-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A3AMrKQ1YlYlxej+eRoAJDwt+VAaNmhQZAlTL1QXDrxEfGCdQMSvJgfH5ayFveaC ko3QWrzKYuT4Ke+zLrnEzg== 0001017062-01-500847.txt : 20010815 0001017062-01-500847.hdr.sgml : 20010815 ACCESSION NUMBER: 0001017062-01-500847 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOURCINGLINK NET INC CENTRAL INDEX KEY: 0000825517 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 980132465 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-28391 FILM NUMBER: 1712058 BUSINESS ADDRESS: STREET 1: 650 CASTRO STREET SUITE 210 STREET 2: C/O RICHARD S LANE ESQ CITY: MOUNTAIN VIEW STATE: CA ZIP: 94041 BUSINESS PHONE: 6509661214 MAIL ADDRESS: STREET 1: 650 CASTRO ST STREET 2: STE 210 CITY: MOUNTAIN VIEW STATE: CA ZIP: 94041 FORMER COMPANY: FORMER CONFORMED NAME: PARKWAY CAPITAL CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: QCS CORP DATE OF NAME CHANGE: 19941216 FORMER COMPANY: FORMER CONFORMED NAME: QCS NET CORP DATE OF NAME CHANGE: 19990621 10QSB 1 d10qsb.txt FORM 10-QSB FOR PERIOD ENDING JUNE 30, 2001 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001. [_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from ___________ to ___________. Commission File Number: 000-28391 --------- SourcingLink.net, Inc. - -------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) DELAWARE 98-0132465 -------- ---------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 16855 WEST BERNARDO DRIVE, SUITE 260, SAN DIEGO, CA 92127 - -------------------------------------------------------------------------------- (Address of principal executive offices) (858) 385-8900 - -------------------------------------------------------------------------------- (Issuer's telephone number) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [_] Shares of Common Stock outstanding as of August 1, 2001: 8,140,483 shares SourcingLink.net, Inc. CONTENTS --------
Page ---- PART I FINANCIAL INFORMATION Item 1 Financial Statements Consolidated Condensed Balance Sheets as of June 30, 2001 (unaudited) and March 31, 2001 3 Consolidated Condensed Statements of Operations for the three months ended June 30, 2001 and 2000 (unaudited) 4 Consolidated Condensed Statements of Cash Flows for the three months ended June 30, 2001 and 2000 (unaudited) 5 Notes to Consolidated Unaudited Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K 15 Signature 15
2 PART I FINANCIAL INFORMATION Item 1 Financial Statements SourcingLink.net, Inc. Consolidated Condensed Balance Sheets
June 30, March 31, 2001 2001 ------------ ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 2,962,000 $ 4,076,000 Short-term investments 499,000 - Accounts receivable, net 467,000 353,000 Other current assets 143,000 135,000 ------------ ------------ Total current assets 4,071,000 4,564,000 Property and equipment, net 507,000 523,000 Other non-current assets 54,000 54,000 ------------ ------------ Total assets $ 4,632,000 $ 5,141,000 ============ ============ LIABILITIES Current liabilities: Accounts payable and accrued liabilities $ 1,014,000 $ 1,226,000 Deferred revenue and other 224,000 225,000 ------------ ------------ Total current liabilities 1,238,000 1,451,000 STOCKHOLDERS' EQUITY Common stock 8,000 8,000 Additional paid in capital 24,127,000 24,127,000 Accumulated deficit (20,824,000) (20,532,000) Cumulative foreign currency translation adjustments 83,000 87,000 ------------ ------------ Total stockholders' equity 3,394,000 3,690,000 ------------ ------------ Total liabilities and stockholders' equity $ 4,632,000 $ 5,141,000 ============ ============
The accompanying notes are an integral part of these consolidated condensed financial statements. 3 SourcingLink.net, Inc. Consolidated Condensed Statements Of Operations (Unaudited)
Three months ended June 30, ------------------------------ 2001 2000 ---------- ----------- Revenue: Professional services $ 944,000 $ 565,000 Subscribers 20,000 200,000 ---------- ----------- 964,000 765,000 Cost of revenue: Professional services 292,000 103,000 Subscribers 61,000 255,000 ---------- ----------- 353,000 358,000 Gross profit 611,000 407,000 Operating expenses: Selling, general and administrative 759,000 889,000 Research and development 175,000 371,000 Amortization of warrants issued to strategic partners - 185,000 ---------- ----------- Total operating expenses 934,000 1,445,000 Operating loss (323,000) (1,038,000) Other expense, net (7,000) (1,000) Interest income 38,000 73,000 ---------- ----------- Net loss $ (292,000) $ (966,000) ========== =========== Net loss per share (basic and diluted) $ (0.04) $ (0.12) ========== =========== Weighted average number of shares used in per share calculation (basic and 8,135,000 8,059,000 diluted) ========== ===========
The accompanying notes are an integral part of these consolidated condensed financial statements 4 SourcingLink.net, Inc. Consolidated Condensed Statements of Cash Flows (Unaudited)
Three months ended June 30, ----------------------------------- 2001 2000 ----------- ---------- Cash flows from operating activities: Net loss $ (292,000) $ (966,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization expense 78,000 50,000 Unrealized exchange (gain) loss (1,000) 1,000 Amortization of stock-based compensation - 185,000 Changes in operating assets and liabilities - net (335,000) (76,000) ----------- ---------- Net cash used in operating activities (550,000) (806,000) ----------- ---------- Cash flows from investing activities: Purchases of fixed assets (62,000) (169,000) Purchases of short-term investments (499,000) - Maturities of short-term investments - 1,955,000 ----------- ---------- Net cash provided by (used in) investing activities (561,000) 1,786,000 ----------- ---------- Cash flows from financing activities: Proceeds from exercise of stock options - 18,000 ----------- ---------- Net cash provided by financing activities - 18,000 ----------- ---------- Effect of exchange rate changes on cash (3,000) (1,000) ----------- ---------- Net increase (decrease) in cash and cash equivalents (1,114,000) 997,000 Cash and cash equivalents, beginning of the period 4,076,000 3,870,000 ----------- ---------- Cash and cash equivalents, end of the period $ 2,962,000 $4,867,000 =========== ==========
The accompanying notes are an integral part of these consolidated condensed financial statements. 5 SourcingLink.net, Inc. NOTES TO UNAUDITED FINANCIAL STATEMENTS 1. Basis of presentation: - -------------------------- On July 20, 1999, the stockholders of the Company approved a proposal to change the Company's name from QCS.net Corporation to SourcingLink.net, Inc. The name change became effective as of that date upon the Company's filing of its Amended and Restated Certificate of Incorporation with the Delaware Secretary of State. The interim consolidated condensed financial statements of SourcingLink.net, Inc. ("SourcingLink" or the "Company") are unaudited and reflect all adjustments (consisting only of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation, in all material respects, of the financial position and operating results of the Company for the interim periods. The results of operations for the three months ended June 30, 2001 are not necessarily indicative of the results to be expected for the entire fiscal year ending March 31, 2002. The year-end balance sheet data at March 31, 2001 was derived from the audited financial statements. The consolidated condensed financial statements include the accounts of SourcingLink.net, Inc. and its wholly owned subsidiary. All significant intercompany transactions and account balances have been eliminated in consolidation. This financial information should be read in conjunction with the audited financial statements and notes thereto included in the Company's Form 10-KSB for the fiscal year ended March 31, 2001. 2. Computation of net loss per share: - -------------------------------------- Net loss per share is presented on a basic and diluted basis. Basic earnings (loss) per share is computed by dividing the income (loss) by the weighted average number of shares of Common Stock outstanding for the period. Diluted earnings per share are computed by giving effect to all dilutive potential shares of Common Stock that were outstanding during the period. For the Company, dilutive potential shares of Common Stock consist of incremental shares of Common Stock issuable upon the exercise of stock options and warrants and conversion of preferred stock for all periods. Basic and diluted earnings (loss) per share are calculated as follows for the three months ended June 30, 2001 and 2000 (unaudited): Three months ended June 30, -------------------------------- Basic and diluted: 2001 2000 ---------- ---------- Net loss $ (292,000) $ (966,000) ========== ========== Weighted average shares outstanding for the period 8,135,000 8,059,000 Net loss per share $ (0.04) $ (0.12) ========== ========== At June 30, 2001, the Company had 1,060,000 options and 742,000 warrants outstanding to purchase shares of Common Stock compared to 711,000 options and 754,000 warrants outstanding at March 31, 6 2001. These options and warrants were not included in the computation of diluted earnings per share because their inclusion would be anti-dilutive. 3. Comprehensive loss: - ----------------------- Comprehensive loss for the three months ended June 30, 2001 and 2000 was $296,000 and $ 967,000, respectively. The difference between comprehensive loss and net loss is the treatment of cumulative foreign currency translation adjustments. 4. Recent pronouncements: - ------------------------- In July 2001, the Financial Accounting Standards Board (FASB) issued Statements Nos. 141 and 142 (FAS 141 and FAS 142), Business Combinations and Goodwill and Other Intangible Assets. FAS 141 replaces APB 16 and eliminates pooling-of- interests accounting prospectively. It also provides guidance on purchase accounting related to the recognition of intangible assets and accounting for negative goodwill. FAS 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Under FAS 142, goodwill will be tested annually and whenever events or circumstances occur indicating that goodwill might be impaired. FAS 141 and FAS 142 are effective for all business combinations completed after June 30, 2001. Upon adoption of FAS 142, amortization of goodwill recorded for business combinations consummated prior to July 1, 2001 will cease, and intangible assets acquired prior to July 2001 that do not meet the criteria for recognition under FAS 141 will be reclassified to goodwill. Companies are required to adopt FAS 142 for fiscal years beginning after December 15, 2001, but early adoption is permitted. The Company will adopt FAS 142 on April 1, 2002. In connection with the adoption of FAS 142, the Company will be required to perform a transitional goodwill impairment assessment. The Company has not yet determined the impact these standards will have on its results of operations and financial position. Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements contained in this Report, including, without limitation, statements containing the words "may," "will," "believes," "anticipates," "expects" or the negative or other variations thereof or comparable terminology, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of SourcingLink to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors include, but are not limited to, the factors discussed under the caption "Risk Factors" below, and are discussed in more detail in the "Risks Related to Our Business" section of SourcingLink's Annual Report on Form 10-KSB for the fiscal year ended March 31, 2001. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. SourcingLink disclaims any obligation to update any such factors or to announce publicly the results of any revisions of the forward-looking statements contained or incorporated by reference herein to reflect future events or developments. Overview SourcingLink provides comprehensive merchandise sourcing solutions for the retail industry. Our Internet-based hosted solution, branded MySourcingCenter(TM), addresses the pre-order phase of business-to-business merchandise sourcing. MySourcingCenter(TM) provides immediate connectivity between retail merchandise buyers and their suppliers worldwide. The solution organizes and automates a broad range 7 of sourcing activities, improving productivity and reducing costs and buying lead-times. For merchandise suppliers, MySourcingCenter(TM) provides a sales tool to expand market reach, enhance existing trading relationships, and reduce costs. SourcingLink provides complementary enablement and strategic sourcing services for retail buyers and their suppliers. Strategic sourcing services involves a methodology and process for providing savings to retailers through auction-based trading events. MySourcingCenter(TM) enablement services includes the training of buyers and suppliers on Internet-based business-to-business tools and exchanges to bring buyers and suppliers together in on-line environments. In March 2000, SourcingLink entered into a services contract with Paris, France- based Carrefour S.A. (the "Carrefour contract"). The agreement with Carrefour, the world's second largest retailer, provides that SourcingLink will receive a minimum of $9 million for services to be performed over a three-year period which began April 1, 2000. The Carrefour contract followed an announcement by Carrefour that it, Sears, Roebuck & Co. and Oracle Corporation were forming a new company named GlobalNetXchange ("GNX"), for the purpose of connecting electronically and facilitating certain merchandise buying activities with suppliers worldwide. Under our contract, we are assisting Carrefour with its implementation of GNX functionality and processes. The majority of the Company's revenue is derived from services performed under the Carrefour contract. The Company is actively pursuing subscribers for its MySourcingCenter(TM) solution, as well as additional customers for its professional services. Accumulated Losses From its inception in 1993 through June 30, 2001, SourcingLink has incurred net losses of approximately $20.8 million, primarily as a result of costs to develop its technology, to develop and introduce its sourcing solutions and services, to establish marketing and distribution relationships, to recruit and train a sales and marketing group and to build an administrative organization. The Company's prospects must be considered in light of its operating history, and the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new, unproven and rapidly evolving markets. The limited operating history of the Company makes the prediction of future results of operations difficult or impossible and, therefore, there can be no assurance that the Company will grow or that it will be able to achieve or sustain profitability. The Company's success is highly dependent on its ability to execute in a timely manner its sales and marketing plans, including the expansion of its customer base, of which no assurance can be made. Additional factors in the Company's success include the ability to raise additional capital, continued satisfactory performance under the major Professional Services contract, and continued contributions of key management, consulting, development, sales and marketing, and finance personnel, certain of whom would be difficult to replace. The loss of the services of any of the key personnel or the inability to attract or retain qualified management and other personnel in the future, or delays in hiring required personnel, could have a material adverse effect on the Company's business, prospects, operating results or financial condition. Results of operations for the three months ended June 30, 2001 and 2000 Revenue. Total revenue for the three months ended June 30, 2001 increased $199,000, or 26%, to $964,000, from $765,000 in the three months ended June 30, 2000. This includes an increase in Professional Services revenue of $379,000 to $944,000 this year from $565,000 in the same period one year ago. Such increase is attributable to a higher amount of services being provided under the Carrefour contract, a three-year, $9 million services agreement that began April 1, 2000. Last year's first quarter was the initial period of work on the contract, and the level of contract activity has increased since then. The increase in Professional Services revenue was partially offset by a decrease in Subscriber revenue of $180,000 to $20,000 from $200,000 in last year's first quarter. This decrease in Subscriber revenue is attributable to two factors. The first factor is that the majority of the Subscriber revenue last year was from desktop solutions SourcingLink provided for use by its major customer in managing inspection and shipping tracking data. Use of these desktop solutions declined significantly over the second half of fiscal 8 year 2001, and effective in this year's first quarter, the customer moved these applications in-house. Therefore, there is no revenue from the inspection or shipping tracking applications in this year's first quarter. The second factor is that a portion of the Subscriber revenue in both the current and prior year quarters is from subscriptions of suppliers that were made available to SourcingLink by Paris, France-based Promodes, which was acquired by Carrefour late in calendar 1999. As previously mentioned, Carrefour has contracted with GNX for facilitating certain buying activities electronically with its merchandise suppliers, and the number of former Promodes suppliers subscribing to our solution has been decreasing since the acquisition of Promodes by Carrefour, and Carrefour's subsequent involvement with GNX. We expect that the remaining such suppliers will discontinue their subscriptions in the near future. The Company is working with Europe-based Leroy Merlin on its use of MySourcingCenter(TM) with its buyers and merchandise suppliers, and also continues to plan roll-outs with certain buyers of our other charter retailers. We are also pursuing new retail customers with suppliers that could adopt our solution, which is targeted at the home improvement segment of the retail market, and we are seeking customers in addition to Carrefour for our strategic sourcing services. Due to the Carrefour contract, the Company expects that Professional Services revenue will continue to comprise a significant portion of the Company's overall revenue in its fiscal year ending March 31, 2002. For MySourcingCenter(TM) Subscriber revenue, the Company's solution for the home improvement industry involves marketing directly to merchandise suppliers, a group that includes small and highly dispersed target customers thus increasing the difficulty of the sales and marketing task. In addition, supplier adoption may be linked to use of MySourcingCenter(TM) by large retail companies, which generally requires the approval of multiple parties and management levels within the retail organization, frequently resulting in lengthy sales and implementation cycles. Cost of Revenue. The overall dollar amount of the cost of revenue for the three months ended June 30, 2001 was $353,000, nearly unchanged from the $358,000 of the prior year's first quarter. The amount of the components of the cost of revenue changed, however, as the cost of Professional Services revenue increased by $189,000 to $292,000 in the current year from $103,000 last year, while this year's first quarter cost of Subscriber revenue decreased by $194,000 to $61,000 from $255,000 in the same period last year. The cost of Professional Services revenue increased due to the increased labor and associated costs in support of the higher level of revenue. The cost of Subscriber revenue decreased due to the higher cost of network infrastructure support and hosting under a prior year agreement with IBM for such services compared to the Company's current Southern California-based co-location arrangement for our solution infrastructure that was put in place effective October 1, 2000. Total gross profit increased $204,000 to $611,000, or 63% of total revenues, from $407,000, or 53% of total revenues, in the three months ended June 30, 2000. The increase in gross profit is attributable to the increase in Professional Services revenue, and associated profit, under the Carrefour contract. Operating Expenses - ------------------ Selling, General and Administrative Expenses. In the three months ended June 30, 2001, SourcingLink's selling, general and administrative expenses decreased by $130,000, or 15%, to $759,000 from $889,000 in the three months ended June 30, 2000. The decrease in these expenses is primarily attributable to the reduction in this quarter of year-end incentive compensation accruals to reflect the amount ultimately approved by the Company's board of directors and reduced legal fees as compared to the prior year. These reductions were partially offset by an increase in sales and marketing costs of the Company's solutions and services. Management expects that selling, general and administrative expenses will increase as we incur additional labor and other costs related to management and marketing, including the addition of a new Chief Executive Officer in June 2001, and as we increase our sales efforts related to our strategic sourcing 9 services and MySourcingCenter(TM) solution with buyers and merchandise suppliers in the home improvement or other segments of the retail industry. Product Development Expenses. Product development expenses during the first quarter of fiscal year 2002 decreased by $196,000, or 53%, to $175,000 from $371,000 in the three months ended June 30, 2000. The decrease in product development expenses is primarily due to lower labor and subcontract costs as compared to the prior year's first quarter. We had ramped-up our development costs in fiscal 2000 for a major enhancement of our core solution. This effort was completed during the first quarter of fiscal 2001, and such costs were subsequently reduced to a lower level. In addition, new accounting guidelines under Emerging Issues Task Force Issue No. 00-2 became effective for the Company on July 1, 2000. Under these guidelines, certain Web site development costs must be capitalized and amortized rather than expensed, which reduced the amount of product development costs that were expensed in this year's first quarter by $44,000 compared to $0 in the same period last year. Recently, the Company has upgraded its development staff, and management expects that product development expenses may be higher in subsequent quarters of the current fiscal year than such costs were in the quarter just completed. Stock-based Compensation. The stock-based compensation in last year's first quarter relates to the cost of warrants for the purchase of SourcingLink common stock issued to two strategic partner companies during fiscal year 2000. The related expense was determined under the Black-Scholes valuation method, and was being amortized over the periods associated with the business agreements underlying the warrants. Such amortization amounted to $185,000 in the first quarter of fiscal year 2001. There is no such amortization this year as one of the warrants was cancelled by the Company last fiscal year, and the cost of the other warrant is fully amortized. Other Expense, net and Interest Income. The principal components of other expense, net, are certain franchise taxes, and exchange gains or losses on foreign currency transactions with SourcingLink's subsidiary in France. Primarily as a result of these costs, other expense, net was $7,000 and $1,000 in the three months ended June 30, 2001 and 2000, respectively. Interest income was $38,000 and $73,000 for the three months ended June 30, 2001 and 2000, respectively. The decrease in interest income is attributable to both the decline in interest rates applicable to cash investments and the decrease in cash on-hand this year as compared to the prior year. Income Taxes. SourcingLink recorded a net loss of $292,000 during the three months ended June 30, 2001, and had net losses of $1.6 and $4.5 million in fiscal years 2001 and 2000, respectively. Accordingly, no provision for income taxes was recorded in any of these periods. As of June 30, 2001, SourcingLink had net operating loss carryforwards for United States income tax purposes of approximately $13.5 million. These losses expire at various dates between 2011 and 2022. The Internal Revenue Code of 1986, as amended, contains provisions that limit the use in any future period of net operating loss and credit carryforwards upon the occurrence of certain events, including a significant change in ownership interests. A valuation allowance has been recorded for the tax benefit of the net operating loss carryforwards and the deferred tax assets of SourcingLink due to the fact that, as of the present time, it is more likely than not that such assets will not be realized. Fluctuations in Quarterly Operating Results Our quarterly operating results have varied significantly in the past and will likely vary significantly in the future. We believe that period-to-period comparisons of our results of operations are not meaningful and should not be relied upon as indicators of future performance. Our operating results could fall below the expectations of securities analysts or investors in some future quarter or quarters. Our failure to meet these expectations would likely adversely affect the market price of our common stock. Our quarterly operating results may vary depending on a number of factors, including: demand for our 10 solutions and services; actions taken by our competitors, including new alliances, product introductions and enhancements; delays or reductions in spending for, or the adoption of, pre-order supply chain management solutions by our potential customers as companies review business-to-business applications; ability of our solution, network and operations infrastructure to handle measurable activity; ability to develop, introduce and market our solutions on a timely basis; changes in our pricing policies or those of our competitors; ability to expand our sales and marketing operations, including hiring additional sales personnel; size and timing of sales of our solution and services; success in maintaining and enhancing existing relationships and developing new relationships with strategic partners; ability to control costs; technological changes in our markets; deferrals of customer subscriptions in anticipation of competitive solutions, or new developments or features of our solution; customer budget cycles and changes in these budget cycles; and general economic factors. We have incurred significant operating expenses to expand our management team and sales and marketing operations, fund product development, provide general and administrative support, develop new partnerships, increase our professional services and support capabilities and improve our operational and financial systems. We plan on incurring significant additional expenses of this nature, and if our revenues are not maintained or increased, our business, operating results and financial condition could be seriously harmed and net losses in a given quarter could be larger than expected. Liquidity and Capital Resources SourcingLink's cash and cash equivalents at June 30, 2001 were $3.0 million, a decrease of $1.1 million from March 31, 2001. However, $499,000 of this decrease is a reclassification to short-term investments of cash that is invested for a period greater than 90 days. Cash used in operating activities for the three months ended June 30, 2001 was $550,000, compared to $806,000 for the three months ended June 30, 2000. The cash usage in each period was primarily due to the net losses as well as the payment of accrued incentive compensation and other year-end accruals. We believe that our current working capital, including cash to be received in the fiscal year ending March 31, 2002 under our services contract with Carrefour, will be sufficient to meet our working capital requirements for the next 12 months. We plan to actively seek additional equity investment to fund operations beyond that period. If such efforts are unsuccessful, we will need to reduce operating spending significantly, which would materially and adversely affect SourcingLink's business. The Company currently does not have a bank credit line. The Company does not intend to pay cash dividends with respect to capital stock in the foreseeable future. RISK FACTORS The market for our solution and services is at an early stage. We need retailers and their merchandise suppliers to implement and use our solution and services. The market for Internet-based business-to-business solutions and services is at an early stage of development. Our success depends on a significant number of retailers and their merchandise suppliers implementing our solution and contracting for our services. The decision to implement our solution or services by major retailers and their merchandise suppliers is controlled by multiple parties within the retail organization. In order to implement our solution or services, often these organizations must change established business practices and conduct business in new ways. Our ability to attract customers for our solution and services may depend on leveraging our existing major customer as a reference account. Unless a significant number of retailers and their merchandise suppliers implement our solution or contract for our services, our solution and services may not achieve widespread market acceptance and our business will be seriously harmed. 11 We have a history of losses and expect to incur losses in the future. We incurred a net loss of $292,000 in the first quarter of fiscal year 2002, and net losses of $1.6 million and $4.5 million in fiscal years 2001 and 2000, respectively. As of June 30, 2001, we had an accumulated deficit of approximately $20.8 million. While we expect the Carrefour contract will provide a total of $9 million of revenue over the three-year period that began on April 1, 2000, we also expect to derive a portion of our future revenues from subscription fees of our Internet sourcing solution, which is based on an unproven business model. In addition, with Carrefour's acquisition of Promodes and subsequent formation, along with Sears, Roebuck & Co. and Oracle Corporation, of GlobalNetXchange, we have lost subscribing suppliers of the former Promodes central buying organization. Moreover, we expect to incur significant sales and marketing, product development, and general and administrative expenses. As a result, we expect to incur losses in upcoming financial quarters. We believe that our current working capital, including amounts to be received under the Carrefour contract, will be sufficient to meet our working capital requirements for the next 12 months. We plan to actively seek additional equity investment to fund operations beyond that period. If such efforts are unsuccessful, we will need to reduce operating spending significantly, which would materially and adversely affect our business. We expect to depend on our solution to augment revenue from our consulting contract with Carrefour in the future. We anticipate that revenues from our solution will constitute substantially all of our non-service revenues for the foreseeable future. Consequently, if we are unable to generate sales of, or demand at an adequate price for, our solution, or if it fails to achieve market acceptance, our prospects will be seriously harmed. Likewise, substantial non-performance by us on the Carrefour contract would seriously harm our ability to collect the minimum payments due to us under the contract, which amount to a total of $9 million over the three-year period that began April 1, 2000. We expect implementation of our solutions by large retailers to be complex, time consuming and expensive, and we may experience long sales and implementation cycles. Our supply chain management solution is often viewed as an enterprise-wide solution that must be deployed to many users within a large retailer's sourcing organization. An enterprise-wide adoption by large retailers is often characterized by long sales cycles beginning with pilot studies and concluding with retailers strongly encouraging their merchandise suppliers to subscribe to our solution. In addition, our potential customers generally consider other issues before adopting our solution, including product benefits, integration, interoperability with existing computer systems, scalability, functionality and reliability. As a result, we must educate potential customers on the use and benefits of our solution. Enterprise-wide sales characteristically take several months to finalize, and such a sale must often be approved by a number of management levels within the customer organization. Entering into an agreement with a customer for the implementation of our solution does not assure that the customer will in fact make such implementation or assure the time frame in which the implementation may occur. We are currently marketing our solution to buyers within retail companies, and directly to suppliers, in addition to targeting enterprise-wide rollouts for large retailers. There is no assurance that this strategy will shorten sales cycles or result in significant new customer subscriptions to our solution. We derive most of our revenue from sales to one main retailer. If we are not able to retain this retailer as a customer our revenues will be reduced and our financial results and prospects will suffer. Our largest customer accounts for a substantial majority of our revenues. We may not be able to retain our customers or our strategic partners may decrease their commitment to require their suppliers to use our solution. Specifically, due to Carrefour's participation in GlobalNetXchange, we may not have the 12 opportunity to market to its suppliers in combination with Carrefour. We may be unable to adequately perform the required services under our contract with Carrefour, which would harm our sales and financial results. Our customers and prospective customers are either in, or supplying goods to, the retail industry. A significant change or downturn in this industry could adversely affect our prospects. We face intense competition. If we are unable to compete successfully, our prospects will be seriously harmed. The market for business-to-business eCommerce solutions in general, and supply chain management solutions and services in particular, is extremely competitive, evolving and characterized by continuous rapid development of technology. Competition to capture business users of both solutions and services is intense and is expected to increase dramatically in the future. Such competition will likely result in realizing lower profit margins, which could have a serious adverse impact on our business and prospects. Recently formed exchanges such as GlobalNetXchange and WorldWide Retail Exchange are owned primarily by retailers and are focused exclusively on retail merchandise procurement. Companies such as FreeMarkets, Inc. provide general Internet-based sourcing capabilities and services for buyers and suppliers in a business-to-business electronic marketplace. Companies that provide electronic catalogs and content management services could expand their offerings to include sourcing functionality. Our indirect competitors are traditional value-added network solution providers that have extended their value-added network connections over the Internet. We also face indirect competition from both new and traditional companies that are focused on trading exchanges or marketplaces that allow merchandise buyers and sellers to access each other on channels within new or existing portals. One or more of these companies may develop and add preorder merchandise sourcing capabilities to their existing product offerings, giving these companies a broader or more comprehensive solution than our solution, which could adversely affect our business. We also expect that additional established and emerging companies will seek to enter our solutions market as it continues to develop and expand. In our services business, competitors include the major consulting companies such as Accenture and A.T. Kearney, Inc., the consulting arms of the international accounting firms and several large computer-industry companies, including IBM. FreeMarkets, Inc. offers professional services along with their electronic marketplace tools and capabilities. In addition, there are many smaller firms that provide services in this market. While many of these companies do not have the hands-on experience that we have gained through our work with Carrefour, some of these companies have been involved in services projects with the retail industry exchanges. We may not be able to compete successfully against current or future competitors, especially those with significantly greater financial, marketing, service, support, technical and other resources, greater name recognition or a larger installed base of customers. We depend on our key personnel. Our future performance depends on the continued service of our senior management, product development, professional services, and sales and marketing personnel. The loss of the services of one or more of our key personnel could seriously harm our prospects. Our future success also depends on our continuing ability to attract, hire, train and retain a substantial number of highly skilled managerial, services, technical, sales, marketing and customer support personnel. We are particularly dependent on hiring additional personnel to increase our professional services, direct sales and product development organizations. Competition for qualified personnel is intense, and we may fail to retain our key employees or to attract or retain other highly qualified personnel. 13 Our software may contain errors or defects. Our software is complex and may contain undetected errors or failures when first introduced. This may result in failure to achieve or maintain market acceptance of our solution. We have in the past discovered programming errors in our new releases after their introduction. We have experienced delays in release, and we may discover errors in the future in existing versions or new versions after release, which could materially and adversely affect our business. Our current systems, procedures and controls may be inadequate to support the expected growth and the expansion of our services business. We currently plan to hire new employees and to expand the geographic scope of our services customer base and operations. These activities will result in substantial demands on our management resources. Our ability to compete effectively and to manage future expansion of our services and operations will require us to continue to improve our financial and management controls, reporting systems, project management and procedures on a timely basis, and expand, train and manage our employee work force. We may encounter difficulties in transitioning and expanding our business in the services area, and our personnel, systems, procedures and controls may be inadequate to support our future operations. Our business is susceptible to risks associated with international operations. We market our solution and services to retailers and their merchandise suppliers on a worldwide basis, and historically have derived a significant portion of our revenues from international sales. As such, we are subject to risks associated with international business activities, including unexpected changes in regulatory requirements and the burdens of compliance with a wide variety of foreign laws; longer accounts receivable payment cycles and difficulties in collecting accounts receivable; difficulties in managing and staffing international operations; and currency exchange rate fluctuations, which could increase the cost of our solutions and services. We depend on increasing use of the Internet and on the growth of eCommerce. If the use of the Internet and eCommerce do not grow as anticipated, our business will be seriously harmed. Our success depends on the increased acceptance and use of the Internet as a medium of commerce on a global basis. Growth in the use of the Internet for eCommerce is a recent phenomenon and has fluctuated in the recent past. As a result, acceptance and use of the Internet may not continue to develop at significant rates and a sufficiently broad base of business customers may not adopt or continue to use the Internet as a medium of commerce. Demand and market acceptance for recently introduced services and products over the Internet are subject to a high level of uncertainty, and there exist few proven services and products. Our business would be seriously harmed if: . Use of the Internet, the Web and other online services does not increase or increases more slowly than expected; . The infrastructure for the Internet, the Web and other online services does not effectively support expansion that may occur; or . The Internet, the Web and other online services do not create a viable commercial marketplace, inhibiting the development of eCommerce and reducing the need for our solution. 14 PART II OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K a. Exhibits 10.1 Employment Agreement dated June 1, 2001 between the Company and Dan Rawlings b. Reports on Form 8-K No reports on Form 8-K were filed, or required to be filed, with the Securities and Exchange Commission during the quarter for which this report is filed. SIGNATURE In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: August 14, 2001 SourcingLink.net, Inc. By: /s/ Gary Davidson ------------------ Gary Davidson, Vice President Finance and Administration, Chief Financial Officer (Principal Financial Officer) 15 EX-10.1 3 dex101.txt EMPLOYMENT AGREEMENT DTD 06/01/2001 EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 1st day of June, 2001, by and between SourcingLink.net, Inc., a Delaware corporation (the "Company") and Dan Rawlings (hereinafter "Employee"). W I T N E S S E T H: - - - - - - - - - - In consideration of the mutual covenants and obligations herein set forth, the parties hereto agree as follows: 1. Engagement; Nature of Duties; Reporting. Company has engaged Employee, --------------------------------------- for the period hereinafter set forth, to serve as and hold the offices of Chief Executive Officer and President of the Company, and to perform the duties and exercise the powers of such offices as currently provided in the Bylaws of the Company. Employee has agreed to serve in such capacity and to continue to serve hereunder and to do and perform the services, acts, or things necessary to carry out the duties of such offices, and such other duties, not inconsistent with such office and Employee's position as Chief Executive Officer and President of the Company, as Company and Employee may mutually agree. Employee shall report only to the Board of Directors of the Company. 2. Term. The term of employment pursuant to this Agreement shall be for a ---- period commencing on June 1, 2001 through and including May 31, 2002, unless sooner terminated in accordance with the provisions hereof. 3. Performance of Duties. Employee shall devote such time and attention --------------------- to Employee's duties as may be reasonably necessary to perform and carry out such duties. Except for such activities and other business dealings as do not, in the reasonable judgment of the Board of Directors of the Company, unreasonably interfere with the performance of Employee's duties hereunder, Employee's services shall be exclusive to the Company while employed by the Company, and Employee shall not accept any other employment or position, of any nature, without the prior written consent of Company. Employee shall perform his duties hereunder primarily in the Company's principal executive offices in San Diego, California, or where otherwise relocated in San Diego County, and shall, other than customary travel incident to performance of his duties hereunder, not be required to perform such duties at any other location. Employee shall not be required to relocate outside of San Diego County, California without his consent. 4. Compensation. ------------ (a) Base Salary. Company shall pay to Employee a base salary in the amount of Two Hundred Sixty-five Thousand Dollars ($265,000) per year, payable in periodic installments in accordance with Company's prevailing policy for compensating personnel, but not less often than semi-monthly. Employee's base salary will be reviewed and be subject to adjustment, on an annual basis, in good faith by the Board of Directors of the Company; provided, however, such base salary may not be reduced without Employee's consent. (b) Cash Bonus. In addition to the foregoing base salary, and any and all other compensation, profit-sharing participation, benefits or other amounts due to or receivable by Employee pursuant to this Agreement or any plan or program maintained by the Company, Employee shall receive a cash bonus in an amount determined and payable at such time as set forth on Schedule A attached hereto. The foregoing bonus shall be payable within thirty (30) days following the end of the month in which each incremental $1,000,000 in revenue is achieved by the Company. The final bonus payment for the fiscal year ending March 31, 2002 shall be paid following completion of the Company's audit. The final bonus payment shall be an amount that is determined on a prorated basis to the extent the Company's revenue for such fiscal year exceeds $7,000,000. The Company shall pay Employee such final bonus amount determined on a prorated basis by taking the targeted incremental revenue bonus amount under the heading "Noncumulative Additional Cash Bonus Paid for Fiscal Year 2002" on Schedule A multiplied by the fraction the numerator of which is the revenue in excess of the last $1,000,000 target revenue amount exceeded and the denominator is $1,000,000. (c) Withholding. Employee acknowledges and agrees that the Company may withhold from any amounts payable under this Agreement any amounts required to be so withheld pursuant to applicable state or federal law, or the regulations of any state or federal governmental unit or taxing authority. 5. Stock Options. The Company's Board of Directors shall meet to approve ------------- the grant and issuance to Employee Options to purchase Three Hundred Fifty Thousand (350,000) shares of the common stock of the Company (the "Shares") at an exercise price equal to the fair market value of such stock as of the date Employee commences his employment hereunder. The Company shall grant Employee additional Options following the attainment of any listed revenue target set forth below. Such additional options shall be granted at the end of any quarter during which an incremental revenue target was achieved as reflected in the Company's quarterly financial statements, with the incremental options granted on the date thirty (30) days after the end of such quarter with a purchase price equal to the fair market value of the Company's common stock as determined by the closing price of such stock on the date such Options are granted. The revenue targets for the Company for the fiscal year ending March 31, 2002 are as follows: 2 Incremental Additional Options Revenue of Company Granted ------------------ ------ $8,000,000 10,000 $9,000,000 10,000 $10,000,000 10,000 $11,000,000 10,000 $12,000,000, or more 10,000 As the Company's revenue during the period ended March 31, 2002 exceeds the cumulative revenue amounts above, the options shall be granted quarterly, and if the revenue of the Company on a year to date basis through and including March 31, 2002 exceeds $10,000,000, Employee shall be granted Options to purchase the shares listed above, provided, however, to be granted the incremental Options for exceeding the $10,000,000, $11,000,000, or $12,000,000 revenue targets, the Company must have achieved net operating margins on all revenue over $10,000,000 of fifty percent (50%), or more, after subtracting Employee's bonus as provided in Section 4(b) above for the revenue increments exceeding $10,000,000. 6. Expense Reimbursement. --------------------- (a) Business Expenses. The services required of Employee by this Agreement shall include the responsibility and duty of entertaining business associates and others with whom Company is, desires to be, or may become engaged in business or with whom it seeks, now or in the future, to develop or expand business relationships, or with whom it is otherwise to the benefit of the Company to establish or maintain communications. It may also be necessary for Employee to travel from time to time on behalf of and for the benefit of the Company, or in furtherance of the Company's business. It is Company's belief that the performance of the Employee's duties in such travel and entertainment activities will be productive of the maximum benefits which Company expects to derive from Employee's services. Accordingly, Company shall pay, or if Employee shall have paid, shall reimburse to Employee, any and all reasonable expenses incurred by him or for his account in the performance of his duties hereunder, including expenses for business, entertainment, promotion, professional association dues and travel by Employee, subject to Employee providing appropriate documentation for such expenses, and to any written policies of the Company. (b) Relocation Expenses. In addition to the customary expense reimbursements provided herein, in the event Employee moves his principal residence to San Diego County, California during the twenty-four (24) month period ending May 31, 2003, the Company shall reimburse Employee up to $20,000 for the cost and expense of moving Employee's personal property from his then existing principal residence to his new residence in San Diego County upon delivery of appropriate documentation for such expense. 3 7. Medical and Life Insurance; Pension Benefits. Employee shall have the -------------------------------------------- right to participate in any and all group, life, disability income, health, dental or accident insurance programs applicable to other executive management personnel of Company, and in effect at any time during the period of Employee's employment hereunder, subject only to any eligibility restrictions of such programs in accordance with the Company's policy for its employees then in effect. The Company shall pay all premiums for Employee, and Employee's spouse and dependents, for full coverage under all such health insurance programs. The Company shall acquire for the benefit of Employee term life insurance payable to the beneficiary designated by Employee in a benefit amount of $1,000,000 and Company shall pay the premiums annually for such policy for so long as Employee continues in the employment of the Company; subject to Employee being able to pass an appropriate health physical for the acquisition of a life insurance policy on reasonable terms, and which policy shall exclude appropriate preexisting conditions. Employee shall also have the right to participate in any and all employee retirement benefits plan or profit-sharing plan which Company maintains for its personnel, and in effect at any time during the period of Employee's employment hereunder, on a basis at least as favorable as for any other executive management personnel of the Company, subject to any eligibility or governmental restrictions of such plans. In particular, Employee shall participate in the Company's Simple Individual Retirement Account Plan and have the opportunity to receive matching contributions from the Company of up to $6,000 per year. 8. Vacation. During each twelve month period of employment during the -------- term of employment as provided in Section 2 hereof, and thereafter, so long as, Employee continues in the employment of the Company, Employee shall be entitled to a vacation of up to three (3) weeks, without deduction of salary. Such vacation shall be taken at such time or times during the applicable year as may be mutually determined by Employee and Company. Any accrued and unused vacation as of the anniversary date of employment may be carried over to the following year; provided, however, that Employee may not carry over more than two weeks of vacation. 9. Termination. ----------- (a) This Agreement may be terminated by Company for Good Cause. As used herein, "Good Cause" shall mean: 1. Employee has been grossly negligent, or has been guilty of material misconduct in violation of the Company's rules and policies, in the performance of Employee's duties hereunder, which violations cause substantial harm to the Company the Company may thereafter terminate Employee immediately upon written notice; or 2. Employee's conviction of a felony or similar crime; or 3. Employee makes an intentional and improper disclosure of the Company's confidential or proprietary information in breach of Employee's Confidentiality Agreement with the Company. 4. Employee has failed to demonstrate the ability to meet annual performance standards established by the Board and agreed to by Employee. 4 5. Employee has committed materially fraudulent or dishonest acts with respect to the Company. (b) Employee shall have the right to terminate this Agreement for Good Reason. As used herein, "Good Reason" shall mean: 1. A material reduction or adverse change in Employee's title, position, duties or compensation as Chief Executive Officer, as set forth herein, without Employee's prior express written consent; 2. A relocation of Employee's place of employment outside of San Diego County, California, without Employee's prior express written consent; or 3. Any other material breach by the Company of its obligations hereunder, which breach remains uncured for thirty (30) days following written notice to the Company of such breach, which notice specifies in reasonable detail the nature of such breach. A termination by Employee of his employment hereunder for "Good Reason" shall have the same effect hereunder as, a termination of such employment by the Company without "Good Cause." (c) In addition, this Agreement shall automatically terminate upon Employee's death or permanent disability. As used herein, "permanent disability" shall mean Employee's complete inability to perform Employee's duties hereunder, as determined by Employee's physician, which inability continues for more than Ninety (90) consecutive days; provided, however, that in the event any disability income policy maintained by the Company pursuant to Section 7 hereof contains a definition of "permanent disability" which requires a greater period of continuous inability to perform services, such definition shall control. 10. Severance. Unless this Agreement is terminated by the Company for --------- "Good Cause" as defined above, or this Agreement is terminated by Employee's voluntary termination, Employee shall be entitled to receive, in addition to the amount of any accrued and unpaid salary then due to Employee, and the value of any accrued and unused vacation, the following additional amounts: (a) Continuation of base salary payments at the Employee's then- current base salary for six months from termination (the "Severance Period"). Such continuation of base salary shall be paid monthly on a pro rata basis. (b) So long as Employee elects continuation coverage under COBRA the Company shall pay the premiums for the Severance Period. (c) In the event that this Agreement expires, is terminated or is otherwise not renewed (other than a termination by the Company for Good Cause or voluntary termination by Employee) at least six months after Employee's employment commences hereunder and prior to the end of any fiscal year, Employee shall be entitled to a bonus, proportional to the cash bonus 5 which would have been earned by Employee for such fiscal year under Section 4(b) herein determined on the revenue of the Company recognized during the Severance Period, and shall be payable as otherwise provided in Section 4(b); provided the Company's revenue and, if applicable, net operating margins are determined in accordance with generally accepted accounting principles, meet the levels set out in Section 4(b). (d) Following the termination of this Agreement for all other purposes, the Company shall pay Employee under this Section 10(a)-(c) if Employee's employment is terminated for reasons other than for Good Cause or voluntary termination by Employee during the period from June 1, 2002 through November 30, 2002 as provided in this Section 10(a)-(c) for six months and if Employee's employment is terminated thereafter for reasons other than for Good Cause or voluntary termination by Employee then the Company shall pay Employee under Section 10(a)-(c) for three months rather than for six months. The Company expressly agrees and acknowledges that, with respect to such payments and other consideration, Employee shall have no duty or obligation to seek or accept other employment, or otherwise mitigate Employee's damages resulting from such termination. Employee agrees and acknowledges that, in the event Employee does obtain other employment following such termination and during the Severance Period, the Company shall be entitled to reduce the amounts payable to Employee hereunder as a result of any compensation paid to Employee with respect to such new employment payable for other employment during the Severance Period. Provided, however, if Employee is employed by a Competitor of the Company as defined in Section 11(b) during the Severance Period, the Company shall pay Employee no further amounts under this Agreement. In the event Employee voluntarily terminates this Agreement, then Employee shall be entitled to receive accrued, but unpaid salary, cash bonus and accrued vacation pay, but no other amounts. 11. Confidential Information and Non-Competition. -------------------------------------------- (a) Confidentiality. Employee acknowledges that he will have access to certain confidential or proprietary information of the Company, including information developed by Employee in the course of his employment. Employee expressly acknowledges and agrees that such confidential or proprietary information is solely the property of the Company, and that the Company derives material benefits to its business by maintaining the confidentiality of such information. Employee expressly agrees that he will not, during the term hereof or at any time thereafter, directly or indirectly, disclose or use for his own benefit any confidential or proprietary information of the Company, except, ------ only, (i) to the extent required by valid legal process, such as civil - ---- discovery, (ii) with the prior express written consent of the Company, or (iii) to the extent such information has become known or available to the public other than as a result of a breach of this Section 11 by Employee or by a third person wrongfully disclosing such information and Employee knows of such wrongful disclosure. If requested by the Company, Employee agrees to execute and deliver a confidentiality and/or invention assignment agreement, not inconsistent with this Section 11. 6 (b) Non-Competition. During the period of Employee's employment hereunder, Employee shall not, directly or indirectly, without the prior written consent of the Company, provide consultative services or otherwise provide services to (whether as an employee or a consultant, with or without pay), own, manage, operate, join, control, participate in or be connected with (as a stockholder, partner or otherwise), any business, individual, partner, firm corporation or other entity that is then a competitor of the Company, including any entity engaged in the design, manufacturer and/or distribution of network service systems or software that offer comparable capabilities and features to the retail industry or otherwise competes with the systems that are designed, manufactured, or distributed by the Company or any direct or indirect subsidiary of Company (each such competitor "a Competitor of the Company"), provided, however, that the "beneficial ownership" by Employee, either individually or as a member of a "group," as such terms are used in Rule 13d of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of not more than one percent (1%) of the voting stock of any publicly held corporation shall not alone constitute a violation of this Agreement. It is further expressly agreed that the Company will or would suffer irreparable injury if Employee were to compete with the Company or any subsidiary or affiliate of the Company in violation of this Agreement and that the Company would by reason of such competition be entitled to injunctive relief in a court of appropriate jurisdiction, and, the provisions of Section 19 notwithstanding, Employee further consents and stipulates to the entry of such injunctive relief in such a court prohibiting Employee from competing with the Company or any subsidiary or affiliate of the Company in violation of this Agreement. (c) Non-Solicitation of Customers and Suppliers. During the period of Employee's employment hereunder, Employee shall not, directly or indirectly, influence or attempt to influence customers or suppliers of the Company or any of its subsidiaries or affiliates, to divert their business to any Competitor of the Company. (d) Non-Solicitation of Employees. Employee recognizes that he possesses and will possess confidential information about other employees of the Company relating to their education, experience, skills, abilities, compensation and benefits and interpersonal relationships with customers of the Company. Employee recognizes that the information he possesses and will possess about these other employees is not generally known, is of substantial value to the Company in developing its business and in securing and retaining customers, and has been and will be acquired by him because of his business position with the Company. Employee agrees that, during the period of Employee's employment hereunder and for a period of one (1) year thereafter, he will not, directly or indirectly, solicit or recruit any employee of the Company for the purposes of being employed by him or by any Competitor of the Company or by any company of which he is employed or has any ownership interest on whose behalf he is acting as an agent, representative or employee and that he will not convey any such confidential information or trade secrets about other employees of the Company to any other person. 12. Notices. Any and all notices which are required or permitted to be ------- given by any party to any other party hereunder shall be given in writing, sent by registered or certified mail, electronic communications (including telegram, facsimile or E-mail) followed by a confirmation letter sent by registered or certified mail, postage prepaid, return receipt requested, or delivered 7 by hand or messenger service, with the charges therefor prepaid, addressed to such party as follows: (a) Notices to the Employee: Dan Rawlings _____________ With copy to: _____________ _____________ _____________ _____________ (b) Notices to the Company: SourcingLink.net, Inc. 16855 West Bernardo Drive, Suite 260 San Diego, CA 92127 Attn: Board of Directors With copy to: Bruce Feuchter, Esq. Stradling, Yocca, Carlson & Rauth 660 Newport Center Drive Suite 1600 Newport Beach, California 92660-6441 or to such other address as the parties shall from time to time give notice of in accordance with this Section 12. Notices sent in accordance with this Section 12 shall be deemed effective (i) the first business day following the date of dispatch, if sent by telegram, facsimile or E-mail, and (ii) the actual date of delivery, if sent by registered or certified mail, and an affidavit of mailing or dispatch, executed under penalty of perjury, shall be deemed presumptive evidence of the date of dispatch. 13. Entire Agreement and Modifications. This Agreement, including the ---------------------------------- exhibits hereto and the agreements expressly referred to herein, constitutes the entire understanding between the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written. There are no warranties, representations or other agreements between the parties, in connection with the subject matter hereof, except as specifically set forth herein. No supplement, modification, waiver or termination of this Agreement shall be binding unless made in writing and executed by the party thereto to be bound which expressly states that such writing amends this Agreement. 8 14. Waivers. No term, condition or provision of this Agreement may be ------- waived except by an express written instrument to such effect signed by the party to whom the benefit of such term, condition or provision runs. No such waiver of any term, condition or provision of this Agreement shall be deemed a waiver of any other term, condition or provision, irrespective of similarity, or shall constitute a continuing waiver of the same term, condition or provision, unless otherwise expressly provided. No failure or delay on the part of any party in exercising any right, power or privilege under any term, condition or provision of this Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any other right, power or privilege. 15. Survival of Agreement Provisions. All terms, conditions, provisions, -------------------------------- covenants, agreements, representations and warranties made herein shall survive the performance by the parties hereto of their obligations hereunder, and the termination or expiration of this Agreement. 16. Severability. In the event any one or more of the terms, conditions ------------ or provisions contained in this Agreement should be found in a final award or judgment rendered by any court or arbitrator or panel of arbitrators of competent jurisdiction to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining terms, conditions and provisions contained herein shall not in any way be affected or impaired thereby, and this Agreement shall be interpreted and construed as if such term, condition or provision, to the extent the same shall have been held invalid, illegal, or unenforceable, had never been contained herein, provided that such interpretation and construction is consistent with the intent of the parties as expressed in this Agreement. 17. Headings. The headings of the Articles and Sections contained in this -------- Agreement are included herein for reference purposes only, solely for the convenience of the parties hereto, and shall not in any way be deemed to affect the meaning, interpretation or applicability of this Agreement or any term, condition or provision hereof. 18. Applicable Law. This Agreement shall be governed by and construed in -------------- accordance with the laws of the State of California, notwithstanding the fact that one or more counterparts hereof may be executed outside of the state, or one or more of the obligations of the parties hereunder are to be performed outside of the state. 19. Arbitration. The parties hereby agree that all disputes or claims ----------- arising hereunder shall be submitted to arbitration in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association. The parties expressly agree and acknowledge that any award rendered in such arbitration shall be final, binding and conclusive, and judgment may be entered in any court of competent jurisdiction upon any such award. Notwithstanding the foregoing, in the event of an actual or threatened breach of Section 11 hereof, the Company shall be entitled to injunctive relief to enjoin or prevent such breach. 20. Attorneys' Fees. In the event that any party to this Agreement shall --------------- commence any arbitration or other proceeding to interpret this Agreement, or determine or enforce any right or obligation created hereby, including but not limited to any action for rescission of this Agreement or for a determination that this Agreement is void or ineffective ab initio, the -- ------ 9 prevailing party in such arbitration or other proceeding shall recover such party's costs and expenses incurred in connection therewith, including attorney's fees and costs of appeal, if any. Any arbitrator or panel of arbitrators shall, in making any award in any such arbitration or other proceeding, in addition to any and all other relief awarded to such prevailing party, include in such award such party's costs and expenses as provided in this Section 20. 21. Execution and Counterparts. This Agreement may be executed in any -------------------------- number of counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute only one instrument. Any or all of such counterparts may be executed within or outside the State of California. Any one of such counterparts shall be sufficient for the purpose of proving the existence and terms of this Agreement, and no party shall be required to produce an original or all of such counterparts in making such proof. A binding and valid signature by Employee or the Company may be submitted by facsimile. 22. Covenant of Further Assurances. All parties to this Agreement shall, ------------------------------ upon request, perform any and all acts and execute and deliver any and all certificates, instruments and other documents that may be necessary or appropriate to carry out any of the terms, conditions and provisions hereof or to carry out the intent of this Agreement. 23. Authorization to Work. Employee hereby represents and warrants to the --------------------- Company, which representation and warranty Employee acknowledges constituted a material inducement to the Company to enter into this Agreement, that Employee has authorization to work in the United States, and shall, at the request of the Company, provide documentation of such authorization as provided in the Immigration Reform and Control Act of 1986, and the regulations thereunder. 24. Binding Effect. Subject to the restrictions in Section 29 hereof -------------- respecting assignments, this Agreement shall inure to the benefit of and be binding upon all of the parties hereto and their respective executors, administrators, successors and permitted assigns. 25. Compliance with Laws. Nothing contained in this Agreement shall be -------------------- construed to require the commission of any act contrary to law, and whenever there is a conflict between any term, condition or provision of this Agreement and any present or future statute, law, ordinance or regulation contrary to which the parties have no legal right to contract, the latter shall prevail, but in such event the term, condition or provision of this Agreement affected shall be curtailed and limited only to the extent necessary to bring it within the requirement of the law, provided that such construction is consistent with the intent of the parties as expressed in this Agreement. 26. Gender. As used in this Agreement, the masculine, feminine or neuter ------ gender, and the singular or plural number, shall be deemed to include the others whenever the context so indicates. 27. No Third Party Benefit. Nothing contained in this Agreement shall be ---------------------- deemed to confer any right or benefit on any person who is not a party to this Agreement. 10 28. Construction; Representation by Counsel. The parties hereby represent --------------------------------------- that they have each been advised by independent counsel with respect to their rights and obligations hereunder. This Agreement shall be construed and interpreted in accordance with the plain meaning of its language, and not for or against either party, and as a whole, giving effect to all of the terms, conditions and provisions hereof. 29. Assignment. Neither party may assign this Agreement, or any rights ---------- hereunder, without the prior express consent of the other party. 11 IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written. "Company" SourcingLink.net, Inc., a Delaware corporation By: /s/ Marcel van Heesewijk ----------------------------- Its: Chairman -------------------------- "Employee" /s/ Daniel B. Rawlings ----------------------------------- Dan Rawlings 12 -----END PRIVACY-ENHANCED MESSAGE-----