responsible for sales-lead generation,
follow-up on customer referrals, and providing input into our ongoing viaLink
services and product development efforts based on customer feedback and market
data. We generate sales and marketing leads through trade advertising, customer
referrals, public relations, trade shows and strategic relationships. We also
utilize a variety of other consulting and contractor relationships to help
develop and promote our viaLink services. We believe that forming indirect
sales and co-marketing relationships, such as with Ernst & Young, will allow us
to leverage the resources of these parties and more rapidly penetrate our target
market.
We intend to significantly expand our sales and marketing operations in
1999, including a significant increase in staff, and to expend significant
capital resources in doing so. Our failure to locate and hire qualified sales
and marketing personnel or to obtain the funds from internally generated
revenues or financings to support the growth in our sales and marketing
organization would have a material adverse effect on our business, financial
condition and operating results.
PRODUCT DEVELOPMENT AND ENHANCEMENT
We initially introduced Item Catalog in 1997 and intend to continue to make
significant investments in product development and enhancement to continue to
improve and extend our viaLink services. Currently, the dynamic nature of the
information technology industry places large research and development demands on
businesses that desire to remain competitive. To compete with larger firms with
substantially greater capital resources, we have devoted significant portions of
available resources to stay abreast of industry developments and to offer
competitive products and services.
In addition to internally developed product developments and enhancements,
we intend to seek acquisition of complementary businesses, products and
technologies, or enter into joint venture or license agreements to broaden our
product offerings and provide more comprehensive solutions to the grocery supply
chain.
During 1999, we intend to expend significant development resources to
reestablish our services in an HP environment, then move our service to the
Hewlett-Packard database hosting facility, where it will be operated and managed
by Hewlett-Packard. In addition, our product development staff will be working
on product enhancements and extensions, including a significant commitment to
Scan-Based Trading initiatives.
As of April 30, 1999, our product development staff, technical support and
operations staff consisted of 20 full-time employees. As a result of the sale
of our consulting business, we do not believe that our past expenditures on
research and development activities are relevant to an understanding of our
current business.
We expect that we will require significant additional resources to fund our
product development and enhancement efforts. A failure to receive such funds
from internally generated revenues or financings could have a material adverse
effect on our business, financial condition and operating results, as well as
the prospects of our viaLink services.
COMPETITION
The environment within which we operate is intensely competitive and
subject to rapid change. We currently compete principally on the basis of the
specialized nature of our services. Due to the unique nature of our service and
the early stage of development of the market for our services, our viaLink
services have encountered little direct competition. However, we believe that
several large groups, possibly including major consulting organizations, are
attempting to develop an electronic commerce utility which, if successful, may
perform functions similar to our services. Many of our potential competitors
have substantially greater resources than we do. Any failure by us to achieve
rapid market penetration or to successfully address the risks posed by expected
competition would have a material adverse effect on our business, financial
condition and operating results.
PROPRIETARY RIGHTS
Our success and ability to compete are dependent upon our ability to
develop and maintain the proprietary aspects of our technology and operate
without infringing on the proprietary rights of others. We rely primarily on a
combination of copyright, trademark and trade secret laws, confidentiality
procedures and contractual provisions to
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protect our proprietary rights. Because the software development industry is
characterized by rapid technological change, we believe that factors such as the
technological and creative skills of our personnel, new product developments,
frequent product enhancements, name recognition and reliable product maintenance
are more important to establishing and maintaining a technology leadership
position than the various legal protections available for our technology. We
have no patents or patent applications pending. Instead, we attempt to protect
our products through a combination of copyright, trademark and trade secret
laws. viaLINK(R) is our registered trademark.
We also require employee and third-party non-disclosure and confidentiality
agreements. We seek to protect our software, documentation and other written
materials under trade secret and copyright laws, which afford only limited
protection. We cannot be certain that others will not develop technologies that
are similar or superior to our technology or design around the copyrights and
trade secrets owned by us. We license our viaLink services primarily under
licenses included as part of our subscription agreements. We believe, however,
that these measures afford only limited protection. Despite these precautions,
it may be possible for unauthorized parties to copy certain portions of our
software products, reverse engineer, or obtain and use information that we
regard as proprietary.
We are not aware that we are infringing any proprietary rights of third
parties. There can be no assurance, however, that third parties will not claim
infringement by us of their intellectual property rights. We expect that
software product developers will increasingly be subject to infringement claims
as the number of products and competitors in our industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time consuming to defend, result in
costly litigation, divert management's attention and resources, cause product
shipment delays or require us to enter into royalty or licensing agreements. In
the event of a successful claim of product infringement against us, should we
fail or be unable to either license the infringed or similar technology or
develop alternative technology on a timely basis, our business, operating
results and financial condition could 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 is used
in our products to perform key functions. There can be no assurance that these
third-party software licenses will continue to be available to us on
commercially reasonable terms. The loss of or inability to maintain any such
software licenses could result in shipment delays or reductions until equivalent
software could be developed, identified, licensed and integrated which could
materially adversely affect our business, operating results and financial
condition.
EMPLOYEES
As of April 30, 1999, we had 49 full-time employees and one part-time
employee. Of the 49 full-time employees, four were employed in sales and
marketing, 20 were employed in product research and development, technical
support and operations, ten were employed in implementation, customer support
and service, and 15 were employed in human resources, administration, finance
and accounting. None of our employees are represented by a labor union. We have
not experienced any work stoppages and consider our relations with our employees
to be good.
PURCHASE AND SALES OF SIGNIFICANT ASSETS
Sale of Consulting Services
From our inception, we had been engaged in the business of providing
management consulting and technology systems integration services. However,
consistent with our effort to focus on the development of our viaLink services,
we sold the assets related to those operations, granted a nonexclusive license
to use, copy and distribute worldwide our CHAINLINK software product, and sold
our rights to use the name "Applied Intelligence Group" to Netplex in September
1998. As consideration for these assets, Netplex paid us $3.0 million in cash
and issued us 643,770 shares of Netplex Class B Preferred Stock, with each share
of preferred stock convertible into one share of Netplex common stock. Prior to
this sale, these consulting assets accounted for substantially all of our
revenues.
In connection with the sale, we entered into an earn-out agreement with
Netplex. Pursuant to this earn-out agreement, during each of the seven fiscal
quarters beginning with the quarter ending September 30, 1998 and ending with
the quarter ending March 31, 2000, Netplex will pay us the lesser of 50% of the
net profit earned by the consulting business as operated by Netplex or up to an
aggregate of $1.5 million. Additionally, if the aggregate net profit earned by
the consulting business for the ten fiscal quarters beginning with the quarter
ending
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<PAGE>
September 30, 1998 and ending with the quarter ending December 31, 2000 exceeds
$5.0 million, we would receive up to 643,770 additional shares of Netplex
preferred stock.
The shares of Netplex preferred stock and shares of the common stock
issuable upon conversion thereof constitute restricted shares under the
Securities Act and unless a registration statement is filed which allows for the
sale of these shares, we may only sell the Netplex shares pursuant to Rule 144
of the Securities Act. Rule 144 provides for certain holding periods which
would inhibit our ability to dispose of these shares in the near term. However,
pursuant to the acquisition agreement between Netplex and us, Netplex has
agreed, at its sole cost and expense, to file a registration statement with
respect to these shares by no later than September 1, 1999 and to maintain the
effectiveness of the registration statement until the shares may be sold
pursuant to Rule 144.
Effective with this sale, Robert Barcum resigned as our president and Chief
Executive Officer but remains Chairman of the Board. Additionally, David North
resigned as Vice President of Consulting and Larry Davenport resigned as Vice
President of Marketing and Sales upon the closing of this sale. Dr. Lewis
Kilbourne, an outside director, was elected Chief Executive Officer of viaLink.
Robert Baker was elected as our President and Chief Operating Officer.
Sale of ijob, Inc.
On December 31, 1998, we sold our ijob subsidiary to 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. Our ijob subsidiary operated our
Web-based human resources application asset. The sale of ijob represents
another step in our effort to shed non-core assets and focus on the development
of our viaLink services.
DCM purchased all of the outstanding stock of ijob for a secured, ten-year,
$800,000 promissory note that accrued interest at a rate of 8% per annum and was
secured by the fixed assets, contract rights, accounts receivable and general
intangibles of ijob. On March 11, 1999, we received $800,000 plus accrued
interest from DCM in full payment of the promissory note we were issued by DCM
upon our sale of ijob. We have released all security interests which we held
pursuant to a security and pledge agreement in the fixed assets, contract
rights, accounts receivable and general intangibles of ijob.
We organized ijob in April 1997 to operate ijob.com, a human resources
recruiting application. In June 1997, ijob acquired certain assets of Human
Technologies, Inc., including several software programs, in exchange for options
to purchase 50,000 shares of viaLink common stock at an exercise price of $3.50
per share.
Vantage Capital Resources Inc. Acquisition
On June 12, 1996, Vantage Capital Resources, Inc., a company controlled by
John Simonelli and Larry E. Howell, merged with and into viaLink pursuant to an
agreement and plan of merger dated May 8, 1996. In consummation of the merger,
we exchanged 610,000 shares of our common stock, on a one-for-one basis, for the
outstanding common stock of Vantage. We accounted for the Vantage merger in a
manner similar to the pooling of interests method of accounting. Pursuant to an
exchange agreement dated October 14, 1996, Messrs. Simonelli and Howell each
exchanged the 180,000 shares of viaLink common stock they received in connection
with the Vantage merger for options to purchase viaLink common stock for $5.00
per share, exercisable before November 30, 2001.
LEGAL PROCEEDINGS
There are no material legal proceedings pending, or to our knowledge,
threatened against us.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is certain information with respect to each of our
executive officers and directors as of April 30, 1999
<TABLE>
<CAPTION>
Name Age Position
- ----------------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Robert L. Barcum...................... 49 Chairman of the Board of Directors and Director (Class II)
Lewis B. Kilbourne, Ph.D.............. 52 Chief Executive Officer and Director (Class I)
Robert N. Baker....................... 47 President, Chief Operating Officer and Director (Class II)
Robert I. Noe......................... 47 Executive Vice President of Business Development
J. Andrew Kerner...................... 40 Vice President of Finance and Chief Financial Officer
Stephen G. Conover.................... 48 Vice President of Strategic Projects
John M. Duck.......................... 56 Vice President, Treasurer and Secretary
David Lloyd........................... 48 Vice President of Human Resources
Craig Smith........................... 37 Vice President of Operations
Sue Hale.............................. 54 Director (Class I)
Jimmy M. Wright....................... 45 Director (Class II)
</TABLE>
Robert L. Barcum is one of our co-founders and has served as a director
since our formation in 1985 and as an executive officer from 1985 to 1998. Mr.
Barcum currently serves as Chairman of the Board. In connection with the sale
of our consulting business, Mr. Barcum resigned as our President and Chief
Executive Officer and accepted a position with The Netplex Group, Inc. Since
1991, he has served as an outside director of Duckwall-ALCO Stores, Inc., a
publicly-held retailer. Since 1993, he has served as an outside director of
Commercial Distributing Inc., a private distributor of automotive products in
the automobile after-market. Since 1995, he has served on the Business Advisory
Council of Oklahoma Christian University of Science and Arts, and since 1996 he
has served as a member of the Advisory Board of Kent State University. Mr.
Barcum has more than 25 years of experience in management information systems
for retail organizations.
Lewis B. "Bucky" Kilbourne, Ph.D. has served as a director and a member of
the audit committee of the board of directors since December 1997 and was
elected as our Chief Executive Officer on October 1, 1998. Dr. Kilbourne has 20
years of financial experience in the retail, restaurant and banking business.
Dr. Kilbourne is a Professor of Finance and Economics at Oklahoma City
University. Dr. Kilbourne also has also served as President of Kilbourne and
Associates, Inc., a management consulting firm located in Oklahoma City that
works with regional firms experiencing earnings and cash flow problems in the
retail and restaurant industry, since May 1997. From January 1994 to May 1997,
Dr. Kilbourne served as Chief Financial Officer of Sonic Corporation, a national
restaurant chain. Dr. Kilbourne has a B.A. in political science and economics
from Louisiana State University and a M.A. and Ph.D., both in economics, from
the University of Pennsylvania.
Robert N. Baker is one of our co-founders and has served as a director
since our formation in 1985 and as a Vice President until November 1998. Mr.
Baker has served as our President and Chief Operating Officer, since November
1998 and is responsible for developing the viaLink services. Mr. Baker has over
20 years of experience in management, technical support and systems development
within the retail industry. He graduated magna cum laude from Oklahoma
Christian University of Science and Arts with a B.S. in mathematics.
Robert I. Noe serves as our Executive Vice President of Business
Development and is responsible for marketing, sales, customer relations and
services. Mr. Noe joined us in April 1999. Prior to that time, Mr. Noe served
as the Vice President of Industry Solutions and in other management positions at
Electronic Data Systems, a publicly traded professional services company, since
1985. Mr. Noe received his B.S. in business administration from Central
Michigan University.
J. Andrew Kerner joined us in April 1999 as Vice President of Finance and
Chief Financial Officer. Mr. Kerner previously served as Executive Vice
President and Chief Financial Officer of Cameron Ashley Building Products, a
publicly-traded building products distributor from April 1998 to April 1999.
Mr.
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Kerner also served in several senior financial management positions with
PepsiCo's Frito-Lay division in the United States and Europe from November 1987
to April 1998. Mr. Kerner received a B.A. in economics and an M.B.A. in finance
from The University of Texas at Austin.
Steven G. Conover joined us in March 1999 as Vice President of Strategic
Projects, and is currently in charge of the Scan Based Trading project for
viaLink. Mr. Conover has over 25 years experience in retail and supply chain
management. Prior to joining viaLink, Mr. Conover served as Senior Group
Manager of Supply Chain Innovation for Frito-Lay from March 1996 to March 1999.
He also served as Senior Group Manager of Finance and Marketing for Frito-Lay
from March 1994 to March 1996. Mr. Conover received his B.S. from Purdue
University in industrial engineering and his M.B.A. in finance from the
University of West Florida.
John M. Duck joined us as Director of Finance and Administration in 1991
and currently serves as Vice President, Treasurer and Secretary. From April
1996 to April 1999 Mr. Duck also served as our Chief Financial Officer. From
January 1990 to July 1991, Mr. Duck served as Chief Financial Officer of Griffin
Entities, Inc., a private food manufacturer and processor. From 1986 to 1990,
Mr. Duck served as Chief Financial Officer of Mr. Rooter Corporation, a public
franchise sewer and drain manufacturing and cleaning company. Mr. Duck
currently serves on the Board of Directors of the Edmond Chamber of Commerce and
is a member of the Oklahoma County Workforce Development Board. Mr. Duck is a
certified public accountant and holds a B.A. in economics from Oklahoma City
University.
David Lloyd joined us in April 1999 as Vice President of Human Resources.
Mr. Lloyd previously served as Senior Vice President of Human Resources and
Administration for Fujitsu ICL Retail Systems, Inc., from April 1997 to April
1999. In that capacity, he handled all human resource and administration
responsibilities for United States and Europe operations, including facilities
management for all 44 Fujitsu locations in the United States. Mr. Lloyd also
served as Vice President of Human Resources for Station Casinos, from June 1994
to April 1997, and Vice President of Human Resources and Administration of Nikko
Hotels International from April 1985 to June 1994. Mr. Lloyd earned his B.A. in
economics from Upsala College in New Jersey, and his MBA from New York Institute
of Technology.
Craig Smith is currently the Vice President of Operations of viaLink and is
responsible for brand management and customer service. Mr. Smith joined us in
February 1995 as a consultant and was promoted to Vice President in February
1999. Prior to joining viaLink, Mr. Smith was with Star Enterprise, a joint
venture of Texaco and Aramco, as part of the information technology services
team. Mr. Smith has been involved in selecting, implementing, building and
marketing information systems in the retail and related industries for over 15
years. He received his B.S. in computer science from the University of Missouri
at Rolla, and his M.B.A. with a concentration in marketing and finance from the
University of Houston.
Sue Hale has served as a director of viaLink and as a member of the
compensation and audit committees of the board of directors since March 1999.
Since January 1996, Ms. Hale has served as the General Manager of Connect
Oklahoma, a statewide news and information services company. From 1989 to 1996,
she served as the Assistant Managing Editor at The Daily Oklahoman, a daily
newspaper. Ms. Hale also serves as the Chairman of the Central Oklahoma chapter
of the American Red Cross. Ms. Hale received a B.A. in English and music from
Southwestern College.
Jimmy M. Wright has served as a director of viaLink and as a member of the
compensation and audit committees of the board of directors since February 1998.
Mr. Wright serves as the Chief Logistics Officer of Amazon.com, a publicly-
traded Web-based retailer, since July 1998. Mr. Wright is also currently the
Managing Partner with Diversified Retail Solutions, L.L.C., a supply chain
consulting business, where he has served since February 1998. In January 1998,
Mr. Wright retired as Vice President of Distribution for Wal-Mart Stores, Inc.
During his 12 year tenure at Wal-Mart, he was involved in all facets of
strategic planning, including supply chain management, personnel, site selection
and building design. Mr. Wright has served as an invited advisor to the Defense
Logistics Agency and has been a multi-year participant in the U.S. Army's Wise
Person summits, which advise the Deputy Chief of Staff Logistics on strategic
logistics issues and trends. Mr. Wright received his B.B.A. in management from
The University of Texas, Permian Basin.
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<PAGE>
BOARD OF DIRECTORS AND COMMITTEES
Our board of directors consists of five directors divided into three
classes with each class serving for a term of three years. At each annual
meeting of shareholders, the holders of our common stock will elect directors to
succeed those directors whose terms are expiring. Dr. Kilbourne and Ms. Hale
are Class I directors whose terms will expire in 2000; Messrs. Barcum and Baker
are Class II directors whose terms will expire in 2001; and Mr. Wright is a
Class III director whose term will expire in 1999. Dr. Kilbourne served as one
of our two non-employee directors until he was elected Chief Executive Officer
on October 1, 1998. Ms. Hale and Mr. Wright are our two non-employee directors.
Our board of directors has created a compensation committee and an audit
committee. The compensation committee makes recommendations to the board of
directors concerning salaries and incentive compensation for our officers and
employees and administers our stock plans. The members of the compensation
committee are Mr. Wright and Ms. Hale. The audit committee makes
recommendations to the board of directors regarding the selection of independent
auditors, reviews the results and scope of audits and other accounting-related
services and reviews and evaluates our internal control functions. The members
of the audit committee are Dr. Kilbourne, Mr. Wright and Ms. Hale.
DIRECTORS' COMPENSATION
We currently pay our non-employee directors other than the Chairman of the
Board $10,000 annually for their services as members of the board of directors.
We also pay our Chairman of the Board, Mr. Barcum, an annual stipend of $25,000.
Under our 1998 Non-Qualified Stock Option Plan, non-employee directors are
eligible to receive stock option grants at the discretion of the board of
directors. Employee directors are eligible to receive stock option grants at
the discretion of the compensation committee of the board of directors under our
1995 Stock Option Plan.
In 1998, we granted options to purchase 15,000 shares of our common stock
at an exercise price of $9.00 to our non-employee directors, Messrs. Barcum and
Wright. We also granted options to purchase 200,000 shares of our common stock
to Dr. Kilbourne, 100,000 of which were granted pursuant to our Non-Qualified
Plan at an exercise price of $3.00 per share, 50,000 of which were granted
pursuant to our 1995 Plan at an exercise price of $3.00 per share and 50,000 of
which were granted pursuant to our Non-Qualified Plan at an exercise price of
$3.125 per share. We also granted options to purchase 150,000 shares of our
common stock to Mr. Baker, 100,000 of which were granted pursuant to our Non-
Qualified Plan at an exercise price of $3.00 per share and 50,000 of which were
granted pursuant to our 1995 Plan at an exercise price of $3.30 per share. No
option grants or awards were made to any director in 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Lewis B. Kilbourne, a director and our Chief Executive Officer, is a member
of the compensation committee of the board of directors. Prior to October 1,
1998, Dr. Kilbourne was a non-employee director.
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<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the
compensation earned by our Chief Executive Officer, former Chief Executive
Officer and our two most highly compensated executive officers other than our
Chief Executive Officers during 1998. Although Mr. Reinhardt resigned as an
executive officer and director in 1998, his compensation is listed below. No
other executive officer currently employed by us received salary and bonus in
excess of $100,000 during 1998. During 1998, these executive officers received
additional non-cash compensation, perquisites and other personal benefits.
However, the aggregate amount and value thereof did not exceed the lesser of
$50,000 or 10% of the total annual salary and bonus paid to and accrued for the
individual during the year.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------- ---------------------
OTHER ANNUAL SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION OPTIONS
--------------------------- ---- ------ ------------ ---------------------
<S> <C> <C> <C> <C>
Robert L. Barcum (1)............................... 1998 $122,321 $ -- 15,000
Chief Executive Officer 1997 169,716 -- --
1996 169,150 -- --
Lewis B. Kilbourne, Ph.D. (2)...................... 1998 20,769 40,000(3) 200,000
Chief Executive Officer 1997 -- -- --
1996 -- -- --
Robert N. Baker.................................... 1998 120,713 -- 150,000
President and Chief Operating Officer 1997 169,940 -- --
1996 169,159 -- --
Russell L. Reinhardt (4)........................... 1998 114,655 -- --
Vice President 1997 171,774 -- --
1996 171,840 -- --
</TABLE>
__________________
(1) Resigned as Chief Executive Officer on September 30, 1998
(2) Elected Chief Executive Officer on October 1, 1998
(3) Mr. Kilbourne received $30,000 for his services in connection with the sale
of our consulting assets to Netplex and $10,000 for his service as a non-
employee member of the board of directors. Both of these amounts were
earned prior to his employment with viaLink.
(4) Resigned as executive officer and director on September 30, 1998
Option Grants in 1998. The following table sets forth information
concerning stock options granted to each of the executive officers during 1998.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE PER EXPIRATION
DATE GRANTED IN 1998 SHARE DATE
- ----------------------------------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C>
Robert L. Barcum.................... 15,000(1) 1.3% $ 9.00 10/31/2007
Lewis B. Kilbourne.................. 100,000(1) 8.5 3.00 10/31/2007
50,000(2) 4.3 3.00 02/28/2005
50,000(1) 4.3 3.125 10/31/2007
Robert N. Baker..................... 100,000(1) 8.5 3.00 09/30/2003
50,000(2) 4.3 3.30 09/29/2003
Russell L. Reinhardt................ -- -- -- --
</TABLE>
__________________
(1) Granted under the 1998 Non-Qualified Stock Option Plan.
(2) Granted under the 1995 Stock Option Plan.
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<PAGE>
Year-End Option Exercises in 1998 and December 31, 1998 Option Values. The
following table sets forth, for each of the executive officers named in the two
immediately preceding tables, information concerning option exercises for 1998
and the number and value of securities underlying unexercised options held on
December 31, 1998. None of the named executive officers exercised any stock
options during 1998. We determined the value of unexercised in-the-money
options by subtracting the exercise price from the fair market value of our
common stock at December 31, 1998 ($10.125 per share), and multiplying that
number by the number of shares underlying the options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED VALUE AT DECEMBER 31, 1998 DECEMBER 31, 1998
------------------------------ --------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ --------------- ------------ ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Barcum....... -- -- -- 15,000 $ -- $ 16,875
Lewis B. Kilbourne..... -- -- 20,000 180,000 140,000 1,278,750
Robert N. Baker........ -- -- -- 150,000 -- 1,053,750
Russell L. Reinhardt... -- -- -- -- -- --
</TABLE>
STOCK PLANS
1995 Stock Option Plan. We adopted The viaLink Company 1995 Stock Option
Plan in March 1995 and amended the 1995 Plan on April 30, 1996 and September 1,
1998. The 1995 Plan provides for the issuance of incentive stock options and
non-incentive stock options to attract, retain and motivate our management,
directors, professional employees or professional non-employee service providers
and certain other individuals who have benefited or could benefit us.
We have reserved 800,000 shares of our common stock for issuance under the
1995 Plan. As of April 30, 1999, options to purchase 648,132 shares at a
weighted average exercise price of $3.03 were outstanding. The compensation
committee appointed by the board of directors administers and interprets the
1995 Plan. In the case of an incentive stock option, the purchase price of
common stock issuable upon exercise of the option must not be less than the fair
market value of our common stock on the date of the grant. In the case of a
non-incentive stock option, the purchase price of common stock issuable upon the
exercise of the option must not be less than 75% of the fair market value of our
common stock on the date of the grant. The purchase price may be paid in cash,
in shares of common stock valued at fair market value on the exercise date or
through a same day sale provision. Any withholding tax liability incurred in
connection with an option exercise may be satisfied by having us withhold shares
of common stock acquired upon exercise of the option. The maximum term of any
option granted under the 1995 Plan is ten years. The aggregate fair market
value on the date of the grant of the common stock for which an incentive stock
option is exercisable may not exceed $100,000 in any calendar year. Options
granted under the 1995 Plan are generally non-transferable by the option holder,
except by will or the laws of descent and distribution. Option holders must
generally exercise their options during their lifetime. In the event we
experience a change in control or certain other significant events, all options
outstanding under the 1995 Plan shall become automatically fully vested and
immediately exercisable. The 1995 Plan will terminate on February 28,
2005.
1998 Non Qualified Stock Option Plan. We adopted The viaLink Company 1998
Non-Qualified Stock Option Plan on February 9, 1998, and we amended the Non-
Qualified Plan effective September 1, 1998. We adopted the Non-Qualified Plan
to attract, retain and motivate our directors, executive officers, employees and
independent contractors and consultants and certain other individuals who have
benefited or could benefit us by way of granting non-qualified stock options.
We have reserved up to 800,000 shares of common stock for issuance under the
Non-Qualified Plan. The purchase price of common stock issuable upon exercise
of options must not be less than 85% of the fair market value of our common
stock on the date of grant. All options granted pursuant to the Non-Qualified
Plan expire after ten years from the date of grant. The purchase price may be
paid in cash or in shares of common stock valued at fair market value on the
exercise date. The board of directors has the discretion to fix the period and
the time at which any options granted under the Non-Qualified Plan may be
exercised. In the event we are acquired, all outstanding options will become
fully exercisable. As of April 30, 1999, 451,493 stock options were outstanding
at a weighted average exercise price of $3.59 per share. All such stock options
were issued at or above fair market value at the date of grant. The Non-
Qualified Plan will terminate on October 31, 2007.
1998 Stock Grant Plan. We adopted The viaLink Company 1998 Stock Grant
Plan on February 10, 1998 to attract, retain and motivate our consultants,
independent contractors and key employees through grants of our common stock.
We have authorized and reserved up to 150,000 shares of
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<PAGE>
our common stock for issuance under the Stock Grant Plan. The sale, transfer or
other disposal of shares of common stock received under the Stock Grant Plan is
restricted for a period of one year. As of April 30, 1999, we had issued 5,033
shares of common stock under the Stock Grant Plan at a weighted average exercise
price of $3.12. The Stock Grant Plan will terminate on December 31, 2008.
Employee Stock Purchase Plan. We established The viaLink Company Employee
Stock Purchase Plan on April 1, 1997. The Stock Purchase Plan encourages
employees to participate in our stock ownership and economic progress by
providing them with the opportunity to purchase our common stock through payroll
deductions. We have authorized and reserved 100,000 shares of common stock for
issuance under the Stock Purchase Plan. As of April 30, 1999, employees had
purchased 6,122 shares of common stock at a weighted average price of
$2.75.
The Stock Purchase Plan and the stock granted under the Stock Purchase Plan
are intended to meet the qualification requirements set forth in Sections 421
and 423 of the Internal Revenue Code of 1986, as amended. The Stock Purchase
Plan is administered by the compensation committee of the board of directors.
The committee administers and interprets the Stock Purchase Plan and has the
authority to establish, adopt or revise rules and regulations with respect to
the Stock Purchase Plan.
All full-time employees who have been continuously employed more than six
months will be eligible to participate in the Stock Purchase Plan by entering
into an option agreement to purchase shares of our common stock. However, if
employees own or would own, assuming the exercise of all stock options held by
them, five percent or more of our common stock, they are not eligible to
participate in the Stock Purchase Plan. Ownership includes any shares owned by
their family members and indirectly through a corporation, partnership or trust.
Stock Purchase Plan participants may contribute up to $20 per pay period into
their account to purchase whole shares of our common stock at pre-determined
calendar quarter grant dates or exercise dates. The option price is 85% of the
per share fair market value on the grant date or the exercise date, whichever is
lower, of the quarterly purchase period. A participant is not permitted to
purchase more than 50 shares of common stock during each quarterly purchase
period. The participants may not assign, encumber or otherwise transfer their
stock options except by will or under laws of inheritance. The Stock Purchase
Plan will terminate on March 31, 2002.
Other Stock Options. In connection with a transaction with Vantage Capital
Resources, Inc., we issued John Simonelli and Larry E. Howell options to
purchase a total of 360,000 shares of common stock with an exercise price of
$5.00 per share. In connection with the sale of our ijob subsidiary, we issued
Ronald Beasley and David C. Mitchell options to purchase a total of 50,000
shares of common stock with an exercise price of $3.50 per share.
As of April 30, 1999, we had issued, through all of our incentive plans and
other stock option arrangements, options to purchase a total of 1,592,125 shares
of common stock at a weighted average exercise price of $3.65. Of the options
issued, options to purchase 507,341 share of common stock were exercisable at a
weighted average exercise price of $4.40 per share.
PROFIT SHARING PLAN
In 1985, we adopted The viaLink Company Profit Sharing Plan. All of our
employees who have completed at least one year of service with us may enroll in
the Profit Sharing Plan. We may, at our discretion, make an annual contribution
to the Profit Sharing Plan on behalf of employees. If made, our contribution
begins to vest for each employee's account after the employee has completed two
years of service. Thereafter, each employee's account vests ratably as to 20%
of the employee's account following each subsequent year of completed service
with us. We will distribute vested contributions to an employee upon:
. The employee's retirement;
. The employee's death or disability;
. The termination of the employee's employment; or
. The termination of the Profit Sharing Plan.
We did not make any contributions to the Profit Sharing Plan for the fiscal
years ended December 31, 1995, 1996, 1997 and 1998.
In 1993, we amended the Profit Sharing Plan to include a 401(k) deferred
compensation feature. Under the 401(k) feature, eligible participants may elect
to defer up to 15% of their salaries, not to exceed the annual statutory
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limits, pursuant to a voluntary salary reduction agreement. We may determine
matching levels of contributions from time to time, at the discretion of the
administrative committee. We did not make any matching contributions during
1995, 1996, 1997 or 1998. All 401(k) employee contributions are fully vested.
EMPLOYMENT ARRANGEMENTS
On October 1, 1998, we entered into employment contracts with Lewis B.
Kilbourne and Robert N. Baker. Under the contracts, we will pay an annual base
salary of $150,000 to Dr. Kilbourne and $175,127 to Mr. Baker. Dr. Kilbourne
and Mr. Baker are each also eligible to receive an annual bonus equal to 50% of
his then current annual salary.
Under the contracts, we granted to each of Dr. Kilbourne and Mr. Baker
incentive stock options for the purchase of 50,000 shares of common stock under
the 1995 Plan and non-qualified stock options for the purchase of 100,000 shares
of common stock under the 1998 Non-Qualified Plan. Both the incentive stock
options and non-qualified stock options vest and become exercisable over a three
year period. The options granted to Dr. Kilbourne have an exercise price of
$3.00 per share. The incentive stock options granted to Mr. Baker are
exercisable for $3.30 per share and the non-qualified stock options are
exercisable for $3.00 per share. Dr. Kilbourne's incentive stock options expire
on February 28, 2005 and his non-qualified stock options expire on October 31,
2007. Mr. Baker's incentive stock options expire on September 29, 2007 and his
non-qualified stock options expire September 30, 2003. In the event the
contracts with Dr. Kilbourne or Mr. Baker are terminated or certain corporate
reorganization events occur, any non-exercisable options will become fully
exercisable.
Each employment contract has a term of three years and is subject to
automatic renewal on a year-to-year basis, unless either party provides six-
months prior written notice of termination. If we terminate the contracts for
any reason other than for "cause" (as defined in the agreement), or if Dr.
Kilbourne or Mr. Baker terminate their contract for any reason other than an
uncured breach, Dr. Kilbourne or Mr. Baker will be entitled to:
. The continuation of his then current salary and the benefits provided
pursuant to the agreement;
. A one time payment in the amount of the greater of:
(A) the bonus due; or
(B) 15% of the salary payable for such quarter; and
. A lump sum payment of $400,000.
KEY MAN LIFE INSURANCE
We maintain a key man life insurance policy for Mr. Baker in the amount of
$1.25 million. We will receive any proceeds from this policy.
DIRECTOR LIABILITY AND INDEMNIFICATION
The Oklahoma General Corporation Act and our certificate of incorporation
limit the liability of each of our directors to us or our shareholders for
monetary damages for a breach of their fiduciary duty as directors. These
provisions do not eliminate the liability of a director for:
. Breach of the director's duty of loyalty to us or our shareholders;
. Acts or omissions by a director not in good faith or which involve
intentional misconduct or a knowing violation of law;
. Unlawful payments of dividends or unlawful stock repurchases or
knowing violation of the law; or
. Any transaction from which the director derived an improper personal
benefit.
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In addition, these provisions do not eliminate liability of a director for
violations of federal securities laws, nor do they limit our rights or those of
our shareholders, in appropriate circumstances, to seek equitable remedies such
as injunctive or other forms of non-monetary relief.
Our certificate of incorporation and bylaws provide that we shall indemnify
our directors and officers against expense or liability to the full extent
permitted by the Oklahoma General Corporation Act. In addition, we are also a
party to indemnification agreements with each of our directors.
INSIDER TRADING POLICY AND NON-PUBLIC INFORMATION DISCLOSURE
We have adopted policies relating to insider trading to prevent the misuse
of material and non-public information by our officers, directors and employees
as well as the disclosure of non-public information to any person outside of
viaLink. Under this policy, our officers, directors and employees are
prohibited from engaging in transactions in our securities when that person
possesses material information which has not previously been made public.
Material information is information that would affect an investor's decision to
purchase or sell our securities or those of another publicly-held corporation.
In addition, our officers, directors and employees are prohibited from
disclosing any non-public information to any person outside of viaLink if that
information has been obtained as a result of or in connection with that person's
position as an officer, director or employee of us. Our officers, directors and
employees are also prohibited from using such information in connection with
transactions in our securities or the securities of any other publicly-held
company. These policies also provide guidelines regarding the maintenance of
the confidentiality of non-public information so as to avoid dissemination of
that information prior to public disclosure.
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CERTAIN TRANSACTIONS
IJOB SALE
On December 31, 1998, we sold our wholly-owned subsidiary, ijob, to DCM
Corporation in exchange for an $800,000 promissory note. David C. Mitchell is
the sole shareholder of DCM and was the president of ijob. On March 11, 1999,
we received $800,000 plus all accrued interest from DCM in full payment of the
promissory note.
NOTES PAYABLE TO SHAREHOLDERS AND OFFICERS
On October 15, 1996, we redeemed 22,500 shares of our common stock from
David B. North, a shareholder and formerly one of our executive officers. We
issued Mr. North a promissory note for $39,375, bearing interest at the rate of
10% per annum, with a maturity date of November 15, 1997. We later extended
maturity of the note to November 15, 2000.
As of September 30, 1998, Robert L. Barcum, Robert N. Baker and Russell L.
Reinhardt had loaned viaLink, in the aggregate, $443,055. In return, we issued
these individuals promissory notes, bearing interest at rates of 8.5% to 11.5%
per annum, with maturity dates commencing March 8, 1999 through December 21,
2001. We believe that the terms of these loans were at least as favorable as we
could have obtained from unaffiliated third-party lenders.
On October 16, 1998, we repaid the promissory notes to Messrs. North,
Barcum, Baker and Reinhardt from proceeds of the consulting assets sale.
PAYMENTS AND OPTION GRANTS TO OFFICERS
On October 16, 1998, we paid Dr. Kilbourne $30,000 for his services
associated with the consulting assets sale. On October 1, 1998, the board of
directors elected Dr. Kilbourne as our Chief Executive Officer, and he signed an
employment agreement with us. For details regarding Dr. Kilbourne's employment
contract, please see "Management - Employment Arrangements." Prior to becoming
our Chief Executive Officer, Dr. Kilbourne served on the board of directors. In
1998, we paid Dr. Kilbourne $20,769 in salary for his service as Chief Executive
Officer, $10,000 in director fees and granted him options to purchase 150,000
shares of our common stock at an exercise price of $3.00 per share pursuant to
his employment agreement and options to purchase 50,000 shares of common stock
at an exercise price of $3.125 per share as compensation for his service as a
director. For details regarding his employment agreement, please see
"Management--Employment Agreements." In 1997, we paid Dr. Kilbourne $2,500 in
director fees.
During 1998, we granted Mr. Baker options to acquire 150,000 shares of our
common stock at a weighted average exercise price of $3.10 pursuant to his
employment contract. For details regarding Mr. Baker's employment contract,
please see "Management - Employment Arrangements." We also granted John M.
Duck, our Vice President, Secretary and Treasurer, options to acquire 60,000
shares of our common stock at an exercise price of $3.00 per share and Larry R.
Davenport, our former Vice President of Marketing and Sales, options to acquire
20,000 shares of our common stock at $3.00 per share. Mr. Davenport exercised
options to purchase 12,000 shares of our common stock on February 3, 1999 and
options to purchase 8,000 shares of our common stock expired. All such options
were issued at or above their fair market value on the date of the grant.
We have adopted a policy that any future transactions between us and our
officers, directors and five percent of greater shareholders will be subject to
approval by a majority of our disinterested independent directors and will be on
terms no less favorable than we could obtain from unaffiliated parties.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table presents certain information regarding the beneficial
ownership of our common stock as of April 30, 1999, by:
. Each person who is known by us to own beneficially more than five
percent of our outstanding common stock;
. Each of our directors and executive officers named in the Summary
Compensation Table;
. Each selling shareholder; and
. All of our current executive officers and directors as a group.
The percentage of outstanding shares is based on 2,874,342 shares of our
common stock outstanding as of April 30, 1999 and 3,974,342 shares of our common
stock outstanding immediately following completion of this offering. It
includes 920,000 shares of common stock issuable upon the exercise of our
redeemable warrants and 180,000 shares of common stock issuable to holders of
underwriter warrants and warrant underwriter warrants, assuming the holders of
these warrants exercise all of their warrants prior to the completion of this
offering.
The SEC deems a security holder the beneficial owner of a security when
that person maintains voting or investment power with respect to security,
subject to community property laws, where applicable. If stock options are
presently exercisable or exercisable within 60 days of April 30, 1999, the SEC
will deem the shares underlying those options to be outstanding and beneficially
owned by their holder when computing the percentage of common stock held by that
person. However, the SEC will not deem shares underlying these options to be
outstanding when computing the percentage of common stock held by others.
We have been informed that each of the holders of the underwriter warrants
and warrant underwriter warrants had a direct or indirect business relationship
with Barron Chase Securities, Inc., the underwriter of our initial public
offering at the time of our initial public offering. To our knowledge, there is
no other material relationship between any of these holders and us.
Unless otherwise noted, all shareholders listed have sole voting and
investment power with respect to their shares and the address for each
shareholder listed below is: c/o The viaLink Company, 13800 Benson Road, Edmond,
Oklahoma 73013-6417. Unless otherwise noted, the address for each of the
selling shareholders is c/o Barron Chase Securities, Inc., 7700 West Camino
Real, Suite 200, Boca Raton, Florida 33433. There are no family relationships
between our executive officers and directors.
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<TABLE>
<CAPTION>
SHARES OWNED SHARES OWNED
PRIOR TO THE OFFERING SHARES AFTER THE OFFERING
---------------------- ----------------------
NUMBER PERCENT OFFERED NUMBER PERCENT
------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
DIRECTORS, OFFICERS AND
5% SHAREHOLDERS:
Robert L. Barcum 559,816 19.5 -- 559,816 14.1
Robert N. Baker 554,529 19.3 -- 554,529 14.0
Russell L. Reinhardt (1) 316,081 11.0 -- 316,081 8.0
Lewis B. Kilbourne (2) 21,002 * -- 21,002 *
Jimmy Wright (3) 20,000 * -- 20,000 *
John M. Duck (4) 10,362 * -- 10,362 *
Robert I. Noe -- -- -- -- --
J. Andrew Kerner -- -- -- -- --
Stephen G. Conover -- -- -- -- --
David Lloyd -- -- -- -- --
Craig Smith -- -- -- -- --
Sue Hale -- -- -- -- --
SELLING SHAREHOLDERS:
Robert Kirk(5) 132,000 4.6 72,000 60,000 1.5
Glenn Desort 36,000 1.3 36,000 -- --
Michael Morrisett(6) 10,400 * 9,000 -- --
Marie Lima 9,000 * 9,000 -- --
David A. Carter 9,000 * 9,000 -- --
Wendy Tand Gusrae 9,000 * 9,000 -- --
Philip Aiello, Jr. 700 * 500 200 *
Paul Medrano 1,000 * 1,000 -- --
Daniel O'Halloran 1,250 * 1,250 -- --
Roger Lockhart (7) 82,100 * 22,000 30,000 *
Kent Grimm 1,250 * 1,250 -- --
Brian Herman (8) 131,900 * 10,000 60,000 1.5
All executive officers
and directors as a group
(5 persons) (9) 1,165,709 40.6 -- 1,165,709 29.3
</TABLE>
_____________________
* Less than 1%
(1) Mr. Reinhardt's address is 12800 Coyote Valley Road, Salida, CO 81201.
(2) Includes 20,000 shares underlying options which will be exercisable within
60 days of the date of this prospectus.
(3) Includes 20,000 shares underlying options which will be exercisable within
60 days of the date of this prospectus. Mr. Wright's address is c/o DRS,
1913 North Walton Blvd., Suite 1, Bentonville, Arkansas 72712.
(4) Includes 10,056 shares underlying options which will be exercisable within
60 days of the date of this prospectus.
(5) Includes 60,000 shares underlying options which will be exercisable within
60 days of the date of this prospectus. The options and the underlying
shares are subject to the promotional shares escrow agreement until November
20, 1999.
(6) Includes 1,400 shares underlying redeemable warrants which will be
exercisable within 60 days of this prospectus.
(7) Includes 30,000 shares underlying options which will be exercisable within
60 days of the date of this prospectus. The options and the underlying
shares are subject to the promotional shares escrow agreement until November
20, 1999.
(8) Includes 60,000 shares underlying options which will be exercisable within
60 days of the date of this prospectus. The options and the underlying
shares are subject to the promotional shares escrow agreement until November
20, 1999.
(9) Includes 50,056 shares underlying options which will be exercisable within
60 days of the date of this prospectus.
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DESCRIPTION OF SECURITIES
Pursuant to our certificate of incorporation, as amended, we are authorized
to issue up to 40,000,000 shares of capital stock, consisting of 30,000,000
shares of common stock, $.001 par value, and 10,000,000 shares of preferred
stock, $.001 par value. Please see "--Delaware Reincorporation" below.
COMMON STOCK
Holders of common stock are entitled to receive dividends out of assets
legally available at such times and in such amounts as the board of directors
may, from time to time, determine, and upon liquidation and dissolution are
entitled to receive all assets available for distribution to the shareholders,
subject to any rights that holders of preferred stock may have. Holders of
common stock are entitled to one vote per share on matters voted upon by the
shareholders. The common stock has no preemptive rights and no subscription,
redemption or conversion privileges. The common stock does not have cumulative
voting rights, which means that holders of a majority of shares voting for the
election of directors can elect all members of the board of directors.
viaLink's certificate of incorporation provides that the provisions therein
related to the staggered or classified board of directors, the number of
directors, removal of directors, and vacancies on the board of directors may be
amended, altered, changed or repealed only by the affirmative vote of the
holders of two-thirds of the issued and outstanding stock having voting power,
voting together as a single class. Furthermore, the amended certificate of
incorporation provides that the bylaws may be adopted, amended, altered, changed
or repealed by the board of directors only by the affirmative vote of the
holders of a majority of the issued and outstanding capital stock having voting
power, voting together as a single class. In general and except as described
above, a majority vote of shares represented at a meeting of shareholders at
which a quorum is present (generally the holders of a majority of the shares
entitled to vote, in person or by proxy) is sufficient for all actions that
require the vote or concurrence of shareholders. All outstanding shares of
common stock are, and all shares of common stock to be outstanding upon
completion of the offering will be, validly issued, fully paid and
nonassessable.
PREFERRED STOCK
viaLink's board of directors has the authority, without further action by
the stockholders, to issue up to 10,000,000 shares of preferred stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without any further
vote or action by shareholders. The issuance of preferred stock could also
adversely affect the voting power of holders of common stock and the likelihood
that such holders will receive dividend payments and payments upon liquidation
and could have the effect of delaying, deferring or preventing a change in
control of viaLink. Accordingly, the issuance of shares of preferred stock may
discourage bids for the common stock or may otherwise adversely affect the
market price of the common stock. viaLink has no present plan to issue any
shares of preferred stock.
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.
In connection with the filing of this prospectus, we have agreed that we
will not offer preferred stock to promoters except on the same terms as it is
offered to all other existing shareholders or new shareholders, or unless the
issuance of preferred stock is approved by the majority of our disinterested,
independent directors who have access, at our expense, to legal counsel.
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
As of April 30, 1999, we had outstanding 920,000 redeemable warrants. Each
redeemable warrant entitles its holder to purchase one share of common stock at
an exercise price of $5.00 per share until November 20, 1999. The redeemable
warrants are evidenced by warrant certificates in registered form.
The redeemable warrants do not confer upon the holder any voting or any
other rights of a shareholder of viaLink. Upon notice to the holders of
redeemable warrants, viaLink, with the consent of Barron Chase Securities, Inc.,
has the right to reduce the exercise price or extend the expiration date of the
redeemable warrants.
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The redeemable warrants may be exercised upon surrender of the warrant
certificate evidencing those warrants on or prior to the expiration date (or
earlier redemption date) of such warrants at the offices of UMB Bank, N.A., the
warrant agent, with the form of "Purchase Form" on the reverse side of the
warrant certificate completed and executed as indicated, accompanied by payment
of the full exercise price (by certified check payable to the order of The
viaLink Company) for the number of redeemable warrants being exercised.
No redeemable warrants will be exercisable unless at the time of exercise
viaLink has filed with the Commission a current prospectus covering the issuance
of shares of common stock upon the exercise of such redeemable warrant and the
issuance of share has been registered or qualified or is deemed to be exempt
from registration or qualification under the securities laws of the state of
residence of the holder of the warrant. viaLink will use its best efforts to
maintain a current prospectus relating to the issuance of shares of common stock
upon the exercise of the redeemable warrants until the expiration of the
warrants. While it is our intention to maintain a current prospectus, there is
no assurance that we will be able to do so.
No fractional shares will be issued upon exercise of the redeemable
warrants. However, if a holder of a redeemable warrant exercises all redeemable
warrants then owned of record, viaLink will pay to that holder, in lieu of the
issuance of a fractional share which may otherwise be issuable, an amount of
cash equal to such fractional interest based on the market value of the common
stock on the last trading day prior to the exercise date.
The redeemable warrants are redeemable by us at a price of $.125 per
warrant, and prior to their expiration, on at least 30 days prior written notice
to the registered holder of the redeemable warrants, provided the closing high
bid or sale price per share of the common stock (if the common stock is then
traded on Nasdaq or a national securities exchange, respectively) for a period
of 30 consecutive trading days, ending on the 20th day prior to the date of any
redemption notice, equals or exceeds at least $7.00 (subject to adjustment in
certain events). The redeemable warrants shall be exercisable until the close
of the business day preceding the date fixed for redemption.
UNDERWRITER WARRANTS AND WARRANT UNDERWRITER WARRANTS
We issued to the selling shareholders in connection with our initial public
offering common stock underwriter warrants and warrant underwriter warrants to
purchase up to 180,000 shares of common stock. The underwriter warrants are
exercisable for a five-year period ending November 20, 2001. Each underwriter
warrant entitles its holder to purchase one share of common stock at an exercise
price of $6.00 per share and one warrant underwriter warrant at an exercise
price of $.15 per warrant underwriter warrant. Each warrant underwriter warrant
entitles its holder to purchase one share of common stock at an exercise price
of $6.00 per share until November 20, 1999.
The underwriter warrants and warrant underwriter warrants contain
provisions providing for appropriate adjustment in the event of any merger,
consolidation, recapitalization, reclassification, stock dividend, stock split
or similar transaction. The underwriter warrants and warrant underwriter
warrants contain net issuance provisions permitting the holder thereof to elect
to exercise the underwriter warrants and warrant underwriter warrants in whole
or in part and instruct us to withhold from the securities issuable upon
exercise, a number of securities, valued at the current fair market value on the
date of exercise, to pay the exercise price. Such net exercise provision has the
effect of requiring us to issue shares of common stock without a corresponding
increase in capital. A net exercise of the underwriter warrants and warrant
underwriter warrants will have the same dilutive effect on the interests of our
shareholders as will a cash exercise. The underwriter warrants and warrant
underwriter warrants do not entitle the holders thereof to any rights as a
shareholder until such underwriter warrants or warrant underwriter warrants are
exercised and shares of common stock are purchased thereunder.
TRANSFER AND WARRANT AGENT
UMB Bank, N.A. is the transfer agent for the common stock and the warrant
agent for the redeemable warrants. Their mailing address is 928 Grand Blvd.,
Post Office Box 410064, Kansas City, Missouri 64141.
SHAREHOLDER ACTION
Pursuant to our certificate of incorporation and bylaws, with respect to
any act or action required of or by our shareholders, the
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affirmative vote of the holders of a majority of the issued and outstanding
shares of the common stock entitled to vote thereon is sufficient to authorize,
affirm, ratify or consent to such act or actions, except as otherwise provided
in our bylaws, certificate of incorporation or the Oklahoma General Corporation
Act. Our certificate of incorporation requires the vote of the holders of two-
thirds of our issued and outstanding stock having voting power, voting as a
single class, to amend, repeal or adopt any provision inconsistent with
provisions of our certificate of incorporation limiting director liability and
providing for staggered terms of directors and indemnity of officers, directors,
employees and agents of viaLink. See "--Anti-Takeover Provisions -- Amended
Certificate of Incorporation and Bylaws," below.
Pursuant to the Oklahoma General Corporation Act, shareholders may take
actions without the holding of a meeting by written consent signed by the
holders of a sufficient number of shares to approve the transaction had all of
the outstanding shares of the capital stock entitled to vote thereon been
present at a meeting. Upon completion of this offering, assuming the exercise of
all redeemable warrants, underwriter warrants and warrant underwriter warrants,
the current officers and directors, as a group, will beneficially own
approximately 40% of our outstanding common stock and will continue to have
significant voting power. See "Principal and Selling Shareholders." We are
required to provide prompt notice of any corporate action taken without a
meeting to those shareholders who have not consented in writing to such
corporate action.
ANTI-TAKEOVER PROVISIONS
Our certificate of incorporation and bylaws, and the Oklahoma General
Corporation Act include a number of provisions which may have the effect of
encouraging persons considering unsolicited tender offers or other unilateral
takeover proposals to negotiate with the board of directors rather than pursue
non-negotiated takeover attempts. We believe that the benefits of these
provisions outweigh the potential disadvantages of discouraging such proposals
because, among other things, negotiation of such proposals might result in an
improvement of their terms. The description below relating to provisions of our
certificate of incorporation and bylaws is intended as a summary only and is
qualified in its entirety by reference to our certificate of incorporation and
bylaws.
Amended Certificate of Incorporation and Bylaws
Our certificate of incorporation provides that the provisions therein
related to the staggered or classified board of directors, the number of
directors, removal of directors, and vacancies on the board of directors may be
amended, altered, changed or repealed only by the affirmative vote of the
holders of two-thirds of the issued and outstanding stock having voting power,
voting together as a single class. Furthermore, the amended certificate of
incorporation provides that the bylaws may be adopted, amended, altered, changed
or repealed by the board of directors only after the affirmative vote of the
holders of at least two-thirds of the issued and outstanding capital stock
having voting power, voting together as a single class.
These provisions are intended to make it more difficult for shareholders to
circumvent certain other provisions contained in viaLink's certificate of
incorporation and bylaws, such as the provision that provides for the
classification of the board of directors. See "Management -- Board of
Directors." These provisions, however, also make it more difficult for
shareholders to amend the certificate of incorporation or bylaws as to certain
matters without the approval of the board of directors, even if a majority of
shareholders deems such amendment to be in the best interests of all
shareholders.
Classified Board of Directors
Our certificate of incorporation and bylaws provide that the board of
directors shall be comprised of three classes of directors, each class
constituting approximately one-third of the total number of directors with each
class serving staggered three-year terms. The classification of the directors
makes it more difficult for shareholders to change the composition of the board
of directors. We believe, however, that the longer time required to elect a
majority of a classified board of directors will help ensure continuity and
stability of our management and policies.
The classification provisions may also have the effect of discouraging a
third-party from accumulating large blocks of our common stock or attempting to
obtain control of us, even though such an attempt might be
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beneficial to us and our shareholders. Accordingly, shareholders could be
deprived of certain opportunities to sell their shares of common stock at a
higher market price than might otherwise be the case.
Number of Directors; Removal; Filling Vacancies
Our certificate of incorporation provides that the number of directors
shall be fixed by the board of directors, but shall not be less than three nor
more than fifteen. Our bylaws provide that the number of directors will be fixed
by the board of directors within the limits mentioned above. The board of
directors has fixed the number of directors at five. The amended certificate of
incorporation provides that any vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by the affirmative vote of the directors in office, though less than a quorum,
or by the sole remaining director. Furthermore, any reduction in the number of
directors shall not have the effect of removing any director prior to the
expiration of such director's term.
Our bylaws also provide that directors may only be removed by the
shareholders for cause by the affirmative vote of the holders of not less than a
majority of the total voting power of all outstanding securities of viaLink then
entitled to vote generally in the election of directors, voting together as a
single class.
Preferred Stock
Our certificate of incorporation authorizes the issuance of preferred stock
in classes, and the board of directors to set and determine the voting rights,
redemption rights, conversion rights and other rights relating to each such
class of preferred stock. In some circumstances, the preferred stock could be
issued and have the effect of preventing a merger, tender offer or other
takeover attempt which the board of directors opposes. We have agreed to not
issue any preferred stock until November 20, 1999 without the written consent of
Barron Chase Securities, Inc.
Oklahoma Anti-Takeover Statutes
We are subject to Section 1090.3 and Sections 1145 through 1155 of the
Oklahoma General Corporation Act (the "OGCA").
Subject to certain exceptions, Section 1090.3 of the OGCA prohibits a
publicly-held Oklahoma corporation from engaging in a "business combination"
with an "interested shareholder" for a period of three years after the date of
the transaction in which such person became an interested shareholder, unless
the interested shareholder attained such status with approval of the board of
directors or the business combination is approved in a prescribed manner, or
certain other conditions are satisfied. A "business combination" includes
mergers, asset sales, and other transactions resulting in a financial benefit to
the interested shareholder. Subject to certain exceptions, an "interested
shareholder" is a person who, together with affiliates and associates, owns, or
within the past three years did own, 15 percent or more of the corporation's
voting stock.
In general, Sections 1145 through 1155 of the OGCA provide that shares
("interested shares") of voting stock acquired (within the meaning of a "control
share acquisition") become non-voting stock for a period of three years
following such control share acquisition, unless a majority of the holders of
non-interested shares approve a resolution reinstating the interested shares
with the same voting rights that such shares had before such interested shares
became control shares. Any person ("acquiring person") who proposes to make a
control share acquisition may, at the person's election, and any acquiring
person who has made a control share acquisition is required to, deliver an
acquiring person statement to the corporation disclosing certain prescribed
information regarding the acquisition. The corporation is required to present to
the next annual meeting of the shareholders the reinstatement of voting rights
with respect to the control shares that resulted in the control share
acquisition, unless the acquiring person requests a special meeting of
shareholders for such purpose and undertakes to pay the costs and expenses of
such special meeting. In the event voting rights of control shares acquired in a
control share acquisition are reinstated in full and the acquiring person has
acquired control shares with a majority or more of all voting power, all
shareholders of the corporation have dissenters' rights entitling them to
receive the fair value of their shares which will not be less than the highest
price paid per share by the acquiring person in the control share acquisition.
A "control share acquisition" includes the acquisition by any person
(including persons acting as a group) of ownership of, or the power to direct
the exercise of voting power with respect to, control shares (generally shares
having more than 20% of all voting power in the election of directors of a
publicly held corporation), subject to certain exceptions including:
51
<PAGE>
. an acquisition pursuant to an agreement of merger, consolidation, or
share acquisition to which the corporation is a party and is effected in
compliance with certain Sections of the OGCA;
. an acquisition by a person of additional shares within the range of
voting power for which such person has received approval pursuant to a
resolution by the majority of the holders of non-interested shares;
. an increase in voting power resulting from any action taken by the
corporation, provided the person whose voting power is thereby affected is
not an affiliate of the corporation;
. an acquisition pursuant to proxy solicitation under and in accordance
with the Securities Exchange Act of 1934, as amended, or the laws of
Oklahoma; and
. an acquisition from any person whose previous acquisition of shares
did not constitute a control share acquisition, provided the acquisition
does not result in the acquiring person holding voting power within a
higher range of voting power than that of the person from whom the control
shares were acquired.
The anti-takeover provisions of the OGCA may have the effect of
discouraging a third party from acquiring large blocks of the common stock of
viaLink within a short period or attempting to obtain control of viaLink, even
though such an attempt might be beneficial to viaLink and its shareholders.
Accordingly, assuming development of a market for common stock, shareholders
could be deprived of certain opportunities to sell their shares of common stock
at a higher market price than might otherwise be the case.
DELAWARE REINCORPORATION
We are seeking the necessary shareholder approval at our 1999 annual
meeting of shareholders to reincorporate in Delaware. For more information
regarding our proposed reincorporation, please see our Proxy Statement for the
Annual Meeting of Shareholders to be Held on May 21, 1999.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
As of April 30, 1999, viaLink has 2,874,342 shares of common stock issued
and outstanding. Of these shares, 1,677,691 shares are freely tradable without
restriction under the Securities Act of 1933, as amended, except any shares
purchased by affiliates of viaLink, as that term is defined in Rule 144 under
the 1933 Act, may generally only be sold in compliance with the limitations of
Rule 144 as described below.
The remaining 1,196,651 shares of common stock outstanding are deemed
"restricted securities" within the meaning of Rule 144 (the "Restricted
Shares"), all of which are eligible for sale in the public market subject to the
resale limitations of Rule 144, subject to the escrow agreement as described in
"--Promotional Shares Escrow Agreement," below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
restricted securities for at least one year is entitled to sell, within any
three-month period, a number of such securities that does not exceed the greater
of (1) one percent of the then outstanding shares of such securities or (2) the
average weekly trading volume in the securities in the over-the-counter market
during the four calendar weeks preceding the date on which notice of such sale
is filed, provided certain requirements concerning availability of public
information, manner of sale and notice of sale are satisfied. In addition,
affiliates must comply with the restrictions and requirements of Rule 144, other
than the one-year holding period requirement, in order to sell shares of common
stock which are not restricted securities. Under Rule 144(k), a person who is
not an affiliate and has not been an affiliate for at least three months prior
to the sale and who has beneficially owned the restricted securities for at
least two years may resell such securities without compliance with the foregoing
requirements of Rule 144. In meeting the one- or two-year holding period
described above, a holder of restricted securities can include the holding
period of a prior owner who was not an affiliate. The holding periods described
above do not begin to run until the full purchase price or other consideration
is paid by the person acquiring the restricted securities from the issuer or an
affiliate. Furthermore, the holding periods of restricted securities acquired
pursuant to merger do not begin to run until the restricted securities are
acquired from the issuer.
No predictions can be made as to the effect, if any, that future sales of
the common stock, or the availability of shares for future sale, will have on
the prevailing market price of the common stock. Sales of substantial amounts
of common stock, or the perception that such sales could occur, could adversely
affect prevailing market prices of the common stock and could impair viaLink's
future ability to obtain capital through an offering of equity securities.
PROMOTIONAL SHARES ESCROW AGREEMENT
Pursuant to a promotional shares escrow agreement dated November 19, 1996,
imposed by the Administrator of the Oklahoma Department of Securities in
connection with viaLink's initial public offering and registration of the common
stock and redeemable warrants, Robert L. Barcum, Robert N. Baker, Russell L.
Reinhardt, David B. North, John Simonelli and Larry E. Howell deposited with
BankOne, Oklahoma, NA (f/k/a Liberty Bank and & Trust Company of Oklahoma City,
N.A.), as escrow agent, 1,500,000 shares of common stock and stock options
exercisable for the purchase of 360,000 shares of common stock (as well as any
shares of common stock received upon exercise of stock options) (the "Deposited
Securities"). The Deposited Securities are held for the benefit of the holders
(the "Public Shareholders") of the common stock and redeemable warrants (the
"Subject Securities") that were purchased pursuant to viaLink's initial public
offering. The Deposited Securities will be held in escrow for a three-year
period, ending November 19, 1999 (the "Escrow Period"), to secure the
Depositors' agreements under the escrow agreement.
Under the terms of the escrow agreement, the Depositors agreed that during
the Escrow Period, in event of a distribution of viaLink's assets or securities
to the Public Shareholders (including the Depositors) as a result of the
dissolution, liquidation, merger, consolidation or reorganization of viaLink or
the sale or exchange of viaLink's assets or securities (including by way of
tender offer), or any other transaction or proceeding with a person other than
the Depositors (a, "Distribution"), the Public Shareholders will initially share
on a pro rata, per share basis in the Distribution, in proportion to the public
offering prices of the Subject Securities until the Public Shareholders have
received, or have had irrevocably set aside for them, an amount equal to the
aggregate public offering prices of the Subject Securities. Thereafter, all
holders of viaLink's equity securities, including the Depositors with respect to
the Deposited Securities, will participate on an equal, per share basis in the
remaining amount of the Distribution. The Distribution may proceed on lesser
terms and conditions if a majority of the holders of the Subject Securities that
are not held by Depositors, officers, or directors of viaLink, or their
associates or affiliates vote, or consent by consent procedure, to approve the
lesser terms and conditions.
53
<PAGE>
During the Escrow Period, the Deposited Securities may not be transferred,
sold or otherwise disposed of by the Depositors (or any transferees), unless the
proposed transferee agrees to accept the securities subject to the Escrow
Agreement.
REGISTRATION RIGHTS
We have granted certain registration rights to the holders of our
underwriter warrants and warrant underwriter warrants and the shares of our
common stock issuable upon exercise of those warrants. Until November 20, 2000,
the holders of at least 50% of these registrable securities which are then
outstanding may request registration under the Securities Act of all or any part
of their registrable securities, such registration to be effective for a period
of at least nine consecutive months. The holders of these registrable
securities are entitled to request one such demand registration, the expenses of
which shall be paid for by us. In addition, the holders of these registrable
securities also have piggyback registration rights. We have also granted
registration rights to certain holders of options to purchase 360,000 shares of
our common stock. We originally issued these options to John Simonelli and
Larry E. Howell on October 15, 1996 in connection with our acquisition of
Vantage Capital Resources, Inc. If we propose to register any of our securities
under the Securities Act (other than by filing a registration statement on Form
S-8 or Form S-4) at any time, the option holders may request to have the
securities they hold included in such registration. Upon such request, we shall
use our best efforts, providing that it is permissible under the Securities Act
to register such securities on such registration statement, to include the
option holders securities in the proposed registration statement. However, we
may determine for any reason, after consultation with the option holders who
have requested to have their securities included in the registration statement,
not to register or to delay the registration of the option holders securities.
In connection with our agreement with Ernst & Young and the warrants issued
thereunder, we have granted certain registration rights to Ernst & Young with
respect to shares of our common stock issuable upon exercise of the warrants.
Ernst & Young may request that these securities be registered in up to five
demand registrations, however only two of these demand registrations may be
pursuant to a registration statement on Form S-1 or Form SB-2 or other similar
forms of registration statements. We have also granted Ernst & Young unlimited
piggyback registration rights. Both the demand and piggyback registration
rights contain cut-back provisions whereby we may not have to register the
shares requested by Ernst & Young if such registration, in the opinion of the
underwriters of such offering, would be imprudent.
54
<PAGE>
PLAN OF DISTRIBUTION
viaLink
We will offer and distribute the 920,000 shares of common stock issuable
upon exercise of the redeemable warrants if and when the redeemable warrants are
exercised by their holders. Holders of redeemable warrants who exercise their
warrants while the registration statement of which this prospectus is a part is
effective under the Securities Act may freely resell the shares of common stock
issuable upon exercise, except for holders who are "affiliates" of viaLink
within the meaning of the Securities Act. Affiliates may resell such shares in
accordance with certain provisions of Rule 144. We have not used an underwriter
with respect to the exercise of any of the warrants, and we will not pay any
fees when the redeemable warrants are exercised. All cash we receive upon
exercise of the redeemable warrants will be proceeds and will be used for
general corporate purposes.
Selling Shareholders
We will receive the exercise price of the underwriter warrants and the
warrant underwriter warrants, if such warrants are exercised, but will receive
no proceeds from the resale of the underlying shares which may be offered
hereby. The shares of common stock offered hereby may be sold by the selling
shareholders, or by pledgees, donees, transferees or other successors in
interest that receive the shares as a gift, partnership distribution or other
non-sale related transfer, from time to time in transactions in the over-the-
counter market, in negotiated transactions, or a combination of such methods of
sale, at prices related to prevailing market prices or negotiated prices. The
selling shareholders may affect such transactions by selling the shares to or
through broker-dealers, and the broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the selling shareholder
and/or the purchasers of the shares for whom the broker-dealers may act as
agents or to whom they sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
In order to comply with the securities laws of certain states, if
applicable, the shares will be sold in jurisdictions only through registered or
licensed brokers or dealers. In addition, in certain states the shares may not
be sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.
The selling shareholders and any broker-dealers or agents that participate
with the selling shareholders in the distribution of the shares may be deemed to
be "underwriters" within the meaning of the Securities Act, and any commissions
received by them and any profit on the resale of the shares purchased by them
may be deemed to be underwriting commissions or discounts under the Securities
Act.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the shares may not simultaneously engage in
market making activities with respect to our common stock during a period
beginning one or five business days prior to the commencement of such
distribution. In addition and without limiting the foregoing, each selling
shareholder will be subject to applicable provisions of the Exchange Act and the
rules and regulations thereunder, including Rule 102, which provisions may limit
the timing of purchases and sales of shares of common stock by the selling
shareholders.
We will pay all costs and expenses incurred in connection with the
registration under the Securities Act of the shares. This includes:
. all registration and filing fees;
. printing expenses;
. fees and disbursements of our counsel and accountants;
. any brokerage fees and commissions;
. fees and disbursement of counsel for selling shareholders; and
. stock transfer and other taxes attributable to the sale of the shares.
The selling shareholders will bear all commissions and discounts, if any,
attributable to the sales of the shares.
55
<PAGE>
The selling shareholders are under no obligation to sell all or any of the
shares. The selling shareholders are not restricted as to the prices at which
they may sell their shares and sales of such shares at less than the market
price may depress the market price of the common stock.
LEGAL MATTERS
The validity of issuance of the shares of common stock offered by us
pursuant to the offering will be passed upon for us by Dunn, Swan & Cunningham,
Oklahoma City, Oklahoma and certain other legal matters in connection with the
offering will be passed upon for us by Brobeck, Phleger & Harrison LLP, Austin,
Texas.
EXPERTS
The consolidated balance sheets as of December 31. 1998 and 1997 and the
consolidated statements of operations, stockholders equity, and cash flows for
each of three years in the period ended December 31, 1998, included in this
prospectus, have been included herein in reliance on the report of
PricewaterhouseCoopers, LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We are subject to the information requirements of the Securities Exchange
Act of 1934, as amended, and therefore must file annual, quarterly and special
reports, proxy materials and other information with the SEC. You can inspect
and copy any document we file at the SEC's public reference room, 450 Fifth
Street, N.W. Washington, D.C. 20549, or at its regional offices located at 500
West Madison, Suite 1400, Chicago, Illinois 60661, and at 7 World Trade Center,
Suite 1300, New York, New York 10048. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. The SEC maintains a web site
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
SEC.
We have filed with the SEC a registration statement on Form SB-2 under the
Securities Act of 1933, as amended, with respect to the shares offered hereby.
Statements made in this prospectus as to the contents of any document referred
to are not necessarily complete. With respect to each document filed as an
exhibit to this registration statement, you should refer to the exhibit for a
more complete description of the matter involved. You may inspect the
registration statement, including the exhibits and schedules, at the SEC's
public reference facilities at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. You may also obtain copies of the registration
statement or any portion of it from such office at prescribed rates.
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "1934 Act"), as a "small business issuer" as
defined under Regulation S-B promulgated under the 1933 Act. In accordance with
the 1934 Act, we file reports and other information with the Commission (File
No. 000-21729). Such reports and other information can be inspected and copied
at, and copies of such materials can be obtained at prescribed rates from, the
Public Reference Section of the Commission in Washington, D.C.
We have recently filed the following documents with the SEC under the
Exchange Act:
. our Definitive Proxy Statement for the annual meeting of
shareholders to be held on May 21, 1999;
. our Annual Report on Form 10-KSB for the year ended December 31,
1998;
. our Quarterly Report on Form 10-QSB for the fiscal quarter ended
March 31, 1999;
. our Current Reports on Form 8-K dated October 16, 1998, December
31, 1998 February 4, 1999, and May 3, 1999;
. the description of our common stock contained in our registration
statement on Form 8-A, filed with the SEC under the Exchange Act;
and
. the description of our redeemable warrants contained in our
registration statement on Form 8-A, filed with the SEC under the
Exchange Act.
56
<PAGE>
We distribute to our shareholders annual reports containing financial
statements audited by our independent public accountants and, upon request,
quarterly reports for the first three quarters of each fiscal year containing
unaudited consolidated financial information. You should direct requests for
such information to Shareholder Relations, The viaLink Company, 13800 Benson
Road, Edmond, Oklahoma 73013, (405) 936-2500.
57
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Unaudited Financial Statements of the viaLink Company
<S> <C>
The viaLink Company Unaudited Balance Sheets as of March 31, 1999 .............................. F-2
The viaLink Company Unaudited Statements of Income for the Three
Months Ended March 31, 1999 and 1998........................................................ F-3
The viaLink Company Unaudited Statements of Stockholders' Equity for
the Three Months Ended March 31, 1999....................................................... F-4
The viaLink Company Unaudited Statements of Cash Flows for the Three
Months Ended March 31, 1999 and 1998........................................................ F-5
The viaLink Company Notes to Unaudited Financial Statements for the
period ended March 31, 1999................................................................. F-6
Financial Statements of The viaLink Company
Report of Independent Accountants............................................................... F-9
The viaLink Company Consolidated Balance Sheets as of December 31,
1998 and 1997............................................................................... F-10
The viaLink Company Consolidated Statements of Operations for the
Years Ended December 31, 1998, 1997 and 1996................................................ F-11
The viaLink Company Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1998, 1997 and 1996............................................ F-12
The viaLink Company Consolidated Statements of Cash Flows for the
Years Ended December 31, 1998, 1997 and 1996................................................ F-13
The viaLink Company Notes to Financial Statements............................................... F-14
Unaudited Pro Forma Consolidated Statement of Operations for The viaLink Company
The viaLink Company Unaudited Pro Forma Consolidated Statement of Operations
for the year ended December 31, 1998........................................................ F-23
</TABLE>
F-1
<PAGE>
THE VIALINK COMPANY (FORMERLY APPLIED INTELLIGENCE GROUP, INC.)
CONSOLIDATED BALANCE SHEET
as of March 31, 1999
(unaudited)
<TABLE>
<CAPTION>
ASSETS MARCH 31, 1999
--------------
Current assets:
<S> <C>
Cash and cash equivalents $ 3,333,977
Short-term investments 2,646,284
Accounts receivable--trade, net of allowance for doubtful accounts of 91,684
$7,841 at March 31, 1999
Other receivables 546,426
Prepaid expenses 111,527
Marketable securities, available-for-sale 2,132,183
Deferred offering costs 134,127
-----------
Total current assets 8,996,208
-----------
Furniture, equipment and leasehold improvements, net 732,960
Software development costs, net 1,372,934
Note receivable, net of deferred gain on sale --
Other assets 49,631
-----------
Total assets $11,151,733
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 1,136,040
Current portion of capital lease obligation 24,138
===========
Total current liabilities 1,160,178
Convertible debt 592,322
-----------
Total liabilities 1,752,500
-----------
Stockholders' equity:
Common stock, $.001 par value; 30,000,000 shares authorized; 2,874,342 2,874
shares issued and outstanding at March 31, 1999
Additional paid-in capital 10,850,613
Accumulated deficit (2,586,437)
Accumulated other comprehensive income (loss) 1,132,183
-----------
Total stockholders' equity 9,399,233
-----------
Total liabilities and stockholders' equity $11,151,733
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
THE VIALINK COMPANY (FORMERLY APPLIED INTELLIGENCE GROUP, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
for the Three Months Ended March 31, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Revenues $ 108,178 $3,098,404
Expenses:
Direct cost of sales -- 377,068
Salaries and benefits 501,358 1,787,430
Selling, general and administrative 1,150,822 558,599
Interest expense, net 634,498 36,116
Depreciation and amortization 178,834 248,452
----------- ----------
Total expenses 2,4655,512 3,007,665
----------- ----------
Income (loss) from operations (2,357,334) 90,739
Gain on sale of assets 462,041 --
Other income 273,000 --
----------- ----------
Income (loss) before income taxes (1,622,293) 90,739
Provision for income taxes -- 34,481
----------- ----------
Net income (loss) (1,622,293) 56,258
Other comprehensive income:
Unrealized gain on securities 1,447,856 --
----------- ----------
Comprehensive income (loss) $ (174,437) $ 56,258
=========== ==========
Weighted average shares outstanding--Basic 2,866,802 2,729,521
=========== ==========
Net income (loss) per common share--Basic $ (0.57) $ 0.02
=========== ==========
Weighted average shares outstanding--Dilutive 2,866,802 2,779,665
=========== ==========
Net income (loss) per common share--Dilutive $ (0.57) $ 0.02
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
THE VIALINK COMPANY (FORMERLY APPLIED INTELLIGENCE GROUP, INC.)
STATEMENTS OF STOCKHOLDERS' EQUITY
for the Three Months Ended March 31, 1999
(unaudited)
<TABLE>
<CAPTION>
Accumulated Other
Additional Accumulated Comprehensive
Shares Amount Paid-in Capital (Deficit) Income (Loss)
---------- -------- --------------- ------------ ------------
<S> <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 47,633 47 86,090 -- --
Stock issued under Employee
Stock Purchase Plan 96 -- 954 -- --
Proceeds from Hewlett-Packard
Note -- -- 6,000,000 -- --
Net income (loss) -- -- -- (1,622,293) --
Unrealized gain on Securities
Available for Sale -- -- -- -- 1,447,856
--------- ------ ----------- ----------- ----------
Balance, March 31, 1999 2,874,342 $2,874 $10,850,613 $(2,586,437) $1,132,183
========= ====== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
THE VIALINK COMPANY (FORMERLY APPLIED INTELLIGENCE GROUP, INC.)
STATEMENTS OF CASH FLOWS
for the Three Months Ended March 31, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $(1,622,293) $ 56,258
Adjustments to reconcile net income (loss) to Net cash provided by (used
in) operating activities:
Depreciation and amortization 178,834 248,452
Gain on sale of ijob (462,041) --
Deferred income tax provision -- 34,481
Decrease (increase) in accounts receivable 66,433 (411,569)
Decrease in other receivables 39,352 685
Increase in inventory -- (1,825)
Increase in prepaid expenses (94,811) (79,819)
Increase in other assets (11,067) (3,500)
Increase in accounts payable and accrued liabilities 69,767 444,098
Decrease in deferred revenue -- (101,294)
----------- ---------
Net cash provided by (used in) operating activities (1,835,826) 185,967
=========== =========
Cash flows from investing activities:
Capital expenditures (97,814) (21,771)
Capitalized expenditures for software development (126,775) (198,202)
Collection on note receivable from ijob 800,000 --
----------- ---------
Net cash provided by (used in) investing activities 575,411 (219,973)
Cash flows from financing activities:
Decrease in book overdraft -- (23,619)
Payment of deferred offering costs (134,127) --
Purchase of short-term investments (2,646,284) --
Proceeds from convertible debt 6,000,000 616,864
Proceeds from exercise of stock options, stock bonus and stock purchase 87,091 2,649
plans
Payments of capital lease obligations (20,056) (36,523)
Payments on long-term debt -- (490,000)
Non-cash interest on convertible debt 592,322 --
----------- ---------
Net cash provided by financing activities 3,878,946 69,371
----------- ---------
Net increase in cash 2,618,531 35,365
Cash and cash equivalents at beginning of period 715,466 80,769
----------- ---------
Cash and cash equivalents at end of period $ 3,333,977 $ 116,134
=========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
THE VIALINK COMPANY (FORMERLY APPLIED INTELLIGENCE GROUP, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 1999
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(TM) 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 information from all their suppliers, regardless of the
technological capabilities of the retailer or the supplier. 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
and reduce redundant information processing.
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.
Our clients and customers range from small, rapidly growing companies to
large corporations and are geographically dispersed throughout the United
States.
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 three month period ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the full
year ending December 31, 1999.
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 accrues interest at
8%. 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
F-6
<PAGE>
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 three
months ending March 31, 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"). Netplex paid us $3.0 million in cash and issued
us 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 sale of our
consulting assets, we entered into an earn-out agreement that may provide
us with quarterly cash payments up to $1.5 million generated from the
assets sold to Netplex until March 31, 2000. We used the cash proceeds from
the sale to repay (i) $551,062 of long-term debt, (ii) $565,094 of
shareholder loans including interest and (iii) expenses attributable to the
Consulting Assets Sale. The net gain from the Consulting Assets Sale was
$2,998,453. As of March 31, 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 three months ended March 31,
1999.
Accordingly, our consolidated balance sheet as of March 31, 1999 and the
consolidated statements of operations for the three months ended March 31,
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 investment in technology,
development, implementation, customer support services, and sales and
marketing of, our viaLink services. The extent of our quarterly losses will
depend on revenues from network services and application products, which
have
4. RECONCILIATION FOR BASIC AND DILUTIVE EARNINGS PER SHARE ("EPS")
------------------------------------------------------------------
For the Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
Basic EPS
Income available to common shareholders $56,258 2,729,521 $0.02
Effect of Dilutive Securities Options -- 50,144
Dilutive EPS
Income available to common shareholders plus assumed
conversions $56,258 2,779,665 $0.02
</TABLE>
Options to purchase 360,000, 50,000 and 102,500 shares of common stock at
$5.00, $3.50 and $3.875, respectively, per share, and warrants to purchase
920,000 and 180,000 shares of common stock at $5.00 and $6.00, respectively
per share, were outstanding during the first quarter of 1998, but were not
included in the computation of diluted EPS because the exercise prices were
greater than the average market price of the common shares. The options,
which expire on November 30, 2001 through March 1, 2007, respectively, were
still outstanding at March 31, 1998.
At March 31, 1999, options to purchase 1,579,958 shares at an average price
of $3.63, warrants to purchase 920,000 and 180,000 shares of common stock
at $5.00 and $6.00, respectively, and 857,143 shares of common stock to be
issued upon the conversion of the Hewlett-Packard note, were outstanding
during the three month period ending March 31, 1999, 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.
5. CONVERTIBLE DEBT
----------------
F-7
<PAGE>
On February 4, 1999, we entered into a financing agreement and note
purchase agreement with Hewlett-Packard pursuant to which Hewlett-Packard
purchased from viaLink 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. Subject to authorization and
approval by our shareholders to issue the common stock underlying the
convertible note to be issued to Hewlett-Packard, which we are seeking at
our 1999 annual meeting of shareholders, the note will be exchanged 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 on February 5, 1999 (the "Effective Date").
The Emerging Issues Task Force ("EITF") has issued EITF issue number 98-5
"Accounting for Convertible Securities with Beneficial Conversion Features
or Contingently Adjustable Conversion Ratios", which addresses issues
surrounding convertible debt securities with a nondetachable conversion
feature that is in-the-money at the commitment date (a "beneficial
conversion feature"). The task force reached a tentative conclusion that
beneficial conversion features present in convertible securities should be
recognized and measured by allocating a portion of the proceeds equal to
the intrinsic value of that feature to additional paid-in capital. The
intrinsic 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 March
31, 1999, and recognized an additional non-cash interest charge of $592,322
for interest expense from February 5, 1999 through March 31, 1999, through
establishing long-term debt in the same amount.
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. At March 31, 1998, we had recorded a tax benefit of $970,000
related to the pre-tax losses incurred in prior years, and no valuation
allowance had been established. As a result of the net gain on the
consulting business sale, the deferred tax asset was realized. The deferred
tax asset at December 31, 1998 and March 31, 1999, generated by losses
recorded in the fourth quarter of 1998 and the first quarter of 1999,
respectively, was offset by a fall 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.
F-8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
The viaLink Company (formerly Applied Intelligence Group, Inc.)
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of The viaLink
Company (formerly Applied Intelligence Group, Inc.) at December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These consolidated financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Oklahoma City, Oklahoma
February 22, 1999
F-9
<PAGE>
THE VIALINK COMPANY (FORMERLY APPLIED INTELLIGENCE GROUP, INC.)
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------- -------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 715,446 $ 80,769
Accounts receivable - trade, net of allowance for doubtful 158,117 1,337,322
accounts of $7,841 in 1998 and $1,724 in 1997
Other receivables 585,778 44,893
Inventory -- 8,707
Current portion of deferred tax asset -- 44,502
Prepaid expenses 16,716 51,634
Marketable securities, available-for-sale 684,327 --
--------- ----------
Total current assets 2,160,384 1,567,827
Furniture, equipment and leasehold improvements, net 719,910 1,462,575
Software development costs, net 1,340,230 1,735,420
Deferred tax asset, net -- 1,004,938
Note receivable, net of deferred gain on sale 337,958 --
Other assets 38,564 33,393
--------- ----------
Total assets $4,597,046 $ 5,804,153
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Book overdraft $ -- $ 23,619
Accounts payable and accrued liabilities 1,066,273 1,507,018
Deferred revenue -- 236,134
Current portion of capital lease obligations 44,194 132,422
--------- ----------
Total current liabilities 1,110,467 1,899,193
Capital lease obligations, net of current portion -- 44,194
Long-term debt -- 490,000
Notes payable to shareholders -- 482,830
--------- ----------
Total liabilities 1,110,467 2,916,217
Commitments (Note 10)
Stockholders' equity:
Common stock, $.001 par value; 30,000,000 shares authorized; 2,827 2,730
2,826,613 and 2,729,509 shares issued and outstanding
at December 31, 1998 and 1997, respectively
Additional paid-in capital 4,763,569 4,498,988
Accumulated deficit (964,144) (1,613,782)
Accumulated other comprehensive loss (315,673) --
--------- ----------
Total stockholders' equity 3,486,579 2,887,936
--------- ----------
Total liabilities and stockholders' equity $4,597,046 $ 5,804,153
========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE>
THE VIALINK COMPANY (FORMERLY APPLIED INTELLIGENCE GROUP, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------ -------------------
<S> <C> <C> <C>
Revenues $ 8,230,628 $ 9,022,842 $ 9,507,370
Expenses:
Direct cost of sales 1,563,757 2,211,956 2,570,840
Salaries and benefits 5,256,247 6,174,503 5,167,571
Selling, general and administrative 1,964,180 2,708,351 2,007,999
Interest expense, net 161,355 73,581 219,089
Depreciation and amortization 925,134 827,396 591,205
----------- ----------- -----------
Total expenses 9,870,673 11,995,787 10,556,704
----------- ----------- -----------
Loss from operations (1,640,045) (2,972,945) (1,049,334)
Gain on sale of assets 2,998,453 -- --
Other income 340,670 -- --
----------- ----------- -----------
Income (loss) before income taxes 1,699,078 (2,972,945) (1,049,334)
Provision (benefit) for income taxes 1,049,440 (1,112,127) (366,925)
----------- ----------- -----------
Net income (loss) 649,638 (1,860,818) (682,409)
Other comprehensive loss:
Unrealized loss on securities (315,673) -- --
----------- ----------- -----------
Comprehensive income (loss) $ 333,965 $(1,860,818) $ (682,409)
=========== =========== ===========
Weighted average common shares outstanding - Basic 2,741,041 2,727,438 1,838,522
=========== =========== ===========
Net income (loss) per common share - Basic $ .24 $ (.68) $ (.37)
=========== =========== ===========
Weighted average common shares outstanding - Diluted 3,102,443 2,727,438 1,838,522
=========== =========== ===========
Net income (loss) per common share - Diluted $ .21 $ (.68) $ (.37)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE>
THE VIALINK COMPANY (FORMERLY APPLIED INTELLIGENCE GROUP, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Accumulated Retained
Additional Other Earnings
Common Stock Paid-In Comprehensive (Accumulated
------------------------
Shares Amounts Capital Loss Deficit)
--------- -------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1995 1,500,000 $1,500 $ 66,484 $ -- $ 929,445
Vantage Capital
Resources, Inc., merger 610,000 610 394,317 -- --
Stock redemptions (383,500) (383) (40,742) -- --
Initial public offering 1,000,000 1,000 4,071,167 -- --
Net loss -- -- -- -- (682,409)
--------- ------ ---------- ------------- -----------
Balance,
December 31, 1996 2,726,500 2,727 4,491,226 -- 247,036
Exercise of stock options 444 -- 279 -- --
Stock issued under Employee
Stock Purchase Plan 2,565 3 7,483 -- --
Net loss -- -- -- -- (1,860,818)
--------- ------ ---------- ------------- -----------
Balance (Deficit),
December 31, 1997 2,729,509 2,730 4,498,988 -- (1,613,782)
Exercise of stock options 88,610 89 240,303 -- --
Stock issued under Employee
Stock Purchase Plan 3,461 3 8,555 -- --
Stock issued under Employee
Stock Bonus Plan 5,033 5 15,723 -- --
Net Income -- -- -- -- 649,638
Unrealized loss on securities
available for sale -- -- -- (315,673) --
--------- ------ ---------- ------------- -----------
Balance (Deficit),
December 31, 1998 2,826,613 $2,827 $4,763,569 $(315,673) $ (964,144)
========= ====== ========== ============= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE>
THE VIALINK COMPANY (FORMERLY APPLIED INTELLIGENCE GROUP, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- ----------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $ 649,638 $(1,860,818) $ (682,409)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 925,134 827,396 591,205
Deferred income tax provision (benefit) 1,049,440 (1,112,127) (241,730)
Gain on sale of assets (2,998,453) -- --
Loss on disposal of fixed assets 12,694 -- 5,720
Decrease (increase) in accounts receivable 1,054,162 672,515 363,680
Decrease (increase) in other receivables (540,885) 269,981 (95,995)
Decrease (increase) in inventory 8,707 19,452 (5,767)
Decrease (increase) in prepaid expenses 34,918 24,630 19,974
Decrease (increase) in other assets (11,218) 83,748 (68,698)
Increase (decrease) in accounts payable and accrued (397,899) 428,512 (184,601)
liabilities
Increase (decrease) in deferred revenue (236,134) (96,315) 207,986
----------- ----------- -----------
Net cash used in operating activities (449,896) (743,026) (90,635)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of assets, net of cost 2,607,731 -- --
Capital expenditures (41,785) (332,987) (625,893)
Capitalized expenditures for software development (617,180) (752,158) (655,248)
----------- ----------- -----------
Net cash provided by (used in) investing activities 1,948,766 (1,085,145) (1,281,141)
----------- ----------- -----------
Cash flows from financing activities:
Increase (decrease) in book overdraft (23,619) (261,141) 115,294
Proceeds from long-term debt 3,522,639 1,270,000 5,609,000
Proceeds from shareholder notes -- 6,455 39,375
Proceeds from exercise of stock options, stock bonus 264,678 7,765 --
and stock purchase plan
Proceeds from sale of stock -- -- 4,425,969
Payments of capital lease obligations (132,422) (135,153) (111,347)
Payments of shareholder notes (482,830) (20,000) --
Payments on long-term debt (4,012,639) (780,000) (6,904,000)
----------- ----------- -----------
Net cash provided by (used in) financing activities (864,193) 87,926 3,174,291
----------- ----------- -----------
Net increase (decrease) in cash 634,677 (1,740,245) 1,802,515
Cash and cash equivalents at beginning of period 80,769 1,821,014 18,499
----------- ----------- -----------
Cash and cash equivalents at end of period $ 715,446 $ 80,769 $ 1,821,014
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 220,553 $ 123,778 $ 251,967
=========== =========== ===========
Cash paid for income taxes, net of cash received for income
taxes $ 26,454 $ 114,852 $ (10,000)
----------- ----------- -----------
Supplemental disclosures of noncash investing and financing
activities:
Capital lease obligation incurred $ -- $ -- $ 205,938
=========== =========== ===========
</TABLE>
Effective December 31, 1998, the Company sold its investment in its whole-
owned subsidiary, ijob, Inc., for a $800,000 note receivable. The net gain on
the sale of $462,042 has been deferred and netted against the note.
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE>
THE VIALINK COMPANY (formerly Applied Intelligence Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
General Description of Business The viaLink Company (the "Company")
-------------------------------
provides business-to-business electronic commerce solutions for the grocery
and convenience store industries. The Company has 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. The Company's solution
offers a single interface solution for retailers to receive product
information from all their suppliers, regardless of the technological
capabilities of the retailer or the supplier. 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 state-of-the-
art 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 and reduce redundant information processing.
The Company's clients and customers range from small, rapidly growing
companies to large corporations and are geographically dispersed throughout
the United States.
Basis of Presentation The consolidated financial statements include the
---------------------
accounts of the Company and its wholly-owned subsidiary, ijob, Inc., which
was formed June 30, 1997. All material intercompany balances and
transactions have been eliminated. On December 31, 1998 ijob, Inc. was
sold and, therefore, is not included in the Company's December 31, 1998
balance sheet (see Note 2).
Use of Estimates The preparation of financial statements in conformity
----------------
with generally accepted accounting principles requires the use of
management's estimates and assumptions in determining the carrying values
of certain assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts for certain revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents For purposes of the statement of cash flows,
-------------------------
the Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents.
Marketable Securities The Company classifies its marketable securities as
---------------------
available-for-sale in accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Company's securities are
carried at fair market value, with the unrealized gains and losses reported
as a separate component in stockholders' equity until realized.
Risks from Concentrations Financial instruments, which potentially subject
-------------------------
the Company to concentrations of credit risk, consist principally of
temporary cash investments, notes receivable and accounts receivable. The
Company places its temporary cash investments with high credit quality
financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited due to the size of customers and their
dispersion across different regions. The Company does not believe a
material risk of loss exists with respect to its financial position due to
concentrations of credit risk.
The Company, through the sale of its management consulting and systems
integration services, received 643,770 shares of preferred stock
convertible into common shares of the Netplex Group, Inc. which are
classified as available-for-sale marketable securities and are subject to
fluctuations in value due to market conditions.
The Company's revenues were in part dependent on large license fees and
systems integration contracts from a limited number of customers. In 1998,
1997 and 1996 three customers individually accounted for 13, 11, and 11
percent, 20, 13, and 10 percent, and 17, 14, and 10 percent of the
Company's total revenues, respectively. In 1998, 1997 and 1996,
approximately 49, 57 and 57 percent, respectively, of the Company's total
revenues were attributable to five clients. During 1998 the Company sold
its wholly owned subsidiary, ijob, Inc., and the assets underlying its
management consulting and systems integration services (see Note 2).
Historically, approximately 90% of the Company's revenues were generated
from assets sold pursuant to these sales. As a result of the sales, the
Company resembles a development stage company since its planned principal
operations are underway, but have not yet generated significant revenues.
F-14
<PAGE>
Furniture, equipment and leasehold improvements Furniture, equipment and
-----------------------------------------------
leasehold improvements are stated at cost. Expenditures for repairs and
maintenance are charged to expense as incurred. Upon disposition, the cost
and related accumulated depreciation are removed from the accounts and the
resulting gain or loss is reflected in operations for the period. The
Company depreciates furniture and equipment using the straight-line method
over their estimated useful lives ranging from 5 to 10 years. Leasehold
improvements are amortized over the lease term using the straight-line
method.
Revenue Recognition The Company recognizes revenues as the services are
-------------------
provided. Revenues collected in advance are deferred and recognized as
earned. Revenues for fixed-price contracts are recognized using the
percentage of completion method. Accounts receivable included unbilled
amounts of $193,355 at December 31, 1997. As of December 31, 1998 there
were no unbilled amounts.
Direct Cost of Sales Direct Cost of sales represents the cost of hardware
--------------------
and certain point-of-sale software acquired for resale, including royalty
payments required for sale of the Company's proprietary software products.
Earnings Per Share The Company presents basic and diluted earnings per
------------------
share ("EPS") as required under Statement of Accounting Standard No. 128,
"Earnings Per Share," ("SFAS 128"). SFAS 128 simplifies the standards for
computing earnings per share by replacing the presentation of primary
earnings per share with a presentation of basic earnings per share and by
simplifying the calculation of diluted earnings per share. A reconciliation
of the numerator and the denominator used in the calculation of earnings
per share is as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1998
Income Shares
(Numerator) (Denominator) Per Share
---------------- ------------------ -----------
<S> <C> <C> <C>
Basic EPS
Income available to common shareholders $649,638 2,741,041 $0.24
Effect of dilutive securities options 361,402 ===========
---------------- ------------------
Dilutive EPS
Income available to common shareholders $649,638 3,102,443 $0.21
plus assumed conversions ================ ================== ===========
</TABLE>
At December 31, 1998, options to purchase 360,000 and 30,000 shares of
common stock at $5.00 and $9.00 per share, respectively, and warrants to
purchase 920,000 and 180,000 shares of common stock at $5.00 and $6.00,
respectively, were outstanding, but were not included in the computation of
diluted EPS because the exercise price of the options and warrants was
greater than the average market price of the common shares.
At December 31, 1997, options to purchase 583,078 shares at an average
exercise price of $4.19 and warrants to purchase 920,000 and 180,000 shares
of common stock at $5.00 and $6.00, respectively, were outstanding, but
were not included in the computation of diluted EPS because the exercise
price of the options and warrants was greater than the average market price
of the common shares.
At December 31, 1996, options to purchase 435,208 shares at an average
exercise price of $4.32 and warrants to purchase 920,000 and 180,000 shares
of common stock at $5.00 and $6.00, respectively, were outstanding, but
were not included in the computation of diluted EPS because the exercise
price of the options and warrants was greater than the average market price
of the common shares.
Income Taxes The Company accounts for income taxes in accordance with
------------
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires deferred tax liabilities or assets
to be recognized for the anticipated future tax effects of temporary
difference that arise as a result of the differences in the carrying
amounts and tax bases of assets and liabilities, and for loss carryforwards
and tax credit carryforwards.
Costs of Product Development The Company incurred costs and expenses of
----------------------------
approximately $1,827,000, $1,875,000, and $1,204,000 for product
development in 1998, 1997, and 1996, respectively. A substantial portion
of these costs relates to development of a network subscription service
that the Company made available to subscribers in January of 1997. Certain
of these costs are capitalized as Software Development Costs (See Note 4).
Comprehensive Income In 1998, the Company adopted SFAS 130, "Reporting
--------------------
Comprehensive Income." SFAS 130 establishes new rules for reporting of
comprehensive income and its components. Comprehensive income consists of
unrealized loss on the fair market value of marketable securities and is
F-15
<PAGE>
presented as a separate component of stockholders' equity. Prior years'
financial statements have been presented to conform to these requirements.
Recently Issued Accounting Pronouncements In October 1997, the AICPA
-----------------------------------------
Accounting Standards Executive Committee issued Statement of Position 97-2,
Software Revenue Recognition ("SOP 97-2"), which supercedes Statement of
Position 91-1, Software Revenue Recognition. SOP 97-2 focuses on when and
in what amounts revenue should be recognized for licensing, selling,
leasing, or otherwise marketing computer software and is effective for
transactions entered into in fiscal years beginning after December 15,
1997. In March 1998, the AICPA Accounting Standards Executive Committee
issued Statement of Position 98-4, Deferral of the Effective Date of
Provision of SOP 97-2, Software Revenue Recognition ("SOP 98-4"). SOP 98-4
defers for one year certain provisions of SOP 97-2. In December of 1998,
the AICPA Accounting Standards Executive Committee issued Statement of
Position 98-9, Modification of SOP 97-2, Software Revenue Recognition, with
respect to Certain Transactions ("SOP 98-9"). SOP 98-9, also amends certain
provisions of SOP 97-2 and extends the deferral of the application of
certain provisions of SOP 97-2 as amended by SOP 98-4 through fiscal years
beginning on or before March 15, 1999. The Company does not believe that
the adoption of SOP 97-2, including the effects of these amendments, will
have a material impact on its financial position and results of operations.
2. DIVESTITURES:
-------------
On December 31, 1998, the Company sold its 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 accrues
interest at 8%. DCM is required to pay the promissory note in full upon
the occurrence of certain events, including the date upon which David C.
Mitchell owns less than 51% of DCM. The promissory note is collateralized
by principally all of the fixed assets, contract rights, accounts
receivable and general intangibles of ijob. The net gain of $462,042 on
the sale has been deferred and netted against the $800,000 promissory note,
as DCM is considered to be a highly leveraged entity.
Effective September 1, 1998, the Company sold the assets related to its
management consulting and systems integration services (including the
Company's proprietary Retail Services Application ("RSA") software) to
Netplex Group, Inc ("Consulting Asset Sale"). Netplex paid the Company
$3.0 million in cash and issued the Company 643,770 shares of Netplex
preferred stock, with a market value of approximately $1.0 million. The
Company used the cash proceeds from the sale to repay (i) $551,062 of long-
term debt, (ii) $565,094 of shareholder loans including interest and (iii)
expenses attributable to the Consulting Asset Sale. The net gain from the
Consulting Assets Sale was $2,998,453. As of December 31, 1998, the market
value of the 643,770 shares of Netplex preferred stock was $684,327,
yielding an unrealized loss of $315,673, which has been included in
comprehensive loss. The following represents condensed unaudited results
of operations related to the management consulting and systems integration
services:
<TABLE>
<CAPTION>
August 31, 1998 December 31, 1997
------------------- ------------------------
<S> <C> <C>
Revenues $6,831,916 $7,544,678
Expenses 5,045,104 7,335,395
---------- ----------
Income before Taxes $1,786,812 $ 209,283
========== ==========
</TABLE>
F-16
<PAGE>
3. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
------------------------------------------------
Furniture, equipment and leasehold improvements at December 31, 1998 and
1997 consists of the following:
<TABLE>
<CAPTION>
1998 1997
------------------- ------------------
<S> <C> <C>
Furniture and fixtures $ 286,583 $ 482,818
Computer equipment 1,432,776 2,029,864
Computer software 492,790 657,498
Leasehold improvements 49,669 55,779
------------------- ------------------
2,261,818 3,225,959
Less: accumulated depreciation and amortization (1,541,908) (1,763,384)
------------------- ------------------
Furniture, equipment and leasehold improvements, net $ 719,910 $ 1,462,575
=================== ==================
</TABLE>
Included in furniture and fixtures in 1997 was $125,886 of assets under a
capital lease. In 1998 the capital lease was paid in full and the Company
obtained ownership of the related furniture and fixtures. Included in
computer equipment in 1998 and 1997 was $321,840 of assets under capital
leases. The accumulated depreciation for all assets under capital leases
at December 31, 1998 and 1997 was $282,245 and $195,177, respectively.
4. SOFTWARE DEVELOPMENT COSTS:
---------------------------
The Company capitalizes certain costs, including interest, that are
directly related to the development of software. In accordance with
Statement of Financial Accounting Standards No. 86, capitalization of costs
begins when technological feasibility has been established and ends when
the product is available for customers. Capitalized software development
costs are amortized using the straight-line method over the estimated
useful life of five years. Amortization of capitalized software costs for
December 31, 1998, 1997, and 1996 was $466,875, $324,837, and $176,756,
respectively. Accumulated amortization at December 31, 1998 and 1997 was
$763,755 and $841,826, respectively.
The Company continually assesses whether the unamortized capitalized cost
of software development is impaired. This assessment is based on the
future cashflows expected to be generated by the related product. If
impairment is determined, the amount of such impairment is calculated based
on the estimated net realizable value of the related asset. No write-offs
were made in 1998 and 1997.
Total interest costs for the years ended December 31, 1998, 1997, and 1996
were $168,946, $116,183, and $291,089, respectively, of which $54,423 was
capitalized in 1996. No interest was capitalized in 1998 and 1997.
5. LONG-TERM DEBT:
---------------
On July 19, 1995, the Company entered into a revolving credit agreement
(the "Agreement") with a bank whereby the Company could borrow, under two
separate notes, up to the lesser of $3,000,000 or the borrowing base as
defined in the agreement. Pursuant to the terms of the revolving credit
agreement, upon successful completion of the Company's initial public
offering, the working capital note of $800,000 was paid in full on November
27, 1996, and in October 1997, and December 1997, the terms of the
remaining note were renegotiated to a credit line of $500,000. Interest on
the note was prime plus 0.5% at December 31, 1997, which was 9%.
During the first quarter of 1998, the Company completed a new credit
facility with a commercial lender that replaced the revolving credit
agreement with the bank. Under the new credit facility the Company could
borrow up to $1,000,000; however, amounts borrowed were limited to 75% of
the Company's accounts receivable as defined by the new facility. The
facility was collateralized by accounts receivable and all tangible assets
of the Company and was guaranteed by three principal officers of the
Company. The interest rate on the new facility was prime plus 3%. The
promissory note under this agreement was paid in full on October 16, 1998.
During the first quarter of 1998, the Company obtained a credit facility
including a large sale financing option with IBM Credit Corp., whereby the
Company could finance directly with IBM Credit Corp. large sales of
hardware or software. As of December 31,1998, there were no amounts
outstanding on this credit facility and in February of 1999, the Company
terminated its arrangement under
F-17
<PAGE>
this credit facility. The Company no longer has any available working
capital borrowings or credit facility available for borrowings.
On February 4, 1999, the Company entered into a financing agreement with
Hewlett-Packard Company. Hewlett-Packard provided the Company $6.0 million
pursuant to a Subordinated Secured Promissory Note bearing interest at a
rate of 11.5% per annum. The Company received such funds on February 5,
1999. No principal or interest payments are due on the Hewlett-Packard
Note until February 2004. This Note is collateralized by a lien on our
viaLink services, including the underlying source code. Upon receipt of
shareholder approval, which the Company intends to seek at the 1999 annual
meeting of shareholders, this initial Note would be exchanged for a
substantially similar note which would be convertible beginning in August
2000 into the Company's Common Stock at a price of $7 per share. In
connection with the financing, Hewlett-Packard will provide the
technological platform to host the Company's Item Catalog and other
services, co-marketing and consulting services. The Hewlett-Packard loan
agreement also provides that up to 50% of the loan proceeds are intended to
be used to purchase Hewlett-Packard products and services.
The carrying values of financial instruments included in long-term debt
approximate their fair values due to the nature and terms of the
instruments involved.
6. NOTES PAYABLE TO SHAREHOLDERS:
------------------------------
In October 1998, the Company repaid all shareholder notes in the principal
amount of $482,830, plus accrued interest of $82,264. Notes payable to
shareholders at December 31, 1997, totaled $482,830 and included interest
at rates ranging from 8.5% to 11.5%.
Interest expense for 1998 and 1997 related to the notes payable to
shareholders was $38,293 and $46,473, respectively.
7. STOCKHOLDERS' EQUITY:
---------------------
The Company established The viaLink Company Employee Stock Purchase Plan
(the "Employee Stock Purchase Plan" or "Plan") in April 1997, which was
approved by the shareholders at the 1997 annual meeting of shareholders.
The Employee Stock Purchase Plan provides the opportunity for employees to
purchase the Company's stock through payroll deductions, to encourage
participation in the ownership and economic progress of the Company. Plan
participants may contribute up to $20 per pay period into their account to
purchase whole shares of the Common Stock of the Company at pre-determined
calendar quarter grant dates or exercise dates. The price will be 85
percent of the per share fair market value on the granting date or the
exercise date, whichever is the lesser, of the purchase period. The number
of shares of Common Stock authorized and reserved for issuance under the
Plan is 100,000 shares. For each of the years ended December 31, 1998 and
1997, 3,461 and 2,565 shares, respectively, shares of Common Stock have
been purchased by Employees of the Company, and are included in the total
outstanding shares as of December 31, 1998.
8. STOCK OPTION PLANS:
-------------------
In 1995, the Company created the 1995 Stock Option Plan (the "Plan"). The
Plan provides for incentive stock options and non-incentive stock options
to key management, directors, key professional employees or key
professional non-employee service providers of the Company. In April 1996,
the Company amended the Plan to authorize and reserve up to 300,000 shares
of Common Stock for issuance of options under the Plan, and again amended
the Plan on September 1, 1998 to increase the number of authorized shares
under the Plan to 800,000. The Plan permits the issuance of qualified and
nonqualified stock options. During 1998, the Company issued 670,750
options at an average exercise price of $3.04.
In conjunction with the Company's merger with Vantage Capital Resources,
Inc. in 1996 the Company issued 360,000 options exercisable at $5.00 per
share. Such options become exercisable after 2 years and expire after 5
years from the original grant date.
On February 9, 1998, the board of directors of the Company adopted the 1998
Non-Qualified Stock Option Plan (the "Non-Qualified Stock Plan" or "Plan"),
to attract, retain and motivate directors, executive officers, key
employees and independent contractors of the Company and its subsidiaries
by way of granting non-qualified stock options with stock appreciation
rights attached. The Non-Qualified Stock Plan, as amended on September 1,
1998, authorizes and reserves up to 800,000 shares of Common Stock for
issuance and options under the Plan. The option price shall not be less
than 85 percent of the fair market value of the Common Stock on the date of
grant. All options pursuant to the Plan
F-18
<PAGE>
expire after ten years from the date of grant. The board of directors has
the discretion to fix the period and the time at which any options granted
under the Plan may be exercised. During 1998 the Company issued 501,857
options at an average exercise price of $3.38 pursuant to the Plan.
On February 10, 1998, the board of directors of the Company adopted the
1998 Stock Grant Plan (the "Stock Grant Plan" or "Plan") to attract, retain
and motivate consultants, independent contractors and key employees of the
Company and its subsidiaries by way of granting shares of stock in the
Company. The Stock Grant Plan authorizes and reserves up to 150,000 shares
of Common Stock of the Company for issuances under the Plan. Shares of
Common Stock received pursuant to the Stock Grant Plan restrict the sale,
transfer or other disposal of said shares for a period of one year. During
1998, 5,033 shares of common stock have been issued pursuant to the Plan at
an average price of $3.12.
Pro forma information regarding net income and earnings per share is
required by FAS No. 123 and has been determined as if the Company had
accounted for its stock options under the fair value method defined by FAS
No. 123. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for fiscal year 1998, 1997 and 1996,
respectively: interest rates (zero-coupon U.S. government issued with a
remaining life equal to the expected term of the options) of 4.52%, 6.47%,
and 6.10%; dividend yields of 0.0%; volatility factors of expected market
price of the Company's common stock of 65%; and weighted-average expected
life of the options of 6.7, 5.9, and 3.5 years.
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its employee stock
options. APB No. 25 requires compensation expense be recorded for any
difference between the option price and market value on the measurement
date. Accordingly, based on the fact that all option's exercise price
equals the market price at date of grant, no compensation cost has been
recognized in 1998, 1997 and 1996.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
stock options.
The Company's pro forma information is as follows for December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ----------------- ----------------
<S> <C> <C> <C>
Net income (loss), as reported $649,638 $(1,860,818) $(682,409)
Pro forma $112,172 $(2,393,944) $(780,194)
Earnings (loss) per shares-diluted, as reported $ .21 $ (.68) $ (.37)
Pro forma $ .04 $ (.88) $ (.42)
</TABLE>
F-19
<PAGE>
A summary of the Company's stock option activity and related information
follows as of December 31:
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Exercise Price
------------------ -----------------
<S> <C> <C>
Outstanding at December 31, 1995 45,513 $0.63
Granted 396,238 4.69
Exercised - -
Canceled (6,543) 0.80
-----------------
Outstanding at December 31, 1996 435,208 4.32
Granted 167,500 3.76
Exercised (444) 0.63
Canceled (19,186) 3.31
-----------------
Outstanding at December 31, 1997 583,078 4.19
Granted 1,172,607 3.18
Exercised (88,610) 2.71
Canceled (44,453) 3.44
-----------------
Outstanding at December 31, 1998 1,622,622 $3.56
=================
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Outstanding at Exercise Remaining Exercisable Exercise
Range of Exercise Prices 12/31/98 Price Life at 12/31/98 Price
- ------------------------- ---------------- ------------------ ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
$0.63 to $1.80 34,410 $0.92 7 years 34,410 $0.92
$3.00 to $3.88 1,198,212 $3.07 6 years 150,595 $3.45
$5.00 to $9.00 390,000 $5.31 9 years 360,000 $5.00
$0.63 to $9.00 1,622,622 $3.56 6 years 545,005 $4.31
</TABLE>
15. INCOME TAXES:
---------------
The components of the provision (benefit) for income taxes for the years
ended December 31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- -------------
<S> <C> <C> <C>
Current $ - $ - $(125,195)
Deferred 1,049,440 (1,112,127) (241,730)
--------------- --------------- -------------
Provision (benefit) for income taxes $1,049,440 $(1,112,127) $(366,925)
=============== =============== =============
</TABLE>
The difference in federal income taxes at the statutory rate and the
provision for income taxes for the years ended December 31, 1998, 1997, and
1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Income tax expense (benefit) at federal statutory rate $ 577,687 $(1,010,801) $(356,773)
State income taxes 67,963 (118,918) (41,973)
Change in valuation allowance 401,302 - -
Revision of prior year estimate - - 14,273
Other 2,488 17,592 17,548
--------------- --------------- ---------------
Provision (benefit) for income taxes $1,049,440 $(1,112,127) $(366,925)
=============== =============== ===============
</TABLE>
F-20
<PAGE>
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1997
--------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 2,980 $ 655
Compensated absences 17,583 43,847
Tax carryforwards 24,985 24,969
Unrealized loss on marketable securities 119,956 --
Net operating loss carryforward 781,387 1,730,999
--------- ----------
946,891 1,800,470
Deferred tax liabilities:
Intangible assets (508,763) (659,460)
Depreciation and amortization (36,826) (91,570)
--------- ----------
Net deferred tax asset, before valuation allowance 401,302 1,049,440
Valuation allowance (401,302) --
--------- ----------
Net deferred tax asset $ -- $1,049,440
========= ==========
</TABLE>
At December 31, 1998, the Company had net operating loss ("NOL")
carryforwards for Federal and State purposes of approximately $2,000,000
and $2,400,000, respectively, and other carryforwards of approximately
$66,000. The Federal and State NOL carryforwards begin to expire in 2011.
SFAS 109 requires that the Company record a valuation allowance when it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of the deferred tax asset
depends on the Company's ability to generate sufficient taxable income in
the future. If the Company achieves sufficient profitability to utilize
the NOL, the valuation allowance will be reduced resulting in a reduction
of future income tax expense.
The ability of the Company to utilize the NOL carryforward to reduce future
taxable income taxes may be limited upon occurrence of certain capital
stock transactions during any three-year period resulting in an aggregate
ownership change of more than 50%.
16. LEASES:
-------
The Company leases its office and storage space under operating leases.
The terms range from month-to-month up to ten years and include options to
renew. The Company also leases office equipment under various
noncancelable lease agreements. Total rental expense in 1998, 1997 and
1996 for all leases was $410,669, $455,369 and $333,225, respectively.
Future minimum lease payments under noncancelable leases at December 31,
1998 follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
--------------- ---------------
<S> <C> <C>
1999 $46,018 $ 445,446
2000 - 402,158
2001 - 332,211
2002 - 330,000
2003 - 330,000
Thereafter - 1,136,000
--------------- ---------------
Future minimum lease payments 46,018 $2,975,815
===============
Less amount representing interest 1,824
---------------
Present value of minimum lease payments $44,194
===============
</TABLE>
Future minimum lease payments have not been reduced by future minimum sub-
lease rentals of approximately $1.4 million under operating leases.
F-21
<PAGE>
17. RETIREMENT PLAN:
----------------
The Company has a profit sharing plan (the "Plan") for certain eligible
employees who have attained the age of 18 and completed one year of
service. Under the Plan, employer contributions are made at management's
discretion. Participants may contribute up to 6% of earnings as eligible
contributions and up to 15% of earnings in total for any Plan year. The
Company's discretionary matching percentage is equal to each participant's
share of total eligible contributions for a year. The Company made no
contributions in 1998, 1997, and 1996.
F-22
<PAGE>
THE VIALINK COMPANY (formerly Applied Intelligence Group, Inc.)
Unaudited Pro Forma Consolidated Statement of Operations
The unaudited pro forma financial information for the three months ended
March 31, 1999 is not required.
The accompanying unaudited pro forma consolidated statement of operations
is provided to illustrate the effect of the sale of the consulting business of
The viaLink Company to The Netplex Group, Inc. and the sale of the viaLink's
wholly-owned subsidiary, ijob, Inc., to DCM Company, Inc. on the historical
financial statements of viaLink, as if these sales had occurred, for statement
of operations purposes on January 1, 1998. The unaudited pro forma consolidated
statement of operations is not necessarily indicative of operating results which
would have been achieved had the sales been consummated as of the beginning of
the period presented and should not be construed as representative of future
operations. The unaudited pro forma adjustments described in the accompanying
notes are based on available information and certain assumptions that viaLink
believes are reasonable. These unaudited pro forma financial statements should
be read in conjunction with viaLink's Annual Report on Form 10-KSB for the year
ended December 31, 1998.
F-23
<PAGE>
THE VIALINK COMPANY (FORMERLY APPLIED INTELLIGENCE GROUP, INC.)PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONSFOR THE TWELVE MONTHS ENDED DECEMBER 31,
1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
DECEMBER 31, CONSULTING PRO FORMA ADJUSTMENTS IJOB PRO FORMA
1998 BUSINESS SALE DECEMBER 31, 1998 SALE DECEMBER 31, 1998
--------------- ------------------ ----------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues........................... $ 8,230,628 6,.31,916 (a) $ 1,398,712 66.,125 (j) $ 732,587
Expenses:
Direct cost of sales.............. 1,563,757 (1,563,757)(b) -- -- --
Salaries and benefits............. 5,256,247 130,000 (c) 2,822,971 (535,570)(k) 2,287,401
2,563,276 (d)
Selling, general and
administrative................... 1,964,180 (662,505)(e) 1,036,675 (269,196)(l) 767,479
(265,000)(f)
Interest expense, net............. 161,355 (161,355)(g) -- -- --
Depreciation and amortization..... 925,134 (255,569)(h) 669,565 (56,553)(m) 613,012
----------- ----------- ----------- --------- -----------
Total expenses................... 9,870,673 (5,341,462) 4,519,211 (861,319) 3,667,892
----------- ----------- ----------- --------- -----------
Loss from operations............... (1,640,045) (1,490,454) (3,130,499) (195,194) (2,935,305)
Gain on sale of assets............. 2,998,453 -- 2,998,453 -- 2,998,453
Other income....................... 340,670 (766,000)(i) 1,106,670 -- 1,106,670
----------- ----------- ----------- --------- -----------
Income (loss) before income taxes.. 1,699,078 724,454 974,624 (195,194) 1,169,818
Provision (benefit) for income
taxes............................. 1,049,440 -- 1,049,440 -- 1,049,440
----------- ----------- ----------- --------- -----------
Net income (loss).................. 649,638 724,454 (74,816) (195,194) 120,378
Other comprehensive income (loss):
unrealized loss on securities...... (315,673) -- (315,673) -- (315,673)
----------- ----------- ----------- --------- -----------
Comprehensive income (loss)........ $ 333,965 $ 724,454 $ (390,489) (195,194) $ (195,295)
=========== =========== =========== ========= ===========
Weighted average shares
outstanding -- Basic 2,741,041 2,741,041 2,741,041
=========== =========== ===========
Net income (loss)
per common share -- Basic.......... $ 0.24 $ (0.03) $ 0.04
=========== =========== ===========
Weighted average common
shares outstanding-Diluted......... 3,102,443 2,741,041 3,102,443
=========== =========== ===========
Net income (loss) per
common share-Diluted............... $ 0.21 $ (0.03) $ 0.04
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this
pro forma consolidated financial statement.
F-24
<PAGE>
THE VIALINK COMPANY (FORMERLY APPLIED INTELLIGENCE GROUP, INC.)
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
DECEMBER 31, 1998
(a) This adjustment eliminates the revenue directly related to the consulting
business of the Company which was acquired by The Netplex Group, Inc. on
September 1, 1998.
(b) This adjustment eliminates the direct cost of revenue associated with the
product and solutions revenue of our consulting business.
(c) This adjustment accrues the estimated salary for our new CEO.
(d) This adjustment eliminates the direct and indirect payroll, taxes and
benefits and contract labor expenses associated with our consulting
business.
(e) This adjustment eliminates the direct and indirect selling, general and
administrative expenses associated with our consulting business.
(f) This adjustment reduces selling, general and administrative expenses for
amounts that Netplex would have paid to viaLink under the Sub-lease and the
Administrative Services Agreement had the sale of our consulting business
been effective January 1, 1998.
(g) This adjustment eliminates interest expense because the proceeds of the
sale would have paid the our credit facility and shareholder notes at
January 1, 1998.
(h) This adjustment eliminates the depreciation and amortization of the fixed
assets and capitalized software development costs that were acquired by
Netplex in the purchase of our consulting business.
(i) This adjustment records the income that would have been received under the
earn-out agreement with Netplex effective January 1, 1998.
(j) This adjustment eliminates the revenue directly related to ijob, Inc. which
was acquired by DCM Company, Inc. on December 31, 1998.
(k) This adjustment eliminates the direct and indirect payroll, taxes and
benefits and contract labor expenses associated with ijob, Inc.
(l) This adjustment eliminates the direct and indirect selling, general and
administrative expenses associated with ijob, Inc.
(m) This adjustment eliminates the depreciation and amortization of the fixed
assets and capitalized software development costs that were associated with
ijob, Inc.
F-25
<PAGE>
================================================================================
THE VIALINK COMPANY
(FORMERLY APPLIED INTELLIGENCE
GROUP, INC.)
1,100,000 SHARES
Common Stock
(UNDERLYING REDEEMABLE COMMON STOCK
PURCHASE WARRANTS
AND UNDERWRITER WARRANTS)
_______________________
PROSPECTUS
MAY ___, 1999
_______________________________
Any requests for information concerning these offerings may be made by calling
or writing viaLink's offices at:
THE VIALINK COMPANY
13800 Benson Road
Edmond, Oklahoma 73013-6417
Attention: Corporate Securities
Telephone: (405) 936-2500
The Warrant Agent for the Redeemable Common Stock Purchase Warrant is:
UMB BANK, N.A.
928 Grand Blvd.
Post Office Box 410064
Kansas City, Missouri 64141
Telephone: (816) 860-7760
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN REGISTRATION STATEMENT
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1031 of the Oklahoma General Corporation Act permits (and our
certificate of incorporation and bylaws, which are incorporated by reference
herein, authorize) indemnification of our officers and directors and the
officers and directors of another corporation, partnership, joint venture, trust
or other enterprise who serve at the request of us, against expenses, including
attorneys fees, judgments, fines and amount paid in settlement actually and
reasonably incurred by such person in connection with any action, suit or
proceeding in which such person is a party by reason of such person being or
having been a director or officer of viaLink or at our request, if he conducted
himself in good faith and in a manner he reasonably believed to be in or not
opposed to our best interests, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. We may
not indemnify an officer or a director with respect to any claim, issue or
matter as to which such officer or director shall have been adjudged to be
liable to us, unless and only to the extent that the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the court shall deem proper. To the extent that an officer or director is
successful on the merits or otherwise in defense on the merits or otherwise in
defense of any action, suit or proceeding with respect to which such person is
entitled to indemnification, or in defense of any claim, issue or matter
therein, such person is entitled to be indemnified against expenses, including
attorney's fees, actually and reasonably incurred by him in connection
therewith.
The circumstances under which indemnification is granted with an action
brought on behalf of us are generally the same as those set forth above;
however, expenses incurred by an officer or a director in defending a civil or
criminal action, suit or proceeding may be paid by us in advance of final
disposition upon receipt of an undertaking by or on behalf of such officer or
director to repay such amount if it is ultimately determined that such officer
or director is not entitled to indemnification by us.
These provisions may be sufficiently broad to indemnify such persons for
liabilities arising under the Securities Act of 1933, as amended, in which case
such provision is against public policy as expressed in the Securities Act and
is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
*Legal Fees.................................................................. $ 75,000.00
*Accounting Fees and Expenses................................................ 10,000.00
*Transfer Agent's Fees and Costs of Certificates............................. 5,000.00
*Miscellaneous............................................................... 20,000.00
-----------
Total................................................................... $110,000.00
</TABLE>
________________________________________
*Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Registrant has sold and issued the securities described below within the
past three years which were not registered under the Act.
Pursuant to and in accordance with Rule 506 of Regulation D under the Act,
Vantage Capital Resources, Inc. ("VCRI") offered and sold 250,000 shares of its
common stock, to the following persons:
II-1
<PAGE>
<TABLE>
<CAPTION>
PURCHASE PRICE
PER SHARE OF NUMBER OF
DATE OF VCRI COMMON SHARES NET PROCEEDS
NAME PURCHASE STOCK PURCHASED TO VCRI
- ----------------------------------------------- ----------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Teri Beals..................................... 6/5/96 $1.75 10,000 $ 17,500
David B. North................................. 6/5/96 1.75 22,500 39,375
Ross S. North.................................. 6/5/96 1.75 7,500 13,125
Robert D. Keen................................. 6/5/96 1.75 5,000 8,750
David B. Copple................................ 6/5/96 1.75 10,000 17,500
Euell D. Liles................................. 6/5/96 1.75 5,000 8,750
Charles I. Merrick............................. 6/5/96 1.75 5,000 8,750
Arnold Van Zanten.............................. 6/5/96 1.75 10,000 17,500
Bob G. Bunce................................... 6/5/96 1.75 5,000 8,750
E. Thomas Doddridge............................ 6/5/96 1.75 5,000 8,750
David R. Cassell............................... 6/5/96 1.75 5,000 8,750
Paul J. Reuter................................. 6/5/96 1.75 5,000 8,750
Don G. Holladay................................ 6/5/96 1.75 10,000 17,500
Thomas E. Howell............................... 6/5/96 1.75 5,000 8,750
H. E. Lamance.................................. 6/5/96 1.75 5,000 8,750
Walter J. Morris............................... 6/5/96 1.75 5,000 8,750
Billy Dean Neiman.............................. 6/5/96 1.75 5,000 8,750
Tomlinson Capital Corp......................... 6/5/96 1.75 10,000 17,500
James D. and Darlene K. Wolfinbarger........... 6/5/96 1.75 5,000 8,750
Edward D. Jones & Co. Custodian 6/5/96 1.75 10,000 17,500
FBO Warren H. Carey..........................
Edward D. Jones & Co. Custodian FBO Linda M. 6/5/96 1.75 5,000 8,750
Carey.........................................
Jerome P. Welch................................ 6/5/96 1.75 5,000 8,750
Paul A. Kruger................................. 6/5/96 1.75 5,000 8,750
John R. Lestino................................ 6/5/96 1.75 5,000 8,750
Delaware Charter Guarantee & Trust Co. 6/5/96 1.75 5,000 8,750
Trustee FBO Kendle Rackley....................
Martin D. Garber 6/5/96 1.75 5,000 8,750
James H. Everest............................... 6/5/96 1.75 5,000 8,750
Ann Copple..................................... 6/5/96 1.75 5,000 8,750
Jerry M. Maddux................................ 6/5/96 1.75 5,000 8,750
Prudential Securities C/F Dennis A. Nevius..... 6/5/96 1.75 11,000 19,250
John M. Richards III........................... 6/5/96 1.75 5,000 8,750
John M. Richards, Jr........................... 6/5/96 1.75 5,000 8,750
Arch W. Watson, Sr............................. 6/5/96 1.75 5,000 8,750
Terry Kay Bell................................. 6/5/96 1.75 5,000 8,750
James Ralph Stepp.............................. 6/5/96 1.75 1,000 1,750
Jack W. Maddux................................. 6/5/96 1.75 5,000 8,750
Philip C. Bird................................. 6/5/96 1.75 8,000 14,000
Anchor Property Management Co. L.L.C........... 6/5/96 1.75 5,000 8,750
Helen L. McInnis............................... 6/5/96 1.75 5,000 8,750
------- --------
Total................................ 250,000 $437,500
</TABLE>
________________________
Pursuant to and in accordance with Rule 506 of Regulation D under the
Securities Act of 1933, VCRI merged with registrant on June 12, 1996 (the
"Merger"), pursuant to an Agreement and Plan of Merger, dated May 8, 1996, and
in connection the Merger, Registrant issued 610,000 shares of its common stock,
$.001 par value per share, to John Simonelli and Larry E. Howell (the executive
officers and directors and shareholders of VCRI) and the above named
shareholders of VCRI in exchanged for their VCRI common stock on a one-for-one
basis for Registrant's common stock.
VCRI and Registrant relied on Rule 506 and Section 4(2) of the Act for
exemption from the registration requirements of such Act. Each purchaser of the
VCRI common stock and shareholder of VCRI was furnished information concerning
the formation and operations of VCRI and the Registrant, and each had the
opportunity to verify the information supplied. Additionally, VCRI (and
Registrant) obtained a signed representation from each of the above named
persons in connection with the offer for purchase of the VCRI common stock and
Registrant's common stock of his, her or its intent to acquire such stock for
the purpose of investment only, and not with a view toward the subsequent
distribution thereof; each of the certificates representing the VCRI common
stock and Registrant's common stock was stamped with a legend restricting
transfer of the securities represented thereby, and
II-2
<PAGE>
Registrant issued stop transfer instructions to UMB Bank, N.A., the Transfer
Agent for the common stock of Registrant, with respect to all certificates
representing the common stock of Registrant held by the aforementioned
shareholders of Registrant.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ----------------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement between Barron Chase Securities, Inc. and Registrant
1.2* Selected Dealer Agreement between Barron Chase Securities, Inc. and selected dealers
2.1* Agreement and Plan of Merger dated May 8, 1996 by and among Registrant, Vantage Capital
Resources, Inc., John Simonelli, Larry E. Howell, Robert L. Barcum, Robert N. Baker and David B.
North
2.2 Asset Purchase Agreement dated June 12, 1997 by and among ijob, Inc., Human Technologies, Inc.,
David C. Mitchell and Ron Beasley (filed as Exhibit 2.2 to Registrant's Annual Report on Form
10-KSB for the year ending December 31, 1997 (the "1997 10-KSB") and incorporated herein by
reference)
2.3 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)
2.4 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)
2.5 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
4.1* Form of Certificate of Common Stock of Registrant
4.2* Form of Underwriter Warrant Agreement by and between Barron Chase Securities, Inc. and Registrant
4.3* Form of Warrant Agreement by and between Liberty Bank & Trust Company of Oklahoma City, N.A. and
Registrant
4.4* Form of Certificate of Redeemable Common Stock Purchase Warrant
4.5 The viaLink Company (f/k/a Applied Intelligence Group, Inc.) 1998 Non-Qualified Stock Option Plan
(filed as Exhibit 4.5 to Registrant's Registration Statement on Form S-8 (Reg. No. 333-47549) and
incorporated herein by reference)
4.6 The viaLink Company (f/k/a Applied Intelligence Group, Inc.) 1998 Stock Grant Plan (filed as
Exhibit 4.4 to Registrant's Registration Statement on Form S-8 (Reg. No. 333-47547) and
incorporated herein by reference)
4.7 Stock Option Agreement dated June 12, 1997 by and between David C. Mitchell and Registrant (filed
as Exhibit 4.9 to the 1997 10-KSB and incorporated herein by reference)
4.8 Stock Option Agreement dated June 12, 1997 by and between Ron Beasley and Registrant (filed as
Exhibit 4.10 to the 1997 10-KSB and incorporated herein by reference)
4.9 The viaLink Company (f/k/a Applied Intelligence Group, Inc.) 1997 Employee Stock Purchase Plan
(filed as Exhibit 4.3 to Registrant's Registration Statement on Form S-8 (Reg. No. 333-30073) and
incorporated herein by reference)
4.10 The viaLink Company (formerly Applied Intelligence Group, Inc.) 1995 Stock Option Plan, as
amended and restated effective September 1, 1998 (filed as Exhibit 4.7 to Registrant's
Registration Statement on Form S-8 (Reg. No. 333-69203) and incorporated herein by reference)
4.11 Shareholder Agreement dated as of February 4, 1999 by and between Registrant and Hewlett-Packard
Company (filed as Exhibit 4.1 to Registrant's Current Report on Form 8-K dated February 4, 1999
(the "February 1999 8-K") and incorporated herein by reference)
4.12 Promotional Shares Escrow Agreement dated November 19, 1996 by and among Registrant, Liberty Bank
& Trust Company of Oklahoma City, N.A., Robert L. Barcum, Robert N. Baker, Russell L. Reinhardt,
David B. North, John Simonelli and Larry E. Howell (filed as Exhibit 4.12 to the 1998 10-KSB and
incorporated herein by reference)
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
4.13 Stock Option Agreement dated as of December 19, 1998 by and between Registrant and John
Simonelli, as amended and restated (filed as Exhibit 4.13 to the 1998 10-KSB and incorporated
herein by reference)
4.14 Stock Option Agreement dated as of December 19, 1998 by and between Registrant and Larry E.
Howell, as amended and restated (filed as Exhibit 4.14 to the 1998 10-KSB and incorporated herein
by reference)
4.15 Stock Option Agreement dated as of December 19, 1998 by and between Registrant and Robert T. Kirk
(filed as Exhibit 4.15 to the 1998 10-KSB and incorporated herein by reference)
4.16 Stock Option Agreement dated as of December 18, 1998 by and between Registrant and Brian Herman
(filed as Exhibit 4.16 to the 1998 10-KSB and incorporated herein by reference)
4.17 Stock Option Agreement dated as of December 19, 1998 by and between Registrant and Eureka
Holdings, Inc (filed as Exhibit 4.17 to the 1998 10-KSB and incorporated herein by reference)
4.18 Stock Option Agreement dated as of December 19, 1998 by and between Registrant and Roger Lockhart
(filed as Exhibit 4.18 to the 1998 10-KSB and incorporated herein by reference)
4.19 $8.00 Warrant to Purchase Common Stock of The viaLink Company, dated as of 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)
4.20 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)
5.1* Opinion of Dunn Swan & Cunningham, counsel to Registrant, regarding the legality of the
securities covered by this registration statement
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 the February 1999 8-K and incorporated herein
by reference)
10.2* Lease dated October 3, 1994 by and between Registrant and Oklahoma Christian Investment
Corporation
10.3 Secured Subordinated Promissory Note dated February 4, 1999 issued by Registrant in favor of
Hewlett-Packard Company (filed as Exhibit 10.2 to the February 1999 8-K and incorporated herein
by reference)
10.4 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)
10.5* Form of Merger and Acquisition Fee Agreement by and between Registrant and Barron Chase
Securities, Inc.
10.6* Exchange Agreement dated October 14, 1996 by and among Registrant, Robert L. Barcum, Robert N.
Baker, Russell L. Reinhardt, David B. North, John Simonelli, and Larry E. Howell
10.11 Conveyance Agreement dated June 12, 1997 by and between Registrant and ijob, Inc. (filed as
Exhibit 10.47 to the June 1997 10-QSB and incorporated herein by reference)
10.12 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)
10.13 Administrative Services Agreement dated August 31, 1998 by and between Registrant and The Netplex
Group, Inc (filed as Exhibit 10.51 to Registrant's Current Report on Form 8-K dated October 16,
1998 (the "October 1998 8-K") and incorporated herein by reference)
10.14 Sublease dated September 1, 1998 by and between Applied Intelligence Group, Inc. and The Netplex
Group, Inc. (filed as Exhibit 10.52 to the October 1998 8-K and incorporated herein by reference)
10.15 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)
10.16 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)
10.17 Employment Agreement dated October 1, 1998 by and between Registrant and Lewis B. Kilbourne
(filed as Exhibit 10.17 to the 1998 10-KSB and incorporated herein by reference)
10.18 Employment Agreement dated October 1, 1998 by and between Registrant and Robert N. Baker (filed
as Exhibit 10.18 to the 1998 10-KSB and incorporated herein by reference)
10.19 Secured Promissory Note dated December 31, 1998 entered into by DCM Company, Inc. and ijob, Inc.
in favor of Registrant (filed as Exhibit 10.19 to the 1998 10-KSB and incorporated herein by
reference)
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
10.20 Security and Pledge Agreement dated as of December 31, 1998 by and among Registrant, DCM Company
and ijob, Inc. (filed as Exhibit 10.20 to the 1998 10-KSB and incorporated herein by reference)
10.21 Alliance Agreement dated May 3, 1999 by and between Registrant and Ernst & Young LLP (filed as
Exhibit 10.1 to the May 1999 8-K and incorporated herein by reference)
10.22 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)
21.1 Subsidiaries of Registrant (filed as Exhibit 21.1 to the 1998 10-KSB and incorporated herein by
reference)
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Dunn Swan & Cunningham (included in its opinion filed as Exhibit 5.1)
24.1* Power of Attorney (see page II-7)
</TABLE>
____________________
/(*)/ /Previously furnished as an Exhibit to this Registration Statement./
Item 28. Undertakings
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales of
securities are being made, a post-effective amendment to this
registration statement to:
(i) Include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the Registration Statement; and
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at
that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
Insofar as indemnification for liabilities arising under the
Securities Act, may be permitted to directors, officers and controlling
persons of Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a director, officer or
controlling person of Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The Registrant hereby undertakes that:
(4) For determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by Registrant under Rule
424(b)(1), or (4), or 497(h) under the Securities Act as part of
this Registration Statement as of the time the SEC declared it
effective.
(5) For determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus
as a new registration statement for the securities offered in
the registration statement, and that offering of the securities
at that time by the initial bona fide offering of those
securities.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Amendment No. 1
to the registration statement to be signed on its behalf by the undersigned in
the City of Edmond, State of Oklahoma, on March 29, 1999.
THE VIALINK COMPANY
(Registrant)
By: /s/ John M. Duck
----------------
John M. Duck,
Vice President, Secretary and Treasurer
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated:
<TABLE>
<CAPTION>
SIGNATURE Title DATE
- ----------------------------------------------- --------------------------------- --------------------------------------
<S> <C> <C>
/s/ Robert L. Barcum* Chairman of the Board May 20, 1999
- ------------------------------
Robert L. Barcum
/s/ Lewis B. Kilbourne* Chief Executive Officer and May 20, 1999
- ------------------------------
Lewis B. Kilbourne Director (principal executive
officer)
/s/ Robert N. Baker* President, Chief Operating May 20, 1999
- ------------------------------
Robert N. Baker Officer and Director
/s/ Jimmy M. Wright* Director May 20, 1999
- ------------------------------
Jimmy M. Wright
/s/ Sue Hale* Director May 20, 1999
- ------------------------------
Sue Hale
/s/ Andrew Kerner* Vice President of Finance, May 20, 1999
- ------------------------------
Andrew Kerner Chief Financial Officer
(principal financial and
accounting officer)
*By: /s/ John M. Duck
- ------------------------------
John M. Duck
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ----------------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement between Barron Chase Securities, Inc. and Registrant
1.2* Selected Dealer Agreement between Barron Chase Securities, Inc. and selected dealers
2.1* Agreement and Plan of Merger dated May 8, 1996 by and among Registrant, Vantage Capital
Resources, Inc., John Simonelli, Larry E. Howell, Robert L. Barcum, Robert N. Baker and David B.
North
2.2 Asset Purchase Agreement dated June 12, 1997 by and among ijob, Inc., Human Technologies, Inc.,
David C. Mitchell and Ron Beasley (filed as Exhibit 2.2 to Registrant's Annual Report on Form
10-KSB for the year ending December 31, 1997 (the "1997 10-KSB") and incorporated herein by
reference)
2.3 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)
2.4 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)
2.5 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
4.1* Form of Certificate of Common Stock of Registrant
4.2* Form of Underwriter Warrant Agreement by and between Barron Chase Securities, Inc. and Registrant
4.3* Form of Warrant Agreement by and between Liberty Bank & Trust Company of Oklahoma City, N.A. and
Registrant
4.4* Form of Certificate of Redeemable Common Stock Purchase Warrant
4.5 The viaLink Company (f/k/a Applied Intelligence Group, Inc.) 1998 Non-Qualified Stock Option Plan
(filed as Exhibit 4.5 to Registrant's Registration Statement on Form S-8 (Reg. No. 333-47549) and
incorporated herein by reference)
4.6 The viaLink Company (f/k/a Applied Intelligence Group, Inc.) 1998 Stock Grant Plan (filed as
Exhibit 4.4 to Registrant's Registration Statement on Form S-8 (Reg. No. 333-47547) and
incorporated herein by reference)
4.7 Stock Option Agreement dated June 12, 1997 by and between David C. Mitchell and Registrant (filed
as Exhibit 4.9 to the 1997 10-KSB and incorporated herein by reference)
4.8 Stock Option Agreement dated June 12, 1997 by and between Ron Beasley and Registrant (filed as
Exhibit 4.10 to the 1997 10-KSB and incorporated herein by reference)
4.9 The viaLink Company (f/k/a Applied Intelligence Group, Inc.) 1997 Employee Stock Purchase Plan
(filed as Exhibit 4.3 to Registrant's Registration Statement on Form S-8 (Reg. No. 333-30073) and
incorporated herein by reference)
4.10 The viaLink Company (formerly Applied Intelligence Group, Inc.) 1995 Stock Option Plan, as
amended and restated effective September 1, 1998 (filed as Exhibit 4.7 to Registrant's
Registration Statement on Form S-8 (Reg. No. 333-69203) and incorporated herein by reference)
4.11 Shareholder Agreement dated as of February 4, 1999 by and between Registrant and Hewlett-Packard
Company (filed as Exhibit 4.1 to Registrant's Current Report on Form 8-K dated February 4, 1999
(the "February 1999 8-K") and incorporated herein by reference)
4.12 Promotional Shares Escrow Agreement dated November 19, 1996 by and among Registrant, Liberty Bank
& Trust Company of Oklahoma City, N.A., Robert L. Barcum, Robert N. Baker, Russell L. Reinhardt,
David B. North, John Simonelli and Larry E. Howell (filed as Exhibit 4.12 to the 1998 10-KSB and
incorporated herein by reference)
4.13 Stock Option Agreement dated as of December 19, 1998 by and between Registrant and John
Simonelli, as amended and restated (filed as Exhibit 4.13 to the 1998 10-KSB and incorporated
herein by reference)
4.14 Stock Option Agreement dated as of December 19, 1998 by and between Registrant and Larry E.
Howell, as amended and restated (filed as Exhibit 4.14 to the 1998 10-KSB and incorporated herein
by reference)
4.15 Stock Option Agreement dated as of December 19, 1998 by and between Registrant and Robert T. Kirk
(filed as Exhibit 4.15 to the 1998 10-KSB and incorporated herein by reference)
4.16 Stock Option Agreement dated as of December 18, 1998 by and between Registrant and Brian Herman
(filed as Exhibit 4.16 to the 1998 10-KSB and incorporated herein by reference)
4.17 Stock Option Agreement dated as of December 19, 1998 by and between Registrant and Eureka
Holdings, Inc (filed as Exhibit 4.17 to the 1998 10-KSB and incorporated herein by reference)
4.18 Stock Option Agreement dated as of December 19, 1998 by and between Registrant and Roger Lockhart
(filed as Exhibit 4.18 to the 1998 10-KSB and incorporated herein by reference)
4.19 $8.00 Warrant to Purchase Common Stock of The viaLink Company, dated as of 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)
4.20 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)
5.1* Opinion of Dunn Swan & Cunningham, counsel to Registrant, regarding the legality of the
securities covered by this registration statement
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 the February 1999 8-K and incorporated herein
by reference)
10.2* Lease dated October 3, 1994 by and between Registrant and Oklahoma Christian Investment
Corporation
10.3 Secured Subordinated Promissory Note dated February 4, 1999 issued by Registrant in favor of
Hewlett-Packard Company (filed as Exhibit 10.2 to the February 1999 8-K and incorporated herein
by reference)
10.4 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)
10.5* Form of Merger and Acquisition Fee Agreement by and between Registrant and Barron Chase
Securities, Inc.
10.6* Exchange Agreement dated October 14, 1996 by and among Registrant, Robert L. Barcum, Robert N.
Baker, Russell L. Reinhardt, David B. North, John Simonelli, and Larry E. Howell
10.11 Conveyance Agreement dated June 12, 1997 by and between Registrant and ijob, Inc. (filed as
Exhibit 10.47 to the June 1997 10-QSB and incorporated herein by reference)
10.12 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)
10.13 Administrative Services Agreement dated August 31, 1998 by and between Registrant and The Netplex
Group, Inc (filed as Exhibit 10.51 to Registrant's Current Report on Form 8-K dated October 16,
1998 (the "October 1998 8-K") and incorporated herein by reference)
10.14 Sublease dated September 1, 1998 by and between Applied Intelligence Group, Inc. and The Netplex
Group, Inc. (filed as Exhibit 10.52 to the October 1998 8-K and incorporated herein by reference)
10.15 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)
10.16 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)
10.17 Employment Agreement dated October 1, 1998 by and between Registrant and Lewis B. Kilbourne
(filed as Exhibit 10.17 to the 1998 10-KSB and incorporated herein by reference)
10.18 Employment Agreement dated October 1, 1998 by and between Registrant and Robert N. Baker (filed
as Exhibit 10.18 to the 1998 10-KSB and incorporated herein by reference)
10.19 Secured Promissory Note dated December 31, 1998 entered into by DCM Company, Inc. and ijob, Inc.
in favor of Registrant (filed as Exhibit 10.19 to the 1998 10-KSB and incorporated herein by
reference)
10.20 Security and Pledge Agreement dated as of December 31, 1998 by and among Registrant, DCM Company
and ijob, Inc. (filed as Exhibit 10.20 to the 1998 10-KSB and incorporated herein by reference)
10.21 Alliance Agreement dated May 3, 1999 by and between Registrant and Ernst & Young LLP (filed as
Exhibit 10.1 to the May 1999 8-K and incorporated herein by reference)
10.22 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)
21.1 Subsidiaries of Registrant (filed as Exhibit 21.1 to the 1998 10-KSB and incorporated herein by
reference)
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Dunn Swan & Cunningham (included in its opinion filed as Exhibit 5.1)
24.1* Power of Attorney (see page II-7)
</TABLE>
____________________
/(*)/ /Previously furnished as an Exhibit to this Registration Statement./
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form SB-2 (File
No. 333-5038-D) of our report dated February 22, 1999 relating to the financial
statements of the viaLink Company (formerly Applied Intelligence Group, Inc.),
which appears in such Registration Statement. We also consent to the reference
to us under the heading "Experts".
PricewaterhouseCoopers LLP
Oklahoma City, Oklahoma
May 18, 1999
