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As Filed with the Securities and Exchange Commission on July 21, 1999
Registration No. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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THE VIALINK COMPANY
(Formerly APPLIED INTELLIGENCE GROUP, INC.)
(Name of Small Business Issuer in Its Charter)
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OKLAHOMA 7372 73-1247666
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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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)
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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 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. [ ]
----------------------
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CALCULATION OF REGISTRATION FEE
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Amount to be Proposed Maximum Proposed Maximum
Title of Each Class of Securities to be Registered Offering Price Aggregate Amount of
Registered Per Share(1) Offering Price(1) Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, $0.001 par value 472,500 $16.39 $7,743,094 $2,153
==============================================================================================================================
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(1) Estimated as of July 19, 1999 solely for the purpose of computing the amount
of the registration fee pursuant to Rule 457(c).
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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.
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Explanatory Note
This Registration Statement contains two forms of prospectus. One will be used
in connection with an offering of our common stock by certain selling
shareholders to the general public and the other will be used in connection
with an offering of shares of our common stock which are held by certain
selling shareholders pursuant to a Promotional Shares Escrow Agreement. The
prospectus will be identical except for (i) the front cover page of the
prospectus; (ii) an alternate "Table of Contents" page; (iii) an alternate
description of the offering to be inserted in the "Prospectus Summary" section;
(iv) a section entitled "Special Notice to Purchasers Regarding Escrow of
Purchased Shares" which is to be inserted after the "Special Cautionary Note
Regarding Forward-Looking Statements" section in the prospectus; (v) an
alternative "Selling Shareholders" section; (vi) a copy of the Promotional
Shares Escrow Agreement which will be included as Appendix A to the escrow
shares prospectus; and (vii) an Adoption Agreement whereby the purchaser of our
common stock agrees to be bound by the terms of the escrow agreement which will
be included as Appendix B to the escrow shares prospectus. Each of these
additional pages will be included at the end of the first prospectus and are
labeled accordingly.
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SUBJECT TO COMPLETION, DATED ___________________, 1999
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THE VIALINK COMPANY
112,500 SHARES OF COMMON STOCK
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This prospectus relates to the public offering, which is not being
underwritten, of up to 112,500 shares of our common stock by some of our
shareholders.
The prices at which such shareholders may sell the shares will be
determined by the prevailing market prices for the shares or in negotiated
transactions. We will not receive any of the proceeds from the sale of the
shares.
Our common stock is quoted on the Nasdaq Small Cap Market under the
symbol "IQIQ." On July 15, 1999, the closing price for our common stock was
$16.63.
AN INVESTMENT IN OUR COMMON STOCK INVOLVES SUBSTANTIAL RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
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Neither the Securities and Exchange Commission nor any state securities
commission has 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 THE
SELLING SHAREHOLDERS ARE PERMITTED BY U.S. FEDERAL SECURITIES LAWS TO OFFER
THESE SECURITIES USING THIS PROSPECTUS, THE SELLING SHAREHOLDERS MAY NOT 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.
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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
Dividend Policy............................................................................................. 17
Market Prices............................................................................................... 17
Selected Financial Data..................................................................................... 18
Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 19
Business.................................................................................................... 28
Management.................................................................................................. 38
Certain Transactions........................................................................................ 47
Principal and Selling Shareholders.......................................................................... 48
Description of Securities................................................................................... 50
Shares Eligible for Future Sale............................................................................. 57
Plan of Distribution........................................................................................ 60
Legal Matters............................................................................................... 61
Experts..................................................................................................... 61
Where You Can Find Additional Information................................................................... 62
Index to Consolidated Financial Statements.................................................................. F-1
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THE SALE OF THE SHARES OF OUR COMMON STOCK REGISTERED PURSUANT TO THIS
PROSPECTUS HAS BEEN DECLARED EFFECTIVE IN THE FOLLOWING STATES:
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.
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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 to those financial statements.
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.
REINCORPORATION
At our 1999 annual meeting of shareholders, our shareholders approved
the reincorporation of viaLink from Oklahoma to Delaware. We intend to effect
the reincorporation after November 20, 1999, the date on which our redeemable
common stock purchase warrants expire. For more information on the
reincorporation and the rights of our security holders following the
reincorporation, please see "Description of Securities -- Delaware
Reincorporation" below.
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.
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THE OFFERING
The following information regarding shares outstanding is as of June
30, 1999. It excludes an aggregate of 2,343,017 shares of common stock issuable
upon the exercise of stock options outstanding as of June 30, 1999, with a
weighted average exercise price of $7.20 per share and 193,802 shares of common
stock reserved for issuance pursuant to our employee stock purchase plan as of
June 30, 1999. It includes a total of 360,000 shares registered simultaneously
to the shares registered pursuant to this prospectus, however such shares will
remain subject to a promotional shares escrow agreement until November 20,
1999. We will not receive any proceeds from the shares sold by the selling
shareholders.
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Common stock outstanding prior
to this offering............................ 2,907,418 shares
Common stock offered by the selling shareholders 472,500 shares
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Total shares offered...................... 472,500 shares
Common stock to be outstanding after this offering
assuming the outstanding options and the warrant
held by the selling shareholders are exercised in
full............................................. 3,379,918 shares
Use of Proceeds ................................. We will not receive any proceeds from the shares sold by the
selling shareholders.
Nasdaq SmallCap Market Symbol ................... common stock: IQIQ
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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 included
elsewhere in this prospectus. The pro forma as adjusted balance sheet gives
effect to the exercise of the options and warrants to purchase 472,500 shares
of common stock by the selling shareholders, net of the costs of this offering,
estimated at $42,000.
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YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
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1998 1997 1996 1999 1998
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<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
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AS OF MARCH 31, 1999
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PRO FORMA
ACTUAL AS ADJUSTED
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BALANCE SHEET DATA:
Total current assets............................ $ 8,996,208 $11,429,208
Working capital................................. 7,836,030 10,269,030
Total assets.................................... 11,151,733 13,584,733
Current liabilities............................. 1,160,178 1,160,178
Long-term debt.................................. 592,322 592,322
Stockholders' equity............................ 9,399,233 11,832,233
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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 included
elsewhere in this prospectus. This pro forma financial data assumes that both
the sale of ijob and the asset sale to Netplex occurred on 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
outstanding stock options exercisable for the purchase of 1,574,989 shares of
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 our
ijob subsidiary to DCM Company, Inc. and the sale of our consulting 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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PRO FORMA
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YEAR ENDED
DECEMBER 31, 1998
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STATEMENTS OF OPERATIONS DATA:
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...................................................... $ 0.04
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Diluted.................................................... $ 0.04
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Weighted average shares outstanding:
Basic...................................................... 2,741,041
Diluted.................................................... 3,102,443
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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:
o Need for our services to achieve market acceptance and produce a
sustainable revenue stream;
o Need to expand sales and support and product development
organizations;
o Need to manage rapidly changing operations;
o Dependence upon key personnel;
o Reliance on strategic relationships; and
o 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:
o Performance and functionality of our viaLink services;
o Ease of adoption;
o Satisfaction of our initial subscribers;
o Success of our marketing efforts;
o Our ability to successfully manage the transition of our database to
the Hewlett-Packard hosting facility;
o Success of our strategic relationships;
o Improvements in technological performance; and
o 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.
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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 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
convertible promissory note to Hewlett-Packard, our debt service requirements
will increase substantially when we are required to begin making repayments in
February 2004. The degree to which we are leveraged could materially adversely
affect our ability to obtain future financing and could make us more vulnerable
to industry downturns and competitive pressures. Our ability to meet our debt
obligations will be dependent upon our future performance, which will be
subject to financial, business and other factors affecting our operations.
Additionally, beginning in August 2000 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 secured delivery of our services.
THE 7% ROYALTY WE MUST PAY TO ERNST & YOUNG COULD ADVERSELY AFFECT OUR ABILITY
TO BECOME PROFITABLE
Pursuant to an alliance agreement between Ernst & Young and us, we must
pay a royalty of 7% of our subscription service revenues to Ernst & Young until
May 2001. Upon meeting specified objectives relating to significant Ernst &
Young clients becoming our customers, these royalty payments will continue in
perpetuity. These royalty payments could inhibit our ability to 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. Our common stock was trading at $16.63 on July 15, 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 and other
viaLink services. We have incurred operating losses and negative cash flow in
the past and expect to incur operating losses and negative cash flow in the
future. In addition, we do not currently have a line of credit and do not have
current plans to establish a new line of credit. We expect that the
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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:
o Achieving and sustaining profitability;
o Growth rate;
o Working capital requirements;
o Market acceptance; and
o 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.
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:
o Ability to operate with other network products and operating systems;
o Product quality;
o Ease-of-use;
o Reliability; and
o 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:
o Significantly greater financial, technical and marketing resources;
o Greater name recognition;
o A broader range of products and services; and
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o More extensive customer bases.
Consequently, they may be able to respond more quickly than we can to new or
emerging technologies and changes in customer requirements.
WE MUST ADAPT TO TECHNOLOGY TRENDS AND EVOLVING INDUSTRY STANDARDS TO REMAIN
COMPETITIVE
Our market is susceptible to rapid changes due to technological
innovation, evolving industry standards and changes in subscriber needs. If our
competitors introduce new products and services embodying new technologies, our
existing services may become obsolete. Our future success will depend upon our
ability to continue to develop and introduce a variety of new services and
enhancements, which respond to technological change, evolving industry
standards and customer requirements on a timely basis, to address the
increasingly sophisticated needs of our customers.
IF INTERNET USAGE DOES NOT CONTINUE TO GROW, WE MAY NOT BE ABLE TO CONTINUE OUR
BUSINESS PLAN
Our ability to achieve market acceptance depends upon the food and
consumer packaged goods industries' widespread acceptance of the Internet as a
vehicle for business-to-business electronic commerce. There are a number of
critical issues concerning commercial use of the Internet, including security,
reliability, cost, quality of service and ease of use and access. Organizations
that have already invested substantial resources in other means of exchanging
information may be reluctant to implement Internet-based business strategies.
There can be no assurance that Internet-based information management utilizing
viaLink, or any other product, will become widespread. If the Internet fails to
become widely accepted by the food and consumer packaged goods industries,
viaLink subscribers may be required to utilize private communications networks,
at comparatively higher cost.
UNDETECTED SOFTWARE ERRORS OR FAILURES FOUND IN NEW PRODUCTS MAY RESULT IN LOSS
OF OR DELAY IN MARKET ACCEPTANCE OF OUR PRODUCTS WHICH COULD MATERIALLY
ADVERSELY AFFECT OUR OPERATING RESULTS
Errors or defects in our products may result in loss of revenues or
delay in market acceptance and could materially adversely affect our business,
operating results and financial condition. Software products such as ours may
contain errors or defects, sometimes called "bugs," particularly when first
introduced or when new versions or enhancements are released. In the past, we
have discovered software errors in some 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.
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<PAGE> 14
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 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 UNSPECIFIED 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 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
12
<PAGE> 15
confidentiality agreements to protect our proprietary technology. We own no
patents. However, these measures provide only limited protection, and we may
not be able to detect unauthorized use or take appropriate steps to enforce our
intellectual property rights.
Any litigation to enforce our intellectual property rights may divert
management resources and may not be adequate to protect our business. We also
could be subject to claims that we have infringed the intellectual property
rights of others. In addition, we may be required to indemnify our end-users
for similar claims made against them. Any claims against us could require us to
spend significant time and money in litigation, pay damages, develop new
intellectual property or acquire licenses to intellectual property that is the
subject of the infringement claims. These licenses, if required, may not be
available on acceptable terms. As a result, intellectual property claims
against us could have a material adverse effect on our business, operating
results and financial condition.
WE DEPEND ON THIRD-PARTY TECHNOLOGY FOR USE IN OUR PRODUCTS. IF WE ARE UNABLE TO
CONTINUE TO USE THESE SOFTWARE LICENSES OUR BUSINESS MAY BE MATERIALLY ADVERSELY
AFFECTED
We rely upon 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 WOULD LOSE REVENUES AND INCUR SIGNIFICANT COSTS IF OUR SYSTEMS AND SOFTWARE
OR MATERIAL THIRD-PARTY SYSTEMS OR SOFTWARE ARE NOT YEAR 2000 COMPLIANT
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
13
<PAGE> 16
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.
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 options
held by the selling shareholders are exercised, we will have outstanding
3,379,918 shares of common stock, assuming no exercise of outstanding options
after June 30, 1999. Of these shares:
o 1,588,184 shares will be freely tradable without restriction or
further registration under the Securities Act unless purchased by
our "affiliates";
o 360,000 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;
o 1,140,000 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
o 1,431,734 shares of common stock will be "restricted securities"
as defined in Rule 144 of the Securities Act.
An additional 502,900 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.
Beginning in August 2000, the $6.0 million promissory note we issued
to Hewlett-Packard becomes convertible into our common stock at a price of
$7.00 per share. In the event that Hewlett-Packard elects to convert this note
and these shares are registered for resale under the Securities Act, the shares
will be available for sale. The table below sets forth the approximate number
of Conversion Shares issuable at various times during the term of the
convertible note, assuming we do not make any repayments of principal or
interest and Hewlett-Packard exercises its conversion right in full:
14
<PAGE> 17
<TABLE>
<CAPTION>
PRINCIPAL AND CONVERSION SHARES
DATE INTEREST DUE ($) (@$7.00 SHARE)
- ------------- ------------------------------- -------------------------------
<S> <C> <C>
August 5, 2000 $7,035,000 1,005,000
(18 months)
(initial conversion date)
August 5, 2001 7,725,000 1,103,571
(30 months)
August 5, 2002 8,415,000 1,202,143
(42 months)
August 5, 2003 9,105,000 1,300,714
(54 months)
February 28, 2004 9,493,475 1,356,211
(60 months)
(maturity date)
</TABLE>
For more information on the convertible note we issued to Hewlett-Packard,
please see "Business -- Strategic Relationships" below.
In connection with our initial public offering of common stock, our
executive officers, some 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 39% 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 PROVISIONS IN OUR
CHARTER, BYLAWS AND THE LAWS OF OUR STATE OF INCORPORATION
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 many possible business combinations (i.e. acquisitions) with
interested shareholders. These provisions may have the effect of inhibiting a
non-negotiated merger or other business combinations.
At our 1999 annual meeting of shareholders, our shareholders approved
our reincorporation from Oklahoma to Delaware. The charter and bylaws of
viaLink Delaware will be substantially similar to the charter and bylaws of
viaLink Oklahoma. Upon the effectiveness of our reincorporation, we will be
subject to the Delaware General Corporation Law. Delaware laws contain
provisions similar to Oklahoma law which will restrict our ability to engage in
business combinations with interested shareholders.
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<PAGE> 18
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.
OUR SECURITIES COULD BE DELISTED FROM THE NASDAQ SMALLCAP MARKET WHICH MAY MAKE
THE PURCHASE AND SALE OF OUR SECURITIES MORE DIFFICULT
Shares of our common stock and redeemable warrants are quoted on the
Nasdaq SmallCap market. Our securities could be delisted from the Nasdaq
SmallCap market, which would force us to list our shares on the OTC Bulletin
Board or some other quotation medium, such as "pink sheets," depending upon 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. For continued listing on the Nasdaq SmallCap Market, we
must maintain compliance with the following standards set forth by Nasdaq: (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.
OUR COMMON STOCK MAY BECOME SUBJECT TO "PENNY STOCK" REGULATIONS WHICH WOULD
IMPOSE SIGNIFICANT RESTRICTIONS ON THE BROKER-DEALERS WHO PURCHASE OR SELL OUR
SECURITIES
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 objections 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> 19
USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock by the
selling shareholders.
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 promissory note we issued to Hewlett-Packard prohibit us from
paying any dividends while any amounts remain outstanding under this note.
MARKET PRICES
Our common stock and redeemable common stock purchase 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:
First Quarter 4.50 2.88 1.00 0.38
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 25.00 12.25 20.25 8.06
Third Quarter (through
July 15, 1999) 18.40 15.00 13.50 10.63
</TABLE>
We believe there are currently approximately 1,300 record holders of
common stock and approximately 260 record holders of redeemable warrants. On
July 15, 1999, the closing sale prices of our common stock and redeemable
warrants as reported on the Nasdaq SmallCap Market were $16.63 and $11.38,
respectively.
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<PAGE> 20
SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to,
and should be read in conjunction with, our financial statements and related
notes 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 our future
results of operations or financial performance. The selected financial
information as of and for the years ended December 31, 1996, 1997 and 1998, is
derived from our 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
------------ ------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
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 (loss)--
unrealized loss on securities .............. (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 ....................................... $ 0.24 $ (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
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
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
Current liabilities ............ 1,110,467 1,899,193 1,160,178
Long-term debt ................. -- 1,017,024 592,322
Stockholders' equity ........... 3,486,579 2,887,936 9,399,233
</TABLE>
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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 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 where 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 Web hosting services we perform, but expect to reduce our
focus on this service.
We expect to receive the proceeds from the exercise of our 920,000
redeemable warrants by November 20, 1999. Pursuant to each warrant the holder
thereof may purchase one share of our common stock for an exercise price of
$5.00 per share.
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.
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 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
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<PAGE> 22
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
pursuant to which 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 a warrant to purchase up to 250,000 shares of our common stock at a price
of $8.00 per share, 62,500 shares of which will be purchased shortly after the
date of this prospectus. Additionally, we have agreed to pay a royalty of 7% of
our service revenues to Ernst & Young for a period of two years and in the
event that at least ten "significant clients" of Ernst & Young become
subscribers to our services during this two year period, we will be obligated
to continue this royalty payment in perpetuity. As of the date if 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.
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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 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
income .................................. (40.6) -- -- 679.5 --
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.
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<PAGE> 24
Direct Cost of Sales. Direct cost of sales, which consist of purchased
hardware and 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 ended 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
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<PAGE> 25
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.
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 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
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<PAGE> 26
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.
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.
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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.
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, under which
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
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<PAGE> 28
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 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
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<PAGE> 29
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 specific 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 specific 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.
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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.
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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 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:
o The need for substantial additional investments in computer
hardware, software, training and technological obsolescence;
o The challenge of managing information related to up to tens
of thousands of product items from hundreds of suppliers and
distributors;
o Technological and system operation complexities, demanding
additional personnel resources, training, skills and
technical expertise;
o The lack of industry standards for information sharing among
retailers and their suppliers and distributors;
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o The difficulty in obtaining information from suppliers and
distributors and maintaining such information on a current
basis; and
o 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 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
o 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.
o 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.
o 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.
o Secured Network. Information is protected from unauthorized
users with a series of firewalls and passwords.
Benefits
o Reduced Invoice Errors. Having the correct pricing
information before the product arrives alleviates invoice
discrepancies.
o More Efficient Promotions. Promotion information can be
delivered on a timely basis.
o Reduced Workload. Moving information electronically
eliminates redundant data entry for all trading partners
using the system, allowing resources to be reallocated.
o 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.
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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:
o 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.
o 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.
o 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:
o 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.
o 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.
o 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:
o 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.
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o 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.
o 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.
o 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 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 convertible
note, Hewlett-Packard has agreed to provide us with the database platform to
host Item Catalog and our 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.
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Beginning in August 2000, the $6.0 million note we issued to
Hewlett-Packard becomes convertible into shares of our common stock at a price
of $7.00 per share.
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 7% 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 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. Shortly after the date of
this prospectus, Ernst & Young must purchase an initial tranche equal to 62,500
of these shares or the right to purchase that initial tranche will expire.
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.
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CUSTOMERS
Our viaLink services have been operational for over a year, and as of
June 30, 1999 had more than 250 subscribers. The following is a representative
list of the retailer and supplier customers of our viaLink services as of the
date of this prospectus:
<TABLE>
<CAPTION>
SUPPLIERS RETAILERS
--------- ---------
<S> <C>
Buffalo Rock Pepsi of Newnan Andronico's Market
Charles E. Brown Beverage Co. Baker's Supermarkets
Coca-Cola Bottling Consolidated Gas America
Dryer's/Edy's Grand Ice Cream NOCO Express Shops
Fleming Companies of Altoona Schnuck Markets, Inc.
Frito-Lay, Inc. (Corporate) Store 24 Companies, Inc.
Great Plains Coca-Cola Bottling Co. Texaco Refining & Marketing, Inc.
J. T. Davenport & Sons, Inc. The Spinx Company, Inc.
McKee Foods Corporation
Pepsi Cola Marketing Group
S. J. McCullagh, Inc.
Tom's Foods, Inc.
Tony's Pizza Service
</TABLE>
We also currently provide Web hosting activities unrelated to our
viaLink services. We intend to continue to provide Web hosting for some 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 June 30,
1999, our sales and marketing support group consisted of only four full-time
employees. We intend to substantially expand our sales 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.
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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 June 30, 1999, our product development staff, technical support
and operations staff consisted of 21 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 their unique nature and the early
stage of development of the market for our services, our 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 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
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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 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 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 June 30, 1999, we had 60 full-time employees and three part-time
employees. Of the 60 full-time employees, four were employed in sales and
marketing, 21 were employed in product research and development, technical
support and operations, 17 were employed in implementation, customer support
and service, and 18 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 which we have
converted into 643,770 shares 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 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 common stock issued to us upon conversion of the
preferred stock have been registered for resale under the Securities Act and
Netplex has agreed to keep that registration statement effective until the
shares may be sold pursuant to Rule 144. However, unless a registration
statement is filed which allows for the sale of such shares we may receive in
connection with the earn-out agreement, we may only sell these Netplex
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<PAGE> 39
shares pursuant to Rule 144 of the Securities Act. Rule 144 provides for
holding periods which would inhibit our ability to dispose of these shares in
the near term.
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 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> 40
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is certain information with respect to each of our
executive officers and directors as of June 30, 1999
<TABLE>
<CAPTION>
Name Age Position
- ---------------------------------------------- --- -------------------------------------------------------------
<S> <C> <C>
Robert L. Barcum.............................. 50 Chairman of the Board 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.................................. 57 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 III)
</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
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<PAGE> 41
Products, a publicly-traded building products distributor from April 1998 to
April 1999. Mr. 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. Since July 1998, Mr. Wright has served as the Chief Logistics Officer of
Amazon.com, a publicly-traded Web-based retailer. 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> 42
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 2002. 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 1999 Stock Option/Stock Issuance Plan, non-employee
directors automatically receive stock options to purchase 12,000 shares of our
common stock, provided such non-employee director has served on the board for
at least six months. Employee directors are eligible to receive stock option
grants at the discretion of the compensation committee of the board of
directors under our 1999 Stock Option/Stock Issuance 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
1998 Non-Qualified Stock Option Plan at an exercise price of $3.00 per share,
50,000 of which were granted pursuant to our 1995 Stock Option Plan at an
exercise price of $3.00 per share and 50,000 of which were granted pursuant to
our 1998 Non-Qualified Stock Option 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 1998 Non-Qualified
Stock Option Plan at an exercise price of $3.00 per share and 50,000 of which
were granted pursuant to our 1995 Stock Option 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, was 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> 43
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>
ANNUAL COMPENSATION
---------------------------- LONG-TERM
OTHER COMPENSATION
ANNUAL ---------------------
NAME AND PRINCIPAL COMPE- SECURITIES UNDERLYING
POSITION YEAR SALARY NSATION 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
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<PAGE> 44
Option Grants in 1998. The following table sets forth information
concerning stock options granted to each of the executive officers during 1998.
<TABLE>
<CAPTION>
% OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED EXERCISE
UNDERLYING TO PRICE
OPTIONS EMPLOYEES 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
100,000(1) 8.5 3.00 10/31/2007
50,000(2) 4.3 3.00 02/28/2005
Lewis B. Kilbourne........... 50,000(1) 4.3 3.125 10/31/2007
100,000(1) 8.5 3.00 09/30/2003
Robert N. Baker.............. 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.
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 ($10.125 per share), and multiplying that
number by the number of shares underlying the options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT DECEMBER 31, 1998 DECEMBER 31, 1998
SHARES ACQUIRED VALUE ------------------------------ --------------------------------
NAME ON EXERCISE (#) REALIZED ($) 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 was replaced by The viaLink Company 1999 Stock
Option/Stock Issuance Plan in May 1999. While we may no longer grant options
pursuant to the 1995 Plan, options granted under the 1995 Plan remain
outstanding. The 1995 Plan provided 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 other individuals who have benefited or could benefit us.
As of June 30, 1999, options to purchase 646,277 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 could 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 could 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
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<PAGE> 45
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 other significant events, all options outstanding under
the 1995 Plan shall become automatically fully vested and immediately
exercisable.
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. The Non-Qualified Plan was
replaced by the 1999 Stock Option/Stock Issuance Plan in May 1999. Although we
may no longer grant options pursuant to the Non-Qualified Plan, options granted
under the Non-Qualified Plan remain outstanding. We adopted the Non-Qualified
Plan to attract, retain and motivate our directors, executive officers,
employees and independent contractors and consultants and other individuals who
have benefited or could benefit us by way of granting non-qualified stock
options. The purchase price of common stock issuable upon exercise of options
could 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 June 30, 1999, 541,740 stock options were outstanding at a weighted
average exercise price of $4.11 per share. All such stock options were issued
at or above fair market value at the date of grant.
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.
The Stock Grant Plan was replaced by the 1999 Stock Option/Stock Issuance Plan
in May 1999. Although we may no longer grant shares pursuant to the Stock Grant
Plan, shares granted under the Stock Grant Plan remain outstanding. 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 June 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.
1999 Stock Option/Stock Issuance Plan. At our 1999 annual meeting our
shareholders approved the adoption of The viaLink Company 1999 Stock
Option/Stock Issuance Plan to attract and retain the services of individuals
essential to our long-term growth and financial success. Our officers and other
key employees, non-employee board members and consultants and other advisors
will be eligible to receive option grants under the 1999 Plan.
We have reserved 3,608,280 shares of our common stock for issuance
over the ten year term of the 1999 Plan, including shares initially reserved
under the predecessor plans. This share reserve will automatically be increased
on the first trading day of each calendar year, beginning with the 2000
calendar year, by an amount equal to 1% of the shares of common stock
outstanding on the last trading day of the immediately preceding calendar year,
but in no event will such annual increase exceed 50,000 shares. As of June 30,
1999, 745,000 options to purchase shares of common stock at a weighted average
exercise price of $14.37 were outstanding under the 1999 Plan. Options may be
granted under the 1999 Plan at an exercise price per share not less than the
fair market value per share of common stock on the option grant date. The fair
market value per share of common stock on any relevant date under the 1999 Plan
will be the average of the highest bid and lowest asked prices per share on
that date on the Nasdaq SmallCap Market. We may permit one or more participants
to pay the exercise price of outstanding options or the purchase price of
shares under the 1999 Plan by delivering a promissory note payable in
installments. We would determine the terms of any such promissory note.
In the event we are acquired, whether by merger or asset sale by the
shareholders of more than 50% of our total combined voting power recommended by
the board, each outstanding option which is not assumed by the successor
corporation or otherwise continued will automatically accelerate in full, and
all unvested shares will immediately vest.
Shares may be sold under the 1999 Plan at a price per share not less
than the fair market value per share of our common stock, payable in cash or
though a promissory note payable to us. Shares may also be issued solely as a
bonus for past services or upon attainment of specified performance goals.
These issued shares may either be
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<PAGE> 46
immediately vested upon issuance or subject to a vesting schedule tied to the
performance of service or the attainment of performance goals.
Employee Stock Purchase Plan. We established The viaLink Company
Employee Stock Purchase Plan on April 1, 1997. At our 1999 annual meeting our
shareholders approved the adoption of the 1999 Employee Stock Purchase Plan
which replaced the predecessor Employee Stock Purchase Plan as of July 1, 1999.
The 1999 Stock Purchase Plan provides eligible employees of viaLink with the
opportunity to acquire a proprietary interest in viaLink through participation
in a payroll-deduction based employee stock purchase plan designed to operate
in compliance with Section 423 of the Internal Revenue Code. We have authorized
and reserved 200,000 shares of common stock for issuance under the Stock
Purchase Plan. As of June 30, 1999, employees had purchased 6,122 shares of
common stock at a weighted average price of $2.75.
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.
Under the stock purchase plan, shares will be issued through a series
of successive offering periods, each of a duration of twenty-four months. The
first offering period will run from July 1, 1999 to the last business day in
July 2001. The next offering period is scheduled to commence on August 1, 2001.
Each offering period will be comprised of up to four six-month
purchase periods. Purchase periods will run from the first business day in
February to the last business day in July each year and from the first business
day in August each year to the last business day in January of the following
year. However, the first purchase period will run from July 1, 1999 to the last
business day in January 2000.
Any individual who customarily works for us for more than 20 hours per
week for more than five months per calendar year will be eligible to
participate in the stock purchase plan. However, if employees own or would own,
assuming the exercise of all stock options held by them, five percent or more
of our total combined voting power, they are not eligible to participate in the
stock purchase plan. Stock purchase plan participants may authorize payroll
deductions in any multiple of 1% of his or her cash earnings, up to a maximum
of 10%. The option price is equal to 85% of the lower of (i) the fair market
value per share of common stock on the employee's entry date for the offering
period during which the purchase date occurs, or (ii) the fair market value per
share of common stock on that purchase date. A participant is not permitted to
purchase more than 750 shares of common stock on any one purchase date. The
participants may not assign, encumber or otherwise transfer their stock options
except by will or under laws of inheritance.
Should viaLink be acquired by merger or asset sale during an offering
period, all outstanding purchase rights will be automatically exercised
immediately prior to the effective date of such acquisition.
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 June 30, 1999, we had issued, through all of our incentive plans
and other stock option arrangements, options to purchase a total of 2,347,017
shares of common stock at a weighted average exercise price of $7.20. Of the
options issued, options to purchase 502,900 shares of common stock were
exercisable at a weighted average exercise price of $4.60 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
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<PAGE> 47
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:
o The employee's retirement;
o The employee's death or disability;
o The termination of the employee's employment; or
o 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 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 specific 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:
o The continuation of his then current salary and the benefits
provided pursuant to the agreement;
o 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
o A lump sum payment of $400,000.
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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:
o Breach of the director's duty of loyalty to us or our
shareholders;
o Acts or omissions by a director not in good faith or which
involve intentional misconduct or a knowing violation of law;
o Unlawful payments of dividends or unlawful stock repurchases
or knowing violation of the law; or
o Any transaction from which the director derived an improper
personal benefit.
In addition, these provisions do not eliminate liability of a director for
violations of federal securities laws, nor do they limit 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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<PAGE> 49
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 Arrangements." 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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<PAGE> 50
PRINCIPAL AND SELLING SHAREHOLDERS
The following table presents certain information regarding the
beneficial ownership of our common stock as of June 30, 1999:
o Each person who is known by us to own beneficially more than
five percent of our outstanding common stock;
o Each of our directors and executive officers named in the
Summary Compensation Table;
o Each selling shareholder; and
o All of our current executive officers and directors as a
group.
The percentage of outstanding shares is based on 2,907,418 shares of
our common stock outstanding as of June 30, 1999 and 3,379,918 shares of our
common stock outstanding immediately following completion of this offering.
This offering includes both the 112,500 shares registered pursuant to this
prospectus and 360,000 shares registered simultaneously hereto.
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 July 15, 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.
CERTAIN RELATIONSHIPS AMONG THE SELLING SHAREHOLDERS AND VIALINK
We have had material relationships with several of the selling
shareholders in the past three years. On May 3, 1999 we formed a strategic
relationship with Ernst & Young whereby they have agreed to provide us with
marketing and sales support and consulting and integration services in
connection with the deployment of our Item Catalog service. We have agreed to
pay Ernst & Young a royalty equal to 7% of our revenues from our subscription
services for a period of two years. If certain performance objectives are
achieved, this royalty could be extended in perpetuity. For more information
concerning our relationship with Ernst & Young, please see "Business-Strategic
Relationships."
From June 1997 to December 1998, David C. Mitchell served as president
and as a member of the board of directors of ijob, Inc., formerly our
wholly-owned subsidiary which operated ijob.com, a human resources recruiting
application. In June 1997, ijob acquired Human Technologies Inc., which was
owned by Mr. Mitchell and Ronald Beasley, in exchange for options to purchase
50,000 shares of our common stock at a price of $3.50 per share. Of these
50,000 options, 38,000 were granted to Mr. Mitchell and 12,000 were granted to
Mr. Beasley.
On December 31, 1998 we sold ijob to DCM Company, Inc., a corporation
wholly-owned by Mr. Mitchell. For more information regarding our relationship
with David Mitchell, please see "Business-Purchase and Sale of Significant
Assets."
Unless otherwise noted, all shareholders listed have sole voting and
investment power with respect to their shares. 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 AFTER THE OFFERING(2)
-------------------------- SHARES ---------------------------
NUMBER PERCENT OFFERED(1) NUMBER PERCENT
------ ------- ---------- ------ -------
<S> <C> <C> <C> <C> <C>
DIRECTORS, OFFICERS AND 5%
SHAREHOLDERS:
Robert L. Barcum 559,816 19.3 -- 559,816 16.3
Robert N. Baker 554,529 19.1 -- 554,529 16.2
Russell L. Reinhardt (3) 316,081 10.9 -- 316,081 9.2
Lewis B. Kilbourne (4) 6,002 * -- 6,002 *
Jimmy Wright (5) 27,500 * -- 27,500 *
John M. Duck (6) 10,389 * -- 10,389 *
Robert I. Noe -- -- -- -- --
J. Andrew Kerner -- -- -- -- --
Stephen G. Conover -- -- -- -- --
David Lloyd -- -- -- -- --
Craig Smith -- -- -- -- --
Sue Hale -- -- -- -- --
All executive officers and
directors as a group (11
persons) (7) 1,158,236 39.8 -- 1,158,236 34.3
SELLING SHAREHOLDERS:
Ernst & Young U.S. LLP (8) 62,500 -- 62,500 -- --
David Mitchell (9) 38,000 -- 38,000 -- --
Ron Beasley (10) 12,000 -- 12,000 -- --
</TABLE>
- -----------------
* Less than 1%
(1) There is no assurance that the selling shareholders will sell any or all
of these shares.
(2) Assumes that all redeemable warrants and underwriter warrants are
exercised and that the directors, officers and 5% shareholders and the
selling shareholders acquire no additional shares of our common stock
prior to the completion of this offering and that the shares of our common
stock which are not being offered pursuant to this prospectus are not
sold.
(3) Mr. Reinhardt's address is 12800 Coyote Valley Road, Salida, Colorado
81201.
(4) Includes 5,000 shares underlying options which is exercisable within 60
days of the date of this prospectus.
(5) Includes 27,500 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.
(6) Includes 10,056 shares underlying options which is exercisable within 60
days of the date of this prospectus.
(7) Includes 42,556 shares underlying options which will be exercisable within
60 days of this prospectus.
(8) Includes 62,500 shares underlying a warrant which is exercisable within 60
days of the date of this prospectus.
(9) Includes 38,000 shares underlying options which are exercisable within 60
days of the date of this prospectus.
(10) Includes 12,000 shares underlying options which are exercisable within 60
days of the date of this prospectus.
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<PAGE> 52
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. At the 1999 annual meeting of shareholders,
our shareholders approved the reincorporation of viaLink from Oklahoma to
Delaware. The description of our securities post-reincorporation is provided
below under "Delaware Reincorporation." We will notify you by a supplement to
this prospectus upon the completion of the reincorporation. We expect to
complete the reincorporation within 30 days of the date of this prospectus.
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 shareholders, 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.
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SHAREHOLDER ACTION
Pursuant to our certificate of incorporation and bylaws, with respect
to any act or action required of or by our shareholders, the 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 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.
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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 beneficial to us
and our shareholders. Accordingly, shareholders could be deprived of some
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 specific 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 some 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 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.
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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 specific exceptions including:
o 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;
o 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;
o 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;
o 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
o 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 some opportunities to sell their shares of common stock at
a higher market price than might otherwise be the case.
DELAWARE REINCORPORATION
At our 1999 annual meeting of shareholders, our shareholders approved
the reincorporation of viaLink from Oklahoma to Delaware. Effective upon filing
of the Agreement and Plan of Merger with the secretary of state of the states
of Delaware and Oklahoma, we will complete this reincorporation. We anticipate
completing the reincorporation shortly after November 20, 1999, the date on
which our outstanding redeemable warrants expire.
Reincorporation in Delaware will not change our business plan,
management, assets, liabilities, net worth, capitalization or employee benefit
plans. Each outstanding share of viaLink Oklahoma's common stock will
automatically become one share of the common stock of viaLink Delaware.
Furthermore, each stock option, warrant or convertible security that would be,
or later becomes, exercisable for, or convertible into, shares of the viaLink
Oklahoma common stock will automatically be, or later become, exercisable for,
or convertible into, the same number of shares of viaLink Delaware common stock
on the same terms and conditions.
AUTHORIZED SHARES OF CAPITAL STOCK
After the reincorporation, the authorized capital stock of viaLink
Delaware will consist of 50,000,000 shares of common stock, par value $0.001
per share, and 10,000,000 shares of preferred stock, par value $0.001 per
share. viaLink Delaware will not issue any shares of stock in connection with
the reincorporation other than the shares into which the outstanding shares of
viaLink Oklahoma will convert.
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CONVERSION OF SHARES
As soon as the reincorporation becomes effective, viaLink Delaware
will issue a press release announcing that the transaction has occurred. At the
same time, the holders of the old shares of viaLink Oklahoma will become
holders of the new shares of viaLink Delaware. Shares of viaLink Oklahoma will
automatically convert into shares of viaLink Delaware, on these terms:
o The conversion will be on a one-for-one basis.
o Each share of viaLink Oklahoma common stock outstanding at
the effective date will become one share of viaLink Delaware
common stock.
o Each share of viaLink Oklahoma common stock held in the
treasury of viaLink Oklahoma will become a share held in the
treasury of viaLink Delaware.
This means that, beginning on the effective date, each viaLink
Oklahoma stock certificate which was outstanding just before the
reincorporation will automatically represent the same number of viaLink
Delaware shares. Therefore, shareholders of viaLink Oklahoma need not exchange
their stock certificates for new viaLink Delaware stock certificates. Likewise,
shareholders should not destroy their old certificates and should not send
their old certificates to us, either before or after the effective date.
CONVERSION OF OPTIONS AND WARRANTS
Each stock option, warrant or convertible security that would be, or
later becomes, exercisable for, or convertible into, shares of viaLink Oklahoma
common stock will automatically be, or later become, exercisable for, or
convertible into, the same number of shares of viaLink Delaware common stock on
the same terms and conditions.
TRADING OF THE STOCK
After the reincorporation, those who were formerly shareholders of
viaLink Oklahoma may continue to make sales or transfers using their viaLink
Oklahoma stock certificates. viaLink Delaware will issue new certificates
representing shares of viaLink Delaware common stock for transfers occurring
after the effective date. On request, viaLink Delaware will issue new
certificates to anyone who holds viaLink Oklahoma stock certificates.
Shareholders whose shares of viaLink Oklahoma were freely tradable
before the reincorporation will own shares of viaLink Delaware that are freely
tradable after the reincorporation. Similarly, any shareholders holding shares
of viaLink Oklahoma with transfer restrictions before the reincorporation will
hold shares of viaLink Delaware which have the same transfer restrictions after
the reincorporation. For purposes of computing the holding period under Rule
144 of the Securities Act of 1933, as amended, those who hold viaLink Delaware
stock certificates will be deemed to have acquired their shares on the date
they originally acquired their shares in viaLink Oklahoma.
After the reincorporation, viaLink Delaware will continue to be a
publicly held company, with its common stock tradable on the Nasdaq SmallCap
Market. viaLink Delaware will also file with the Commission and provide to its
stockholders (the Delaware term for shareholders) the same types of information
that viaLink Oklahoma has previously filed and provided.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal federal income tax
consequences of the reincorporation under current law to holders of the viaLink
Oklahoma common stock. This summary is for general information only. It does
not address potential legislative changes that may affect these consequences,
and it does not address
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any state, local or foreign tax consequences of the reincorporation. We have
not obtained, and does not intend to obtain, a ruling from the Internal Revenue
Service to the effect that the reincorporation is nontaxable.
In general, neither we nor our shareholders will recognize any gain or
loss by reason of the reincorporation. The tax basis of the shares of viaLink
Delaware common stock received by a shareholder of viaLink Oklahoma through the
reincorporation will be the same as the tax basis of viaLink Oklahoma common
stock prior to the reincorporation. A shareholder of viaLink Oklahoma who holds
the stock as a capital asset should include the period he, she or it has held
the viaLink Oklahoma common stock in determining the holding period for his,
her or its viaLink Delaware shares.
COMPARISON OF OKLAHOMA AND DELAWARE CORPORATE LAWS AND DESCRIPTION OF OUR
SECURITIES AFTER THE REINCORPORATION
Our shareholders will become stockholders of the new Delaware
corporation, viaLink Delaware. There are certain differences between the
Oklahoma General Corporation Act and the Delaware General Corporation Law that
will affect the rights of shareholders in certain respects. Some of these
differences define the particular provisions a corporation may choose to put
into its charter, and other differences may not affect us in a material way.
The primary difference in the rights of shareholders under the OGCA
and DGCL relates to corporate action by written consent in lieu of a
shareholders' meeting. Under both the OGCA and DGCL, shareholders are permitted
to take action by the written consent of at least the minimum number of votes
required to act at a shareholders' meeting, unless the charter forbids it.
However, the OGCA also provides that, with respect to a corporation (1) with a
class of voting stock listed or traded on a national securities exchange or
registered under Section 12(g) of the Securities Exchange Act of 1934, as
amended, and (2) which has 1,000 or more shareholders of record, shareholders
taking action by written consent must obtain unanimous approval for such
written consent to be valid, unless otherwise provided in the corporation's
charter. viaLink Oklahoma has a provision in its charter limiting the
applicability of this requirement of unanimous approval, and permitting actions
by written consent of a majority of the shares of common stock outstanding.
MATERIAL CHANGES IN VIALINK DELAWARE CHARTER AND BYLAWS FROM VIALINK OKLAHOMA
CHARTER AND BYLAWS
The viaLink Delaware charter and bylaws will be in effect and will
govern the rights of stockholders after the merger of viaLink Oklahoma into
viaLink Delaware takes place. The viaLink Delaware charter is substantially
similar to the viaLink Oklahoma charter. Except for the provisions relating to
authorized stock, stockholders' ability to present proposals at stockholder
meetings and nominate directors, stockholders' ability to call special meetings
and the ability to remove directors, the differences between the two primarily
result from differences between the OGCA and the DGCL as discussed above. Set
forth below is a summary of the material changes in the viaLink Delaware
charter and bylaws from the current viaLink Oklahoma charter and bylaws. The
bylaws of viaLink Delaware and viaLink Oklahoma are substantially similar
except that the bylaws of viaLink Delaware reflect the DGCL and the provisions
of the viaLink Delaware charter, as well as certain administrative differences
described below. Copies of the charter and bylaws of viaLink Oklahoma are
available for inspection at the principal office of viaLink Oklahoma and copies
will be sent to stockholders upon request.
Changes in Authorized Capital Stock
The viaLink Oklahoma charter now provides that we have the authority
to issue two classes of stock, consisting of 30,000,000 shares of common stock,
par value $0.001 per share, and 10,000,000 shares of preferred stock, par value
$0.001 per share. The viaLink Delaware charter authorizes 50,000,000 shares of
common stock, par value $0.001 per share, and 10,000,000 shares of preferred
stock, with no change in the voting powers, qualifications, rights and
privileges of such shares. The increase in the number of shares of authorized
common stock will give us more flexibility to engage in certain future
transactions, including capital raising and acquisitions, although we currently
have no definitive plans with respect to such matters.
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<PAGE> 58
Stockholder Proposals and Nominating Directors
The viaLink Delaware bylaws require stockholders to provide us with
written nominations of directors and proposals to be considered at meetings of
stockholders at least 120 days in advance of the proposed record date of such
meeting. Each stockholder proposal must state (i) a brief description of the
business desired to be brought, (ii) the name and address of the stockholder
proposing such business, (iii) the class and number of our shares which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and (v) any other information that is required to
be provided by the stockholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended, in such stockholder's capacity as a proponent
of a stockholder proposal. Neither the viaLink Oklahoma charter nor bylaws
contain any provisions regarding such notice requirements for shareholder
proposals and director nominations.
Stockholder Ability to Call Special Meetings
The viaLink Oklahoma bylaws permit the board of directors or the
president to call special meetings of shareholders. In addition, the viaLink
Oklahoma bylaws require the president, or in his absence, the secretary, to
call a special meeting of shareholders upon a written request setting forth the
purpose of such meeting of not less than a majority of our capital stock which
is issued and outstanding and entitled to vote.
The viaLink Delaware bylaws state that special meetings of our
stockholders may only be called, for any purpose or purposes, by (i) the
chairman of the board of directors, (ii) the president or (iii) the board of
directors pursuant to a resolution adopted by a majority of the total number of
authorized directors. The viaLink Delaware bylaws also allow a special meeting
to be called by any permitted person or persons other than the board of
directors if the request is in writing, specifies the general nature of the
business proposed to be transacted and is delivered personally or sent by
registered mail or by telegraphic or other facsimile transmission to our
chairman of the board of directors, president or secretary.
Ability to Remove Directors
The viaLink Oklahoma charter permits removal of directors by
shareholders only for cause with the affirmative vote of the holders of not
less than a majority of the total voting power of all outstanding shares of our
capital stock then entitled to vote generally in the elections of directors.
The viaLink Delaware charter also will contain such a provision.
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<PAGE> 59
SHARES ELIGIBLE FOR FUTURE SALE
As of June 30, 1999, viaLink has 2,907,418 shares of common stock
issued and outstanding. Of these shares, 1,588,184 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 1,319,324 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 and subject to the escrow agreement as
described in "--Promotional Shares Escrow Agreement," below.
Pursuant to our agreement with Ernst & Young and the warrant we issued
to Ernst & Young in connection with that agreement, Ernst & Young has agreed to
purchase 62,500 shares of our common stock at a price per share of $8.00. We
are registering these securities for resale under the Securities Act with this
prospectus. Upon the effective date of this prospectus, they will become freely
tradable without restriction or further registration. An additional 187,500
shares may be purchased by Ernst & Young pursuant to this warrant. Ernst &
Young has certain registration rights in connection with these shares. For more
information regarding the Ernst & Young warrant, please see "Business --
Strategic Relationships."
Beginning in August 2000, the $6.0 million promissory note we issued
to Hewlett-Packard becomes convertible into our common stock at a price of
$7.00 per share. In the event that Hewlett-Packard elects to convert this note
and these shares are registered for resale under the Securities Act, the shares
will be available for sale. For more information regarding the convertible note
we issued to Hewlett-Packard, please see "Business -- Strategic Relationships."
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 that 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
57
<PAGE> 60
stock received upon exercise of stock options). The deposited securities are
held for the benefit of the holders of the common stock and redeemable warrants
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 to secure the depositors' agreements under the escrow
agreement.
Under the terms of the escrow agreement, the depositors agreed that
during the term of the escrow agreement, in event of a distribution of
viaLink's assets or securities to the public securityholders (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, the public securityholders
will initially share on a pro rata, per share basis in the distribution, in
proportion to the initial public offering prices of our securities until the
public securityholders have received, or have had irrevocably set aside for
them, an amount equal to the aggregate initial public offering prices of our
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 our 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.
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.
360,000 of the shares offered by the selling shareholders pursuant to
this prospectus are deposited securities pursuant to the escrow agreement. Any
purchaser of these shares must agree to be bound by the terms of the escrow
agreement.
REGISTRATION RIGHTS
We have granted 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 some 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 Hewlett-Packard and the
convertible note issued thereunder, we have granted registration rights to
Hewlett-Packard with respect to shares of our common stock issuable upon
conversion of the note. Hewlett-Packard may request that these securities be
registered in up to four demand registrations, however only one of these demand
registrations may be pursuant to a registration statement on Form S-1, Form
SB-2 or other similar forms of registration statements. We have also granted
Hewlett-Packard unlimited piggyback registration rights. Both the demand and
piggyback registration rights contain cut-back provisions under which we may
not have to register the shares requested by Hewlett-Packard if such
registration, in the opinion of the underwriters of such offering, would be
imprudent.
In connection with our agreement with Ernst & Young and the warrants
issued thereunder, we have granted registration rights to Ernst & Young with
respect to shares of our common stock issuable upon exercise of the
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<PAGE> 61
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-, 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 under which 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. In addition,
pursuant to this agreement, Ernst & Young has agreed to purchase 62,500 shares
of our common stock at a price of $8.00 per share pursuant to the warrants
shortly after the date of this prospectus.
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<PAGE> 62
PLAN OF DISTRIBUTION
We are registering all 472,500 shares on behalf of certain selling
shareholders. All of the shares either originally were or will be issued by us
upon exercise of options or warrants to acquire shares of our common stock. We
will receive no proceeds from this offering. The selling shareholders named in
the table above or pledgees, donees, transferees or other successors-in-interest
selling shares received from a named selling shareholder as a gift, partnership
distribution or other non-sale related transfer after the date of this
prospectus (collectively, the "Selling Shareholders") may sell the shares from
time to time. The Selling Shareholders will act independently of viaLink in
making decisions with respect to the timing, manner and size of each sale. The
sales may be made on one or more exchanges or in the over-the-counter market or
otherwise, at prices and at terms then prevailing or at prices related to the
then current market price, or in negotiated transactions. The Selling
Shareholders may effect such transactions by selling the shares to or through
broker-dealers. The shares may be sold by one or more of, or a combination of,
the following:
o a block trade in which the broker-dealer so engaged will
attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the
transaction,
o purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this prospectus,
o an exchange distribution in accordance with the rules of such
exchange,
o ordinary brokerage transactions and transactions in which the
broker solicits purchasers, and
o in privately negotiated transactions.
To the extent required, this prospectus may be amended or supplemented
from time to time to describe a specific plan of distribution. In effecting
sales, broker-dealers engaged by the Selling Shareholders may arrange for other
broker-dealers to participate in the resales.
The Selling Shareholders may enter into hedging transactions with
broker-dealers in connection with distributions of the shares or otherwise. In
such transactions, broker-dealers may engage in short sales of the shares in
the course of hedging the positions they assume with Selling Shareholders. The
Selling Shareholders also may sell shares short and redeliver the shares to
close out such short positions. The Selling Shareholders may enter into option
or other transactions with broker-dealers which require the delivery to the
broker-dealer of the shares. The broker-dealer may then resell or otherwise
transfer such shares pursuant to this prospectus. The Selling Shareholders also
may loan or pledge the shares to a broker-dealer. The broker-dealer may sell
the shares so loaned, or upon a default the broker-dealer may sell the pledged
shares pursuant to this prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from Selling Shareholders. Broker-dealers
or agents may also receive compensation from the purchasers of the shares for
whom they act as agents or to whom they sell as principals, or both.
Compensation as to a particular broker-dealer might be in excess of customary
commissions and will be in amounts to be negotiated in connection with the
sale. Broker-dealers or agents and any other participating broker-dealers or
the Selling Shareholders may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act in connection with sales of the shares.
Accordingly, any such commission, discount or concession received by them and
any profit on the resale of the shares purchased by them may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act, the
Selling Shareholders will be subject to the prospectus delivery requirements of
the Securities Act. In addition, any securities covered by this prospectus
which qualify for sale pursuant to Rule 144 promulgated under the Securities
Act may be sold under Rule 144 rather than pursuant to this prospectus. The
Selling Shareholders have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their securities. There is no underwriter
or coordinating broker acting in connection with the proposed sale of shares by
Selling Shareholders.
The shares will be sold only through registered or licensed brokers or
dealers if required under applicable state securities laws. In addition, in
certain states the shares may not be sold unless they have been registered or
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<PAGE> 63
qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.
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 for a period of
two business days prior to the commencement of such distribution. In addition,
each Selling Shareholder will be subject to applicable provisions of the
Exchange Act and the associated rules and regulations under the Exchange Act,
including Regulation M, which provisions may limit the timing of purchases and
sales of shares of our common stock by the Selling Shareholders. We will make
copies of this prospectus available to the Selling Shareholders and have
informed them of the need for delivery of copies of this prospectus to
purchasers at or prior to the time of any sale of the shares.
We will file a supplement to this prospectus, if required, pursuant to
Rule 424(b) under the Securities Act upon being notified by a Selling
Shareholder that any material arrangement has been entered into with a
broker-dealer for the sale of shares through a block trade, special offering,
exchange distribution or secondary distribution or a purchase by a broker or
dealer. Such supplement will disclose:
o the name of each such Selling Shareholder and of the
participating broker-dealer(s),
o the number of shares involved,
o the price at which such shares were sold,
o the commissions paid or discounts or concessions allowed to
such broker-dealer(s), where applicable,
o that such broker-dealer(s) did not conduct any investigation
to verify the information set out or incorporated by
reference in this prospectus, and
o other facts material to the transaction.
In addition, upon being notified by a Selling Shareholder that a donee
or pledgee intends to sell more than 500 shares, we will file a supplement to
this prospectus.
We will bear all costs, expenses and fees in connection with the
registration of the shares. The Selling Shareholders will bear all commissions
and discounts, if any, attributable to the sales of the shares. The Selling
Shareholders may agree to indemnify any broker-dealer or agent that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act. The
Selling Shareholders have agreed to indemnify certain persons, including
broker-dealers and agents, against certain liabilities in connection with the
offering of the shares, including liabilities arising under the Securities Act.
LEGAL MATTERS
The validity of issuance of the shares of common stock offered by the
Selling Shareholders pursuant to the offering will be passed upon for us by
Dunn, Swan & Cunningham, Oklahoma City, Oklahoma.
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.
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WHERE YOU CAN FIND ADDITIONAL 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.
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:
o our Definitive Proxy Statement for the annual meeting of
shareholders to be held on May 21, 1999;
o our Annual Report on Form 10-KSB for the year ended December
31, 1998;
o our Quarterly Report on Form 10-QSB for the fiscal quarter
ended March 31, 1999;
o our Current Reports on Form 8-K dated October 16, 1998,
December 31, 1998, February 4, 1999, and May 3, 1999;
o the description of our common stock contained in our
registration statement on Form 8-A, filed with the SEC under
the Exchange Act; and
o the description of our redeemable warrants contained in our
registration statement on Form 8-A, filed with the SEC under
the Exchange Act.
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.
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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...............................................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, 998, 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 of 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> 66
THE VIALINK COMPANY (FORMERLY APPLIED INTELLIGENCE GROUP, INC.)
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS March 31, 1999
--------------
<S> <C>
Current assets:
Cash and cash equivalents $ 3,333,977
Short-term investments 2,646,284
Accounts receivable--trade, net of allowance for
doubtful accounts of $7,841 at March 31, 1999 91,684
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 shares issued and outstanding
at March 31, 1999 2,874
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> 67
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 2,465,512 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> 68
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> 69
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
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
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 exercise of stock options, stock bonus
and stock purchase plans 87,091 2,649
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> 70
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
F-6
<PAGE> 71
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 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
F-7
<PAGE> 72
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
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> 73
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> 74
THE VIALINK COMPANY (FORMERLY APPLIED INTELLIGENCE GROUP, INC.)
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 715,446 $ 80,769
Accounts receivable - trade, net of allowance for doubtful
accounts of $7,841 in 1998 and $1,724 in 1997 158,117 1,337,322
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;
2,826,613 and 2,729,509 shares issued and outstanding
at December 31, 1998 and 1997, respectively 2,827 2,730
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> 75
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> 76
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
Common Stock Additional Other Earnings
------------------------------ 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> 77
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
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
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 liabilities (397,899) 428,512 (184,601)
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 wholly-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> 78
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
F-14
<PAGE> 79
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.
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 Per
(Numerator) (Denominator) 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
plus assumed conversions $ 649,638 3,102,443 $ 0.21
========== ========== ==========
</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
F-15
<PAGE> 80
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 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> 81
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
F-17
<PAGE> 82
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 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.
F-18
<PAGE> 83
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 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> 84
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
Range of Exercise Outstanding Exercise Remaining Exercisable Exercise
Prices at 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>
9. 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> 85
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%.
10. LEASES:
The Company leases its office and storage space under operating
leases. The terms range from month-to-month up to ten years and
include options to renew. The Company also leases office equipment
under various noncancelable lease agreements. Total rental expense in
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> 86
11. RETIREMENT PLAN:
The Company has a profit sharing plan (the "Plan") for certain
eligible employees who have attained the age of 18 and completed one
year of service. Under the Plan, employer contributions are made at
management's discretion. Participants may contribute up to 6% of
earnings as eligible contributions and up to 15% of earnings in total
for any Plan year. The Company's discretionary matching percentage is
equal to each participant's share of total eligible contributions for
a year. The Company made no contributions in 1998, 1997, and 1996.
F-22
<PAGE> 87
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> 88
THE VIALINK COMPANY (FORMERLY APPLIED INTELLIGENCE GROUP, INC.)
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA PRO FORMA PRO FORMA
DECEMBER 31, CONSULTING DECEMBER ADJUSTMENTS DECEMBER 31,
1998 BUSINESS SALE 31, 1998 IJOB SALE 1998
----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues ............................. $ 8,230,628 $ 6,831,916 (a) $ 1,398,712 $ 666,125 (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) 4,529,211 (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> 89
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> 90
SUBJECT TO COMPLETION, DATED [___________________], 1999
===============================================================================
THE VIALINK COMPANY
360,000 SHARES OF COMMON STOCK
- -------------------------------------------------------------------------------
This prospectus relates to the public offering, which is not being
underwritten, of up to 360,000 shares of our common stock by some of our
shareholders.
The prices at which such shareholders may sell the shares will be
determined by the prevailing market prices for the shares or in negotiated
transactions. We will not receive any of the proceeds from the sale of the
shares.
Our common stock is quoted on the Nasdaq Small Cap Market under the
symbol "IQIQ." On July 15, 1999, the closing price for our common stock was
$16.63.
THE SHARES OF OUR COMMON STOCK OFFERED BY THE SELLING SHAREHOLDERS
PURSUANT TO THIS PROSPECTUS ARE HELD SUBJECT TO A PROMOTIONAL SHARES ESCROW
AGREEMENT. FOR MORE INFORMATION REGARDING THE ESCROW AGREEMENT, PLEASE SEE
"SPECIAL NOTICE TO PURCHASERS REGARDING ESCROW OF PURCHASED SHARES" ON PAGE 17.
AN INVESTMENT IN OUR COMMON STOCK INVOLVES SUBSTANTIAL RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
- -------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has 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 THE
SELLING SHAREHOLDERS ARE PERMITTED BY U.S. FEDERAL SECURITIES LAWS TO OFFER
THESE SECURITIES USING THIS PROSPECTUS, THE SELLING SHAREHOLDERS MAY NOT 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.
[Alternate Page for Prospectus Relating to Escrow Shares]
<PAGE> 91
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................................................................... 3
Risk Factors................................................................................................ 7
Special Cautionary Note Regarding Forward-Looking Statements................................................ 16
Special Notice to Purchasers Regarding Escrow of Purchased Shares........................................... 17
Use of Proceeds............................................................................................. 18
Dividend Policy............................................................................................. 18
Market Prices............................................................................................... 18
Selected Financial Data..................................................................................... 19
Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 20
Business.................................................................................................... 21
Management.................................................................................................. 39
Certain Transactions........................................................................................ 48
Principal and Selling Shareholders.......................................................................... 49
Description of Securities................................................................................... 51
Shares Eligible for Future Sale............................................................................. 58
Plan of Distribution........................................................................................ 60
Legal Matters............................................................................................... 61
Experts..................................................................................................... 62
Where You Can Find Additional Information................................................................... 62
Index to Consolidated Financial Statements.................................................................. F-1
</TABLE>
THE SALE OF THE SHARES OF OUR COMMON STOCK REGISTERED PURSUANT TO THIS
PROSPECTUS HAS BEEN DECLARED EFFECTIVE IN THE FOLLOWING STATES:
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.
[Alternate Page for Prospectus Relating to Escrow Shares]
<PAGE> 92
THE OFFERING
The following information regarding shares outstanding is as of June
30, 1999. It excludes an aggregate of 2,347,017 shares of common stock issuable
upon the exercise of stock options outstanding as of June 30, 1999, with a
weighted average exercise price of $7.29 per share and 193,802 shares of common
stock reserved for issuance pursuant to our employee stock purchase plan as of
June 30, 1999. It includes a total of 112,500 shares registered simultaneously
to the shares registered pursuant to this prospectus. We will not receive any
proceeds from the shares sold by the selling shareholders.
<TABLE>
<S> <C>
Common stock outstanding prior
to this offering.................................. 2,907,418 shares
Common stock offered by the selling shareholders 472,500 shares
----------------
Total shares offered.............................. 472,500 shares
Common stock to be outstanding after this offering
assuming the outstanding options and the warrant held
by the selling shareholders are exercised in full 3,379,918 shares
Use of Proceeds ....................................... We will not receive any proceeds from the shares sold by
the selling shareholders.
Nasdaq SmallCap Market Symbol ......................... common stock: IQIQ
</TABLE>
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<PAGE> 93
SPECIAL NOTICE TO PURCHASERS REGARDING ESCROW OF PURCHASED SHARES
The shares of common stock sold pursuant to this prospectus are
subject to a Promotional Shares Escrow Agreement and will remain subject to
this escrow agreement until November 19, 1999, unless such shares are released
earlier in accordance with the terms of the escrow agreement. A copy of the
escrow agreement is attached as Appendix A. Prospective purchasers are urged to
read it closely.
The shares held in escrow will be released in the following
circumstances: (i) in the event of transaction which results in the
distribution of our assets or securities. In such a transaction, all holders of
our equity securities will share on a pro rata, per share basis in the
distribution, in proportion to the amount they paid for their equity securities
until such shareholders who purchased their securities at our initial public
offering have received 100% of the initial public offering price per share
times the number of shares they purchased at the initial public offering and
still hold. All holders shall thereafter participate on an equal, per share
basis; (ii) the distribution may proceed on lesser terms than in (i) above in
the event that the holders of a majority of our equity securities which are not
held in escrow approve the lesser terms; or (iii) upon the expiration of the
escrow period.
While the shares are subject to the escrow agreement, no shares nor
any interest therein or any right or title thereto may be sold, transferred,
pledged, assigned, hypothecated or otherwise disposed of unless such transferee
signs a written statement that states that the transferee has full knowledge of
the terms of the escrow agreement and that the transferee realizes that the
shares remain subject to the escrow agreement until they are released in
accordance with the terms of the escrow agreement. As a condition to the
purchase of the shares offered under this prospectus, each purchaser under this
prospectus and subsequent transferees of such shares will be required to agree
to these restrictions by signing an acknowledgement substantially in the form
attached as Appendix B.
Purchasers should consider carefully the adverse effect the
restrictions imposed by this escrow may have on the marketability of the shares
subject to the escrow agreement, including the lack of liquidity or the
discount which subsequent purchasers may request to accept shares with
marketability restrictions.
[Alternate Page for Prospectus Relating to Escrow Shares]
<PAGE> 94
PRINCIPAL AND SELLING SHAREHOLDERS
The following table presents certain information regarding the
beneficial ownership of our common stock as of June 30, 1999:
o Each person who is known by us to own beneficially more than five
percent of our outstanding common stock;
o Each of our directors and executive officers named in the Summary
Compensation Table;
o Each selling shareholder; and
o All of our current executive officers and directors as a group.
The percentage of outstanding shares is based on 2,907,418 shares of
our common stock outstanding as of June 30, 1999 and 3,379,918 shares of our
common stock outstanding immediately following 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 July 15, 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.
RELATIONSHIPS AMONG THE SELLING SHAREHOLDERS AND VIALINK
We have had material relationships with several of the selling
shareholders in the past three years. On June 12, 1996, Vantage Capital
Resources, Inc., a company controlled by John Simonelli and Larry Howell merged
with and into us. In connection with this transaction, Simonelli and Howell
each received 180,000 shares of our common stock. Pursuant to an Exchange
Agreement dated October 14, 1996, both Simonelli and Howell exchanged 180,000
shares of our common stock for options to purchase 180,000 shares of common
stock for $5.00 per share, exercisable until November 30, 2001. Upon closing
the merger between Vantage and us, Simonelli and Howell entered into three-year
employment arrangements with us requiring the performance of substantial
services, and were elected to the board of directors and appointed executive
officers of viaLink. On October 14, 1996, Simonelli and Howell resigned as our
executive officers and directors, and their employment agreements were
terminated effective June 12, 1996, without any payment of or continuing right
to receive compensation under such employment agreements.
At the time of our initial public offering, Robert Kirk served as the
president of the underwriter of our initial public offering, Barron-Chase
Securities, Inc. The shares owned by Mr. Kirk which are being registered for
resale hereby were acquired through a transfer from Mr. Simonelli.
Unless otherwise noted, all shareholders listed have sole voting and
investment power with respect to their shares. There are no family
relationships between our executive officers and directors.
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<PAGE> 95
<TABLE>
<CAPTION>
SHARES OWNED SHARES OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING(2)
---------------------- SHARES -----------------------
NUMBER PERCENT OFFERED(1) NUMBER PERCENT
------ ------- ---------- ------ -------
<S> <C> <C> <C> <C>
DIRECTORS, OFFICERS AND 5%
SHAREHOLDERS:
Robert L. Barcum 559,816 19.3 -- 559,816 14.0
Robert N. Baker 554,529 19.1 -- 554,529 13.9
Russell L. Reinhardt (3) 316,081 10.9 -- 316,081 7.9
Lewis B. Kilbourne (4) 6,002 * -- 6,002 *
Jimmy Wright (5) 27,500 * -- 27,500 *
John M. Duck (6) 10,389 * -- 10,389 *
Robert I. Noe -- -- -- -- --
J. Andrew Kerner -- -- -- -- --
Stephen G. Conover -- -- -- -- --
David Lloyd -- -- -- -- --
Craig Smith -- -- -- -- --
Sue Hale -- -- -- -- --
All executive officers and
directors as a group (11
persons) (7) 1,158,236 39.8 -- 1,158,236 34.3
Selling Shareholders:
John Simonelli (8) 90,000 -- 90,000 -- --
Larry E. Howell (9) 90,000 -- 90,000 -- --
Robert T. Kirk (10) 132,000 4.5 60,000 72,000 2.1
Brian Herman (11) 143,600 4.9 60,000 83,600 2.5
Roger Lockhart (12) 107,000 3.6 60,000 47,000 1.4
Eureka Holdings, Inc. (13) 30,000 -- 30,000 -- --
</TABLE>
* Less than 1%
(1) There is no assurance that the selling shareholders will sell any or all
of these shares.
(2) Assumes that all redeemable warrants and underwriter warrants are
exercised and that the directors, officers and 5% shareholders and the
selling shareholders acquire no additional shares of our common stock
prior to the completion of this offering and that the shares of our common
stock which are not being offered pursuant to this prospectus are not
sold.
(3) Mr. Reinhardt's address is 12800 Coyote Valley Road, Salida, Colorado
81201.
(4) Includes 5,000 shares underlying options which is exercisable within 60
days of the date of this prospectus.
(5) Includes 27,500 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.
(6) Includes 10,056 shares underlying options which is exercisable within 60
days of the date of this prospectus.
(7) Includes 42,556 shares underlying options which will be exercisable within
60 days of this prospectus.
(8) Includes 90,000 shares underlying options which are exercisable within 60
days of the date of this prospectus.
(9) Includes 90,000 shares underlying options which are exercisable within 60
days of the date of this prospectus.
(10) Includes 60,000 shares underlying options which are exercisable within 60
days of the date of this prospectus and 72,000 shares underlying warrants
which are exercisable within 60 days of this prospectus.
(11) Includes 60,000 shares underlying options which are exercisable within 60
days of the date of this prospectus and 10,000 shares underlying warrants
which are exercisable within 60 days of this prospectus.
(12) Includes 60,000 shares underlying options which are exercisable within 60
days of the date of this prospectus and 22,000 shares underlying warrants
which are exercisable within 60 days of this prospectus. Mr. Lockhart's
shares include 30,000 shares held by Eureka Holdings, Inc. of which Mr.
Lockhart is the president and has sole voting power as to all of such
shares.
(13) Includes 30,000 shares underlying options which are exercisable within 60
days of the date of this prospectus.
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<PAGE> 96
APPENDIX A
PROMOTIONAL SHARES ESCROW AGREEMENT
This Promotional Shares Escrow Agreement (this "Agreement") made and
entered into this 19th day of November, 1996, by and between Applied
Intelligence Group, Inc., an Oklahoma corporation (the "Issuer"), whose
principal place of business is located at 13800 Benson Road, Edmond, Oklahoma
73013-6417 and Robert L. Barcum ("Barcum"), Robert N. Baker ("Baker"), Russell
L. Reinhardt ("Reinhardt"), David B. North ("North"), John Simonelli
("Simonelli") and Larry E. Howell ("Howell") (Barcum, Baker, Reinhardt, North,
Simonelli and Howell are collectively referred to as the "Depositors") and
Liberty Bank and Trust Company of Oklahoma City, N.A. (the "Escrow Agent"),
whose principal place of business is located at 100 Broadway, Oklahoma City,
Oklahoma 73102 (all of whom are collectively referred to as "Signatories").
RECITALS
WHEREAS, the Issuer has filed an application with the Securities
Administrator of Oklahoma Department of Securities (the "Administrator") to
register 1,150,000 shares of Common Stock, $.001 par value, and 920,000
Redeemable Common Stock Purchase Warrants (the "Warrants") and the 920,000
shares of Common Stock underlying the Warrants (the "Equity Securities") for
sale to public investors some of whom may be residents of the State of
Oklahoma;
WHEREAS, Barcum is the owner of 554,529 shares of Common Stock, Baker
is the owner of 554,529 shares of Common Stock, Reinhardt is the owner of
316,081 shares of Common Stock, North is the owner of 74,861 shares of Common
Stock, Simonelli is the holder of stock options exercisable for the purchase of
180,000 shares of Common Stock, and Howell is the holder of stock options
exercisable for the purchase of 180,000 shares of Common Stock (the
"Promotional Securities");
WHEREAS, as a condition to registering the Issuer's Equity Securities,
the Depositors, who are security holders of the Issuer and who, for the
purposes of this Agreement, are deemed to be Promoters of the Issuer, have
agreed to deposit the Promotional Securities with the Escrow Agent; and
WHEREAS, the Signatories have agreed to be bound by the terms of this
Agreement.
NOW, THEREFORE, the Signatories agree as follows:
1. DEPOSIT OF PROMOTIONAL SHARES. The Depositors' Promotional Securities have
been deposited into an escrow account (the "escrow") with the Escrow Agent, and
the Escrow Agent hereby acknowledges the receipt thereof.
2. EXERCISE OR CONVERSION OF PROMOTIONAL SHARES. To the extent the Promotional
Shares have or represent exercise rights or conversion rights, the Escrow Agent
shall, upon receipt of the Issuer's written request, provide the documents that
evidence and/or which are necessary to cause exercise of the rights or
conversion rights. The shares of Common Stock or other securities of the Issuer
issued upon exercise or conversion of the Promotional Securities shall become
and remain in escrow subject to the terms of this Agreement.
3. TERM. The term of this Agreement and the escrow shall begin on the date that
the public securities offering relating thereto (the "public offering") is
declared effective by the Administrator and shall continue for a period of 36
months thereafter; provided, however, this Agreement shall not terminate until
the Escrow Agent shall have notify the Administrator of termination of this
Agreement in accordance with paragraph 5 of this Agreement. The Promotional
Securities shall be held by the Escrow Agent pursuant to this Agreement until
they are released in accordance with paragraphs 4 and 5 of this Agreement.
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<PAGE> 97
4. RELEASE OF PROMOTIONAL SECURITIES.
(a) In the event of a dissolution, liquidation, merger, consolidation,
reorganization, sale or exchange of the Issuer's assets or securities
(including by way of tender offer), or any other transaction or
proceeding with a person who is not a Promoter, which results in the
distribution of the Issuer's assets or securities ("Distribution"),
while this Agreement remains in effect, the Depositors agree that:
(i) All holders of the Issuer's Equity Securities will
initially share on a pro rata, per share basis in the
Distribution, in proportion to the amount of cash or other
consideration that they paid per share for their Equity
Securities (provided that the Administrator has accepted the
value of the other consideration), until the shareholders who
purchased the Issuer's Equity Securities pursuant to the
public offering (the "Public Shareholders") have received, or
have had irrevocably set aside for them, an amount that is
equal to 100 percent of the public offering's price per share
times the number of shares of Equity Securities that they
purchased pursuant to the public offering and which they
still hold at the time of the Distribution, adjusted for
stock splits, stock dividends, recapitalization and the like;
and
(ii) All holders of the Issuer's Equity Securities shall
thereafter participate on an equal, per share basis times the
number of shares of Equity Securities they hold at the time
of the Distribution, adjusted for stock splits, stock
dividends, recapitalization and the like.
The Distribution may proceed on lesser terms and conditions than the
terms and conditions in paragraph 4(a) of this Agreement if a majority
of the Equity Securities that are not held by Depositors, officers,
directors, or Promoters of the Issuer, or their associates or
affiliates vote, or consent by consent procedure, to approve the
lesser terms and conditions.
In the event of a dissolution, liquidation, merger, consolidation,
reorganization, sale or exchange of the Issuer's assets or securities
(including by way of tender offer), or any other transaction or
proceeding with a person who is a Promoter, which results in a
Distribution while this Agreement remains in effect, the Depositors'
Promotional Securities shall remain in escrow subject to the terms of
this Agreement.
Upon expiration of the term of this Agreement and notification of the
Administrator of the expiration in accordance with and pursuant to
paragraph 3 of this Agreement, the Promotional Securities shall be
released to the Depositors and this Agreement shall terminate.
5. DOCUMENTATION REGARDING THE RELEASE OF PROMOTIONAL SECURITIES.
(a) The Administrator may in his or her discretion require such
documentation regarding the release of Promotional Securities.
(b) The Escrow Agent shall terminate this Agreement and/or release the
Promotional Securities from Escrow if its has forwarded the proper
documentation as required by paragraph 5(a) of this Agreement ("proper
documentation") reflecting compliance with the release provisions of
paragraph 4 of this Agreement, to the Administrator, and either it has
received the Administrator's consent to do so or the Administrator has
not disallowed the termination of this Agreement and/or release of the
Promotional Securities from escrow within 10 days after the
Administrator's receipt of the proper documentation, whichever occurs
first.
6. RESTRICTIONS ON TRANSFER, SALE OR DISPOSAL OF PROMOTIONAL SECURITIES. While
this Agreement is in effect, no Promotional Securities, any interest therein or
any right or title thereto, may be sold, transferred, pledged, assigned,
hypothecated or otherwise disposed of ("transfer" or "transferred"), except as
provided
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<PAGE> 98
below, and the Escrow Agent shall not recognize any transfer that violates the
terms of this Agreement. The Promotional Securities may not be transferred
until the Administrator has received a written statement, signed by the
proposed transferee ("transferee"), which states that the transferee has full
knowledge of the terms of this Agreement, the transferee accepts the
Promotional Securities subject to the terms of this Agreement, and the
transferee realizes that the Promotional Securities shall remain subject to the
terms of the Agreement until they are released pursuant to paragraphs 4 and 5
of this Agreement. Notwithstanding the foregoing, (a) Promotional Securities
may be transferred by will, the laws of decent and distribution, operation of
law, or by order of any court of competent jurisdiction and having proper venue
and (b) Promotional Securities of a deceased Depositor may be hypothecated to
pay the expenses of the deceased Depositor's estate. The hypothecated
Promotional Securities shall remain subject to the terms of this Agreement.
Promotional Securities may not be pledged to secure any other debt.
VOTING POWER. The Promotional Securities shall have the same voting rights as
similar, non-escrowed Equity Securities. If the Promotional Securities are
registered in the Escrow Agent's name, the Escrow Agent shall vote those
Promotional Securities in accordance with the Depositors' written instructions.
DIVIDENDS. Cash dividends and stock dividends, that are granted to the
Depositors, shall be promptly deposited with the Escrow Agent subject to the
terms of this Agreement. The Escrow Agent shall place the cash dividends in an
interest bearing account. The Escrow Agent shall treat the stock dividends,
cash dividends and the interest earned thereon as assets of the Issuer which
are available for distribution pursuant to paragraphs 4(a) and (b) of this
Agreement, or as assets of the Issuer available for distribution to the
Depositors, upon release of their Promotional Securities pursuant to paragraphs
4 and 5 of this Agreement, unless they are to be used as compensation to the
Escrow Agent, pursuant to paragraph 10 of this Agreement.
STOCK SPLITS AND ADDITIONAL SHARES. Equity Securities received by the
Depositors as a result of stock splits, recapitalization of the Issuer, or the
conversion of the Depositors' convertible securities while their Promotional
Securities are held in escrow, shall be promptly deposited with the Escrow
Agent as Promotional Securities subject to the terms of this Agreement. These
Promotional Securities shall be distributed to the Depositors when their
Promotional Securities are released from escrow pursuant to paragraphs 4 and 5
of this Agreement.
RELIANCE BY ESCROW AGENT. The Escrow Agent shall be protected if it acts in
good faith upon any statement, certificate, notice, request, consent, order or
other document which it believes to be genuine, conforms with the provisions of
this Agreement and is signed by the proper party. The Escrow Agent's sole
responsibility shall be to act in accordance with the terms expressly set forth
in this Agreement. The Escrow Agent shall be under no obligation to institute
or defend any action, suit or proceeding in connection with this Agreement
unless it receives reasonable indemnification and advancement of fees and
costs. The Escrow Agent may consult counsel with respect to any question
arising under this Agreement. The Escrow Agent shall not be liable for any
action taken or omitted, in good faith, upon the advice of counsel. In
performing its duties hereunder, the Escrow Agent shall not be liable to anyone
for any damage, loss, expense or liability other than for that which arises
from the Escrow Agent's failure to abide by the terms of this Agreement.
ESCROW AGENTS COMPENSATION. The Escrow Agent shall be entitled to receive
reasonable compensation from the Issuer for its services. If the Escrow Agent
is required to render additional services that are not expressly set forth
therein, or if its is made a party to or intervenes in any action, suit or
proceeding pertaining to this Agreement ("Additional Services"), it shall be
entitled to receive reasonable compensation from the Issuer and the Depositors.
If Additional Services are provided, the Escrow Agent may deduct reasonable
compensation from the cash dividends, interest and proceeds being held for
distribution pursuant to this Agreement.
ESCROW AGENTS INDEMNIFICATION. The Issuer and the Depositors agree to hold the
Escrow Agent harmless from, and indemnify the Escrow Agent for, any cost or
liability regarding any administrative proceeding, investigation, litigation,
interpretation or implementation relating to this Agreement, including
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<PAGE> 99
release of Promotional Securities, the Distribution, and the disbursement of
dividends, interest or proceeds, unless the cost or liability arises from the
Escrow Agent's failure to abide by the terms of this Agreement.
INDEPENDENCE OF THE ESCROW AGENT. The Issuer hereby represents that all of its
officers, directors and Promoters are listed on Exhibit A attached hereto and
made a part hereof. The Escrow Agent hereby represents that it is not
affiliated with the Issuer, the Depositors, or the Issuer's officers, directors
or Promoters who are named in Exhibit A. For purposes of this Agreement, the
Escrow Agent is not disqualified to act as Escrow Agent merely because the
Issuer, its officers, directors and Promoters are customers of the Escrow
Agent.
SCOPE. This Agreement shall inure to the benefit of and be binding upon the
Depositors, their heirs and assignees, and upon the Issuer, Escrow Agent, and
their successors.
SUBSTITUTE ESCROW AGENT. The Escrow Agent may, upon not less than 60 days prior
written notice to the Issuer, Depositors, and the Administrator, resign as the
Escrow Agent. The Issuer and the Depositors shall, before the effective date of
the Escrow Agent's resignation, enter into a new identical Escrow Agreement
with a substitute Escrow Agent. The successor Escrow Agent must be satisfactory
to the Administrator. If the Issuer and the Depositors fail to enter into a new
Escrow Agreement and appoint a successor Escrow Agent within 60 days after the
Escrow Agent has given notice of its resignation, the Escrow Agent then serving
under this Agreement shall retain the Promotional Securities in escrow until a
new, identical Escrow Agreement has been executed and a successor Escrow Agent
has been appointed. The Escrow Agent shall not be liable for retaining the
Promotional Securities in escrow.
TERMINATION. Except for the compensation and indemnification provisions of
paragraphs 11 and 12, above, which shall survive until they are satisfied, this
Agreement shall terminate in its entirety when all of the Promotional
Securities have been released, or the Issuer's Equity Securities and/or assets
have been distributed pursuant to paragraphs 4 and 5 of this Agreement.
MISCELLANEOUS PROVISIONS. Pursuant to the requirements of this Agreement, the
Signatories have entered into this Agreement, which may be executed and written
in multiple counterparts and each of which shall be considered an original.
A-4
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<PAGE> 100
IN WITNESS WHEREOF, the Signatories have executed this Agreement in
the capacities set for and effective as of the date first above written.
"Issuer" APPLIED INTELLIGENCE GROUP, INC.
By: /s/ ROBERT L. BARCUM
-------------------------------
Robert L. Barcum, President
Attest:
/s/ ROBERT N. BAKER
- -----------------------------------
Robert N. Baker, Secretary
"Depositors"
/s/ ROBERT L. BARCUM
----------------------------------
Robert L. Barcum
/s/ RUSSELL L. REINHARDT
----------------------------------
Russell L. Reinhardt
/s/ DAVID B. NORTH
----------------------------------
David B. North
/s/ JOHN SIMONELLI
----------------------------------
John Simonelli
/s/ LARRY E. HOWELL
----------------------------------
Larry E. Howell
"Escrow Agent" LIBERTY BANK AND TRUST COMPANY OF
OKLAHOMA CITY, N.A.
By: /s/ JOHN BROWN
-------------------------------
Name: John Brown
-----------------------------
Title: Vice President
----------------------------
[Alternate Page for Prospectus Relating to Escrow Shares]
A-5
<PAGE> 101
APPENDIX B
PURCHASER LETTER OF REPRESENTATION
The viaLink Company
13800 Benson Road
Edmond, Oklahoma 73013-6417
Ladies and Gentlemen:
In connection with the proposed purchase of shares of common stock of
The viaLink Company (formerly Applied Intelligence Group, Inc.) (the
"Company"), I confirm that:
1. I received a copy of the prospectus, dated ______________, 1999,
relating to the common stock of the Company and such other information as we
deem necessary in order to make our investment decision.
2. I understand that the shares of common stock of the Company that I
am electing to purchase are subject to the Promotional Shares Escrow Agreement
(the "Escrow Agreement") dated November 19, 1996 by and between the Company,
Robert L. Barcum, Robert N. Baker, Russell L. Reinhardt, David B. North, John
Simonelli and Larry E. Howell. I have full knowledge of the terms of the Escrow
Agreement and understand that the shares of the Company's common stock which I
am purchasing will remain subject to the terms of the Escrow Agreement until
they are release pursuant to the terms of such agreement. We have received a
copy of the Escrow Agreement and agree to be bound by the terms thereof.
Name:
----------------------------------------
Address:
-------------------------------------
---------------------------------------------
[Alternate Page for Prospectus Relating to Escrow Shares]
<PAGE> 102
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
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.............................................................. $ 25,000.00
*Accounting Fees and Expenses............................................ 5,000.00
*Transfer Agent's Fees and Costs of Certificates......................... 2,000.00
*Miscellaneous........................................................... 10,000.00
------------
Total.................................................. $ 42,000.00
</TABLE>
- ----------------------------------------
*Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Since July 1, 1996, we have issued unregistered securities to a
limited number of people as described below. These issuances were deemed exempt
from registration under the Securities Act in reliance on Rule 701 promulgated
under the Securities Act or Section 4(2) of the Securities Act.
1. In January 1997 we issued and sold 444 shares of common stock to a
stockholder for an aggregate purchase price of $279.72 pursuant to the exercise
of options issued by us.
2. In June 1997 we issued and sold 490 shares of common stock to
stockholders for an aggregate purchase price of $1,303.40 pursuant to our
employee stock purchase plan.
II-1
<PAGE> 103
3. In September 1997 we issued and sold 952 shares of common stock to
stockholders for an aggregate purchase price of $2,836.96 pursuant to our
employee stock purchase plan.
4. In December 1997 we issued and sold 1,123 shares of common stock to
stockholders for an aggregate purchase price of $3,346.54 pursuant to our
employee stock purchase plan.
5. In March 1998 we issued and sold 992 shares of common stock to
stockholders for an aggregate purchase price of $2,480.00 pursuant to our
employee stock purchase plan.
6. In April 1998 we issued 5,033 shares of common stock to
stockholders for an aggregate purchase price of $15,702.96 pursuant to our
stock grant plan.
7. In May 1998 we issued 4,381 shares of common stock to a stockholder
for an aggregate purchase price of $6,068.79 pursuant to the exercise of
options issued by us.
8. In June 1998 we issued 1,029 shares of common stock to stockholders
for an aggregate purchase price of $2,572.50 pursuant to our employee stock
purchase plan.
9. In September 1998 we issued 984 shares of common stock to
stockholders for an aggregate purchase price of $2,194.32 pursuant to our
employee stock purchase plan.
10. In October 1998, we exchanged 360,000 shares of common stock for
options to purchase 360,000 shares of common stock at an exercise price of
$5.00 per share.
11. In November 1998 we issued 18,236 shares of common stock to
stockholders for an aggregate purchase price of $22,728.87 pursuant to the
exercise of options issued by us.
12. In December 1998 we issued 65,993 shares of common stock to
stockholders for an aggregate purchase price of $211,594.03 pursuant to the
exercise of options issued by us.
13. In December 1998 we issued 456 shares of common stock to
stockholders for an aggregate purchase price of $1,140.00 pursuant to our
employee stock purchase plan.
14. In January 1999 we issued 35,183 shares of common stock to
stockholders for an aggregate purchase price of $42,787.03 pursuant to the
exercise of options issued by us.
15. In February 1999 we issued 12,450 shares of common stock to
stockholders for an aggregate purchase price of $43,350.00 pursuant to the
exercise of options issued by us.
16. In February 1999, we issued a $6.0 million secured convertible
promissory note to Hewlett-Packard. Beginning in August 2000, this note becomes
convertible into shares of our common stock at a price of $7.00 per share.
17. In March 1999 we issued 96 shares of common stock to stockholders
for an aggregate purchase price of $953.28 pursuant to our employee stock
purchase plan.
18. In May 1999 we issued 15,000 shares of common stock to
stockholders for an aggregate purchase price of $46,875.00 pursuant to the
exercise of options issued by us.
19. In May 1999, we issued a warrant to purchase up to 250,000 shares
of our common stock at an exercise price of $8.00 per share.
20. In June 1999 we issued 76 shares of common stock to stockholders
for an aggregate purchase price of $936.70 pursuant to our employee stock
purchase plan.
21. We have from time to time granted stock options to employees. The
following table sets forth information regarding these grants.
II-2
<PAGE> 104
<TABLE>
<CAPTION>
Number Exercise Price
of Shares Per Share
--------- ---------
<S> <C> <C>
June 1997.................................................... 50,000 $3.50
March 1998................................................... 34,990 3.00
March 1998................................................... 20,000 3.50
March 1998................................................... 87,500 3.13
October 1998................................................. 950,117 3.00
October 1998................................................. 50,000 3.30
December 1998................................................ 17,136 7.00
December 1998................................................ 30,000 9.00
March 1999................................................... 15,000 15.13
March 1999................................................... 15,000 15.25
May 1999..................................................... 90,000 12.50
May 1999..................................................... 631,000 14.45
May 1999..................................................... 24,000 19.25
</TABLE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit No. Description
----------- -----------
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 (filed as Exhibit 2.1 to Registrant's Registration
Statement on Form SB-2 (Reg. No. 333-5038-D) (the "Form
SB-2") and incorporated herein by reference)
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)
2.6 Form of Agreement and Plan of Merger to be entered into by
and between Registrant and The viaLink Company (Delaware) at
the effective date of the reincorporation (filed as Appendix
D to Registrant's Definitive 14-A Proxy Statement dated April
19, 1999 (the "1999 Proxy Statement") and incorporated herein
by reference)
II-3
<PAGE> 105
Exhibit No. Description
----------- -----------
3.1 Registrant's Certificate of Incorporation, as amended and
restated (filed as Exhibit 3.1 to Registrant's Registration
Statement on Form S-8 (Reg. No. 333-69203) (the "December
1998 Form S-8") and incorporated herein by reference)
3.2 Registrant's Bylaws (filed as Exhibit 3.2 to the Form SB-2
and incorporated herein by reference)
3.3 Form of Certificate of Incorporation of The viaLink Company
(Delaware) to be filed at the effective date of the
reincorporation (filed as Appendix E to 1999 Proxy Statement
and incorporated herein by reference)
3.4 Form on Bylaws of The viaLink Company (Delaware) to be filed
at the effective date of the reincorporation (filed as
Appendix F to 1999 Proxy Statement and incorporated herein by
reference)
4.1 Form of Certificate of Common Stock of Registrant (filed as
Exhibit 4.1 to the Form SB-2 and incorporated herein by
reference)
4.2 Form of Underwriter Warrant Agreement by and between Barron
Chase Securities, Inc. and Registrant (filed as Exhibit 4.2
to the Form SB-2 and incorporated herein by reference)
4.3 Form of Warrant Agreement by and between Liberty Bank & Trust
Company of Oklahoma City, N.A. and Registrant (filed as
Exhibit 4.3 to the Form SB-2 and incorporated herein by
reference)
4.4 Form of Certificate of Redeemable Common Stock Purchase
Warrant (filed as Exhibit 4.4 to the Form SB-2 and
incorporated herein by reference)
4.5 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)
4.6 Amendment to Stock Option Agreement dated June 11, 1999 by
and between David C. Mitchell and Registrant (filed as
Exhibit 4.6 to the Form SB-2 and incorporated herein by
reference)
4.7 Common Stock Purchase Warrant 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)
4.8 Amendment to Common Stock Purchase Warrant Agreement dated
June 11, 1999 by and between Ron Beasley and Registrant
(filed as Exhibit 4.8 to the Form SB-2 and incorporated
herein by reference)
4.9 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)
4.10 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)
4.11 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)
4.12 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)
4.13 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)
4.14 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)
4.15 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)
4.16 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)
4.17 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)
II-4
<PAGE> 106
Exhibit No. Description
----------- -----------
4.18 $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)
4.19 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 (filed as Exhibit
10.2 to the Form SB-2 and incorporated herein by reference)
10.3 Subordinated Secured Convertible Promissory Note dated
February 4, 1999 issued by Registrant in favor of
Hewlett-Packard Company (filed as Appendix C to the 1999
Proxy Statement 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)
10.6 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 (filed as Exhibit 10.36 to the Form SB-2 and
incorporated herein by reference)
10.7 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)
10.8 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)
10.9 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)
10.10 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)
10.11 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)
10.12 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)
10.13 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)
10.14 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)
10.15 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)
10.16 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)
10.17 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)
10.18 The viaLink Company 1999 Stock Option/Stock Issuance Plan
(filed as Appendix A to the 1999 Proxy Statement and
incorporated herein by reference)
II-5
<PAGE> 107
Exhibit No. Description
----------- -----------
10.19 1999 Stock Option/Stock Issuance Plan Form of Stock Option
Agreement (filed as Exhibit 10.19 to the Form SB-2 and
incorporated herein by reference)
10.20 1999 Stock Option/Stock Issuance Plan Form of Stock Issuance
Agreement (filed as Exhibit 10.20 to the Form SB-2 and
incorporated herein by reference)
10.21 1999 Stock Option/Stock Issuance Plan Form of Automatic Stock
Option Agreement (filed as Exhibit 10.21 to the Form SB-2 and
incorporated herein by reference)
10.22 The viaLink Company 1999 Employee Stock Purchase Plan (filed
as Appendix B to the 1999 Proxy Statement and incorporated
herein by reference).
10.23 Amended and Restated Alliance Agreement dated as of May 3,
1999 by and between Registrant and Ernst & Young LLP (filed
as Exhibit 10.1 to the May 1999 8-K and incorporated herein
by reference)
10.24 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)
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:
(1) 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.
II-6
<PAGE> 108
(2) 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-7
<PAGE> 109
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. 3 to the registration statement to be signed on its behalf by the
undersigned in the City of Edmond, State of Oklahoma, on July 20, 1999.
THE VIALINK COMPANY
(Registrant)
By: /s/ Lewis S. Kilbourne
----------------------------------------
Lewis B. Kilbourne
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose
signature appears below constitutes and appoints Lewis B. Kilbourne, his true
and lawful attorneys-in-fact and agents, with full power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this registration
statement, and to sign any registration statement for the same offering covered
by this registration statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO
THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert L. Barcum Chairman of the Board July 20, 1999
- --------------------------------------
Robert L. Barcum
/s/ Lewis B. Kilbourne Chief Executive Officer and July 20, 1999
- -------------------------------------- Director (principal executive
Lewis B. Kilbourne officer)
/s/ Robert N. Baker President, Chief Operating July 20, 1999
- -------------------------------------- Officer and Director
Robert N. Baker
/s/ Jimmy M. Wright Director July 20, 1999
- --------------------------------------
Jimmy M. Wright
/s/ Sue Hale Director July 20, 1999
- --------------------------------------
Sue Hale
/s/ Andrew Kerner Vice President of Finance, July 20, 1999
- -------------------------------------- Chief Financial Officer
Andrew Kerner (principal financial and
accounting officer)
</TABLE>
II-8
<PAGE> 110
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
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 (filed as Exhibit 2.1 to Registrant's Registration
Statement on Form SB-2 (Reg. No. 333-5038-D) (the "Form
SB-2") and incorporated herein by reference)
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)
2.6 Form of Agreement and Plan of Merger to be entered into by
and between Registrant and The viaLink Company (Delaware) at
the effective date of the reincorporation (filed as Appendix
D to Registrant's Definitive 14-A Proxy Statement dated April
19, 1999 (the "1999 Proxy Statement") and incorporated herein
by reference)
</TABLE>
<PAGE> 111
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Registrant's Certificate of Incorporation, as amended and
restated (filed as Exhibit 3.1 to Registrant's Registration
Statement on Form S-8 (Reg. No. 333-69203) (the "December
1998 Form S-8") and incorporated herein by reference)
3.2 Registrant's Bylaws (filed as Exhibit 3.2 to the Form SB-2
and incorporated herein by reference)
3.3 Form of Certificate of Incorporation of The viaLink Company
(Delaware) to be filed at the effective date of the
reincorporation (filed as Appendix E to 1999 Proxy Statement
and incorporated herein by reference)
3.4 Form on Bylaws of The viaLink Company (Delaware) to be filed
at the effective date of the reincorporation (filed as
Appendix F to 1999 Proxy Statement and incorporated herein by
reference)
4.1 Form of Certificate of Common Stock of Registrant (filed as
Exhibit 4.1 to the Form SB-2 and incorporated herein by
reference)
4.2 Form of Underwriter Warrant Agreement by and between Barron
Chase Securities, Inc. and Registrant (filed as Exhibit 4.2
to the Form SB-2 and incorporated herein by reference)
4.3 Form of Warrant Agreement by and between Liberty Bank & Trust
Company of Oklahoma City, N.A. and Registrant (filed as
Exhibit 4.3 to the Form SB-2 and incorporated herein by
reference)
4.4 Form of Certificate of Redeemable Common Stock Purchase
Warrant (filed as Exhibit 4.4 to the Form SB-2 and
incorporated herein by reference)
4.5 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)
4.6 Amendment to Stock Option Agreement dated June 11, 1999 by
and between David C. Mitchell and Registrant (filed as
Exhibit 4.6 to the Form SB-2 and incorporated herein by
reference)
4.7 Common Stock Purchase Warrant 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)
4.8 Amendment to Common Stock Purchase Warrant Agreement dated
June 11, 1999 by and between Ron Beasley and Registrant
(filed as Exhibit 4.8 to the Form SB-2 and incorporated
herein by reference)
4.9 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)
4.10 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)
4.11 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)
4.12 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)
4.13 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)
4.14 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)
4.15 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)
4.16 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)
4.17 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)
</TABLE>
<PAGE> 112
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
4.18 $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)
4.19 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 (filed as Exhibit
10.2 to the Form SB-2 and incorporated herein by reference)
10.3 Subordinated Secured Convertible Promissory Note dated
February 4, 1999 issued by Registrant in favor of
Hewlett-Packard Company (filed as Appendix C to the 1999
Proxy Statement 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)
10.6 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 (filed as Exhibit 10.36 to the Form SB-2 and
incorporated herein by reference)
10.7 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)
10.8 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)
10.9 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)
10.10 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)
10.11 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)
10.12 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)
10.13 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)
10.14 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)
10.15 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)
10.16 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)
10.17 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)
10.18 The viaLink Company 1999 Stock Option/Stock Issuance Plan
(filed as Appendix A to the 1999 Proxy Statement and
incorporated herein by reference)
</TABLE>
<PAGE> 113
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.19 1999 Stock Option/Stock Issuance Plan Form of Stock Option
Agreement (filed as Exhibit 10.19 to the Form SB-2 and
incorporated herein by reference)
10.20 1999 Stock Option/Stock Issuance Plan Form of Stock Issuance
Agreement (filed as Exhibit 10.20 to the Form SB-2 and
incorporated herein by reference)
10.21 1999 Stock Option/Stock Issuance Plan Form of Automatic Stock
Option Agreement (filed as Exhibit 10.21 to the Form SB-2 and
incorporated herein by reference)
10.22 The viaLink Company 1999 Employee Stock Purchase Plan (filed
as Appendix B to the 1999 Proxy Statement and incorporated
herein by reference).
10.23 Amended and Restated Alliance Agreement dated as of May 3,
1999 by and between Registrant and Ernst & Young LLP (filed
as Exhibit 10.1 to the May 1999 8-K and incorporated herein
by reference)
10.24 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)
</TABLE>
<PAGE> 1
EXHIBIT 5.1
[DUNN SWAN & CUNNINGHAM LETTERHEAD]
July 20, 1999
Board of Directors
The viaLink Company
13800 Benson Road
Edmond, Oklahoma 73013-6417
Gentlemen:
Reference is made to Form SB-2 Registration Statement under the
Securities Act of 1933, as amended, as filed with the United States Securities
and Exchange Commission (the "Registration Statement"), with respect to the
resale of 472,500 shares of common stock, $.001 par value per share (the
"Common Stock") following initial issuance by The viaLink Company (the
"Company") of the Common Stock pursuant to exercise of stock options and
warrants held by the selling shareholders identified in the Registration
Statement (the "Selling Shareholders").
Based upon the Registration Statement (including the Prospectuses
contained therein and the exhibits thereto) and a certificate of the Secretary
of State of the State of Oklahoma, we are of the opinion that:
1. The Company is duly organized and existing under the laws of the
State of Oklahoma; and
2. The 472,500 shares of Common Stock to be sold by the Company to
the Selling Shareholders upon their exercise of the stock
options and warrants that such shares of Common Stock underlie
and against payment therefor in accordance with the terms of
such stock options and warrants, will be legally issued, fully
paid and not liable for further call or assessment under the
Oklahoma General Corporation Act.
We hereby consent to the use of this opinion in the Registration
Statement and to the reference to our firm name under the caption "Legal
Matters" of the Prospectus which is included as a part of the Registration
Statement.
Very truly yours,
DUNN SWAN & CUNNINGHAM
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form SB-2 (filed
on July 21, 1999) 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" in such Registration Statement.
PricewaterhouseCoopers LLP
Oklahoma City, Oklahoma
July 20, 1999
