##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




---

Form 10-KSB/A

(Amendment Number 1)


ANNUAL REPORT UNDER SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31,
2003

Commission file number: 000-21729

The viaLink Company

(Name of Registrant as Specified in its
Charter)


|                                                                                         |  |                                          
|---------------------------------------------------------------------------------------- |  | -----------------------------------------
|Delaware                                                                                 |  | 73-1247666                               
|(State or Other Jurisdiction
    of Incorporation or Organization)                       |  | (I.R.S. Employer
    Indemnification No.)
|13155 Noel Road, Suite 300
    Dallas, Texas(Address of Principal Executive
    Offices) |  | 75240(Zip Code)                          

(972) 934-5500

(Issuers Telephone
Number, Including Area Code)


Securities registered under Section 12(b) of
the Exchange Act:

|                    |  |                      
|------------------- |  | ---------------------
|                    |  | Name of Each Exchange
|Title of Each Class |  | on Which Registered  
|                    |  |                      
|None                |  | N/A                  

Securities registered under Section 12(g) of
the Exchange Act:

Common Stock, $.001 par value

(Title of Class)


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
past
90 days.     Yes þ          No o

Check if there is no disclosure of delinquent
filers in response to Item 405 of Regulation S-B
contained in this form, and no disclosure will be contained, to
the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this Form 10-KSB or any amendment to this
Form 10-KSB.     þ

The issuers revenues for the fiscal year
ending December 31, 2003 were $4,136,319.

As of December 31, 2003, the last business
day of the registrants most recently completed fiscal
year, the aggregate market value of the voting common stock of
the registrant held by non-affiliates of the registrant
(affiliates for these purposes being Registrants
directors, executive officers and holders of more than 5% of
Registrants common stock on such date) computed by
reference to the price at which the common equity was sold, or
the average bid and asked price of such common equity on that
date was $26.8 million. As of March 26, 2004, the
issuer had 182,823,035 outstanding shares of Common Stock.

Transitional Small Business Disclosure
Format:     Yes o          No þ

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for issuers
2004 Annual Meeting of Shareholders are incorporated by
reference into Part III of this Annual Report on
Form 10-KSB.



---






---

TABLE OF CONTENTS



|                                                                |                                                                                                          |          |  |  |  |  |  | 
|--------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------- | -------- |  |  |  |  |  | 
|                                                                |                                                                                                          | PART I  
|                                                                | Item 1. Business                                                                                        
|                                                                |                                                                                                          | BUSINESS
|ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS              
|SPECIAL PRECAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
|                                                                | Item 2. Description of Property                                                                         
|                                                                | Item 3. Legal Proceedings                                                                               
|                                                                | Item 4. Submission of Matters to a Vote of Security Holders                                             
|PART II                                                        
|                                                                | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                           
|DIVIDEND POLICY                                                
|                                                                | Item 6. Managements Discussion and Analysis of Financial Condition and Results of Operations           
|                                                                | Item 7. Financial Statements                                                                            
|PART III                                                       
|                                                                | Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.           
|                                                                | Item 9. Directors and Executive Officers of the Registrant.                                             
|                                                                | Item 10. Executive Compensation.                                                                        
|                                                                | Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|                                                                | Item 12. Certain Relationships and Related Transactions                                                 
|                                                                | Item 13. Exhibits and Reports on Form 8-K                                                               
|                                                                | Item 14. Controls and Procedures.                                                                       
|                                                                | Item 15. Principal Accountant Fees and Services.                                                        
|Consent of KPMG LLP                                            
|Certification of Chief Executive Officer                       
|Certification of Chief Financial Officer                       



---



##### Table of Contents






PART I






|        |         
|------- | --------
|Item 1. | Business




BUSINESS

We provide subscription-based,
business-to-business electronic commerce services that enable
companies in the consumer packaged goods and retail industries
to efficiently manage their highly complex supply chain
information. Our core service, syncLink®, allows
manufacturers, wholesalers, distributors, sales agencies (such
as food brokers) and retailers to communicate and synchronize
item, price and promotion information in a more cost-effective
and accessible way than has been possible using traditional
electronic and paper-based methods. We enable companies to build
on the foundation of synchronized data with more advanced
e-commerce practices. Our advanced services, which are all built
on the syncLink foundation, include distribuLinkSM
for chain pricing data in multi-tier distribution channels,
viaLink invoicing, chainLink® scan sales visibility, and
sbtLinkSM, the companys scan based trading
service.

We were originally formed in 1985 as Applied
Intelligence Group, an Oklahoma Corporation. In 1998, we changed
our name to The viaLink Company. In 1999, we reorganized as a
Delaware Corporation.

Industry Background



| |                                                      
| | -----------------------------------------------------
| | The Consumer Packaged Goods and Retail
    Industries

The consumer packaged goods (CPG) and retail
industries in the U.S. manufacture and distribute a wide
variety of prepackaged items primarily sold in supermarkets,
convenience stores, small grocery stores, mass merchandisers,
warehouse clubs and chain drugstores. The movement of
merchandise from manufacturer to retailer or operator is
characterized by various multi-tiered distribution methods, such
as direct-to-store deliveries and intermediate deliveries
through wholesalers, distributors and retailer warehouses. This
distribution structure is commonly referred to as the
supply chain.

The U.S. CPG and retail industries are very
large and highly fragmented. According to the U.S. Census
Bureau, the U.S. CPG, grocery and foodservice markets
represented $1.2 trillion in annual sales (1997 Retail Trade
Survey, new statistics due May 2002) generated by 300,000 retail
locations and 740,000 foodservice operators. These retail
locations and foodservice operators are supplied by over
20,000 manufacturers and over 50,000 wholesalers,
distributors and brokers. We believe we offer the only deployed
Internet-based, synchronized item, price and promotion
information service to this $1.2 trillion U.S. market. The
global CPG and retail market represents an even larger
opportunity for the Company.

Significant item-specific variations and
complexities characterize the CPG and retail industries. A
typical supermarket has an average of 40,000 items in inventory,
supplied by up to 5,000 separate suppliers. A large format
supermarket, or supercenter, can have over 100,000 unique items
in inventory. A convenience store has an average of 2,800 items
in inventory, supplied by up to 300 suppliers. According to
Information Resources, Inc., between 25,000 to 30,000 new
products are introduced in the CPG and grocery industries each
year.

Items, prices and promotions are unique to each
trading partner relationship within the supply chain, and
different products can be authorized for sale at the specific
store level. Product assortment, pricing and promotion can vary
by geography, store size, or other demographics. Furthermore,
item price and promotion changes at every level of the supply
chain can be very complex and time consuming for companies to
manage. Prices and promotions can change as frequently as daily
or weekly for certain products.

We provide our customers with an independent,
secure data of record for item, price and promotion
information, which they can agree upon as the official data for
their commerce relationship. Our services can be used to provide
a neutral source of data to resolve disputes about prices,
products and promotions between trading partners. The industry
fragmentation, the complexity and frequency of change item, price

1



---



##### Table of Contents



and promotion information, the lack of
standardized data, and disparate nature of industry technology
systems provide a tremendous opportunity for us to prosper as a
shared information intermediary.




| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Lack of Information Synchronization in the
    CPG, Grocery and Retail Industries

The CPG, grocery and retail industries
supply chain has experienced low electronic commerce
penetration, especially related to electronic communication of
item, price and promotion data, and continues to be
characterized by significant data complexity, manually intensive
business processes, and high purchase order and invoice error
rates.

One of the most significant challenges facing a
retailer is the maintenance of its pricebook. The
pricebook typically contains descriptions of each item in a
stores inventory, including the suppliers and
retailers product code, item specifications (packaging and
selling unit information), Universal Product Code (UPC),
purchase cost, retail sales price and any discounts to be
received from the item supplier. The large number of items,
variability of pricing, lack of reliable information exchanged
between trading partners and the traditional practice of manual
updating make pricebook maintenance extremely difficult and
error prone. Larger supply chain participants have attempted to
bridge the information gap by using the traditional electronic
data interchange (EDI) model. EDI technology has been
available for many years; however, many suppliers and retailers
have found this approach to be cost prohibitive and
technologically difficult to implement. Additionally, each
trading partner connection requires a separate EDI arrangement,
which multiplies the time, expense and complexity involved. With
viaLink, each company makes a single connection to a shared
database of record from which many trading partners
may access agreed upon item, price and promotion information.

These issues exist to varying degrees in almost
all industry verticals. We are currently supporting customers in
the Automotive Aftermarket Parts vertical, and have been in
discussions with many other market leaders in other verticals
about how our services can help with their problems in this area.



| |                                                                     
| | --------------------------------------------------------------------
| | Quantifying the Magnitude of the
    Information Problem in the U.S.

Unsynchronized product, price and promotion data
and ineffective communication between retailers and suppliers
represent a major source of inefficiency in the industries. This
inefficiency has a significant impact on profitability. A Joint
Industry Study on Efficient Consumer Response concluded that
non-productive costs related to promotion administration, buying
and selling processes, deductions and other clerical and
administrative areas amounted to 3.4% of sales. This translates
to over $30 billion in potential supply chain
inefficiencies in the U.S. CPG and retail industries alone.
The study also concluded that item, price and promotion
information synchronization is essential to achieve the benefits
of a paperless system.

Many suppliers and retailers continue to employ
paper-based, manual communications to manage their supply chain
information, resulting in operational inefficiencies and
administrative errors. These errors result in frequent invoice
errors and discrepancies and consequent administrative
inefficiencies for both suppliers and retailers attempting to
research and reconcile the source of the errors. A 1999 Grocery
Manufacturers of America (GMA) study found that an
estimated 60% of all invoices in the CPG industry have errors
and approximately 60% of the errors are due to price and
promotion issues. In 2001, an update of the study, estimated
that 65% of discrepancies are due to price and promotion issues.
The study update found that approximately 52% of all invoices
result in the retailer taking deductions when paying invoices
from suppliers. These deductions represent an estimated 9.9% of
annual invoice sales from suppliers.

The ECR study put the administrative cost to
resolve invoice errors at $40 per error and noted it can
reach up to $236 per error. In the 2001 GMA study, the 25
participant companies issued approximately 5.2 million
invoices annually. With an error rate of 65% and using a rate of
$40 to correct an invoice error, it cost these companies
$135 million per year just to resolve invoice
discrepancies. Companies with a direct-store-delivery model
typically issue more invoices that the average company in this
study and may incur relatively higher costs.

2



---



##### Table of Contents



Invoice errors and discrepancies are examples of
the inefficiencies and non-productive costs created in the CPG
and retail supply chain. Others sources of inefficiencies
include the cost of manual data entry, incorrect pricing based
on incorrect cost information, delays in new product
introductions, sub-optimized promotions, delays at the time of
product delivery to resolve disputes and similar inefficient
processes.



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Cost Savings and Benefits of
    Synchronization in the CPG and Retail Industries

A study conduced by GMA in 2000, Enabling
E-Commerce Through an Intermediary Service Provider, in which
viaLink served as the intermediary information service provider
looked at benefits of both data synchronization and scan based
trading. The economic benefit of supplier synchronization ranged
from $4,100 to $20,600 per year for a 100-store chain,
while for a 100-store retailer synchronization savings ranged
from $4,700 to $10,300 per year per supplier. The 2000 GMA
study also found that invoice deductions were reduced by 69%
during the pilot time period. This improvement was driven by a
59% reduction in cost mismatches/discrepancies and a 100%
elimination of item mismatches/discrepancies. In addition, the
time spent resolving item and price discrepancies that did occur
was reduced by half with even greater reductions for suppliers
and retailers with more items, promotions and store-level
complexities.



| |                   
| | ------------------
| | Scan Based Trading

The traditional business-to-business trading
environment in the CPG, grocery and retail industries is
delivery-based (i.e., the point of transaction is the
suppliers point-of-delivery to the retailer). Scan based
trading (SBT) is a next generation supply chain management
process that uses consumer point-of-sale (POS) data to
drive settlement, replenishment and promotion. Scan based
trading builds upon synchronization to align supply and demand
at the consumer point of sale.

In order to gain broad market acceptance, SBT
requires reliable, synchronized exchange of item, price and
promotion information and a shared control system for managing
delivery information, retail sales data, inventories and shrink
reporting. Our syncLink service provides the necessary
synchronization and viaLinks sbtLink service provides the
third party control system necessary to effectively manage SBT
processes. SBT represents a change from current business
practices and has broad benefits for both suppliers and
retailers. The long-term benefits to suppliers conducting SBT
through our sbtLink service are the competitive advantage gained
through better negotiation for shelf space and the increased
cash flow resulting from improved asset management. The
immediate benefits to suppliers include:



| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | increased route productivity through use of
    off-peak delivery hours;                                 
|
| |  | increased route selling opportunities through
    elimination of backroom waiting time and check-in time;
|
| |  | improved asset utilization due to the widening of
    delivery windows; and                              
|
| |  | timely access to consumer sales information by
    product, by store and by day.                         

For retailers, the long-term benefit of
conducting SBT through our sbtLink service is the competitive
advantage gained through better customer satisfaction and
loyalty resulting from accurate stocking and pricing of items.
The immediate benefits to retailers include:



| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | elimination of back room check-in;                                                                
|
| |  | increased productivity through re-deploying
    personnel normally involved in back room check-in;
|
| |  | improved shrink control;                                                                          
|
| |  | reductions in stock-out occurrences;                                                              
|
| |  | reduction in inventory investment; and                                                            
|
| |  | improved assortment.                                                                              

3



---



##### Table of Contents



According to the 2000 GMA study, the benefits and
key findings of conducting SBT using our syncLink and sbtLink
services were as follows:



| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | 3% to 4% increased sales growth;                                                 
|
| |  | shrink levels controlled at 0.3%; and                                            
|
| |  | error-free invoicing and payment  no
    deductions throughout the pilot period.

The pilot study concluded that SBT processes are
enhanced by using a single intermediary, such as viaLink, and
serves both trading partners because the intermediary bridges
the technical gap between trading partners, allows smaller
companies to participate in advanced electronic commerce
practices that would otherwise be unattainable, and provides
accurate and timely reporting that increases accountability and
speed of action among trading partners.

The experiences of our customers conducting SBT
over the past 3 years, reinforce the pilot results. For
these reasons, it has become one of the fastest growing
processes in this and other industries.

Our Solutions

We provide subscription-based,
business-to-business electronic commerce solutions designed
specifically to address the complexities and inefficiencies of
the supply chain in the CPG and retail industries.

Our solution architecture is designed to operate
across disparate technology platforms and item coding standards
and can be implemented and deployed rapidly. Instead of making
multiple connections to reach many trading partners, customers
make only a single connection, using their preferred method from
a wide range of technologies, including standard Internet
browsers, e-mail, highly sophisticated proprietary network
infrastructures, standard EDI formats or Extensible Markup
Language (XML), an emerging standard for the exchange of data
over the Internet.

Our solutions provide suppliers and retailers
with benefits throughout the business cycle from product
introduction through invoicing and supports enhanced analysis
and planning functions across business functions:



| |   |                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | reduced invoice discrepancies through
    synchronization of trading information, thereby reducing
    write-offs and the administrative costs associated with
    discrepancy resolution;
|
| |  | reduced manual data entry and pricebook
    maintenance, thereby increasing overall administrative
    efficiency;                                                                        
|
| |  | improved ability to manage pricing and to protect
    gross margin in an environment with constantly changing prices;                                                                     
|
| |  | increased sales force productivity resulting from
    decreased time spent resolving errors and disputes and increased
    time actually selling;                                         
|
| |  | enhanced promotion effectiveness and ability to
    facilitate more efficient new product introductions due to
    greater trading information visibility;                                
|
| |  | improved delivery and store receiving
    process; and                                                                                                                                    
|
| |  | increased sales from reducing out-of-stocks and
    improving replenishment processes.                                                                                                    

We offer a highly functional suite of value-added
supply chain electronic commerce services for the CPG and retail
industries. Our solutions comprise a number of defined services,
from data synchronization through advanced trading partner
collaboration processes



| |                                    
| | -----------------------------------
| | syncLink  Data
    Synchronization

Our core service, syncLink, offers manufacturers,
distributors, wholesalers, and retailers one shared source for
product attributes, price, and promotions, including new product
introductions, authorizations,

4



---



##### Table of Contents



and de-authorizations unique to their trading
relationships. The syncLink service replaces the multiple
connections among retailers, operators and suppliers with a
single electronic connection to a shared database. syncLink
provides customers with a cost-effective, accurate, reliable,
scaleable, and secure way to communicate and synchronize trading
information. The syncLink database forms the foundation for the
Companys other electronic commerce services.




| |                                           
| | ------------------------------------------
| | distribuLink  Chain Pricing
    Reporting

distribuLink, a reporting service used in
multi-tier distribution channels. It allows authorized
manufacturers, wholesalers, distributors and retailers to share
item, price and promotion information. distribuLink provides
item and pricing information visibility through each level of
multi-tiered distribution channels. For example, it enables a
manufacturer to view prices and promotions offered on its
products by its distributors to specific retailers.



| |                  
| | -----------------
| | viaLink Invoicing

viaLink Invoicing automates the creation of an
invoice, based on the quantity of product delivered to the store
and the price of record for the trading relationship in syncLink.

chainLink 
Scan Sales Visibility

chainLink provides supply chain visibility to
suppliers on a daily basis through the availability of POS data,
by store, by product and by day.

sbtLink 
Scan Based Trading

sbtLink is viaLinks Scan Based Trading
(SBT) service, which enables trading partners to transact
business on items actually sold at the retail store scanner.
Joint visibility to product movement in and out of the store and
tools to support the new business processes involved in SBT
enable increased delivery efficiencies, improved replenishment
processes, reduced out-of-stocks and shrink settlement.

promoLinkSM 
Scan Based Promotions

promoLinkSM supports scan based
promotions, based on daily store and product level scan sales
data and the promotion of record for the trading partnership in
the viaLink database.

viaLinks UCCnet Solutions

These solutions allow clients to use viaLink as
their agent to register products in the UCCnet registry for GTIN
compliance and to publish items to UCCnet-enabled trading
partners through UCCnet. viaLink clients do not have to go
through an independent UCCnet certification process and can
reach both the viaLink and the UCCnet trading communities with a
single connection.

We believe that the benefits of our solutions
will attract leading retailers and suppliers to our community of
CPG and retail industry participants. We also believe that the
addition of these retailers and suppliers will create a network
effect that increases the value of our viaLink solutions to
subscribers.

Strategy

Our objective is to become the leading provider
of advanced electronic commerce services to companies deploying
progressive retail distribution practices. We plan to accomplish
this by implementing the following strategies:



| |                                                                      
| | ---------------------------------------------------------------------
| | Target Leading Retailers and Suppliers to
    Create a Network Effect

We intend to create a network effect by targeting
leading retailers and suppliers and providing the services
necessary to create efficiencies for these key participants. We
believe the adoption of our services

5



---



##### Table of Contents



by these companies will be an important
endorsement for the rest of the CPG, grocery and retail
industries. As a result of this network effect, we believe the
value of our services to our subscribers will increase with the
addition of new trading partners, thereby increasing the overall
value of our solution.




| |                                                                
| | ---------------------------------------------------------------
| | Build on First Mover Advantage and Increase
    Brand Awareness

We believe our position as the first company to
offer the foundation of a synchronized, secure, shared database
containing item, price and promotion information on which to
deploy more advanced commerce services, provides us with a first
mover advantage to attract a critical mass of retailers and
suppliers. To increase the number of retailers and suppliers
that use our services, we intend to rapidly build awareness of
our services by developing a compelling brand and value
proposition. Our plans include:



| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | Expanding the capabilities of our internal sales
    force;                      
|
| |  | Working with existing customers to connect new
    suppliers and retailers;      
|
| |  | Advertising in industry and business media;                                      
|
| |  | Participating in industry trade shows and
    conferences; and                   
|
| |  | Working with industry trade associations to
    provide broad industry influence.



| |                         
| | ------------------------
| | Expand Service Offerings

Given the significant complexities and
inefficiencies prevalent in the CPG, grocery and retail supply
chains, we expect suppliers and retailers will demand more
advanced supply chain services that assist them in tracking
sales, forecasting demand, replenishing inventory and managing
transactions based on point-of-sale data. syncLink, the
foundation of our solution, allows us to develop and deploy
other value-added services. We will continue to invest resources
to develop complementary services that leverage the syncLink
database and create efficiencies for our subscribers.



| |                  
| | -----------------
| | Enter New Markets

We are currently aggressively pursuing
opportunities in other markets outside of the CPG and retail
industries. We are now participating in different industry
associations which afford us much more access to new market
prospects.

Technology Platform

Our technology platform is reliable, secure and
readily accessible based on open architectures and industry
standard technologies. The platform utilizes Oracle relational
database technology and applications built with the Smalltalk
object-oriented programming and development language. Smalltalk
is a portable development and operational environment, well
suited to manage mission-critical business applications. We
allow users to access the system using virtually any technology,
from an Internet browser to sophisticated EDI, including an
XML-based interface.

Access to our services is provided through the
Internet, as well as other methods of electronic communication.
In order to maintain the security of its database, users do not
have direct access to the underlying data stored in the Oracle
databases. Users connect to application programs, which
interpret the requests for service, then connect to the Oracle
databases for access to the underlying data.

Our production operations are housed and hosted
in Hewlett-Packards secure facility in Atlanta, Georgia.
This facility is secured through a variety of technical and
physical protection mechanisms, including full-time professional
security staff. The facility provides redundant infrastructure
such as backup utilities and communication lines to support a
high availability operation. The Hewlett-Packard servers hosting
our services include fail-over capability, with redundant data
storage and communications resources.

6



---



##### Table of Contents



Sales and Marketing

We employ a multi-tiered sales and marketing
strategy consisting of direct and indirect sales force personnel
to penetrate and influence potential customers. As of
December 31, 2003, our Sales and Marketing team consists of
4 full-time employees. Senior executives, particularly on
larger key accounts, are also actively involved in the sales
process.

The sales and marketing team is responsible for
generating sales leads, following-up on customer referrals,
signing contracts with new customers and providing input into
the Companys services and product development based on
customer feedback and market data. We generate sales leads
through trade advertising, customer referrals, public relations,
trade shows and strategic relationships. We also utilize a
variety of other consulting and contractor relationships with
industry experts and opinion leaders to help develop and promote
viaLinks services.

Our strategy is to create a network effect by
targeting leading retailers and suppliers and providing the
services necessary to create efficiencies for all participants.
As a result of this network effect, the value to each
participant using our services increases with the addition of
each new participant, increasing the overall value of the our
solution. Consequently, our best sales and marketing support
often comes from our existing customers. Our marketing strategy
is focused on increasing the awareness of our brand and
services, educating our target market on the benefits of B2B
e-commerce, and positioning our services as the cornerstone of
retail e-business activities.

Customers

We currently have over 1,000 customers,
representing manufacturers, wholesalers, distributors and
retailers. Our customers represent the spectrum of the industry,
from small suppliers and regional retail chains to large
national customers whose names are well-known. Our customer base
includes:

Retailers and
Wholesalers:AutoZone, AAFES, C&K
Market, ExxonMobil, Farm Fresh, Martins Supermarkets,
Meijer, Schnuck Markets, Shop N Save, Sunoco, Target, WinCo
Foods and Winn-Dixie.

Suppliers:American
Greetings, Bausch & Lomb, Bimbo Bakeries, Bob Evans
Farms, Chicken of the Sea, Cook Communication Ministries, Coors
Brewing Company, Dean Foods, Dreyers/ Edys Grand Ice
Cream, Faultless/ Bon Ami, Flowers Foods, General Mills, George
Weston Bakeries, Hallmark, I & K Distributors, Interstate
Brands, Keebler, Marcal Paper Mills, Miller Brewing Company,
Pepperidge Farm, Perfection Bakeries, Riviana Foods, Sara Lee
Bakery Group, Schwans Consumer Brands, Snyders of
Hanover, Tetley, Wise Foods and Wyeth Consumer Healthcare.

Sales and Marketing
Agencies:CROSSMARK®.

Three customers individually accounted for 9%, 9%
and 5% of our total revenues in 2001; and 11%, 9% and 5% of our
total revenues in 2002, 12%, 9% and 6% of our total revenues in
2003. Likewise, approximately 33%, 32% and 38% of our total
revenues were attributable to five clients in 2001, 2002 and
2003, respectively.

Product Development and Enhancement

We initially introduced syncLink in 1997 and
intend to continue to make significant investments in product
development and enhancements to improve and extend our services,
including enhancements to our viaLink Partner Package.

Growth of our services may require that we
continue to invest in our hardware platform, including
additional servers, enterprise storage systems and additional
backup and recovery capabilities.

Currently, the dynamic nature of the information
technology industry places significant research and development
demands on businesses that desire to remain competitive. Our
future success, particularly our ability to achieve widespread
market adoption, depends on the success of our product
development and enhancement efforts in a timely manner. There
are a number of risks and challenges involved in the

7



---



##### Table of Contents



development of new features and technologies
which, if not successfully addressed, would harm our business.


As of December 31, 2003, our product
development, technical support and operations staff consisted of
16 full-time employees. Our product development expenses
were $4.6 million in 2001, $2.1 million in 2002 and
$1.8 million in 2003. We believe that continued investments
in product development and enhancement will be required to
remain competitive.

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 very important to establishing and maintaining a technology
leadership position in addition to the various legal protections
available for our technology.

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
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.

Although we are not aware of any claims that we
are infringing any proprietary rights of third parties, there
can be no assurance that third parties will not claim
infringement by us in the future. 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 infringement claims against us,
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 and could
materially adversely affect our business, operating results and
financial condition.

Competition

The business-to-business electronic commerce
environment in which we operate is still evolving and subject to
rapid change. For example, the CPG and Grocery Industry is
moving to an Industry-wide standard approach of sharing data. In
many ways, this is a more current version of the Electronic Data
Interchange (EDI) approach of the last two decades.
However, with the advent of newer technologies, more robust data
exchange between trading partners is possible than was
previously. There are new entrants to the competitive field for
this piece of work, and we must be capable of performing the
work within this emerging environment in the manner it is being
adopted. This initiative, while immature, affects our approach
to sharing information throughout the industry on behalf of our
customers. Currently, we compete principally on the basis of the
specialized nature and uniqueness of our services. We believe

8



---



##### Table of Contents



the in-depth industry knowledge embedded in the
functionality of our services, our cost-effective subscription
pricing, and the accessibility of our services to all potential
customers in the industry are competitive advantages for us.
Additionally, we believe we have the most advanced electronic
commerce solutions in production today built on synchronized
item, price and promotion information.


Currently, we do not know of any direct
competition for our electronic commerce services. However, we
believe direct competition for our services will develop and
increase in the future. Direct competition could develop from
several potential sources, including:



| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |  | Large, enterprise-wide software vendors,
    developers and integrators such as EDS, i2 Technologies,
    IBM, Manugistics, Oracle and SAP;
|
| |  | EDI providers such as GEIS and Sterling Commerce;                                                                                          
|
| |  | Large business-to-business electronic commerce
    exchange vendors such as Ariba, CommerceOne and VerticalNet;                            
|
| |  | Other database vendors such as A.C.
    Nielsen, Information Resources and QRS;                                                            
|
| |  | Industry-led initiatives such as UCCnet; B2B
    Exchanges such as Transora, GNX and WWRE;                                                 
|
| |  | Consulting firms such as Accenture, Cap Gemini
    Ernst & Young, Deloitte & Touche, KPMG
    Consulting and PricewaterhouseCoopers; and   
|
| |  | Existing industry participants who may attempt to
    deploy their proprietary systems as industry solutions.                              

These large potential competitors, if successful,
may provide functionality 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.

Employees

As of December 31, 2003, we had
45 full-time employees, 4 were employed in sales and
marketing, 16 were employed in technical development, technical
support and operations, 22 were employed in implementation,
customer support and service and 3 were employed performing the
roles of human resources, administration, legal, 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.




ADDITIONAL FACTORS THAT MAY AFFECT FUTURE
RESULTS

You should carefully consider these factors
that may affect future results, together with all of the other
information included in this Form 10-KSB, in evaluating our
business. The risks and uncertainties described below are those
that we currently believe may materially affect us. Additional
risks and uncertainties that we are unaware of or that we
currently deem immaterial also may become important factors that
affect us.

Keep these risks in mind when you read
forward-looking statements elsewhere in this
Form 10-KSB. These are statements that relate to our
expectations for future events and time periods. Generally, the
words anticipate, expect,
intend, and similar expressions identify
forward-looking statements. Forward-looking statements involve
risks and uncertainties, and future events and circumstances
could differ significantly from those anticipated in the
forward-looking statements. Please see Special Cautionary
Note Regarding Forward-Looking Statements below in this
Item 1.

9



---



##### Table of Contents



We may be unable to obtain the additional
capital required to sustain and grow our business.

We intend to continue our investment in and
development of our services and technology. 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.
Our ability to fund our planned working capital and capital
expenditures will depend largely upon our ability to obtain
sufficient capital. Our future capital requirements will depend
on a number of factors, including our:



| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | Services achieving market acceptance;                                         
|
| |  | Services producing a sustainable revenue stream;                              
|
| |  | Working capital requirements; and                                             
|
| |  | Level of our investment in and development of our
    services and technology.

We may not be able to obtain the additional
capital resources necessary to satisfy our cash requirements or
to implement our growth strategy successfully.

If we need additional capital, we cannot be
certain that it will be on favorable terms. If we cannot obtain
adequate additional capital resources, we will be forced to
curtail our planned business expansion, sell or merge our
business, or commence bankruptcy proceedings. We may also be
unable to fund our ongoing operations, including investment in
and development of our services and technology, and expansion of
our sales and marketing activities.

We have received a Going Concern
opinion from our independent accountants.

Our independent auditors have modified their
report on our consolidated financial statements for the fiscal
year ended December 31, 2003, with an explanatory paragraph
regarding our ability to continue as a going concern. This
modified report was originally issued in July 2001. Such an
opinion by our independent auditors may impact our dealing with
third parties, such as customers, suppliers and creditors,
because of concerns about our financial condition. Any such
impact could have a material adverse effect on our business,
operating results and financial condition.

We have a history of operating losses and
expect future operating losses.

We have a history of operating losses, and we
expect to incur net losses into early 2004. We incurred net
losses of approximately $24.5 million in 2001,
$8.1 million in 2002 and $10.0 million in 2003. As of
December 31, 2003, we had an accumulated deficit of
approximately $95.2 million representing the sum of our
historical net losses. We continue to expend significant
resources to aggressively develop and market our services into
an unproven market. While we continue to increase our optimism
regarding our prospects, there is a possibility that we may
never generate sufficient revenues to achieve or sustain
profitability or generate positive cash flow.

If our viaLink services fail to gain market
acceptance, our business will be materially adversely
affected.

We will derive virtually all of our revenues for
the foreseeable future from implementation fees and subscription
revenues from our viaLink services. We are just beginning to
generate a significant amount of revenues from these services. A
number of factors will determine whether our services achieve
market acceptance, including:



| |   |                                               
| | - | ----------------------------------------------
| |  | Competitive offerings;                        
|
| |  | Performance and functionality of our services;
|
| |  | Ease of adoption;                             
|
| |  | Satisfaction of our initial subscribers; and  
|
| |  | Success of our marketing efforts.             

10



---



##### Table of Contents



If market acceptance develops more slowly than
expected, our business, operating results and financial
condition will be seriously damaged.

Our success is dependent upon a critical mass
of leading retailers and suppliers subscribing to our
services.

Our success depends on a significant number of
retailers subscribing to and using our services and linking with
manufacturers, wholesalers and distributors over the Internet
through our syncLink service and the viaLink Partner Package
suite of services. We cannot predict if, or when, a significant
number of manufacturers, suppliers and retailers will subscribe
to our services. To encourage purchasers to subscribe to and use
our services, we must offer a broad range of product, price and
promotion information from a large number of suppliers through
our syncLink service. However, to attract suppliers to subscribe
to syncLink, we must increase the number of retailers who use
our services. If we are unable to build a critical mass of
retailers and suppliers, we will not be able to benefit from a
network effect where the value of our services to each
subscriber significantly increases with the addition of each new
subscriber. Our inability to achieve this network effect would
reduce the overall value of our services to retailers and
suppliers and, consequently, would harm our business.

Our sales cycle causes unpredictable
variations in our operating results.

Our sales cycle has been and may continue to be
unpredictable. Our sales cycle is also subject to delays because
we have little or no control over customer-specific factors,
including customers budgetary constraints and internal
acceptance procedures. Consequently, we may spend considerable
time and expense providing information to prospective customers
about the use and benefits of our services without generating
corresponding revenue. The length of the sales pursuit makes it
difficult to accurately forecast the quarter in which our
implementation and subscription services will occur. This may
cause our revenues from those services to be delayed from the
expected quarter to a subsequent quarter or quarters or to vary
from quarter to quarter. Furthermore, there is substantial
uncertainty as to when particular sales efforts will begin to
generate revenues. As a result, our revenues and results of
operations in any quarter may not meet market expectations or be
indicative of future performance and it may be difficult to
evaluate our prospects or to estimate the value of the company.

We depend on suppliers for the success and
accuracy of our services.

We depend on suppliers to subscribe to our
services in sufficient and increasing numbers to make our
services attractive to retailers and, consequently, other
suppliers. In order to provide retailers accurate data, we rely
on suppliers to update their item, price and promotion
information stored in our database. We cannot guarantee that the
item, price and promotion information available from our
services will always be accurate, complete and current, or that
it will comply with governmental regulations, such as those
relating to pricing alcohol and liquor or nutritional
guidelines. Incorrect information could expose us to liability
if it harms users of our services or result in decreased
adoption and use of our services.

Our customer base is concentrated and our
success depends in part on our ability to retain existing
customers and subscribers.

If one or more of our major customers were to
substantially reduce or terminate their use of our services, our
business, operating results and financial condition would be
harmed. In 2003, we derived 38% of our total revenues from our
five largest customers. Our largest customer in 2003 accounted
for approximately 12% of our total revenues. The amount of our
revenues attributable to specific customers is likely to vary
from year to year. We do not have long-term contractual
commitments with any of our current customers, and our customers
may terminate their contracts with little or no advance notice
and without significant penalty. As a result, we cannot be
certain that any of our current customers will be customers in
future periods. A customer termination would not only result in
lost revenue, but also the loss of customer references that are
necessary for securing future customers.

11



---



##### Table of Contents



We are dependent upon the operation of
Hewlett-Packards data center for the timely and secure
delivery of our services.

We use Hewlett-Packards data center as the
host for our services. We are dependent on our continued
relationship with Hewlett-Packard and on their data center for
the timely and secure delivery of our services. If
Hewlett-Packards data center fails to meet our
expectations in terms of reliability and security, or if
Hewlett-Packard, as our largest vendor, withdraws its support,
our ability to deliver our services will be seriously harmed,
resulting in the potential loss of customers and subscription
revenue. Furthermore, if our relationship with Hewlett-Packard
were terminated, we would be forced to find another service
provider to host our services. Our current service agreement, as
extended, expires on November 30, 2004. If we were required
to transition to another service provider, the transition could
result in interruptions of our services and could increase the
cost of obtaining these services.

We expect to face increased competition. If we
are unable to compete successfully, our business will be
harmed.

Currently, we do not know of any direct
competition for our portfolio of electronic commerce services.
However, we believe direct competition for our services will
develop and increase in the future. 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.

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.
Our potential competitors may have significant advantages over
us, including:



| |   |                                                                        
| | - | -----------------------------------------------------------------------
| |  | Significantly greater financial, technical and
    marketing resources;
|
| |  | Greater name recognition;                                              
|
| |  | Broader range of products and services; and                            
|
| |  | Larger customer bases.                                                 

Consequently, they may be able to respond more
quickly to new or emerging technologies and changes in customer
requirements.

We must adapt to technology trends and
evolving industry standards to remain competitive.

The Web-based electronic commerce market is
characterized by rapid changes due to technological innovation,
evolving industry standards and changes in customer needs. Our
future success will depend on our ability to continue to develop
and introduce a variety of new services and enhancements that
are responsive to technological change, evolving industry
standards and customer requirements on a timely basis. We cannot
be certain that technological developments and products and
services our competitors introduce will not cause our existing
services, and new technologies in which we invest, to become
obsolete.

Our current cost reduction efforts could
continue to strain our resources.

Our current cost reduction efforts place
significant demands on our management and operational resources.
We may not be able to maintain and grow our business at our
current reduced staffing levels. Additionally, our failure to
retain the highly trained technical personnel that are essential
to our product development, marketing, service and support 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 may be materially adversely
affected.

12



---



##### Table of Contents



As part of our cost reductions beginning in
2001, the compensation of nearly every employee was reduced, and
we may not be able to retain employees at current compensation
levels.

We started 2001 with 135 full-time employees
and 20 contract workers who were engaged on viaLink projects on
a full-time basis. As of June 30, 2003, we had
60 full-time employees. As of December 31, 2003, we
had 45 full-time employees. Most current full-time
employees are being compensated at rates from 10% to 15% less
than in 2001, and members of management have foregone bonus
payments of up to 60% of base compensation and have reduced
compensation from 10% to 40%. At these reduced rates it is
unlikely we will be able to retain all current employees and
officers.

The price of our common stock may decline due
to shares eligible for future sale. Also, you will experience
dilution in connection with the conversion of preferred stock
and exercise of warrants.

Sales of a substantial number of shares of common
stock, or even the potential for such sales, could adversely
affect the market price of the common stock and could impair our
ability to raise capital through the sale of equity securities.
As of December 31, 2003, we had outstanding
181,573,035 shares of common stock. These shares are freely
tradable without restriction or further registration under the
Securities Act unless purchased by our affiliates.

Furthermore, an additional:



| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |  | 24.7 million shares of common stock are
    issuable upon the exercise of currently outstanding warrants;                       
|
| |  | 83.1 million shares of common stock are
    issuable upon the conversion of currently outstanding preferred
    stock;          
|
| |  | 63.2 million shares of common stock are
    issuable upon the conversion of currently outstanding
    convertible notes payable.



| |                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Substantially all shares issued following the
    exercise of these options or warrants or the conversion of the
    preferred stock will be freely tradable.




SPECIAL PRECAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS

This Form 10-KSB contains forward-looking
statements that involve substantial risks and uncertainties. You
can identify these statements by forward-looking words such as
may, will, expect,
intend, anticipate, believe,
estimate, continue and other similar
words. You should read statements that contain these words
carefully because they discuss our future expectations, make
projections of our future results of 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 factors listed in the sections captioned
Additional Factors That May Affect Future Results
and Managements Discussion and Analysis of Financial
Condition and Results of Operations, as well as any
cautionary language in this Form 10-KSB, 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.






|        |                        
|------- | -----------------------
|Item 2. | Description of Property

We currently lease the following facilities under
operating leases:



| |   |                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Approximately 12,050 square feet of space in
    Dallas, Texas for our corporate headquarters under a lease
    expiring on October 31, 2006. The lease requires monthly
    rental payments over the term of the lease of $22,597.50,
    subject to normal operating expense escalations beginning
    January 2005.

We believe that our existing facilities are
adequate for our current needs and that additional space will be
available as needed.

13



---



##### Table of Contents








|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

There are no material legal proceedings pending
or, to our knowledge, threatened against us.






|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

None.




PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

Our common stock is quoted on the
Over-the-Counter Bulletin Board (OTCBB). Our common stock was
quoted on the Nasdaq National Market under the symbol
VLNK from March 2000 through November 2001. The
following table sets forth, for the periods indicated, the high
and low closing prices of the common stock as reported by the
OTCBB, Nasdaq National and SmallCap Markets.

|               |  |             |      |     |  |   |      | 
|-------------- |  | ----------- | ---- | --- |  | - | ---- | 
|               |  |            
|               |  | Common     
|               |  | Stock Price
|               |  |            
|               |  | High        |      | Low
|               |  |             |      |    
|2001:          |  |             |      |     |  |   |      | 
|First Quarter  |  | $           | 5.53 |     |  | $ | 2.00 | 
|Second Quarter |  |             | 3.84 |     |  |   | 1.55 | 
|Third Quarter  |  |             | 1.79 |     |  |   | 0.09 | 
|Fourth Quarter |  |             | 0.40 |     |  |   | 0.10 | 
|2002:          |  |             |      |     |  |   |      | 
|First Quarter  |  |             | 0.25 |     |  |   | 0.12 | 
|Second Quarter |  |             | 0.18 |     |  |   | 0.10 | 
|Third Quarter  |  |             | 0.14 |     |  |   | 0.07 | 
|Fourth Quarter |  |             | 0.26 |     |  |   | 0.09 | 
|2003:          |  |             |      |     |  |   |      | 
|First Quarter  |  |             | 0.18 |     |  |   | 0.09 | 
|Second Quarter |  |             | 0.14 |     |  |   | 0.08 | 
|Third Quarter  |  |             | 0.15 |     |  |   | 0.09 | 
|Fourth Quarter |  |             | 0.14 |     |  |   | 0.06 | 

Series D Convertible Preferred
Stock.On September 30, 2002 we
completed the first of two closings for the sale of
$4.5 million of Series D Convertible Preferred Stock
to SDS Merchant Fund, L.P. and other purchasers. The first
closing resulted in proceeds of $3,434,850 and the issuance of
286 shares of Series D Preferred Shares. Each share of
Series D Convertible Preferred Stock has a face value of
$12,000 and is convertible into our Common stock at
$0.12 per share. At the time of the first closing all
outstanding shares of previously issued Series B and
Series C Redeemable Convertible Preferred Stock and
accumulated, unpaid dividends were exchanged for 513 shares
of our Series D Convertible Preferred Stock with a face
value of $6,150,000.

Additionally, in accordance with the Purchase
Agreement, we issued warrants to purchase 50,000 shares of
our common stock for each share of Series D Convertible
Preferred Stock issued including the issuance of warrants to
purchase 25.6 million common shares to holders of the
previously issued Series B and Series C Preferred
Stock. On September 30, 2002, we issued warrants to
purchase a total 39.9 million shares of common stock which
were exercised immediately at a nominal exercise price of $0.001.

The Series D Convertible Preferred Stock,
par value $.001 per share, is convertible into shares of
our common stock in the manner, and upon the terms, provisions
and conditions set forth in the Certificate of

14



---



##### Table of Contents



Designation of the Preferred Stock. The
conversion price of the Series D Convertible Preferred
Stock is subject to certain adjustments under the terms of the
Certificate of Designation. The proceeds from issuance of the
Series D Convertible Preferred Stock and Warrant issued and
the fair value of the warrants issued to the holders of the
previously issued Series B and Series C Preferred
Stock has been allocated to each instrument based on their
relative fair values. Additionally, the Series D
Convertible Preferred Stock includes a beneficial conversion
ratio at the issuance date. The fair value of the Warrants and
the intrinsic value of the beneficial conversion ratio has been
deemed a dividend to holders of the Preferred Stock and
considered a non-cash dividend to the Series D Convertible
Preferred Stock shareholders recorded during the third quarter
of 2002 and has been included in the determination of net loss
applicable to common stock for the year ended December 31,
2003.


The second closing of 105 shares of
Series D Convertible Preferred Stock was completed on
February 5, 2003, upon the effectiveness of the
registration statement covering the underlying common shares.
The second closing yielded proceeds to the company of
approximately $1.26 million.




DIVIDEND POLICY

We have never declared or paid cash dividends on
our capital stock and we do not intend to pay cash dividends on
our capital stock in the foreseeable future. We currently expect
to retain any future earnings to fund the operation and
expansion of our business. Any future determination as to the
payment of dividends will be at the discretion of our board of
directors.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 6. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following discussion should be read in
conjunction with the financial statements and related notes. The
following discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking
statements as a result of certain factors, including those
discussed below and elsewhere in this Form 10-KSB,
particularly under the heading Additional Factors That May
Affect Future Results.

Statements of our managements intentions,
beliefs, anticipations, expectations and similar expressions
concerning future events or outcomes contained in this Report
constitute forward-looking statements as defined in
the Private Securities Litigation Reform Act of 1995 (the
Reform Act). Any forward-looking statements are made
by us in good faith, pursuant to the safe-harbor provisions of
the Reform Act. As with any future event or outcome, we cannot
assure you that the events or outcomes described in
forward-looking statements made in this Report will occur or
that the results of future events or outcomes will not vary
materially from those described in the forward-looking
statements. These forward-looking statements reflect our
managements current views and projections regarding
economic conditions, industry environments and our performance.
Important factors that could cause our actual performance and
operating results to differ materially from the forward-looking
statements include, but are not limited to, changes in the
general level of economic activity in the markets served by us,
introduction of new products or services by competitors, sales
performance, expense levels, interest rates, changes in our
financial condition, availability and terms of capital
sufficient to support our current and anticipated level of
activity, delays in implementing further enhancements to our
services and our ability to implement our business strategies.

Our expectations with respect to future results
of operations that may be embodied in oral and written
forward-looking statements, including any forward-looking
statements that may be included in this Report, are subject to
risks and uncertainties that must be considered when evaluating
the likelihood of our realization of such expectations. Our
actual results could differ materially. Factors that could cause
or contribute to such differences include, but are not limited
to, those discussed in Additional Factors That May Affect
Future Results.

15



---



##### Table of Contents



Overview

We provide subscription-based,
business-to-business electronic commerce services that enable
companies in the consumer packaged goods and retail industries
to efficiently manage their highly complex supply chain
information. Our core service, syncLink®, allows
manufacturers, wholesalers, distributors, sales agencies (such
as food brokers) and retailers to communicate and synchronize
item, price and promotion information in a more cost-effective
and accessible way than has been possible using traditional
electronic and paper-based methods. We enable companies to build
on the foundation of synchronized data with more advanced
e-commerce practices. Our advanced services, which are all built
on the syncLink foundation, include distribuLinkSM
for chain pricing data in multi-tier distribution channels,
viaLink invoicing, chainLink® scan sales visibility, and
sbtLinkSM, the companys scan based trading
service.

We were originally formed in 1985 as Applied
Intelligence Group, an Oklahoma Corporation. In 1998, we changed
our name to The viaLink Company. In 1999, we reorganized as a
Delaware Corporation.

Critical Accounting Policies

The Securities and Exchange Commission
(SEC) recently released Financial Reporting Release
No. 60, which requires all companies to include a
discussion of critical accounting policies or methods used in
the preparation of financial statements. In addition, Financial
Reporting Release No. 61 was recently released by the SEC
to require all companies to include a discussion to address,
among other matters, liquidity, off-balance sheet arrangements,
contractual obligations and commercial commitments. The
Companys significant accounting policies and methods used
in the preparation of the Consolidated Financial Statements are
discussed in Footnote 1 of the Notes to Consolidated
Financial Statements. The following is a listing of the
Companys critical accounting policies and a brief
discussion of each:



| |   |                                 
| | - | --------------------------------
| |  | Allowance for doubtful accounts;
|
| |  | Revenue recognition; and        
|
| |  | Asset Impairment;               

Allowance for Doubtful
Accounts.The Companys allowance
for doubtful accounts relates to trade accounts receivable. The
allowance for doubtful accounts is an estimate prepared by
management based on identification of the collectibility of
specific accounts and the overall condition of the receivable
portfolios. The Company specifically analyzes individual
customer balances in trade receivables, historical bad debts,
customer credits, customer concentrations, customer
credit-worthiness, current economic trends and changes in
customer payment terms when evaluating the adequacy of the
allowance for doubtful accounts. If the financial condition of
the Companys customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional
allowances may be required. Likewise, should the Company
determine that it would be able to realize more of its
receivables in the future than previously estimated, an
adjustment to the allowance would increase income in the period
such determination was made. The allowance for doubtful accounts
is reviewed on a quarterly basis and adjustments are recorded as
deemed necessary.

Revenue Recognition.We expect to generate our future revenues primarily from monthly
subscriptions to our services. For use of our syncLink service,
our customers pay us either a flat monthly subscription rate or
a rate based on the number trading partners and the size and
complexity of the trading relationships. Our other services are
available for additional monthly subscription fees.

We also charge an implementation fee ranging from
$1,200 for an on-line implementation to over $100,000 for more
complex supplier and retailer installations. Our implementation
fees are separately priced based on time and materials.
Implementation costs consist primarily of labor by technical
support personnel to configure customer data and establish a
connection to our services. Our subscription services are
provided by and are resident on our database servers. Our
customers gain access to and use our services through means
ranging from Internet web browsers to fully automated batch
interfaces imbedded

16



---



##### Table of Contents



in the customers IT systems. Basic implementation
services, including training the customer on how to use our
services and how to format and populate our database with the
customers data, are provided to all of our customers.
Services beyond the basic implementation services include
consulting services that help customers modify their own IT
systems and procedures to enable more automated interfaces with
our services.


We recognize revenues for our subscription and
basic implementation services over the terms of the subscription
arrangements. Revenues collected in advance are deferred and
recognized as earned. Revenues for consulting services related
to complex supplier and retailer implementations are recognized
as services are provided.

Contracts for customer use of our services are
generally for periods ranging from one to three years, but are
generally cancelable with 30 days notice. Implementation
fees for our services are based on time and materials, are due
up front, are nonrefundable and are separately priced from the
use of our services. Implementation costs consist primarily of
labor by technical support personnel to configure customer data
and establish a connection to the viaLink database.
Implementation activities can range from a basic
implementation that simply establishes a web browser interface
to more involved activities where we are engaged to assist a
customer in modifying their systems and automating the
connection. We have no obligation to perform any future
implementation services and no additional implementation
services are necessary upon renewal of the service by the
customer. We recognize implementation fees and associated costs
for the more involved implementation activities as the services
are provided. Implementation fees and associated direct costs to
provide basic implementations are deferred and recognized over
the period the subscription-based services are provided.
Implementation fees and associated direct costs for basic
implementations are deferred because we do not have an objective
basis to determine the fair value of the basic implementation
services and they are essential to subscription to our services.
The fair value of more involved implementation activities is
established using a residual method and generally equals the
amount charged by us based on time and materials. We recognized
revenue for subscription fees for customer use of our services
as these services are provided. Revenues collected in advance
and revenues dependent upon future performance criteria are
deferred and recognized as earned and those performance criteria
are met.

Asset Impairment.The Company reviews long-lived assets for impairment in
accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. The Company
adopted SFAS No. 144 in fiscal year 2002.
SFAS No. 144 required the company to identify events
or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If impairment indicators are
present and the estimated future undiscounted cash flows are
less than the carrying value of the long-lived assets, the
carrying value is reduced to the estimated fair value as
measured by the discounted cash flows. Our continuing losses
from operations is one factor which could be an indicator that
the carrying amounts of any of our assets may not be
recoverable. The Company performed an analysis comparing
estimated future cash flows to the carrying value of its assets
at December 31, 2003. The analysis did not indicate that an
impairment exists as of December 31, 2003. The estimated
future cash flows were based upon certain assumptions and are
dependent upon future performance. See ADDITIONAL FACTORS
THAT MAY AFFECT FUTURE PERFORMANCEfor factors that may
cause our operations to vary from our estimates. If actual
results differ from the estimated future cash flows, impairment
may be evident in future periods.

17



---



##### Table of Contents



Results of Operations



| |                           
| | --------------------------
| | Comparison of 2003 to 2002

Revenues.Our
revenues in 2003 and 2002 are comprised of revenues for
subscriptions to our services and implementation revenues. The
following table sets forth for the periods indicated the
components of revenue included in our consolidated statements of
operations:

|          |                |      |   |           |  |  |   |           | 
|--------- | -------------- | ---- | - | --------- |  |  | - | --------- | 
|          |                | 2002 |   | 2003     
|          |                |      |   |          
|Revenues: |                |      |   |           |  |  |   |          
|          | Subscription   |      | $ | 2,825,350 |  |  | $ | 3,650,263 | 
|          | Implementation |      |   | 1,630,897 |  |  |   | 486,056   | 
|          |                |      |   |           |  |  |   |          
|          | Total revenues |      | $ | 4,456,247 |  |  | $ | 4,136,319 | 
|          |                |      |   |           |  |  |   |          

Subscription revenues increased 29% from 2002 to
2003. This increase is due to increases in the number of
subscribers to our services and increases in our subscription
rates. Subscription revenue growth is dependent upon the number
of subscribers to our services and how many trading partners
with which they are exchanging data (connections).
Continued growth is dependent upon increasing the number of
connections between our existing customers and adding new
customers. The rate at which the connections increase can vary
significantly from customer to customer depending upon each
customers deployment strategies. Historically, our
retailer customers have been able to better assist us in
increasing the number of connections. During 2001, we signed
agreements with Winn Dixie, Meijer, and Target Stores. During
2002, we signed an agreement with Exxon-Mobil, expanded our
relationship with Target and signed 9 other retailers. During
2003, we signed an agreement with Autozone to provide Pay on
Scan services. All of our retail customers have increased the
number of connections with our supplier customers when comparing
2003 to 2002. As we add additional retail customers we expect
continued increases in the number of supplier customers
purchasing implementation and subscription services. Our current
pricing for retailers ranges from $25 per supplier per
month for a small retailer and a flat rate of up to
$50,000 per month for the largest retailers. Our pricing
for suppliers ranges from $25 up to $5,000 per retailer
connection per month. Our implementation revenues decreased from
2002 to 2003 due to a decrease in the number of larger
implementation projects and decreased implementation services
required for each customer. These efficiencies were achieved
through the use of technology and enhanced internal processes as
part of our implementation services. These efficiencies have
allowed us to quote lower implementation fees for certain
customers. We believe that the lower initial costs for the
customer is resulting in increased numbers of customers
purchasing our services and also accelerates the opportunity for
subscription revenues.

Customer Operations.Customer operations expense consists of personnel costs
associated with implementation, consulting and other services
and costs of operating, maintaining and accessing our technical
operations and hosting facilities. Customer operations expense
also includes the cost of providing support and maintenance to
customers. Our customer operations expense decreased from
$5.1 million in 2002 to $3.9 million in 2003. This
decrease is due primarily to decreases in expenses from our
operations platform at Hewlett-Packard, including rent, reduced
telecom costs and decreased personnel and contract labor costs
from our cost reduction efforts in 2002 and again in 2003. Our
customer operations team consisted of 22 and 21 people at
December 31, 2003 and 2002, respectively. The costs for our
operating platform are generally fixed and represent the
operating capacity necessary for expected growth through 2004.
We expect customer operations expenses to increase only in
response to increased demand for our implementation and customer
support services.

Development.Development expense includes personnel and contract labor costs
and professional fees incurred for product development,
enhancements, upgrades, quality assurance and testing. Our
development expenses decreased from $2.1 million in 2002 to
$1.8 million in 2003. This decrease is due to decreased use
of service providers to provide development resources and
decreases in personnel costs. Our development team consisted of
16 and 21 people at December 31, 2003 and 2002,
respectively. We are

18



---



##### Table of Contents



continuously undertaking various projects to
expand the functionality of our services and we expect the
continuance of these expenses for the foreseeable future.


Selling and
Marketing.Selling and marketing
expense consists primarily of personnel costs, travel,
promotional events, including trade shows, seminars and
technical conferences, advertising and public relations
programs. Selling and marketing expense decreased from
$2.4 million in 2002 to $1.6 million in 2003. This
decrease was primarily due to reductions in personnel costs,
travel and decreased advertising, promotion and professional
fees from 2002 to 2003. Personnel costs decreased from
$1.9 million in 2002 to $1.3 million in 2003. During
2002 and 2003, we incurred $0.3 million and
$0.1 million respectively, for advertising, promotion and
professional fees to promote our services. Our sales and
marketing team included 4 and 14 people at December 31,
2003 and 2002, respectively.

General and Administrative
(G&A).G&A expense consists
primarily of the personnel and other costs of the finance, human
resources, administrative and executive departments and the fees
and expenses associated with legal, accounting and other
services. G&A expense decreased from $2.6 million in
2002 to $2.5 million in 2003. This decrease in G&A
expense is attributable to several factors: a) decrease of
$0.3 million in employee compensation from 2002 to 2003
offset in part by an increase of $0.1 million in legal and
other professional fees; b) a decrease of $0.1 million
in rent and other occupancy costs and c) a decrease of
$0.1 million in travel and other staffing costs. In 2002,
we terminated the lease for our previous headquarters in
Oklahoma City in exchange for $100,000 in cash and $100,000 in
our common stock. We removed all obligations previously recorded
related to this agreement resulting in the reversal of
$0.4 million of expense in 2002. G&A expense for 2002
includes $0.3 million for certain severance agreements with
employees that were terminated. G&A expense for 2003
includes $0.2 million for certain severance agreements with
employees that were terminated. We anticipate that our other
G&A expenses will remain constant in absolute dollars in
2004 reflecting the non-recurrence of the significant items
above and further reduced by effects of our cost reduction
efforts taken during 2003.

Depreciation and
Amortization.Depreciation and
amortization expense decreased from $1.2 million in 2002 to
$0.6 million in 2003. This decrease reflects the complete
depreciation of certain long-lived assets and decreases in
capital expenditures in 2002 and 2003.

Interest Expense,
Net.Interest expense in 2003,
represents the non-cash interest expense for the amortization of
the initial debt discount recorded for each of our notes payable
and interest expense on our capital lease with HP. The debt
discount is being amortized over the life of each note and is
expected to continue at decreased levels into 2004.

Tax Provision.Deferred tax assets and deferred tax liabilities are separately
recognized and measured at currently enacted tax rates 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 not more likely than not that
all or a portion will be realized. We have established a full
valuation allowance for the net deferred tax assets as of
December 31, 2002 and December 31, 2003, generated by
losses recorded. We will continue to provide a full valuation
allowance for future and current net deferred tax assets until
such time as we believe we have sufficient objective evidence to
support that it is more likely than not that the asset will be
realized.

Gain on Extinguishment of Debt.
Gain on extinguishment of debt in 2002
resulted from entering into the Second Global Amendment
Agreement with Hewlett-Packard under which we agreed to pay
Hewlett-Packard $350,000 and to issue to Hewlett-Packard
2.0 million shares of our common stock in exchange for
forgiveness of approximately $2.1 million representing all
amounts outstanding, current and deferred, under certain
equipment leases. The gain of $1.6 million represents the
outstanding amounts less the cash paid and the fair value of the
common shares issued.

Dividends on Preferred
Stock.Dividends on Preferred Stock
includes the allocation of the proceeds received to the warrants
issued and beneficial conversion features of our Preferred Stock
issued during the respective periods. During 2003,
$1.3 million was recorded with the issuance of
$1.3 million of our

19



---



##### Table of Contents



Series D Preferred Stock. During 2002,
$3.2 million was recorded with the issuance of
$4.0 million of our Series C Preferred Stock and
$6.4 million was recorded with the issuance of our
Series D Convertible Preferred Stock. Additionally, stated
dividends were accrued from each date of issuance through
conversion on the Series A and Series B Preferred
Stock. Dividends were accrued on the Series B Preferred
stock through conversion on September 30, 2002. The
Series C Preferred Stock did not provide for stated
dividends. The Series D Convertible Preferred Stock accrues
dividends at 8% per annum and increased to 12% on
January 1, 2004.




| |                           
| | --------------------------
| | Comparison of 2002 to 2001

Revenues.Our
revenues in 2002 and 2001 are comprised of revenues for
subscriptions to our services and implementation revenues. The
following table sets forth for the periods indicated the
components of revenue included in our consolidated statements of
operations:

|          |                |      |   |           |  |  |   |           | 
|--------- | -------------- | ---- | - | --------- |  |  | - | --------- | 
|          |                | 2001 |   | 2002     
|          |                |      |   |          
|Revenues: |                |      |   |           |  |  |   |          
|          | Subscription   |      | $ | 1,381,990 |  |  | $ | 2,825,350 | 
|          | Implementation |      |   | 2,070,502 |  |  |   | 1,630,897 | 
|          |                |      |   |           |  |  |   |          
|          | Total revenues |      | $ | 3,452,492 |  |  | $ | 4,456,247 | 
|          |                |      |   |           |  |  |   |          

Subscription revenues increased 104% from 2001 to
2002. This increase is due to increases in the number of
subscribers to our services and increases in our subscription
rates. Subscription revenue growth is dependent upon the number
of subscribers to our services and how many trading partners
with which they are exchanging data (connections).
Continued growth is dependent upon increasing the number of
connections between our existing customers and adding new
customers. The rate at which the connections increase can vary
significantly from customer to customer depending upon each
customers deployment strategies. Historically, our retail
customers have been able to better assist us in increasing the
number of connections. During 2001, we signed agreements with
Winn Dixie, Meijer, and Target Stores. During 2002, we signed an
agreement with Exxon-Mobil, expanded our relationship with
Target and we have signed 9 other retailers. Each of these
retailers has increased the number of connections with our
supplier customers when comparing 2002 to 2001. As we add
additional retail customers we expect continued increases in the
number of supplier customers purchasing implementation and
subscription services. Our current pricing for retailers ranges
from $25 per supplier per month for a small retailer and a
flat rate of up to $50,000 per month for the largest
retailers. Our pricing for suppliers ranges from $25 up to
$5,000 per retailer connection per month. Our
implementation revenues decreased from 2001 to 2002 due to a
decrease in the implementation services required for each
customer. These efficiencies were achieved through the use of
technology and enhanced internal processes as part of our
implementation services. These efficiencies have allowed us to
quote lower implementation fees for certain customers. We
believe that the lower initial costs for the customer is
resulting in increased numbers of customers purchasing our
services and also accelerates the opportunity for subscription
revenues.

Customer Operations.Customer operations expense consists of personnel costs
associated with implementation, consulting and other services
and costs of operating, maintaining and accessing our technical
operations and hosting facilities. Customer operations expense
also includes the cost of providing support and maintenance to
customers. Our customer operations expense decreased from
$7.8 million in 2001 to $5.1 million in 2002. This
decrease is due primarily to decreased personnel and contract
labor costs from our cost reduction efforts in late 2001 and
2002, decreases in expenses from our operations platform at
Hewlett-Packard and reduced telecom and other costs related to
the closing of our offices during 2001. Our customer operations
team consisted of 21 people at December 31, 2002. The costs
for our operating platform are generally fixed and represent the
operating capacity necessary for expected growth through 2002.
We expect customer operations expenses to increase only in
response to increased demand for our implementation and customer
support services.

20



---



##### Table of Contents



Development.Development expense includes personnel and contract labor costs
and professional fees incurred for product development,
enhancements, upgrades, quality assurance and testing. Our
development expenses decreased from $4.6 million in 2001 to
$2.1 million in 2002. This decrease is due to decreased use
of service providers to provide development resources and
decreases in personnel costs. Our development team consisted of
21 people at December 31, 2002. Additionally, during 2001,
development includes approximately $0.5 million of non-cash
service costs for the amortization of a portion of the fair
value of the warrants and options issued to Cap Gemini
Ernst & Young, i2 Technologies and other service
providers. No amounts are included in 2002. We are continuously
undertaking various projects to expand the functionality of our
services and we expect the continuance of these expenses for the
foreseeable future.

Selling and
Marketing.Selling and marketing
expense consists primarily of personnel costs, travel,
promotional events, including trade shows, seminars and
technical conferences, advertising and public relations
programs. Selling and marketing expense decreased from
$6.6 million in 2001 to $2.4 million in 2002. This
decrease was primarily due to reductions in personnel costs and
decreased advertising, promotion and professional fees from 2001
to 2002. Personnel costs decreased from $3.3 million in
2001 to $1.9 million in 2002. During 2001, we incurred
$1.4 million in advertising, promotion and professional
fees to increase the awareness of our viaLink services including
the design and production of sales collateral, media insertion
costs and participation in industry trade shows. During 2002, we
incurred less than $0.3 million in advertising, promotion
and professional fees to promote our services. Our sales and
marketing team included 14 people at December 31, 2002.
Selling and marketing expense includes $0.5 million of
non-cash service costs in 2001 for the amortization of a portion
of the fair value of the warrants and options issued to alliance
partners and other service providers. No amounts are included in
2002.

General and Administrative
(G&A).G&A expense consists
primarily of the personnel and other costs of the finance, human
resources, administrative and executive departments and the fees
and expenses associated with legal, accounting and other
services. G&A expense decreased from $5.9 million in
2001 to $2.6 million in 2002. This decrease in G&A
expense is attributable to several factors: a) decrease of
$0.9 million in employee compensation from 2001 to 2002;
b) decrease of $0.3 million in legal and other
professional fees; and c) a decrease of $0.6 million
in recruiting fees and relocation of our offices from Edmond,
Oklahoma to Dallas, Texas. G&A expense for 2001 includes
$0.6 million in expenses recorded in connection with
certain severance agreements with employees that were terminated
and the remaining obligation for abandoning our Oklahoma City
lease of approximately $0.6 million. In 2002, we
successfully terminated this lease in exchange for $100,000 in
cash and $100,000 in our common stock. We removed all
obligations previously recorded related to this agreement
resulting in the reversal of $0.4 million of expense in
2002. We anticipate that our other G&A expenses will remain
constant in absolute dollars in 2002 reflecting the
non-recurrence of the significant items above and further
reduced by effects of our cost reduction efforts taken during
2002.

Non-cash Stock
Compensation.Non-cash stock
compensation expense for 2002 includes $0.7 million in
non-cash stock compensation expense recorded for shares issued
to terminate employment agreements.

Depreciation and
Amortization.Depreciation and
amortization expense decreased from $1.5 million in 2001 to
$1.2 million in 2002. This decrease reflects the complete
depreciation of certain long-lived assets and decreases in
capital expenditures in 2001 and 2002.

Interest Expense,
Net.Interest expense, net, was
$0.4 million in 2001. This interest expense related to the
amortization of the beneficial conversion feature of the
convertible note as more fully discussed in Note 6 to the
consolidated financial statements and the partial conversion of
the convertible promissory note in April of 2001 and debt
extinguishment in November 2001. Interest income on short-term
investments was $0.1 million in 2001 with nominal amounts
recorded in 2002 reflecting decreased cash and investment
balances.

Tax Provision.Deferred tax assets and deferred tax liabilities are separately
recognized and measured at currently enacted tax rates for the
tax effect of temporary differences between the financial

21



---



##### Table of Contents



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 not more likely than
not that all or a portion will be realized. We have
established a full valuation allowance for the net deferred tax
assets as of December 31, 2001 and December 31, 2002,
generated by losses recorded. We will continue to provide a full
valuation allowance for future and current net deferred tax
assets until such time as we believe we have sufficient
objective evidence to support that it is more likely than not
that the asset will be realized.


Loss on Modification of
Debt.In April 2001, Hewlett-Packard
converted $3.8 million of their secured convertible
promissory note into 2.2 million shares of our common
stock. In connection with this conversion we modified certain
terms of the secured convertible promissory note for the
remaining balance equal to $3.8 million. The modified note
provided for: a) a decrease in the stated interest rate to
6.0% per year; b) a cash payment of $275,104
representing a closing fee; c) principal and interest
payments payable in twelve monthly installments of $326,094
beginning January 1, 2002 and a maturity date of
February 1, 2003. In connection with the conversion and the
modification of the note, we issued Hewlett-Packard warrants to
purchase 1,384,658 shares of common stock at a purchase
price of $3.75 per share. These transactions with
Hewlett-Packard resulted in a loss of approximately
$2.9 million recorded in the second quarter of 2001. The
loss represents the excess of the fair value of the modified
secured convertible promissory note and warrants issued over the
$3.8 million recorded value of the remaining portion of the
convertible debt at the time of the modification in accordance
with the requirements of EITF 96-19, Debtors
Accounting for a Modification or Exchange of Debt
Instruments. See the following paragraph for discussion of
the Second Global Amendment Agreement with Hewlett-Packard which
resulted in forgiveness of this note in September of 2002.

Gain on Extinguishment of
Debt.Gain on extinguishment of debt
in 2001 reflects the effect of our Settlement, Amendment, and
Mutual Release Agreement with Hewlett-Packard Company dated
November 13, 2001. The $2.3 million recorded as a gain
was determined as the excess of any and all amounts due to
Hewlett-Packard which were forgiven, including: a) the
principal amount of $3,807,812.59 under the April 10, 2001,
secured convertible promissory note; and b) amounts payable
under certain services and lease agreements over consideration
paid which includes: a) a cash payment of $1,000,000;
b) the change in fair value due to our modification of the
strike price of 1,384,658 warrants to $0.10 per share and
c) a lease let-out obligation for equipment no longer being
used of $1.8 million. During September 2002, we entered
into a Second Global Amendment Agreement with Hewlett-Packard
under which we agreed to pay Hewlett-Packard $350,000 and to
issue to Hewlett-Packard 2.0 million shares of our common
stock in exchange for forgiveness of approximately
$2.1 million representing all amounts outstanding, current
and deferred, under certain equipment leases. This agreement
resulted in recording a gain of $1.6 million for the
extinguishment of debt recorded in 2002. The gain represents the
outstanding amounts less the cash paid and the fair value of the
common shares issued.

Dividends on Preferred
Stock.Dividends on Preferred Stock
includes the allocation of the proceeds received to the warrants
issued and beneficial conversion features of our Preferred Stock
issued during the respective periods. During 2001,
$12.8 million was recorded with the issuance of our
Series A Preferred Stock, $1.5 million for the
Series B Preferred Stock and $1.9 million for the
Series C Preferred Stock. During 2002, $3.2 million
was recorded with the issuance of $4.0 million of our
Series C Preferred Stock and $6.4 million was recorded
with the issuance of our Series D Convertible Preferred
Stock. Additionally, stated dividends were accrued from each
date of issuance through conversion on the Series A and
Series B Preferred Stock. Dividends accrued on the
Series A Preferred Stock were paid in-kind with common
shares at the time of conversion during 2001. Dividends were
accrued on the Series B Preferred stock through conversion
on September 30, 2002. The Series C Preferred Stock
did not provide for stated dividends. The Series D
Convertible Preferred Stock accrues dividends at 8% per
annum and increased to 12% on January 1, 2004.

22



---



##### Table of Contents



Liquidity and Capital Resources

Our principal potential sources of liquidity are
cash on hand, cash generated from operations and cash provided
from financing activities. As of December 31, 2003, we had
cash, cash equivalents and short-term investments of
$0.2 million.

During 2003, we used $5.6 million in
operating activities reflecting a net loss of
$10.0 million. Cash used in operating activities also
reflects: a) $1.0 million of depreciation and
amortization; b) $0.1 million of non-cash stock
compensation; c) $3.6 million in non-cash interest
expense; and d) $0.3 million in cash used in other
working capital changes.

During 2002, we used $9.4 million in
operating activities reflecting a net loss of $8.1 million.
Cash used in operating activities also reflects:
a) $1.8 million of depreciation and amortization;
b) $0.7 million of non-cash stock compensation;
c) $1.6 million for the non-cash gain on
extinguishment of debt; d) $0.4 million for the
non-cash termination of lease obligation; and
e) $1.8 million in cash used in other working capital
changes.

During 2001, we used $18.3 million in
operating activities, comprised principally of a net loss of
$24.5 million. Cash used in operating activities also
reflects $2.2 million for non-cash stock compensation and
interest expense for the conversion feature of the
Hewlett-Packard note, $2.1 million of depreciation and
amortization, $2.9 million in non-cash expense for warrants
issued to Hewlett-Packard in connection with the modification of
the existing convertible note in April 2000, $2.3 million
of non-cash gain related to the extinguishment of the
convertible note with Hewlett-Packard in November 2001 and a
$1.3 million increase in cash provided by other working
capital changes.

During 2003, we used approximately $5,000 in
investing activities reflecting capital expenditures compared to
capital expenditures of approximately $0.2 million in 2002.

During 2002, we used approximately
$0.2 million in investing activities reflecting capital
expenditures compared to capital expenditures of approximately
$0.5 million in 2001.

During 2003, financing activities provided net
cash of $5.2 million, primarily the result of the issuance
of 105 shares of Series D Preferred Stock, less
offering and registration costs and $4.4 million in notes
payable less placement agent fees.

During 2002, financing activities provided net
cash of $7.4 million, primarily the result of the issuance
of 400 shares of Series C Preferred Stock,
799 shares of Series D Convertible Preferred stock and
15.0 million shares of our common stock for warrants
exercised, less offering and registration costs of
$0.5 million.

During 2001, financing activities provided net
cash of $18.5 million, primarily the result of the issuance
of $17.3 million of preferred stock and $2.6 million
from the issuance of 17.0 million shares of our common
stock. Additionally, we received $1.1 million in proceeds
from the exercise of outstanding stock options and warrants and
purchases under stock purchase plans and incurred approximately
$1.9 million of offering placement and registration costs.
Additionally, we paid $0.5 million in cash to extinguish
approximately $3.8 million of convertible notes.

Since the middle of 2001, the company has
implemented an aggressive cost cutting program including the
closing of offices, pay deferrals and reductions, reduction in
workforce, and other expense reductions including travel,
administrative and vendor service costs. Late in 2002 and
throughout 2003, the company has taken and continues to take
additional measures to reduce its cost structure, including an
additional reduction in the third quarter of 2003. The
reductions have included headcount reductions at the executive
level, negotiations with significant vendors and other expense
reductions including travel, administrative and vendor service
costs. As a result of these changes, the gross cash operating
expenses decreased to approximately $0.8 million per month
(excluding non-cash items) during the first and second quarter
of 2003. The expenses were further reduced to less than
$0.7 million per month (excluding non-cash items) effective
late in the third quarter and for the fourth quarter of 2003.

23



---



##### Table of Contents



We have incurred operating losses and negative
cash flow in the past and expect to incur operating losses and
negative cash flow through the early part of 2004. Our spending
may increase in the future for further technology and product
development and other technology and database costs. We also
expect increases in customer operations expense to be incurred
after corresponding increases in contracted revenues.

Our independent auditors have issued their
Independent Auditors Report on the Companys
consolidated financial statements for the fiscal year ended
December 31, 2003 with an explanatory paragraph regarding
the Companys ability to continue as a going concern. We
have generated net losses for the years ended December 31,
2001, 2002 and 2003 and have generated an accumulated deficit of
$95.2 million as of December 31, 2003. We have
incurred operating losses and negative cash flow in the past and
expect to incur operating losses and negative cash flow during
the early part of 2004. During the second quarter of 2001 we
began to experience delays in signing small supplier customers
which were an important component of our expected implementation
revenues for the second quarter of 2001 and these delays have
continued into 2003. These efforts are a part of our retailer
community development activities. We continue to
pursue sales efforts with the small suppliers and still believe
that they will become subscribers to our services. Due to these
delays, we have focused our sales efforts on leading customers,
particularly retailers, each of which could have a greater
incremental effect on increasing subscription revenues. An
increase in the number of leading customers is critical to
generating positive cash flow from operations.

The delay in generating revenues creates a need
for us to obtain additional capital in 2004 in order for us to
execute our current business plan successfully. The amount of
capital will be dependent upon (a) our services achieving
market acceptance, (b) the timing of additional customer
signings, (c) our ability to sustain current decreased
levels of spending, and/or (d) the amount of, if any,
unanticipated expenditures. There can be no assurance as to
whether, when or the terms upon which any such capital may be
obtained. Any failure to obtain an adequate and timely amount of
additional capital on commercially reasonable terms could have a
material adverse effect on our business, financial condition and
results of operations, including our ability to continue as a
going concern.

The Company leases its office and storage space
under operating leases. The terms range from month-to-month up
to five years and include options to renew. The Company also
leases office equipment under various non-cancelable lease
agreements.

Future minimum lease payments under
non-cancelable operating leases at December 31, 2003
follows:

|                              |  |           |         | 
|----------------------------- |  | --------- | ------- | 
|                              |  | Operating
|                              |  | Leases   
|                              |  |          
|2004                          |  | $         | 280,000 | 
|2005                          |  |           | 273,000 | 
|2006                          |  |           | 226,000 | 
|2007                          |  |           |        | 
|2008                          |  |           |        | 
|Thereafter                    |  |           |        | 
|                              |  |           |         | 
|Future minimum lease payments |  | $         | 779,000 | 
|                              |  |           |         | 

Recently Issued Accounting
Pronouncements

In August 2001, the Financial Accounting
Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 143,
Accounting for Asset Retirement Obligations.
SFAS No. 143 requires entities to record the fair
value of a liability for an asset retirement obligation in the
period in which it is incurred. The Company adopted
SFAS No. 143 in fiscal year 2003. The adoption of
SFAS No. 143 did not have a material effect on the
financial condition and results of operations of the Company.

24



---



##### Table of Contents



In July 2002, the FASB issued
SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146
applies to costs associated with an exit activity (including
restructuring) or with a disposal of long-lived assets.
SFAS No. 146 is effective prospectively for exit or
disposal activities initiated subsequent to December 31,
2002. The adoption of SFAS No. 146 did not have a
material effect on its financial condition and results of
operations.

In December 2002, the FASB issued
SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure.
SFAS No. 148 provides alternative methods of
transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation.
SFAS No. 148 also requires that disclosures of the pro
forma effect of using the fair value method of accounting for
stock-based employee compensation be displayed more prominently
and in a tabular format. Additionally, SFAS No. 148
requires disclosure of the pro forma effect in interim financial
statements. The Company has implemented the transition and
annual disclosure requirements as required by
SFAS No. 148, which were effective for fiscal years
ending after December 15, 2002. The interim disclosure
requirements are effective for the first interim period
beginning after December 15, 2002. The adoption of
SFAS No. 148 did not have a material effect on its
financial condition and results of operations.

In November 2002, the FASBs Emerging Issues
Task Force (EITF) reached a consensus on Issue
No. 00-21, Revenue Arrangements with Multiple
Deliverables. EITF Issue No. 00-21 provides guidance
on how to account for arrangements that involve the delivery or
performance of multiple products, services and/or rights to use
assets. The provisions of EITF Issue No. 00-21 applied to
revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. The adoption of EITF Issue
No. 00-21 did not have a material effect on its financial
condition and results of operations of the Company.

In January 2003, the FASB issued FIN No. 46,
Consolidation of Variable Interest Entities.(FIN 46) This Interpretation was
subsequently revised in December 2003. The Interpretation
clarifies the application of Accounting Research Bulletin
No. 51, Consolidated Financial Statements,to certain entities in which the equity investors do not
have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance
its activities without additional subordinated financial support
from other parties. The Interpretation, as revised, requires an
entity to apply the interpretation to all interests in variable
interest entities or potential variable interest entities
commonly referred to as special-purpose entities for periods
ended after December 15, 2003. Application for all other
types of entities is required in financial statements for
periods ending after March 15, 2004. We are in the process
of reviewing the impact of adopting FIN 46, as revised,
however, we do not expect the adoption to have a material impact
on our consolidated results of operations or financial position.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity (SFAS No. 150).
SFAS No. 150 modifies the accounting for certain
financial instruments that, under previous guidance, issuers
could account for as equity. SFAS No. 150 requires
that those instruments be classified as liabilities.
SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period that
began after June 15, 2003. It is to be implemented by
reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance
date of SFAS No. 150 and still existing at the
beginning of the interim period of adoption. Restatement is not
permitted. The adoption of SFAS No. 150 did not have a
material impact on our consolidated results of operations or
financial position.

25



---



##### Table of Contents








|        |                     
|------- | --------------------
|Item 7. | Financial Statements

See Index to Financial Statements on Page F-1 of
this Annual Report on Form 10-KSB.




PART III






|        |                                                                                              
|------- | ---------------------------------------------------------------------------------------------
|Item 8. | Changes in and Disagreements With
    Accountants on Accounting and Financial
    Disclosure.

None.






|        |                                                        
|------- | -------------------------------------------------------
|Item 9. | Directors and Executive Officers of the
    Registrant.

Nominees for Class I Directors for Term
Ending Upon the 2007 Annual Meeting of Stockholders

Warren D. Jones,61,
has served as a member of our board of directors since December
1999 and as interim chief executive officer from September 2001
until August 2002. He is currently the chairman of the
compensation committee of our board of directors. Prior to his
retirement, Mr. Jones spent 31 years at
PricewaterhouseCoopers LLP where he served as managing partner
in New Orleans and Pittsburgh, and most recently was responsible
for risk management and compliance for the firms Southwest
region technology, telecommunications and entertainment clients.
Mr. Jones is a financial expert for purposes of service on
the audit committee of the board of directors but does not serve
on that committee due to his recent service as interim chief
executive officer.

Brian M. Carter, 34,has served as a member of our board of
directors since his appointment by the board of directors on
December 23, 2003, Mr. Carter alsoserves as
our Vice President and Chief Financial Officer. From November
2000 until January 2002 he was Vice President of Finance, and
from June 1999 to November 2000 he was Controller of viaLink.
From January 1991 through June 1999 he held various positions
with Deloitte & Touche LLP, most recently as Senior
Manager.

Patrick L. Kiernan, 59,has served as a member of our board of
directors since his appointment by the board of directors on
January 23, 2004. Mr. Kiernan is currently president
of Day/ Kiernan & Associates, a consulting group
focusing on strategic and emerging issues with an emphasis on
consumer future forces, e.Commerce, customized education
programs and trade policy development where he has served since
1998. Prior to 1998 he served as a senior vice-president of the
Grocery Manufacturers of America. Mr. Kiernan currently is
a contributing editor writing for Grocery Headquarters Magazine,
serves on the staff of Saint Josephs University Center for
Food Marketing, The Council of Logistics Management Research
Strategies Committee and is a research affiliate with the
Institute for the Future in Menlo Park, California.

Continuing Class II Directors for Term
Ending Upon the 2006 Annual Meeting of Stockholders

Robert I. Noe,52,
has served as a member of our board of directors since his
appointment by the board of directors on January 24, 2003,
when he was also appointed as our chief executive officer. From
April 1999 until January 2003 Mr. Noe served in various
executive roles in our company, most recently as our president
of CPG and retail. Prior to April 1999, Mr. Noe served as
the Vice President of Industry Solutions and in other management
positions at Electronic Data Systems (or EDS), a publicly traded
professional services company.

Continuing Class III Directors for Term
Ending Upon the 2005 Annual Meeting of Stockholders

Jimmy M. Wright, 50,has served as a member of our board of
directors since February 1998. He is a member of the audit
committee of the board of directors. Mr. Wright is
currently the Managing Partner with Diversified Retail
Solutions, L.L.C., a supply chain consulting business, where he
has served since February 1998. From July 1998 to September
1999, Mr. Wright served as the Chief Logistics Officer of
Amazon.com, Inc., a publicly traded Web-based retailer. In
January 1998, Mr. Wright retired as Vice President of
Distribution for Wal-Mart Stores, Inc. During his 13-year tenure
at Wal-Mart, he was

26



---



##### Table of Contents



involved in all facets of strategic planning,
including supply chain management, personnel, site selection and
building design.


Jerry W. Walker, 67,has served as a member of our board of
directors and as the chairman of the audit committee of the
board of directors since his appointment by the board of
directors in October 2001. Prior thereto Mr. Walker retired
in 1996 after 34 years at Coopers & Lybrand LLP
(now PricewaterhouseCoopers LLP), where he completed his career
as the Managing Partner of the Dallas Office and Southwest
Cluster (Region) from 1979 to 1996. Mr. Walker is a
financial expert for purposes of service on the audit committee
of our board of directors.

Board Committees and Meetings

Audit Committee.We
have a standing audit committee that makes recommendations to
the board 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 audit committee is currently
comprised entirely of independent directors, as defined by
Section 301(3) of the Sarbanes-Oxley Act of 2002 and
related SEC Rules, and the chairman of the audit committee,
Mr. Walker, is a financial expert (see biographical data,
above). The members of the audit committee until December 2003
were Ms. Hale and Messrs. Walker and Wright, the audit
committee is currently comprised of Messrs. Walker and
Wright.

Compensation
Committee.We have a standing
compensation committee that reviews and makes recommendations to
the board concerning salaries and incentive compensation for our
officers and employees. The compensation committee also
administers our 1999 Stock Option/ Stock Issuance Plan, our 1999
Employee Stock Purchase Plan, and other employee incentive
plans. The members of the compensation committee were
Ms. Hale and Messrs. Baker and Wright until December
2003 and are currently Messrs. Jones, Wright and Walker.
Ms. Hale served as the chairwoman of the compensation
committee until December 2003, Mr. Jones is the current
chairman of the compensation committee.

Nominating Committee.Our Nominating Committee is comprised
of the non-management members of our board of directors. The
Nominating Committee is responsible for the recommendation of
the criteria for selection of board members and assisting the
board in identifying candidates. The Nominating Committee does
not have a charter.

The Nominating Committee reviews the
qualifications of all persons recommended by stockholders as
nominees to the board of directors to determine whether the
recommended nominees will make good candidates for consideration
for membership on the board. The Nominating Committee has not
established specific minimum qualifications for recommended
nominees. However, as a matter of practice, the Nominating
Committee does evaluate recommended nominees for directors based
on their integrity, judgment, independence, financial and
business acumen, relevant experience, and their ability to
represent and act on behalf of all stockholders, as well as the
needs of the board of directors. Following this evaluation, the
Nominating Committee will make recommendations for director
membership and review such recommendations with the board, which
will decide whether to invite the candidate to be a nominee for
election to the board.

For a stockholder to submit a candidate for
consideration to the Nominating Committee, a stockholder must
notify the Companys Assistant Secretary. To make a
recommendation for director nomination in advance of an annual
meeting of the Company, a stockholder must notify the
Companys Assistant Secretary in writing no later than
120 days prior to the anniversary of the date of the prior
years annual meeting proxy statement. Notices should be
sent to:

Assistant Secretary

The viaLink Company


13155 Noel Road, Suite 300


Dallas, Texas 75240


27



---



##### Table of Contents



All notices must include all information relating
to the stockholder and the proposed nominee that would be
required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies
for elections of directors under the proxy rules of the
Securities and Exchange Commission.

Indemnification

In addition to the indemnification provisions
contained in our bylaws, we have entered into separate
indemnification agreements with each of our directors and
officers. These agreements require us, among other things, to
indemnify such director or officer against expenses (including
attorneys fees), judgments, fines and settlements paid by
such individual in connection with any action, suit or
proceeding arising out of such individuals status or
service as a director or officer of the company (other than
liabilities arising from willful misconduct or conduct that is
knowingly fraudulent or deliberately dishonest) and to advance
expenses incurred by such individual in connection with any
proceeding against such individual with respect to which such
individual may be entitled to indemnification by us.

All future transactions between us and our
officers, directors, principal stockholders and affiliates will
be approved by a majority of the independent and disinterested
members of the board of directors, and will be on terms no less
favorable to us than could be obtained from unaffiliated third
parties.

Section 16(a) Beneficial Ownership
Reporting Compliance

The members of the board of directors, our
executive officers and persons who hold more than 10% of a
registered class of our equity securities are subject to the
reporting requirements of Section 16(a) of the Securities
Exchange Act of 1934 which requires them to file reports with
respect to their ownership and changes of ownership with the
Securities and Exchange Commission. Officers, directors and 10%
stockholders are required by the SEC regulations to furnish us
with all Section 16(a) forms they file. Based solely upon
(a) the copies of Section 16(a) reports which we
received from such persons for their 2003 fiscal year
transactions in the common stock and their common stock
holdings, and (b) the written representations received from
one or more of such persons that no other reports were required
to be filed by them for the 2003 fiscal year, we believe that
all reporting requirements under Section 16(a) for such
fiscal year were met in a timely manner by our directors,
executive officers and greater than 10% beneficial owners.

Code of Ethics

We have adopted a Code of Ethics that applies to
all of our directors, officers and employees and meets the
requirements of the rules of the SEC. The Code of Ethics is
available on our website, http://www.vialink.com, or can
be obtained without charge by written request to Assistant
Secretary, The viaLink Company, 13155 Noel Road, Suite 300,
Dallas, Texas 75240. We do not anticipate making material
amendments to or waivers from the provisions of the Code of
Ethics. If we make any material amendments to this Code of
Ethics, or if our board of directors grants any waiver from a
provision thereof to our executive officers or directors, we
will disclose the nature of such amendment or waiver, the name
of the person(s) to whom the waiver was granted and the date of
the amendment or waiver in a current report on Form 8-K.






|         |                        
|-------- | -----------------------
|Item 10. | Executive Compensation.

|                |  |     |    |             |  |                                           
|--------------- |  | --- | -- | ----------- |  | ------------------------------------------
|Name            |  | Age |    | Position(s)
|                |  |     |    |            
|Robert I. Noe   |  |     | 52 |             |  | Chief Executive Officer                   
|Brian M. Carter |  |     | 34 |             |  | Vice President and Chief Financial Officer

28



---



##### Table of Contents



Summary of Cash and Certain Other
Compensation

The following table provides certain summary
information concerning the compensation earned by our chief
executive officer and our chief financial officer, our only
executive officers at December 31, 2003, for services
rendered in all capacities to the company for the fiscal years
ended December 31, 2001, 2002, and 2003. During 2003, these
officers received additional non-cash compensation, perquisites
and other personal benefits. However, the aggregate amount
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.

Summary Compensation Table

|                |  |                     |      |              |  |            |         |              |  |              |        |              |  |  |   |  |  |  |           |     |  |  |   | 
|--------------- |  | ------------------- | ---- | ------------ |  | ---------- | ------- | ------------ |  | ------------ | ------ | ------------ |  |  | - |  |  |  | --------- | --- |  |  | - | 
|                |  |                     |      |              |  |            |         |              |  | Long-term    |        |             
|                |  |                     |      |              |  |            |         |              |  | Compensation |        |             
|                |  |                     |      |              |  |            |         |             
|                |  | Annual Compensation |      |              |  | Securities |         |             
|                |  |                     |      | Other Annual |  | Underlying |         | All Other   
|Name            |  | Year                |      | Salary       |  | Bonus      |         | Compensation |  | Options/SARs |        | Compensation
|                |  |                     |      |              |  |            |         |              |  |              |        |             
|Robert I. Noe   |  |                     | 2003 |              |  |            | 201,250 |              |  |              |       |              |  |  |  |  |  |  | 1,850,000 | (1) |  |  |  | 
|                |  |                     | 2002 |              |  |            | 201,250 |              |  |              |       |              |  |  |  |  |  |  |          |     |  |  |  | 
|                |  |                     | 2001 |              |  |            | 243,208 |              |  |              | 58,282 |              |  |  |   |  |  |  | 290,000   |     |  |  |  | 
|Brian M. Carter |  |                     | 2003 |              |  |            | 150,000 |              |  |              |       |              |  |  |  |  |  |  | 350,000   |     |  |  |  | 
|                |  |                     | 2002 |              |  |            | 143,720 |              |  |              |       |              |  |  |  |  |  |  | 3,083,929 | (2) |  |  |  | 
|                |  |                     | 2001 |              |  |            | 133,328 |              |  |              | 22,973 |              |  |  |  |  |  |  | 150,000   |     |  |  |  | 



---



|    |                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Mr. Noe received a grant of
    1,500,000 shares of our common stock as approved at our
    2003 meeting of stockholders.                                                              
|   
|(2) | Mr. Carter received a grant of 3,083,929
    unregistered shares of our common stock in exchange for his
    agreeing to terminate his executive security agreement in August
    2002.

Stock Options and Stock Appreciation
Rights

The following table contains information
concerning the stock options granted to each of our executive
officers named in the summary compensation table during the 2003
fiscal year. All the grants were made under our 1999 Stock
Option/ Stock Issuance Plan or predecessor plans. Except for the
limited stock appreciation rights, or SARs, summarized in
footnote 3, we did not grant any SARs to any of our
executive officers named in the summary compensation table
during the 2003 fiscal year.

Option/ SAR Grants in Last Fiscal
Year

|                |  |                         |         |                      |  |           |      |                        |  |                |      |        |  |  |          |  |  |   |        |  |  |        
|--------------- |  | ----------------------- | ------- | -------------------- |  | --------- | ---- | ---------------------- |  | -------------- | ---- | ------ |  |  | -------- |  |  | - | ------ |  |  | -------
|                |  |                         |         |                     
|                |  | Individual Grants(1)(2) |         | Potential Realizable
|                |  |                         |         | Value at Assumed    
|                |  | Number of               |         | % of Total           |  |           |      | Annual Rated of Stock 
|                |  | Securities              |         | Options/SARs         |  |           |      | Price Appreciation for
|                |  | Underlying              |         | Granted to           |  | Exercise  |      |                        |  | Option Term(5)
|                |  | Option/SAR              |         | Employees in         |  | Price Per |      | Expiration             |  |               
|Name            |  | Granted(3)              |         | 2003(4)              |  | Share     |      | Date                   |  | 5%($)          |      | 10%($)
|                |  |                         |         |                      |  |           |      |                        |  |                |      |       
|Robert I. Noe   |  |                         | 350,000 |                      |  |           | 5.10 |                        |  | $              | 0.10 |        |  |  | 11/13/13 |  |  | $ | 22,011 |  |  | $55,781
|Brian M. Carter |  |                         | 350,000 |                      |  |           | 5.10 |                        |  | $              | 0.10 |        |  |  | 11/13/13 |  |  |   | 22,011 |  |  | 55,781 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Each option represents the right to purchase one
    share of common stock and vests at a rate of 50% on
    June 30, 2004 and 50% on June 30, 2005. If we are
    acquired by merger, consolidation, asset sale or tender or
    exchange offer, the option will accelerate in full, unless
    (a) the successor assumes the option, (b) the option
    is replaced with a cash incentive program of the successor which
    preserves the option spread or (c) the acceleration of the
    option is restricted by limitations imposed at the time of the
    grant. In the event the option does not otherwise accelerate,
    the option will accelerate in full if the individuals
    position is involuntarily terminated within eighteen
    (18) months after a merger, consolidation, asset sale or
    tender or exchange offer, and remain exercisable for the
    one-year following such termination or sooner termination of the
    option. Each option expires on the earliest to occur of

29



---



##### Table of Contents



| |                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) ten years from the date of grant,
    (b) three (3) months following termination of the
    individuals employment with us, other than by death or
    permanent disability or (c) twelve months following
    termination of the individuals employment with us, death
    or permanent disability. All options were granted at fair market
    value as determined by the board of directors on the date of the
    grant.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | The compensation committee has the authority to
    cancel outstanding options in return for the grant of new
    options. These new options may be for the same or a different
    number of option shares with an exercise price based upon the
    fair market value of the common stock on the new grant date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(3) | The options include a limited stock
    appreciation right pursuant to which the options may, upon
    successful completion of a hostile tender offer for more than
    50% of the total combined voting power of our outstanding
    securities or change in the composition of the board of
    directors through contested elections, be surrendered to us in
    return for a cash payment equal to the excess of (a) the
    then market price of the shares of common stock subject to the
    surrendered option or, if higher, the highest price paid per
    share of common stock in the tender offer over (b) the
    exercise price payable for those shares.                                                                                                                                
|   
|(4) | The total number of options granted to employees
    in 2003 was 6,865,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(5) | Amounts represent hypothetical gains that could
    be achieved for the respective options if exercised at the end
    of the option term. The 5% and 10% assumed annual rates of
    compounded stock price appreciation are mandated by rules of the
    Securities and Exchange Commission and do not represent our
    estimate or projection of our future common stock prices. These
    amounts represent assumed rates of appreciation in the value of
    our common stock from the deemed fair market value for
    accounting purposes on the date of grant. Actual gains, if any,
    on stock option exercises are dependent on the future
    performance of the common stock and overall stock market
    conditions. The amounts reflected in the table may not
    necessarily be achieved.

Employment Contracts, Termination of
Employment and Change in Control Arrangements



| |        
| | -------
| | Mr. Noe

In April 1999 we entered into an employment
agreement with Mr. Noe. Under the contract, as amended, his
annual base salary is $275,000. On July 10, 2001,
Mr. Noe agreed to defer 25% of his annual base salary until
such time as viaLink achieved cash flow break even status, with
no assurance that viaLink would achieve that status;
Mr. Noes bonus payment was suspended in this same
amendment and will not be reinstated until after cash flow break
even status is achieved by viaLink. Within 180 days of
viaLink achieving cash flow breakeven status or within one year
after the effective date of a change of control event as defined
in his agreement, Mr. Noe will be paid any unpaid deferred
salary. In exchange for Mr. Noes agreeing to these
reductions in his compensation, the board of directors granted
him 25,000 options which are exercisable at $1.04 per
share. On August 20, 2001, Mr. Noe agreed to an
additional $5,000 reduction in his then current (previously
reduced) base salary. In exchange for Mr. Noes
agreeing to this reduction in his compensation, the board of
directors granted him 25,000 options which are exercisable at
$0.27 per share. The employment agreement has a one year
term with automatic renewal on a year-to-year basis, unless
either party provides 30 days prior written notice of
termination. If we terminate the contract for any reason other
than for cause (as defined under the agreement),
Mr. Noe will be entitled to a lump sum payment equal to his
annual base salary.

In connection with his employment agreement, we
granted non-qualified stock options to
purchase 600,000 shares of common stock under the 1999
Stock Option/ Stock Grant Plan to Mr. Noe. The options have
vested and are exercisable at an exercise price of $3.61. All of
the options expire on May 21, 2009. On March 31, 2003,
Mr. Noe voluntarily surrendered options to
purchase 700,000 shares of our common stock to make
them available to grant to employees under the companys
1999 Stock Option/ Stock Issuance Plan.

30



---



##### Table of Contents





| |           
| | ----------
| | Mr. Carter

In May 1999 we entered into an employment
agreement with Mr. Carter; as amended in January 2002 and
March 2004, under which his annual base salary is $225,000. On
July 10, 2001, Mr. Carter initially agreed to defer
15% of his base salary until such time as viaLink achieved cash
flow break even status, with no assurance that viaLink would
achieve that status; Mr. Carters bonus payment was
suspended in this same amendment and will not be reinstated
until after cash flow break even status is achieved by viaLink.
Mr. Carter is currently being paid based on total temporary
reductions to his base salary of $75,000 until such time as
viaLink achieves cash flow breakeven status. Within
180 days of viaLink achieving cash flow breakeven status or
within one year after the effective date of a change of control
event as defined in his agreement, Mr. Carter will be paid
any unpaid deferred salary and an additional sum of $150,000.
Under his employment agreement, as amended, Mr. Carter is
entitled to receive severance equal to his base salary paid out
over 12 months in the event of his termination by us for
anything other than cause. In connection with his initial
employment agreement Mr. Carter was granted 120,000
non-qualified options under the 1999 plan at a $3.6125 exercise
price, which expire on May 24, 2009. In exchange for
Mr. Carters agreeing to these temporary reductions in
his compensation, the board of directors granted him 15,000
options which are exercisable at $1.04 per share and 37,500
options which are exercisable at $0.27 per share.

In March 2001 we also entered into an executive
security agreement with Mr. Carter. The executive security
agreements provided that, if within one year of a change in
control of the company Mr. Carters employment were
terminated, whether voluntarily or involuntarily, the company
would have been obligated to make a single, lump sum cash
severance payment to Mr. Carter equal to two times his
average includible annual compensation for a base period
consisting of the most recent five taxable years ending before
the date on which the change of control were to occur. In August
2002 Mr. Carter terminated his executive security agreement
in exchange for a grant of 3,083,929 shares of unregistered
stock; at that time he also voluntarily surrendered 190,000 of
his outstanding options to make them available to grant to
employees under the companys 1999 Stock Option/ Stock
Issuance Plan.






|         |                                                                                                        
|-------- | -------------------------------------------------------------------------------------------------------
|Item 11. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters.

The following table sets forth certain
information known to us with respect to the beneficial ownership
of our common stock as of March 31, 2004, by:



| |   |                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | each person known by us who are beneficial owners
    of five percent (5%) or more of our common stock;                                                        
|
| |  | each current director and nominee for director;                                                                                                                
|
| |  | each executive officer named in the summary
    compensation table of the Executive Compensation and Other
    Information section of this proxy statement; and
|
| |  | all current directors and executive officers as a
    group.                                                                                                   

31



---



##### Table of Contents



Unless otherwise indicated, each of the
stockholders has sole voting and investment power with respect
to the shares beneficially owned, subject to community property
laws, where applicable.

|                                 |                                                 |              |           |                     |  |  |      |       |  
|-------------------------------- | ----------------------------------------------- | ------------ | --------- | ------------------- |  |  | ---- | ----- | -
|                                 |                                                 | Shares       |           | Percentage of      
|                                 |                                                 | Beneficially |           | Shares Beneficially
|Beneficial Owner(1)              |                                                 | Owned        |           | Owned(2)           
|                                 |                                                 |              |           |                    
|Executive Officers and Directors |                                                 |              |           |                     |  |  |      |      
|Brian M. Carter(3)               |                                                 |              | 3,208,929 |                     |  |  | 1.68 | %    
|Robert I. Noe(4)                 |                                                 |              | 1,873,859 |                     |  |  | *    |      
|Warren D. Jones(5)               |                                                 |              | 810,000   |                     |  |  | *    |      
|Patrick Kiernan                  |                                                 |              | 453,000   |                     |  |  | *    |      
|Jimmy M. Wright(6)               |                                                 |              | 374,000   |                     |  |  | *    |      
|Jerry W. Walker(7)               |                                                 |              | 98,000    |                     |  |  | *    |      
|                                 |                                                 |              |           |                     |  |  |      |      
|                                 | All executive officers and directors as a group |              |           | 6,817,788           |  |  |      | 3.54  | %
|Other 5% Stockholders:           |                                                 |              |           |                     |  |  |      |      
|                                 | SDS Capital Group SPC LTD(8)                    |              |           | 46,210,789          |  |  |      | 24.17 | %



---



| |   |                                                           
| | - | ----------------------------------------------------------
| | * | Less than one percent of the outstanding common
    stock.



|    |                                                                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Unless otherwise indicated, the address for all
    officers and directors is 13155 Noel Road, Suite 300,
    Dallas, Texas 75240.                                                                                                                                                                                                                                          
|   
|(2) | Percentage of ownership is based on
    191,180,827 shares of common stock outstanding on
    March 31, 2004. Warrants and shares of common stock subject
    to stock options which are currently exercisable or will become
    exercisable within 60 days after March 31, 2004, are
    deemed outstanding for computing the percentage of any other
    person or group.
|   
|(3) | Includes options to
    purchase 125,000 shares of common stock that are
    exercisable within 60 days of March 31, 2004.                                                                                                                                                                                                                                                  
|   
|(4) | Includes of options to
    purchase 290,000 shares of common stock that are
    exercisable within 60 days of March 31, 2004.                                                                                                                                                                                                                                               
|   
|(5) | Includes options to
    purchase 658,000 shares of common stock that are
    exercisable within 60 days of March 31, 2004.                                                                                                                                                                                                                                                  
|   
|(6) | Comprised of options to
    purchase 374,000 shares of common stock that are
    exercisable within 60 days of March 31, 2004.                                                                                                                                                                                                                                              
|   
|(7) | Comprised of options to
    purchase 98,000 shares of common stock that are
    exercisable within 60 days of March 31, 2004.                                                                                                                                                                                                                                               
|   
|(8) | Based upon most recent Schedule 13D filed by
    SDS Management, LLC, on behalf of SDS Capital Group SPC, Ltd. RK
    Consulting (Cayman) Ltd PO Box 174865, Cayman Corporate
    Center, 27 Hospital Rd, Grand Cayman, E9.                                                                                                                                                 

32



---



##### Table of Contents



Securities Authorized for Issuance Under
Equity Compensation Plans

The following represents all securities
authorized for issuance under equity compensation plans
previously approved by security holders:

|                                                               |       |                         |            |                     |  |                           |      |      |  |  |            |            | 
|-------------------------------------------------------------- | ----- | ----------------------- | ---------- | ------------------- |  | ------------------------- | ---- | ---- |  |  | ---------- | ---------- | 
|                                                               |       |                         |            |                     |  | Number of Securities     
|                                                               |       |                         |            |                     |  | Remaining Available for  
|                                                               |       | Number of Securities to |            |                     |  | Future Issuance Under    
|                                                               |       | Be Issued upon          |            | Weighted-Average    |  | Equity Compensation Plans
|                                                               |       | Exercise of Outstanding |            | Exercise Price of   |  | (Excluding Securities    
|                                                               |       | Options                 |            | Outstanding Options |  | Reflected in Column (a)) 
|                                                               |       |                         |            |                     |  |                          
|Equity compensation plans approved by security
    holders     |       |                         | 13,825,895 |                     |  | $                         | 1.08 |      |  |  | 12,342,674 |           
|Equity compensation plans not approved by
    security holders |       |                         | None       |                     |  |                           | None |      |  |  | None       |           
|                                                               |       |                         |            |                     |  |                           |      |      |  |  |            |           
|                                                               | Total |                         |            | 13,825,895          |  |                           | $    | 1.08 |  |  |            | 12,342,674 | 
|                                                               |       |                         |            |                     |  |                           |      |      |  |  |            |           






|         |                                                   
|-------- | --------------------------------------------------
|Item 12. | Certain Relationships and Related
    Transactions

The additional information required by this Item
is set forth under the caption Certain Transactions
in the Proxy Statement, which will be filed with the Securities
and Exchange Commission pursuant to Regulation 14A under
the Securities Exchange Act of 1934 and is incorporated herein
by reference.

Transactions with Hewlett-Packard

On February 4, 1999, we entered into a
financing agreement and note purchase agreement with
Hewlett-Packard pursuant to which Hewlett-Packard purchased a
$6.0 million subordinated secured convertible promissory
note, convertible into common stock at the option of
Hewlett-Packard beginning August 2000 at a conversion price of
$1.75 per share. The note provided for interest at
11.5% per annum, with interest payments deferrable to
maturity in February 2004. The note contained a beneficial
conversion feature valued at approximately $20.0 million at
the commitment date. Accordingly, we allocated the full amount
of proceeds to the beneficial conversion feature and recorded
$6.0 million as additional paid-in capital at the time of
closing. The amount was accreted by charges to interest expense
and corresponding increases in long-term debt during the period
from issuance of the note to August 2000 when the note became
convertible. Non-cash interest charges of $3.6 million and
$2.4 million were recognized in 1999 and 2000,
respectively, as accreted charges to interest expense. We
recognized interest expense at 11.5% per annum until the
note was converted to common stock.

In April 2001, Hewlett-Packard converted
$3.8 million of their secured convertible promissory note
into 2.2 million shares of our common stock. In connection
with this conversion we modified certain terms of the secured
convertible promissory note for the remaining balance equal to
$3.8 million. The modified note provided for: a) a
decrease in the stated interest rate to 6.0% per year;
b) a cash payment of $275,104 representing a closing fee;
c) principal and interest payments payable in twelve
monthly installments of $326,094 beginning January 1, 2002
and a maturity date of February 1, 2003. In connection with
the conversion and the modification of the note, we issued
Hewlett-Packard warrants to purchase 1,384,658 shares of
common stock at a purchase price of $3.75 per share. These
transactions with Hewlett-Packard resulted in a loss of
approximately $2.9 million recorded in the second quarter
of 2001. The loss represents the excess of the fair value of the
modified secured convertible promissory note and warrants issued
over the $3.8 million recorded value of the remaining
portion of the convertible debt at the time of the modification
in accordance with the requirements of EITF 96-19,
Debtors Accounting for a Modification or Exchange of
Debt Instruments.

On November 13, 2001, we entered into a
Settlement, Amendment, and Mutual Release Agreement with
Hewlett-Packard Company whereunder (1) any and all past due
amounts under any obligation of ours to Hewlett-Packard were
forgiven and we were released from any and all claims by
Hewlett-Packard of any kind including those based upon the
antecedent debts, (2) the principal amount of
$3.8 million

33



---



##### Table of Contents



under the April 10, 2001, secured
convertible promissory note was forgiven, (3) the security
interest of Hewlett-Packard in our intellectual property was
terminated, (4) our purchase option for various items of
equipment under expired equipment leases was preserved to allow
us to purchase computer equipment having a value of
approximately $100,000, and (5) the monthly payments under
an ongoing equipment lease and support agreement were lowered to
approximately $200,000, all in exchange for the our agreeing to
(a) pay the sum of $1,000,000 to Hewlett-Packard,
(b) restructure and extend the term of the equipment lease
with Hewlett-Packard by adding an additional year to the term,
thus ending the lease in July 2004, (c) repricing 1,384,658
warrants for our common stock obtained by Hewlett-Packard in
connection with the April 10, 2001, promissory note from
$3.75 per share to $0.10 per share, and
(d) releasing Hewlett-Packard from any and all claims.
Under the terms of this agreement Hewlett-Packard will maintain
a security interest in the equipment it leases to us on a going
forward basis. The $2.3 million recorded as a gain was
determined as the excess of any and all amounts due to
Hewlett-Packard which were forgiven, including: a) the
principal amount of $3.8 million under the secured
convertible promissory note; and b) $1.4 million for
amounts payable under certain services and lease agreements over
consideration paid which includes: a) a cash payment of
$1,000,000; b) the change in fair value due to our
modification of the strike price of 1,384,658 warrants to
$0.10 per share and c) a lease let-out obligation for
equipment no longer being used of $1.8 million. This
transaction was accounted for in accordance with the provisions
of Statement of Financial Accounting Standards No. 15
Accounting by Debtors and Creditors for Troubled Debt
Restructurings.


At the time of this settlement, we also entered
into a lease let-out agreement with Hewlett-Packard which
provided for our continued obligation for certain assets leased
from Hewlett-Packard under operating leases. These assets were
not being used by the company and we agreed to allow
Hewlett-Packard to sell these assets and reduce the amounts due
under the let-out agreement. The total lease obligation of
$1.8 million was accrued at December 31, 2001 as a
component of the gain recorded in 2001. During September 2002,
we entered into a Second Global Amendment Agreement with
Hewlett-Packard. Under this agreement, we agreed to pay
Hewlett-Packard $350,000 and to issue to Hewlett-Packard
2.0 million shares of our common stock in exchange for
forgiveness of approximately $2.1 million representing all
amounts outstanding, including the lease let-out entered into in
2001. This agreement resulted in recording a gain of
$1.6 million for the extinguishment of debt recorded in
2002. The gain represents the outstanding amounts less the cash
paid and the fair value of the common shares issued.
Additionally, we modified the payment terms under an existing
lease for equipment under lease which is recorded as a capital
lease at December 31, 2003. The modified terms require
payments totaling $480,000 over a period of 24 months
ending in August 2004.






|         |                                     
|-------- | ------------------------------------
|Item 13. | Exhibits and Reports on
    Form 8-K

(a) The following documents are filed as
part of this Annual report on Form 10-KSB:



| |                         
| | ------------------------
| | 1. Financial Statements.

See Index to Financial Statements on page F-1 of
this Annual Report on Form 10-KSB



| |                                   
| | ----------------------------------
| | 2. Financial Statements Schedules.

Financial statement schedules under the
applicable rules and regulations of the Securities and Exchange
Commission have been omitted as the schedules are not applicable
or the information required thereby is included in the
Companys financial statements or notes thereto.



| |             
| | ------------
| | 3. Exhibits.

The following instruments are included as
exhibits to the report. Exhibits incorporated by reference are
so indicated.

| |        |  |  |                                             
| | ------ |  |  | --------------------------------------------
| | 4.1(1) |  |  | Form of Certificate of Common Stock         
| | 4.2(2) |  |  | Form of Series A Warrant                    
| | 4.3(3) |  |  | Form of Series D Convertible Preferred Stock

34



---



##### Table of Contents



| |         |  |  |                                                                                                                                                              
| | ------- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.4(4)  |  |  | Form of Purchase Agreement for Series D
    Convertible Preferred Stock                                                                                      
| | 4.5(4)  |  |  | Certificate of Designations relating to
    Series D Convertible Preferred Stock                                                                             
| | 4.6(4)  |  |  | Form of Series D Warrant                                                                                                                                     
| | 4.7(4)  |  |  | Form of Registration Rights Agreement                                                                                                                        
| | 4.8(5)  |  |  | Form of Second Global Amendment Agreement entered
    into by and between Hewlett-Packard Company and the Registrant                                         
| | 4.11(3) |  |  | Series D Convertible Preferred Stock
    Purchase Agreement Dated as of September 30, 2002, among
    the Registrant and Certain Purchasers                  
| | 4.12(3) |  |  | Series D Convertible Preferred Stock
    Purchase Agreement Dated as of September 30, 2002, among
    the Registrant and Certain Purchasers                  
| | 4.13(7) |  |  | Form of Promissory note entered into by and
    between The viaLink Company and each of the note holders                                                     
| | 4.14(7) |  |  | Form of Warrant to Purchase Shares of Common
    Stock of The viaLink Company                                                                                
| | 10.1(3) |  |  | Form of Service Agreement                                                                                                                                    
| | 10.2(3) |  |  | Release Agreement entered into between Edmond,
    Oklahoma, landlord and the Registrant ending all obligations for
    the Registrants former offices      
| | 10.3(6) |  |  | Second Amendment to Office Lease Agreement                                                                                                                   
| | 10.4*   |  |  | Amendment to Employment Agreement between Brian
    M. Carter and the Registrant                                                                             
| | 10.5*   |  |  | Amendment to Employment Agreement between Robert
    I. Noe and the Registrant                                                                               
| | 23.1    |  |  | Consent of KPMG LLP                                                                                                                                          
| | 31.1    |  |  | Certification of Chief Executive Officer                                                                                                                     
| | 31.2    |  |  | Certification of Chief Financial Officer                                                                                                                     
| | 32.1*   |  |  | Certification pursuant to 18 U.S.C. Section 1350,
    as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
    2002 by the Chief Executive Officer
| | 32.2*   |  |  | Certification pursuant to 18 U.S.C. Section 1350,
    as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
    2002 by the Chief Executive Officer



---



| |   |                  
| | - | -----------------
| | * | Previously filed.



|    |                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated herein by reference to the
    Registrants Registration Statement on Form 8-A/ A
    Amendment No. 2 filed under Section 12(g) of the
    Exchange Act on June 21, 2000.
|   
|(2) | Incorporated by reference herein to the
    Registrants Current Report on Form 8-K dated
    February 7, 2001.                                                                       
|   
|(3) | Incorporated herein by reference to the
    Registrants Registration Statement on Form S-2/ A
    Amendment No. 2 filed on January 23, 2003.                                         
|   
|(4) | Incorporated by reference herein to the
    Registrants Current Report on Form 8-K dated
    October 2, 2002.                                                                        
|   
|(5) | Incorporated by reference herein to the
    Registrants Current Report on Form 8-K dated
    September 5, 2002.                                                                      
|   
|(6) | Incorporated by reference herein to the
    Registrants Current Report on Form 8-K dated
    February 10, 2004.                                                                      
|   
|(7) | Incorporated herein by reference to the
    Registrants Current Report on Form 8-K dated
    April 10, 2003.                                                                         



| |                        
| | -----------------------
| | 4. Reports on Form 8-K.

The Registrant filed a Current Report on
Form 8-K, dated December 18, 2003, reporting pursuant
to Item 5 of such Form that it had received loan proceeds
totaling $325,000 from certain existing stockholders. In
exchange, the Company executed promissory notes (in the form of
Exhibit 99.1 as filed

35



---



##### Table of Contents



with the Companys Current Report on
Form 8-K, dated April 10, 2003) and issued warrants
(in the form of Exhibit 99.2 as filed with the
Companys Current Report on Form 8-K, dated
April 10, 2003).


The Registrant filed a Current Report on
Form 8-K, dated December 23, 2003, reporting pursuant
to Item 5 of such Form that Ms. Sue A. Hale resigned
from the Board of Directors and that
the                     ,
in accordance with the Bylaws of the Company, elected Brian M.
Carter, Vice President and Chief Financial Officer, to the Board
to fill the vacancy left by Ms. Hales resignation.

The Registrant filed a Current Report on
Form 8-K, dated December 31, 2003, reporting pursuant
to Item 5 of such Form that effective December 31,
2003, Dr. Lewis B Bucky Kilbourne has resigned
from the Board of Directors and that Robert I. Bob
Noe, the Companys President and Chief Executive Officer,
has assumed the role of Chairman of the Board of Directors on an
interim basis effective the same date.

The Registrant filed a Current Report on
Form 8-K, dated January 8, 2004, reporting pursuant to
Item 5 of such Form that it had received loan proceeds
totaling $250,000 from certain existing stockholders. In
exchange, the Company executed promissory notes (in the form of
Exhibit 99.1 as filed with the Companys Current
Report on Form 8-K, dated April 10, 2003) and issued
warrants (in the form of Exhibit 99.2 as filed with the
Companys Current Report on Form 8-K, dated
April 10, 2003).

The Registrant filed a Current Report on
Form 8-K, dated January 21, 2004, reporting pursuant
to Item 5 of such Form that effective January 20,
2004, Robert Baker and Jimmy Wright have resigned from the Board
of Directors of The viaLink Company.

The Registrant filed a Current Report on
Form 8-K, dated January 26, 2004, reporting pursuant
to Item 5 of such Form that effective January 23,
2004, Jimmy Wright retracted his resignation from the board of
directors of The viaLink Company and that the Board of
Directors, in accordance with the Bylaws of the Company, elected
Patrick L. Kiernan, to the Board of Directors, effective
immediately.

The Registrant filed a Current Report on
Form 8-K, dated February 12, 2004, reporting pursuant
to Item 5 of such Form that it had amended its lease
agreement for its Corporate Offices decreasing the rented area
to 12,052 square feet and basic monthly rent to $22,597.50.
Additionally, the Registrant reported that it had received loan
proceeds totaling $375,000 from certain existing stockholders.
In exchange, the Company executed promissory notes (in the form
of Exhibit 99.1 as filed with the Companys Current
Report on Form 8-K, dated April 10, 2003) and issued
warrants (in the form of Exhibit 99.2 as filed with the
Companys Current Report on Form 8-K, dated
April 10, 2003).

The Registrant filed a Current Report on
Form 8-K, dated March 2, 2004, reporting pursuant to
Item 5 of such Form that will announce its fourth quarter
and full year 2003 results on March 9, 2004. Additionally,
the company announced an investor conference call the same day
at 4:30 p.m. Eastern Standard Time.

The Registrant filed a Current Report on
Form 8-K, dated March 4, 2004, reporting pursuant to
Item 5 of such Form that it had received loan proceeds
totaling $200,000 from certain existing stockholders. In
exchange, the Company executed promissory notes (in the form of
Exhibit 99.1 as filed with the Companys Current
Report on Form 8-K, dated April 10, 2003) and issued
warrants (in the form of Exhibit 99.2 as filed with the
Companys Current Report on Form 8-K, dated
April 10, 2003).

The Registrant filed a Current Report on
Form 8-K, dated March 9, 2004, reporting pursuant to
Item 5 of such Form the companys condensed,
consolidated results for the fourth quarter and full year 2003.






|         |                         
|-------- | ------------------------
|Item 14. | Controls and Procedures.

Evaluation of Disclosure Controls and
Procedures

We have carried out an evaluation, under the
supervision and with the participation of our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our

36



---



##### Table of Contents



disclosure controls and procedures as of the end
of the period covered by this annual report. Based on this
evaluation, our CEO and CFO concluded that as of such date, our
disclosure controls and procedures are effective in timely
alerting them to material information required to be included in
our periodic SEC reports. Disclosure controls and procedures are
controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
SECs rules and forms.


In designing and evaluating the disclosure
controls and procedures, our management recognized that any
controls and procedures, no matter how well designed and
operated, can only provide reasonable assurance of achieving the
desired control objectives and management necessarily was
required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.

Changes in Internal Control Over Financial
Reporting

During 2003, there was no change in our internal
control over financial reporting that has materially affected,
or is reasonably likely to materially affect, our internal
control over financial reporting.






|         |                                            
|-------- | -------------------------------------------
|Item 15. | Principal Accountant Fees and
    Services.

Audit Fees

The aggregate fees billed by the companys
independent auditors for professional services rendered in
connection with the audit of our consolidated financial
statements included in our Annual Report on Form 10-KSB for
fiscal year 2003, as well as for the review of our consolidated
financial statements included in the companys Quarterly
Reports on Form 10-QSB and procedures related to SEC
filings during 2003 totaled $132,000.

The aggregate fees billed by the companys
independent auditors for professional services rendered in
connection with the audit of our consolidated financial
statements included in our Annual Report on Form 10-K for
fiscal year 2002, as well as for the review of our consolidated
financial statements included in the companys Quarterly
Reports on Form 10-Q and procedures related to SEC filings
during 2002 totaled $113,000.

Audit-Related Fees

KPMG LLP did not render any additional
professional services relating to the audit or review of the
companys financial statements during 2003.

Tax Fees

KPMG LLP did not render any professional services
relating to tax compliance, tax advice or tax planning in 2003.

All Other Fees

KPMG LLP did not render any other professional
services to the company during 2003.

Pre-Approval Policies and Procedures

The Audit Committee has adopted a policy that
requires advance approval of all audit, audit-related, tax
services, and other services performed for The viaLink Company
by KPMG LLP. This policy provides for preapproval by the Audit
Committee of specifically defined audit and non-audit services.
The Audit Committee has delegated to the Chair of the Audit
Committee authority to approve permitted services up to a
certain amount provided that the Chair reports any decisions to
the Audit Committee at its next scheduled meeting.

37



---



##### Table of Contents



SIGNATURES

In accordance with Section 13 or 15(d) of
the Exchange Act, the registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, as
of the 29th day of April, 2004.



| |                    
| | -------------------
| | THE VIALINK COMPANY
| | (Registrant)       



| |     |                  
| | --- | -----------------
| | By: | /s/ ROBERT I. NOE

| |                        
| | -----------------------
| |                        
| | Robert I. Noe          
| | Chief Executive Officer



| |     |                    
| | --- | -------------------
| | By: | /s/ BRIAN M. CARTER

| |                                                 
| | ------------------------------------------------
| |                                                 
| | Brian M. Carter                                 
| | Vice President, Chief Financial
    Officer     
| | (principal financial and accounting
    officer)

38



---



##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                             |                                                                                                                        |  |  |     | 
|------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------- |  |  | --- | 
|Consolidated Financial Statements of The
    viaLink Company |                                                                                                                        |  |  |    
|                                                             | Independent Auditors Report                                                                                           |  |  | F-2 | 
|                                                             | Consolidated Balance Sheets as of
    December 31, 2002 and 2003                                                       |  |  | F-3 | 
|                                                             | Consolidated Statements of Operations for the
    Years Ended December 31, 2001, 2002 and 2003                         |  |  | F-4 | 
|                                                             | Consolidated Statements of Stockholders
    Equity (Deficit) for the Years Ended December 31, 2001,
    2002 and 2003 |  |  | F-5 | 
|                                                             | Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2001, 2002 and 2003                         |  |  | F-6 | 
|                                                             | Notes to Consolidated Financial Statements                                                                             |  |  | F-7 | 

F-1



---



##### Table of Contents



INDEPENDENT AUDITORS REPORT

The Board of Directors and Stockholders

The viaLink Company:


We have audited the accompanying consolidated
balance sheets of The viaLink Company and its subsidiary as of
December 31, 2002 and 2003, and the related consolidated
statements of operations, stockholders equity (deficit)
and cash flows for each of the years in the three-year period
ended December 31, 2003. These consolidated financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of The viaLink
Company and its subsidiary as of December 31, 2002 and
2003, and the results of their operations and their cash flows
for each of the years in the three-year period ended
December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.

The accompanying consolidated financial
statements have been prepared assuming the Company will continue
as a going concern. As discussed in note 2 to the
consolidated financial statements, the Companys recurring
losses from operations and resulting dependence upon access to
additional external financing raise substantial doubt concerning
its ability to continue as a going concern. Managements
plans in regard to these matters are also described in
note 2. The consolidated financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.



| |         
| | --------
| | KPMG LLP

Dallas, Texas

March 5, 2004


F-2



---



##### Table of Contents



THE VIALINK COMPANY

CONSOLIDATED BALANCE SHEETS

December 31, 2002 and 2003


|                                                                                               |                                                                                                                                                                                 |                                                                                      |         |             |           |  |         |             |            |  
|---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ------- | ----------- | --------- |  | ------- | ----------- | ---------- | -
|                                                                                               |                                                                                                                                                                                 | 2002                                                                                 |         | 2003       
|                                                                                               |                                                                                                                                                                                 |                                                                                      |         |            
|ASSETS                                                                                        
|Current assets:                                                                                |                                                                                                                                                                                 |                                                                                      |         |             |           |  |         |            
|                                                                                               | Cash and cash equivalents                                                                                                                                                       |                                                                                      | $       | 561,617     |           |  | $       | 161,663     |           
|                                                                                               | Accounts receivable  trade, net of
    allowance for doubtful accounts of $115,000 in 2002 and $135,000
    in 2003                                                            |                                                                                      |         | 965,158     |           |  |         | 885,860     |           
|                                                                                               | Prepaid expenses and other current assets                                                                                                                                       |                                                                                      |         | 156,503     |           |  |         | 165,831     |           
|                                                                                               |                                                                                                                                                                                 |                                                                                      |         |             |           |  |         |            
|                                                                                               |                                                                                                                                                                                 | Total current assets                                                                 |         |             | 1,683,278 |  |         |             | 1,213,354  |  
|Furniture, equipment and leasehold improvements,
    net                                       |                                                                                                                                                                                 |                                                                                      | 782,870 |             |           |  | 158,112 |            
|Software development costs, net                                                                |                                                                                                                                                                                 |                                                                                      | 410,598 |             |           |  |        |            
|Other assets                                                                                   |                                                                                                                                                                                 |                                                                                      | 60,197  |             |           |  | 60,197  |            
|                                                                                               |                                                                                                                                                                                 |                                                                                      |         |             |           |  |         |            
|                                                                                               |                                                                                                                                                                                 | Total assets                                                                         |         | $           | 2,936,943 |  |         | $           | 1,431,663  |  
|                                                                                               |                                                                                                                                                                                 |                                                                                      |         |             |           |  |         |            
|LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
    STOCK
    AND STOCKHOLDERS EQUITY (DEFICIT)
|Current liabilities:                                                                           |                                                                                                                                                                                 |                                                                                      |         |             |           |  |         |            
|                                                                                               | Accounts payable and accrued liabilities                                                                                                                                        |                                                                                      | $       | 1,293,257   |           |  | $       | 849,090     |           
|                                                                                               | Deferred revenues                                                                                                                                                               |                                                                                      |         | 44,459      |           |  |         | 85,079      |           
|                                                                                               | Notes payable, net of discount of $1,067,000 at
    December 31, 2003                                                                                                           |                                                                                      |         |            |           |  |         | 3,358,349   |           
|                                                                                               | Current portion of capital lease obligations                                                                                                                                    |                                                                                      |         | 148,758     |           |  |         | 229,549     |           
|                                                                                               |                                                                                                                                                                                 |                                                                                      |         |             |           |  |         |            
|                                                                                               |                                                                                                                                                                                 | Total current liabilities                                                            |         |             | 1,486,474 |  |         |             | 4,522,067  |  
|Long-term liabilities:                                                                         |                                                                                                                                                                                 |                                                                                      |         |             |           |  |         |            
|                                                                                               | Capital lease obligations, less current portion                                                                                                                                 |                                                                                      |         | 237,020     |           |  |         |            |           
|                                                                                               |                                                                                                                                                                                 |                                                                                      |         |             |           |  |         |            
|                                                                                               |                                                                                                                                                                                 | Total liabilities                                                                    |         |             | 1,723,494 |  |         |             | 4,522,067  |  
|Commitments and contingencies (Notes 6 and
    10)                                             |                                                                                                                                                                                 |                                                                                      |         |             |           |  |         |            
|Stockholders equity (deficit):                                                                |                                                                                                                                                                                 |                                                                                      |         |             |           |  |         |            
|                                                                                               | Common stock, $.001 par value;
    400,000,000 shares authorized; 160,519,660 and
    181,573,035 shares issued and outstanding at
    December 31, 2002 and 2003, respectively |                                                                                      |         | 160,520     |           |  |         | 181,573     |           
|                                                                                               | Series D Preferred stock, $.001 par
    value; 10,000,000 shares authorized; 799 and
    831 shares issued and outstanding at December 31, 2002
    and 2003, respectively      |                                                                                      |         | 9,584,850   |           |  |         | 9,974,850   |           
|                                                                                               | Additional paid-in capital                                                                                                                                                      |                                                                                      |         | 76,724,178  |           |  |         | 81,981,051  |           
|                                                                                               | Accumulated deficit                                                                                                                                                             |                                                                                      |         | (85,256,099 | )         |  |         | (95,227,878 | )         
|                                                                                               |                                                                                                                                                                                 |                                                                                      |         |             |           |  |         |            
|                                                                                               |                                                                                                                                                                                 | Total stockholders equity (deficit)                                                 |         |             | 1,213,449 |  |         |             | (3,090,404 | )
|                                                                                               |                                                                                                                                                                                 |                                                                                      |         |             |           |  |         |            
|                                                                                               |                                                                                                                                                                                 | Total liabilities, redeemable preferred stock and
    stockholders equity (deficit) |         | $           | 2,936,943 |  |         | $           | 1,431,663  |  
|                                                                                               |                                                                                                                                                                                 |                                                                                      |         |             |           |  |         |            

The accompanying notes are an integral part of
these consolidated financial statements.

F-3



---



##### Table of Contents



THE VIALINK COMPANY

CONSOLIDATED STATEMENTS OF
OPERATIONS

For the Years Ended December 31, 2001,
2002 and 2003


|                                                           |                                |                                             |                          |            |             |            |             |           |             |            |             |            |             |            | 
|---------------------------------------------------------- | ------------------------------ | ------------------------------------------- | ------------------------ | ---------- | ----------- | ---------- | ----------- | --------- | ----------- | ---------- | ----------- | ---------- | ----------- | ---------- | 
|                                                           |                                | 2001                                        |                          | 2002       |             | 2003      
|                                                           |                                |                                             |                          |            |             |           
|Revenues:                                                  |                                |                                             |                          |            |             |            |             |           |             |            |             |           
|                                                           | Subscription                   |                                             | $                        | 1,381,990  |             |            | $           | 2,825,350 |             |            | $           | 3,650,263  |            
|                                                           | Implementation                 |                                             |                          | 2,070,502  |             |            |             | 1,630,897 |             |            |             | 486,056    |            
|                                                           |                                |                                             |                          |            |             |            |             |           |             |            |             |           
|                                                           |                                |                                             | Total revenues           |            | $           | 3,452,492  |             |           | $           | 4,456,247  |             |            | $           | 4,136,319  | 
|Operating expenses:                                        |                                |                                             |                          |            |             |            |             |           |             |            |             |           
|                                                           | Customer operations            |                                             |                          | 7,800,644  |             |            |             | 5,070,716 |             |            |             | 3,924,158  |            
|                                                           | Development                    |                                             |                          | 4,559,379  |             |            |             | 2,115,012 |             |            |             | 1,777,051  |            
|                                                           | Selling and marketing          |                                             |                          | 6,566,305  |             |            |             | 2,429,091 |             |            |             | 1,599,885  |            
|                                                           | General and administrative     |                                             |                          | 5,857,884  |             |            |             | 2,584,464 |             |            |             | 2,461,458  |            
|                                                           | Non-cash stock compensation    |                                             |                          | 627,895    |             |            |             | 704,558   |             |            |             | 112,500    |            
|                                                           | Depreciation and amortization  |                                             |                          | 1,498,569  |             |            |             | 1,241,088 |             |            |             | 629,722    |            
|                                                           |                                |                                             |                          |            |             |            |             |           |             |            |             |           
|                                                           |                                |                                             | Total operating expenses |            |             | 26,910,676 |             |           |             | 14,144,929 |             |            |             | 10,504,774 | 
|                                                           |                                |                                             |                          |            |             |            |             |           |             |            |             |           
|Loss from operations                                       |                                |                                             | (23,458,184              | )          |             |            | (9,688,682  | )         |             |            | (6,368,455  | )         
|                                                           | Interest expense, net          |                                             |                          | (377,088   | )           |            |             |          |             |            |             | (3,603,324 | )          
|                                                           | Loss on modification of debt   |                                             |                          | (2,927,773 | )           |            |             |          |             |            |             |           |            
|                                                           | Gain on extinguishment of debt |                                             |                          | 2,296,022  |             |            |             | 1,628,817 |             |            |             |           |            
|                                                           |                                |                                             |                          |            |             |            |             |           |             |            |             |           
|Net loss                                                   |                                |                                             | (24,467,023              | )          |             |            | (8,059,865  | )         |             |            | (9,971,779  | )         
|                                                           | Dividends on preferred stock:  |                                             |                          |            |             |            |             |           |             |            |             |            |            
|                                                           |                                | Value of warrants and beneficial conversion |                          |            | (16,238,970 | )          |             |           | (9,599,655  | )          |             |            | (1,260,000  | )         
|                                                           |                                | Stated dividends                            |                          |            | (445,426    | )          |             |           | (39,945     | )          |             |            |            |           
|                                                           |                                |                                             |                          |            |             |            |             |           |             |            |             |           
|Net loss applicable to common stock                        |                                | $                                           | (41,151,419              | )          |             | $          | (17,699,465 | )         |             | $          | (11,231,779 | )         
|                                                           |                                |                                             |                          |            |             |            |             |           |             |            |             |           
|Net loss applicable to common stock per common
    share  |                                |                                             |                          |            |             |            |             |           |             |            |             |           
|                                                           |                                | Basic and diluted                           |                          | $          | (1.22       | )          |             | $         | (0.17       | )          |             | $          | (0.06       | )         
|                                                           |                                |                                             |                          |            |             |            |             |           |             |            |             |           
|Weighted average common shares
    outstanding            |                                |                                             |                          |            |             |            |             |           |             |            |             |           
|                                                           |                                | Basic and diluted                           |                          |            | 33,805,389  |            |             |           | 103,731,119 |            |             |            | 175,432,361 |           
|                                                           |                                |                                             |                          |            |             |            |             |           |             |            |             |           

The accompanying notes are an integral part of
these consolidated financial statements.

F-4



---



##### Table of Contents



THE VIALINK COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY (DEFICIT)

For the Years Ended December 31, 2001,
2002 and 2003


|                                                                                                                                                  |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   |            |            |             |            |          |          |   |   |             |             |   |   |            |             |            |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ----------------------------------------------------- | --------------------- | ------------ | ------ | ---------- | --------- | -------- | ----------- | --------------- | ----------- | ------------ | ---------- | --------- | ------- | ------ | ------ | - | ---------- | ---------- | ----------- | ---------- | -------- | -------- | - | - | ----------- | ----------- | - | - | ---------- | ----------- | ---------- | ---------- | -
|                                                                                                                                                  |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 |             |             
|                                                                                                                                                  |                                                                                                       | Preferred Stock                                       |                       | Common Stock |        |            |           | Unearned |             |                 |             |             
|                                                                                                                                                  |                                                                                                       |                                                       |                       |              |        | Additional |           | Stock    |             | Accumulated     |             |             
|                                                                                                                                                  |                                                                                                       | Shares                                                |                       | Amounts      |        | Shares     |           | Amounts  |             | Paid-in Capital |             | Compensation |            | (Deficit) |         | Total 
|                                                                                                                                                  |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 |             |              |            |           |         |       
|Balance, January 1, 2001                                                                                                                          |                                                                                                       |                                                       |                      |              |        | $          |          |          |             |                 | 22,779,566  |              |            | $         | 22,780  |        |        | $ | 51,902,400 |            |             | $          | (487,895 | )        |   | $ | (52,729,211 | )           |   | $ | (1,291,926 | )          
|                                                                                                                                                  | Exercise of stock options and warrants                                                                |                                                       |                       |              |        |            |           |          |             |                 |             | 4,264,123    |            |           |         | 4,264  |        |   |            | 692,557    |             |            |          |          |   |   |             |             |   |   |            | 696,821     |           
|                                                                                                                                                  | Stock and options issued under employee stock
    purchase and option plans                           |                                                       |                       |              |        |            |           |          |             |                 |             | 1,049,797    |            |           |         | 1,049  |        |   |            | 516,125    |             |            |          | (140,000 | ) |   |             |             |   |   |            | 377,174     |           
|                                                                                                                                                  | Amortization of unearned stock compensation                                                           |                                                       |                       |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   |            |            |             |            |          | 627,895  |   |   |             |             |   |   |            | 627,895     |           
|                                                                                                                                                  | Fair value adjustment, stock options to service
    providers                                         |                                                       |                       |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   |            | (17,243    | )           |            |          |          |   |   |             |             |   |   |            | (17,243     | )         
|                                                                                                                                                  | Partial conversion of convertible note                                                                |                                                       |                       |              |        |            |           |          |             |                 |             | 2,175,893    |            |           |         | 2,176  |        |   |            | 3,805,637  |             |            |          |          |   |   |             |             |   |   |            | 3,807,813   |           
|                                                                                                                                                  | Issuance of warrants to Hewlett-Packard                                                               |                                                       |                       |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   |            | 2,951,329  |             |            |          |          |   |   |             |             |   |   |            | 2,951,329   |           
|                                                                                                                                                  | Proceeds from issuance of common stock                                                                |                                                       |                       |              |        |            |           |          |             |                 |             | 17,032,812   |            |           |         | 17,033 |        |   |            | 2,607,987  |             |            |          |          |   |   |             |             |   |   |            | 2,625,020   |           
|                                                                                                                                                  | Proceeds from issuance of preferred stock                                                             |                                                       |                       | 4,647        |        |            |           |          |             |                 |             |              |            |           |         |        |        |   |            | 16,238,970 |             |            |          |          |   |   |             |             |   |   |            | 16,238,970  |           
|                                                                                                                                                  | Offering, placement and registration costs                                                            |                                                       |                       |              |        |            |           |          |             |                 |             | 3,030,000    |            |           |         | 3,030  |        |   |            | (1,978,196 | )           |            |          |          |   |   |             |             |   |   |            | (1,975,166  | )         
|                                                                                                                                                  | Dividends on preferred stock:                                                                         |                                                       |                       |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   |            |            |             |            |          |          |   |   |             |             |   |   |            |             |           
|                                                                                                                                                  |                                                                                                       | Beneficial conversion feature                         |                       |              |        |            |           |          | 12,779,250  |                 |             |              |            |           |         |        |        |   |            |            | (16,238,970 | )          |          |          |   |   |             |             |   |   |            |             | (3,459,720 | )         
|                                                                                                                                                  |                                                                                                       | Stated dividends                                      |                       |              |        |            |           |          | 437,092     |                 |             |              |            |           |         |        |        |   |            |            | (445,426    | )          |          |          |   |   |             |             |   |   |            |             | (8,334     | )         
|                                                                                                                                                  | Common stock issued:                                                                                  |                                                       |                       |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   |            |            |             |            |          |          |   |   |             |             |   |   |            |             |           
|                                                                                                                                                  |                                                                                                       | Series A preferred conversion                         |                       |              | (4,647 | )          |           |          | (12,779,250 | )               |             |              | 12,712,490 |           |         |        | 12,713 |   |            |            | 12,766,537  |            |          |          |   |   |             |             |   |   |            |             |           |           
|                                                                                                                                                  |                                                                                                       | Series B preferred conversion                         |                       |              |        |            |           |          |             |                 |             |              | 3,036,592  |           |         |        | 3,037  |   |            |            | 596,963     |            |          |          |   |   |             |             |   |   |            |             | 600,000    |           
|                                                                                                                                                  |                                                                                                       | Dividends paid with common stock                      |                       |              |        |            |           |          | (437,092    | )               |             |              | 995,565    |           |         |        | 995    |   |            |            | 436,590     |            |          |          |   |   |             |             |   |   |            |             | 493        |           
|                                                                                                                                                  | Net loss                                                                                              |                                                       |                       |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   |            |            |             |            |          |          |   |   |             | (24,467,023 | ) |   |            | (24,467,023 | )         
|                                                                                                                                                  |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   |            |            |             |            |          |          |   |   |             |             |   |   |            |            
|Balance, December 31, 2001                                                                                                                        |                                                                                                       |                                                       |                      |              |        | $          |          |          |             |                 | 67,076,838  |              |            | $         | 67,077  |        |        | $ | 73,835,260 |            |             | $          |         |          |   | $ | (77,196,234 | )           |   | $ | (3,293,897 | )          
|Exercise of stock options and warrants                                                                                                            |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 | 14,989,873  |              |            |           | 14,991  |        |        |   | 657,794    |            |             |            |          |          |   |   |             |             |   |   | 672,785    |            
|Stock issued under employee stock purchase and
    option plans                                                                                   |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 | 2,997,637   |              |            |           | 2,997   |        |        |   | 442,272    |            |             |            |          |          |   |   |             |             |   |   | 445,269    |            
|Restricted stock issued to employees                                                                                                              |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 | 7,828,417   |              |            |           | 7,828   |        |        |   | 696,730    |            |             |            |          |          |   |   |             |             |   |   | 704,558    |            
|Stock issued to Hewlett-Packard                                                                                                                   |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 | 2,000,000   |              |            |           | 2,000   |        |        |   | 78,000     |            |             |            |          |          |   |   |             |             |   |   | 80,000     |            
|Beneficial conversion feature of Series C
    Preferred Stock issued                                                                              |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   | 1,299,108  |            |             |            |          |          |   |   |             |             |   |   | 1,299,108  |            
|Value assigned to warrants issued and modified in
    connection with the issuance of Series C Preferred Stock                                    |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   | 1,911,613  |            |             |            |          |          |   |   |             |             |   |   | 1,911,613  |            
|Value assigned to warrants and common shares
    issued in connection with the issuance of Series D
    Preferred Stock                           |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 | 39,936,877  |              |            |           | 39,937  |        |        |   | 3,380,906  |            |             |            |          |          |   |   |             |             |   |   | 3,420,843  |            
|Offering and registration costs                                                                                                                   |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 | 1,825,455   |              |            |           | 1,825   |        |        |   | (548,532   | )          |             |            |          |          |   |   |             |             |   |   | (546,707   | )          
|Issuance of Series D Preferred Stock:                                                                                                             |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   |            |            |             |            |          |          |   |   |             |             |   |   |            |            
|                                                                                                                                                  |                                                                                                       | Exchange of Series B and Series C
    Preferred Stock |                       |              | 513    |            |           |          | 3,195,916   |                 |             |              |            |           |         |        |        |   |            |            | 2,777,826   |            |          |          |   |   |             |             |   |   |            |             | 5,973,742  |           
|Dividends on Preferred Stock:                                                                                                                     |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   |            |            |             |            |          |          |   |   |             |             |   |   |            |            
|                                                                                                                                                  | Value attributed to Beneficial conversion
    feature, shares and warrant:                            |                                                       |                       |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   |            |            |             |            |          |          |   |   |             |             |   |   |            |             |           
|                                                                                                                                                  |                                                                                                       |                                                       | Series C              |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   |            |            |             | (3,210,721 | )        |          |   |   |             |             |   |   |            |             |            |            |  
|                                                                                                                                                  |                                                                                                       |                                                       | Series D              |              |        | 286        |           |          |             | 6,388,934       |             |              |            |           |         |        |        |   |            |            |             | (6,388,934 | )        |          |   |   |             |             |   |   |            |             |            | (3,210,721 | )
|                                                                                                                                                  |                                                                                                       |                                                       | Stated dividend at 6% |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   |            |            |             | (39,945    | )        |          |   |   |             |             |   |   |            |             |            | (39,945    | )
|Dividends on Preferred Stock paid with Common
    Stock                                                                                           |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 | 7,872,583   |              |            |           | 7,873   |        |        |   | (7,873     | )          |             |            |          |          |   |   |             |             |   |   |           |            
|Series C Preferred Stock conversion into
    Common Stock                                                                                         |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 | 15,991,980  |              |            |           | 15,992  |        |        |   | 1,840,674  |            |             |            |          |          |   |   |             |             |   |   | 1,856,666  |            
|                                                                                                                                                  | Net loss                                                                                              |                                                       |                       |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   |            |            |             |            |          |          |   |   |             | (8,059,865  | ) |   |            | (8,059,865  | )         
|                                                                                                                                                  |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   |            |            |             |            |          |          |   |   |             |             |   |   |            |            
|Balance, December 31, 2002                                                                                                                        |                                                                                                       |                                                       | 799                   |              |        | $          | 9,584,850 |          |             |                 | 160,519,660 |              |            | $         | 160,520 |        |        | $ | 76,724,178 |            |             | $          |         |          |   | $ | (85,256,099 | )           |   | $ | 1,213,449  |            
|Stock issued under employee stock purchase and
    option plans                                                                                   |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 | 1,403,151   |              |            |           | 1,403   |        |        |   | 129,234    |            |             |            |          |          |   |   |             |             |   |   | 130,637    |            
|Proceeds from issuance of Series D Preferred
    Stock                                                                                            |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   | 1,260,000  |            |             |            |          |          |   |   |             |             |   |   | 1,260,000  |            
|Value assigned to warrants issued in connection
    with the issuance of Notes Payable and beneficial conversion
    feature of the Notes Payable |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   | 4,110,000  |            |             |            |          |          |   |   |             |             |   |   | 4,110,000  |            
|Interest paid in-kind with common stock                                                                                                           |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 | 2,540,328   |              |            |           | 2,540   |        |        |   | 200,404    |            |             |            |          |          |   |   |             |             |   |   | 202,944    |            
|Value assigned to warrants and common shares
    issued in connection with the issuance of Series D
    Preferred Stock                           |                                                                                                       |                                                       |                       |              |        |            | 648,823   |          |             |                 | 9,835,896   |              |            |           | 9,836   |        |        |   | (658,659   | )          |             |            |          |          |   |   |             |             |   |   |           |            
|Offering and registration costs                                                                                                                   |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   | (35,655    | )          |             |            |          |          |   |   |             |             |   |   | (35,655    | )          
|Dividends on Preferred Stock:                                                                                                                     |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   |            |            |             |            |          |          |   |   |             |             |   |   |            |            
|                                                                                                                                                  | Value attributed to Beneficial conversion
    feature, shares and warrant on Series D Preferred Stock |                                                       |                       | 105          |        |            |           | 611,177  |             |                 |             |              |            |           |         |        |        |   |            | (611,177   | )           |            |          |          |   |   |             |             |   |   |            |            |           
|Series D Preferred Stock conversion into
    Common Stock                                                                                         |                                                                                                       |                                                       | (73                   | )            |        |            | (870,000  | )        |             |                 | 7,274,000   |              |            |           | 7,274   |        |        |   | 862,726    |            |             |            |          |          |   |   |             |             |   |   |           |            
|                                                                                                                                                  | Net loss                                                                                              |                                                       |                       |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   |            |            |             |            |          |          |   |   |             | (9,971,779  | ) |   |            | (9,971,779  | )         
|                                                                                                                                                  |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   |            |            |             |            |          |          |   |   |             |             |   |   |            |            
|Balance, December 31, 2003                                                                                                                        |                                                                                                       |                                                       | 831                   |              |        | $          | 9,974,850 |          |             |                 | 181,573,035 |              |            | $         | 181,573 |        |        | $ | 81,981,051 |            |             | $          |         |          |   | $ | (95,227,878 | )           |   | $ | (3,090,404 | )          
|                                                                                                                                                  |                                                                                                       |                                                       |                       |              |        |            |           |          |             |                 |             |              |            |           |         |        |        |   |            |            |             |            |          |          |   |   |             |             |   |   |            |            

The accompanying notes are an integral part of
these consolidated financial statements.

F-5



---



##### Table of Contents



THE VIALINK COMPANY

CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the Years Ended December 31, 2001,
2002 and 2003


|                                                                          |                                                                                               |                                                                                |                                          |                                           |            |           |             |            |            |            |            |            |           |          |            |  
|------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ---------------------------------------- | ----------------------------------------- | ---------- | --------- | ----------- | ---------- | ---------- | ---------- | ---------- | ---------- | --------- | -------- | ---------- | -
|                                                                          |                                                                                               | 2001                                                                           |                                          | 2002                                      |            | 2003     
|                                                                          |                                                                                               |                                                                                |                                          |                                           |            |          
|Cash flows from operating activities:                                     |                                                                                               |                                                                                |                                          |                                           |            |           |             |            |            |            |            |           
|                                                                          | Net loss                                                                                      |                                                                                | $                                        | (24,467,023                               | )          |           | $           | (8,059,865 | )          |            | $          | (9,971,779 | )        
|                                                                          | Adjustments to reconcile net loss to net cash
    used in operating activities:               |                                                                                |                                          |                                           |            |           |             |            |            |            |            |            |          
|                                                                          |                                                                                               | Depreciation and amortization                                                  |                                          |                                           | 2,116,819  |           |             |            | 1,827,432  |            |            |            | 1,040,320 |         
|                                                                          |                                                                                               | Non-cash stock compensation                                                    |                                          |                                           | 627,895    |           |             |            | 704,558    |            |            |            | 112,500   |         
|                                                                          |                                                                                               | Non-cash service costs for warrant and options
    issued to service providers |                                          |                                           | 1,025,623  |           |             |            |           |            |            |            |          |         
|                                                                          |                                                                                               | Non-cash loss on modification of debt                                          |                                          |                                           | 2,927,773  |           |             |            |           |            |            |            |          |         
|                                                                          |                                                                                               | Non-cash gain on extinguishment of debt                                        |                                          |                                           | (2,296,022 | )         |             |            | (1,628,817 | )          |            |            |          |         
|                                                                          |                                                                                               | Non-cash interest expense                                                      |                                          |                                           | 497,733    |           |             |            |           |            |            |            | 3,561,293 |         
|                                                                          |                                                                                               | Non-cash termination of lease obligation                                       |                                          |                                           |           |           |             |            | (391,000   | )          |            |            |          |         
|                                                                          |                                                                                               | Increase (decrease) in cash for changes in:                                    |                                          |                                           |            |           |             |            |            |            |            |            |           |         
|                                                                          |                                                                                               |                                                                                | Accounts receivable, net                 |                                           |            | (283,716  | )           |            |            | (166,779   | )          |            |           | 79,298   |           
|                                                                          |                                                                                               |                                                                                | Prepaid expenses and other assets        |                                           |            | 209,976   |             |            |            | 333,516    |            |            |           | (9,328   | )         
|                                                                          |                                                                                               |                                                                                | Accounts payable and accrued liabilities |                                           |            | 1,173,471 |             |            |            | (1,773,014 | )          |            |           | (444,167 | )         
|                                                                          |                                                                                               |                                                                                | Deferred revenue                         |                                           |            | 150,765   |             |            |            | (228,946   | )          |            |           | 40,620   |           
|                                                                          |                                                                                               |                                                                                |                                          |                                           |            |           |             |            |            |            |            |           
|                                                                          |                                                                                               |                                                                                |                                          | Net cash used in operating activities     |            |           | (18,316,706 | )          |            |            | (9,382,915 | )          |           |          | (5,591,243 | )
|                                                                          |                                                                                               |                                                                                |                                          |                                           |            |           |             |            |            |            |            |           
|Cash flows from investing activities:                                     |                                                                                               |                                                                                |                                          |                                           |            |           |             |            |            |            |            |           
|                                                                          | Capital expenditures                                                                          |                                                                                |                                          | (514,211                                  | )          |           |             | (187,793   | )          |            |            | (4,964     | )        
|                                                                          |                                                                                               |                                                                                |                                          |                                           |            |           |             |            |            |            |            |           
|                                                                          |                                                                                               |                                                                                |                                          | Net cash used in investing activities     |            |           | (514,211    | )          |            |            | (187,793   | )          |           |          | (4,964     | )
|                                                                          |                                                                                               |                                                                                |                                          |                                           |            |           |             |            |            |            |            |           
|Cash flows from financing activities:                                     |                                                                                               |                                                                                |                                          |                                           |            |           |             |            |            |            |            |           
|                                                                          | Proceeds from exercise of stock options, stock
    purchase warrants and stock purchase plans |                                                                                |                                          | 1,073,995                                 |            |           |             | 672,785    |            |            |            | 18,137     |          
|                                                                          | Proceeds from issuance of preferred stock                                                     |                                                                                |                                          | 17,279,250                                |            |           |             | 7,303,465  |            |            |            | 1,260,000  |          
|                                                                          | Payments, capital lease obligation                                                            |                                                                                |                                          |                                          |            |           |             |           |            |            |            | (156,229   | )        
|                                                                          | Proceeds from issuance of common stock                                                        |                                                                                |                                          | 2,625,020                                 |            |           |             |           |            |            |            |           |          
|                                                                          | Proceeds from issuance of notes payable                                                       |                                                                                |                                          |                                          |            |           |             |           |            |            |            | 4,425,000  |          
|                                                                          | Payments of placement agent fees, notes payable                                               |                                                                                |                                          |                                          |            |           |             |           |            |            |            | (315,000   | )        
|                                                                          | Offering, placement and registration costs                                                    |                                                                                |                                          | (1,925,166                                | )          |           |             | (546,707   | )          |            |            | (35,655    | )        
|                                                                          | Payments for extinguishment of convertible debt                                               |                                                                                |                                          | (500,000                                  | )          |           |             |           |            |            |            |           |          
|                                                                          |                                                                                               |                                                                                |                                          |                                           |            |           |             |            |            |            |            |           
|                                                                          |                                                                                               |                                                                                |                                          | Net cash provided by financing activities |            |           | 18,553,099  |            |            |            | 7,429,543  |            |           |          | 5,196,253  |  
|                                                                          |                                                                                               |                                                                                |                                          |                                           |            |           |             |            |            |            |            |           
|Net increase (decrease) in cash and cash
    equivalents                  |                                                                                               |                                                                                | (277,818                                 | )                                         |            |           | (2,141,165  | )          |            |            | (399,954   | )         
|Cash and cash equivalents, beginning of year                              |                                                                                               |                                                                                | 2,980,600                                |                                           |            |           | 2,702,782   |            |            |            | 561,617    |           
|                                                                          |                                                                                               |                                                                                |                                          |                                           |            |           |             |            |            |            |            |           
|Cash and cash equivalents, end of year                                    |                                                                                               | $                                                                              | 2,702,782                                |                                           |            | $         | 561,617     |            |            | $          | 161,663    |           
|                                                                          |                                                                                               |                                                                                |                                          |                                           |            |           |             |            |            |            |            |           
|Supplemental schedule of non-cash investing and
    financing activities: |                                                                                               |                                                                                |                                          |                                           |            |           |             |            |            |            |            |           
|                                                                          | Interest on notes payable, paid with common stock                                             |                                                                                | $                                        |                                          |            |           | $           |           |            |            | $          | 202,944    |          
|                                                                          |                                                                                               |                                                                                |                                          |                                           |            |           |             |            |            |            |            |           
|                                                                          | Vendors and severance paid with common stock                                                  |                                                                                | $                                        |                                          |            |           | $           | 445,269    |            |            | $          |           |          
|                                                                          |                                                                                               |                                                                                |                                          |                                           |            |           |             |            |            |            |            |           
|                                                                          | Assets acquired under capital leases                                                          |                                                                                | $                                        |                                          |            |           | $           | 413,606    |            |            | $          |           |          
|                                                                          |                                                                                               |                                                                                |                                          |                                           |            |           |             |            |            |            |            |           
|                                                                          | Preferred stock, dividends accrued, payable
    in-kind                                       |                                                                                | $                                        | 7,841                                     |            |           | $           |           |            |            | $          |           |          
|                                                                          |                                                                                               |                                                                                |                                          |                                           |            |           |             |            |            |            |            |           
|                                                                          | Preferred stock, dividends, paid with common stock                                            |                                                                                | $                                        | 437,585                                   |            |           | $           | 39,945     |            |            | $          |           |          
|                                                                          |                                                                                               |                                                                                |                                          |                                           |            |           |             |            |            |            |            |           
|                                                                          | Hewlett-Packard conversion of debt into common
    stock                                      |                                                                                | $                                        | 3,807,813                                 |            |           | $           |           |            |            | $          |           |          
|                                                                          |                                                                                               |                                                                                |                                          |                                           |            |           |             |            |            |            |            |           

The accompanying notes are an integral part of
these consolidated financial statements.

F-6



---



##### Table of Contents



THE VIALINK COMPANY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



|   |                                                            
|-- | -----------------------------------------------------------
|1. | Business and Summary of Significant Accounting
    Policies

General Description of
Business We provide
subscription-based, business-to-business electronic commerce
services that enable companies in the consumer packaged goods,
retail and automotive industries to efficiently manage their
highly complex supply chain information. Our services allow
manufacturers, wholesalers, distributors, sales agencies (such
as food brokers) and retailers to communicate and synchronize
item, pricing and promotion information in a more cost-effective
and accessible way than has been possible using traditional
electronic and paper-based methods.

Our strategy is to continue our investment in
development of our viaLink services and customer support
services to facilitate our plan to penetrate each of these
markets and build recurring revenues generated from
subscriptions to our viaLink services. Consequently, we resemble
a development stage company and will face many of the inherent
risks and uncertainties that development stage companies face.
There can be no assurance, however, that these efforts will be
successful. Our failure to execute our strategy would have a
material adverse effect on our business, financial condition and
results of operations, including our viability as an enterprise.
As a result of the high level of expenditures for investment in
technology development, implementation, customer support
services, and selling and marketing expenses, we expect to incur
losses in the foreseeable future periods until such time, if
ever, as the recurring revenues from our viaLink services are
sufficient to cover the expenses.

Our clients and customers range from small,
rapidly growing companies to large corporations in the consumer
packaged goods, retail and automotive parts retail industries
and are geographically dispersed throughout the United States.

Basis of
Presentation The financial
statements include the accounts of the viaLink Company and its
wholly owned subsidiary. In April 2000, we formed viaLink
International, Inc., a wholly-owned subsidiary. viaLink
International was a Delaware corporation formed to include our
international operations. viaLink International was dissolved in
2002. Our consolidated financial statements include the accounts
of viaLink International. All intercompany transactions and
balances have been eliminated in consolidation.

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 and Short-term
Investments For purposes
of the statement of cash flows, we consider all highly liquid
investments with a maturity of three months or less at the time
of purchase to be cash equivalents. Similar investments with a
maturity, at purchase, of more than three months are classified
as short-term investments held to maturity and are carried at
amortized cost.

Risks from
Concentrations Financial
instruments which potentially subject us to concentrations of
credit risk consist principally of temporary cash investments,
notes receivable and accounts receivable. We place our temporary
cash investments with high credit quality financial
institutions. Concentrations of credit risk with respect to
accounts receivable are limited due to the large number of
individual accounts and their dispersion across different
regions. We do not believe a material risk of loss exists with
respect to our financial position due to concentrations of
credit risk.

Our revenues are dependent on large
implementation and subscription fees from a limited number of
customers. In 2001, three customers individually accounted for
9, 9 and 5 percent of revenues. In 2002, three customers
individually accounted for 11, 9 and 5 percent of revenues.
In 2003, three customers individually accounted for 12, 9 and
6 percent of revenues. In 2001, 2002 and 2003,
approximately 33, 32 and 38 percent, respectively, of our
total revenues were attributable to five clients. We will
continue to be

F-7



---



##### Table of Contents



THE VIALINK COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

dependent upon revenues from a limited number of
customers until we achieve market penetration. During 2001, 2002
and 2003 our statement of operations includes provisions for bad
debt of $238,000, $107,000 and $60,000 respectively. During
2001, 2002 and 2003 we wrote-off uncollectible accounts
receivable of $296,000, $92,000 and $40,000, respectively.

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. We
depreciate furniture and equipment using the straight-line
method over their estimated useful lives ranging from 2 to
10 years. Leasehold improvements are amortized over the
lease term using the straight-line method.

Impairment of long-lived
assets We review
long-lived assets for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. If impairment indicators are present and the
estimated future undiscounted cash flows are less than the
carrying value of the long-lived assets, the carrying value is
reduced to the estimated fair value as measured by the
discounted cash flows.

Revenue
Recognition Our revenues
consist of recurring monthly subscription fees for customer use
of the viaLink services and implementation fees. Contracts for
customer use of the viaLink services are generally for periods
ranging from one to three years, but are generally cancelable
with 30 days notice. Implementation fees for the viaLink
services are based on time and materials, are nonrefundable and
are separately priced from the use of the viaLink services.
Implementation costs consist primarily of labor by technical
support personnel to configure customer data and establish a
connection to the viaLink database. Implementation activities
can range from a basic implementation that simply
establishes a web browser interface to more involved activities
where we assist a customer to modify the customers systems
and automate the connection. We have no obligation to perform
any future implementation services and no additional
implementation services are necessary upon renewal of the
service by the customer. We recognize implementation fees and
associated costs for the more involved implementation activities
as the services are provided. Implementation fees and associated
direct costs to provide basic implementations are deferred and
recognized over the period the subscription-based viaLink
services are provided. Implementation fees and associated direct
costs for basic implementations are deferred because we do not
have an objective basis to determine the fair value of the basic
implementation services and they are essential to the viaLink
services. The fair value of more involved implementation
activities is established using a residual method and generally
equals the amount charged by viaLink based on time and
materials. We recognize subscription fees for customer use of
the viaLink services as these services are provided. Revenues
collected in advance and revenues dependent upon future
performance criteria are deferred and recognized as earned and
those performance criteria are met.

Development
We incurred costs and expenses of approximately
$4.6 million, $2.1 million and $1.8 million, for
product development in 2001, 2002 and 2003, respectively. We
capitalize certain of these costs, including interest, that are
directly related to the development of software to be sold and
software developed for internal use. Capitalization of costs for
internal use software begins after the preliminary project stage
and ends when the software is substantially complete and ready
for its intended use. We also capitalize certain of these costs,
including interest, for software to be sold beginning when
technological feasibility has been established and ending when
the product is available for customers. Capitalized software
development costs are amortized using the straight-line method
over the estimated useful life of three to five years and are
subject to impairment evaluation in accordance with the
provisions of SFAS 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of.

F-8



---



##### Table of Contents



THE VIALINK COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Earnings Per
Share Basic earnings per
share is calculated by dividing net income (loss) by the
weighted-average number of common shares outstanding during the
period. Diluted earnings per share is calculated by dividing net
income (loss) by the weighted-average number of common shares
and dilutive potential common shares outstanding during the
period. Diluted earnings per share also includes the impact of
convertible debt, if dilutive, using the if-converted method.

Income
Taxes We account for
income taxes using the asset and liability method. Deferred tax
liabilities or assets are recognized for the anticipated future
tax effects of temporary differences 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. Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected
to be recovered or settled. We 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.

Stock Based
Compensation The Company
uses the intrinsic-value method as provided by Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees in accounting for its various fixed
stock option plans and its employee stock purchase plan
(ESPP) and provides pro forma disclosures of the
compensation expense determined under the fair value provisions
of SFAS No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation-Transition and
Disclosure. Accordingly, the Company did not recognize
compensation expense upon the issuance of certain of its stock
options because the option terms were fixed and the exercise
price equaled the market price of the Companys common
stock on the date of grant.

Pro forma information regarding net loss and loss
per share is required by and has been determined as if we had
accounted for its employee stock options under the fair value
method defined by SFAS No. 123 and amended by
SFAS No. 148. 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 options granted in each of the following fiscal years ended
December 31:

|                                                                                                                        |  |      |              |      |  |      |            |  |  |  |             | 
|----------------------------------------------------------------------------------------------------------------------- |  | ---- | ------------ | ---- |  | ---- | ---------- |  |  |  | ----------- | 
|                                                                                                                        |  | 2001 |              | 2002 |  | 2003
|                                                                                                                        |  |      |              |      |  |     
|Interest rates, (Zero-coupon U.S. Government
    Bonds issued with remaining life equal to expected term of
    options |  |      | 4.5%         |      |  |      | 2.5%       |  |  |  | 2.5%        | 
|Dividend yields                                                                                                         |  |      | 0%           |      |  |      | 0%         |  |  |  | 0%          | 
|Volatility factors of our common stock                                                                                  |  |      | 150% to 177% |      |  |      | 143%       |  |  |  | 91% to 127% | 
|Weighted average expected life                                                                                          |  |      | 2.5 years    |      |  |      | 2.5 years  |  |  |  | 2.5 years   | 
|Resulting weighted average grant date fair value                                                                        |  |      | $0.50        |      |  |      | $0.09      |  |  |  | $0.06       | 
|Additional expense under fair value method                                                                              |  |      | $20,422,000  |      |  |      | $9,220,000 |  |  |  | $2,085,000  | 

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 our 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.

F-9



---



##### Table of Contents



THE VIALINK COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table displays the effect on net
loss and loss per share had the fair value method been applied
during each of the following periods:

|                                                           |                                                                                              |             |             |             |       |      |             |             |       |   |             |             |       |  
|---------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ----------- | ----------- | ----------- | ----- | ---- | ----------- | ----------- | ----- | - | ----------- | ----------- | ----- | -
|                                                           |                                                                                              | 2001        |             | 2002        |       | 2003
|                                                           |                                                                                              |             |             |             |       |     
|Basic:                                                     |                                                                                              |             |             |             |       |      |             |             |       |   |             |            
|Net loss applicable to common stock, as reported           |                                                                                              | $           | (41,151,419 | )           |       | $    | (17,699,465 | )           |       | $ | (11,231,779 | )          
|                                                           | Stock-based compensation included in the
    determination of net loss under APB No. 25      |             |             | 627,895     |       |      |             | 704,558     |       |   |             | 112,500     |      
|                                                           | Stock-based compensation to be included the
    determination of net loss under SFAS No. 148 |             |             | (20,422,000 | )     |      |             | (9,220,000  | )     |   |             | (2,085,000  | )    
|                                                           |                                                                                              |             |             |             |       |      |             |             |       |   |             |            
|                                                           | Pro-forma net loss                                                                           |             | $           | (60,945,524 | )     |      | $           | (26,214,907 | )     |   | $           | (13,204,279 | )    
|                                                           |                                                                                              |             |             |             |       |      |             |             |       |   |             |            
|Net loss applicable to common stock, per common
    share: |                                                                                              |             |             |             |       |      |             |             |       |   |             |            
|                                                           |                                                                                              | As reported |             | $           | (1.22 | )    |             | $           | (0.17 | ) |             | $           | (0.06 | )
|                                                           |                                                                                              | Pro-forma   |             | $           | (1.80 | )    |             | $           | (0.25 | ) |             | $           | (0.08 | )

Reclassifications
Certain prior year amounts have been reclassified to conform to
the 2003 financial statement presentation.



|   |                            
|-- | ---------------------------
|2. | Liquidity and Going Concern

We have generated losses from operations for the
years ended December 31, 2001, 2002 and 2003 and have
generated an accumulated deficit of $95.2 million as of
December 31, 2003. We have incurred operating losses and
negative cash flow in the past and expect to incur operating
losses in the early part of 2004. These operating losses create
a need for us to obtain additional capital in order for us to
execute our current business plan successfully. The amount of
additional capital needed will be dependent upon (a) our
services achieving market acceptance, (b) the timing of
additional customer signings, (c) our ability to maintain
current decreased levels of spending, and/or (d) the
amount, if any, of unanticipated expenditures. There can be no
assurance as to whether, when or the terms upon which any such
capital may be obtained. Any failure to obtain an adequate and
timely amount of additional capital on commercially reasonable
terms could have a material adverse effect on our business,
financial condition and results of operations, including our
ability to continue as a going concern. These factors raise
substantial doubt concerning our ability to continue as a going
concern. The consolidated financial statements do not include
any adjustments related to the recoverability and classification
of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to
continue operating as a going concern.

F-10



---



##### Table of Contents



THE VIALINK COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                                                
|-- | -------------------------------------------------------------------------------
|3. | Furniture, Equipment, Leasehold Improvements
    and Software Development Costs

Furniture, equipment and leasehold improvements
at December 31, 2002 and 2003 consisted of the following:

|                                                         |  |      |            |      |  |   |            |  
|-------------------------------------------------------- |  | ---- | ---------- | ---- |  | - | ---------- | -
|                                                         |  | 2002 |            | 2003
|                                                         |  |      |            |     
|Furniture and fixtures                                   |  | $    | 159,909    |      |  | $ | 159,909    |  
|Computer equipment                                       |  |      | 2,760,524  |      |  |   | 2,765,488  |  
|Computer software                                        |  |      | 2,244,589  |      |  |   | 2,244,589  |  
|Leasehold improvements                                   |  |      | 32,675     |      |  |   | 32,675     |  
|                                                         |  |      |            |      |  |   |            |  
|                                                         |  |      | 5,197,697  |      |  |   | 5,202,661  |  
|Less: accumulated depreciation and amortization          |  |      | (4,414,827 | )    |  |   | (5,044,549 | )
|                                                         |  |      |            |      |  |   |            |  
|Furniture, equipment and leasehold improvements,
    net |  | $    | 782,870    |      |  | $ | 158,112    |  
|                                                         |  |      |            |      |  |   |            |  

Computer equipment in 2002 and 2003 included
$413,606 of assets under capital leases. Accumulated
amortization for assets under capital leases at
December 31, 2002 and 2003 was $69,000 and $276,000,
respectively.

We incurred total costs of approximately
$4.6 million, $2.1 million and $1.8 million for
development of software in 2001, 2002 and 2003, respectively. No
amounts were capitalized in 2001, 2002 or 2003. Amortization of
developed software during 2001, 2002 and 2003 was
$0.6 million, $0.6 million and $0.4 million,
respectively. Accumulated amortization at December 31, 2002
and 2003 was $2.9 million and $3.3 million,
respectively.



|   |                                          
|-- | -----------------------------------------
|4. | Accounts Payable and Accrued
    Expenses

Accounts payable and accrued expenses at
December 31, 2002 and 2003 consisted of the following:

|                                               |  |      |           |      |  |   |         | 
|---------------------------------------------- |  | ---- | --------- | ---- |  | - | ------- | 
|                                               |  | 2002 |           | 2003
|                                               |  |      |           |     
|Accounts payable                               |  | $    | 423,820   |      |  | $ | 309,852 | 
|Accrued employee compensation                  |  |      | 663,361   |      |  |   | 317,014 | 
|Accrued rent and other occupancy expenses      |  |      | 101,556   |      |  |   | 100,000 | 
|Accrued professional fees and contract labor   |  |      | 85,591    |      |  |   | 80,990  | 
|Other accrued expenses                         |  |      | 18,929    |      |  |   | 41,234  | 
|                                               |  |      |           |      |  |   |         | 
|Total accounts payable and accrued liabilities |  | $    | 1,293,257 |      |  | $ | 849,090 | 
|                                               |  |      |           |      |  |   |         | 



|   |                                  
|-- | ---------------------------------
|5. | Transactions with Hewlett-Packard

On February 4, 1999, we entered into a
financing agreement and note purchase agreement with
Hewlett-Packard pursuant to which Hewlett-Packard purchased a
$6.0 million subordinated secured convertible promissory
note, convertible into common stock at the option of
Hewlett-Packard beginning August 2000 at a conversion price of
$1.75 per share. The note provided for interest at
11.5% per annum, with interest payments deferrable to
maturity in February 2004. The note contained a beneficial
conversion feature valued at approximately $20.0 million at
the commitment date. Accordingly, we allocated the full amount
of proceeds to the beneficial conversion feature and recorded
$6.0 million as additional paid-in capital at the time of
closing. The amount was accreted by charges to interest expense
and corresponding increases in long-term debt during the period
from issuance of the note to August 2000 when the note became
convertible. Non-cash interest charges of $3.6 million and
$2.4 million were recognized in 1999

F-11



---



##### Table of Contents



THE VIALINK COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

and 2000, respectively, as accreted charges to
interest expense. We recognized interest expense at
11.5% per annum until the note was converted to common
stock.

In April 2001, Hewlett-Packard converted
$3.8 million of their secured convertible promissory note
into 2.2 million shares of our common stock. In connection
with this conversion we modified certain terms of the secured
convertible promissory note for the remaining balance equal to
$3.8 million. The modified note provided for: a) a
decrease in the stated interest rate to 6.0% per year;
b) a cash payment of $275,104 representing a closing fee;
c) principal and interest payments payable in twelve
monthly installments of $326,094 beginning January 1, 2002
and a maturity date of February 1, 2003. In connection with
the conversion and the modification of the note, we issued
Hewlett-Packard warrants to purchase 1,384,658 shares of
common stock at a purchase price of $3.75 per share. These
transactions with Hewlett-Packard resulted in a loss of
approximately $2.9 million recorded in the second quarter
of 2001. The loss represents the excess of the fair value of the
modified secured convertible promissory note and warrants issued
over the $3.8 million recorded value of the remaining
portion of the convertible debt at the time of the modification
in accordance with the requirements of EITF 96-19,
Debtors Accounting for a Modification or Exchange of
Debt Instruments.

On November 13, 2001, we entered into a
Settlement, Amendment, and Mutual Release Agreement with
Hewlett-Packard Company whereunder (1) any and all past due
amounts under any obligation of ours to Hewlett-Packard were
forgiven and we were released from any and all claims by
Hewlett-Packard of any kind including those based upon the
antecedent debts, (2) the principal amount of
$3.8 million under the April 10, 2001, secured
convertible promissory note was forgiven, (3) the security
interest of Hewlett-Packard in our intellectual property was
terminated, (4) our purchase option for various items of
equipment under expired equipment leases was preserved to allow
us to purchase computer equipment having a value of
approximately $100,000, and (5) the monthly payments under
an ongoing equipment lease and support agreement were lowered to
approximately $200,000, all in exchange for the our agreeing to
(a) pay the sum of $1,000,000 to Hewlett-Packard,
(b) restructure and extend the term of the equipment lease
with Hewlett-Packard by adding an additional year to the term,
thus ending the lease in July 2004, (c) repricing 1,384,658
warrants for our common stock obtained by Hewlett-Packard in
connection with the April 10, 2001, promissory note from
$3.75 per share to $0.10 per share, and
(d) releasing Hewlett-Packard from any and all claims.
Under the terms of this agreement Hewlett-Packard will maintain
a security interest in the equipment it leases to us on a going
forward basis. The $2.3 million recorded as a gain was
determined as the excess of any and all amounts due to
Hewlett-Packard which were forgiven, including: a) the
principal amount of $3.8 million under the secured
convertible promissory note; and b) $1.4 million for
amounts payable under certain services and lease agreements over
consideration paid which includes: a) a cash payment of
$1,000,000; b) the change in fair value due to our
modification of the strike price of 1,384,658 warrants to
$0.10 per share and c) a lease let-out obligation for
equipment no longer being used of $1.8 million. This
transaction was accounted for in accordance with the provisions
of Statement of Financial Accounting Standards No. 15
Accounting by Debtors and Creditors for Troubled Debt
Restructurings.

At the time of this settlement, we also entered
into a lease let-out agreement with Hewlett-Packard which
provided for our continued obligation for certain assets leased
from Hewlett-Packard under operating leases. These assets were
not being used by the company and we agreed to allow
Hewlett-Packard to sell these assets and reduce the amounts due
under the let-out agreement. The total lease obligation of
$1.8 million was accrued at December 31, 2001 as a
component of the gain recorded in 2001. During September 2002,
we entered into a Second Global Amendment Agreement with
Hewlett-Packard. Under this agreement, we agreed to pay
Hewlett-Packard $350,000 and to issue to Hewlett-Packard
2.0 million shares of our common stock in exchange for
forgiveness of approximately $2.1 million representing all
amounts outstanding, including the lease let-out entered into in
2001. This agreement resulted in recording a gain of
$1.6 million for the extinguishment of debt recorded in
2002. The gain

F-12



---



##### Table of Contents



THE VIALINK COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

represents the outstanding amounts less the cash
paid and the fair value of the common shares issued.
Additionally, we modified the payment terms under an existing
lease for equipment under lease which is recorded as a capital
lease at December 31, 2002 and 2003. The modified terms
require payments totaling $480,000 over a period of
24 months ending in August 2004.



|   |              
|-- | -------------
|6. | Notes Payable

Beginning on April 9, 2003, throughout the
remainder of 2003 and up to the date of this report we have
received working capital funding from certain existing
shareholders. During the second quarter we received proceeds
totaling $2.1 million. During the third quarter we received
proceeds totaling $1.6 million. During the fourth quarter
we received proceeds totaling $0.7 million. Subsequent to
December 31, 2003, we have received an additional $825,000.

The promissory notes are due on the earlier of
the six-month anniversary of the issuance of each note or the
consummation of a proposed financing as defined in the note
agreement. The notes bear interest, payable quarterly in cash or
common stock, at 10% per annum. For each $10,000 in
principal the note holders were issued warrants to purchase
50,000 shares of our common stock at $0.12 per share.
The notes contain certain provisions allowing, at the option of
the holder, the conversion of the principal amount of each of
the notes into equity securities of the Company which may be
issued in connection with a proposed offering by the Company of
its equity securities to certain investors. If the holder elects
to convert the notes into Equity Securities, the principal
amount of the note shall convert into such amount of equity
securities equal to 110% of the principal amount of the note.
These provisions create a beneficial conversion ratio.

The maturity dates for each of the promissory
notes which matured during 2003 and through the date of this
report have been extended for an additional six-month period.

The proceeds from issuance of the notes payable,
the beneficial conversion ratio at the issuance date and
warrants were allocated to each instrument based on their
relative fair values. The sum of the relative fair value of the
warrants and the intrinsic value of the beneficial conversion
ratio of the notes payable was determined to be in excess of the
total proceeds received by the Company; therefore, the entire
proceeds is considered a non-cash debt discount. The debt
discount is being amortized as interest over the life of each of
the notes payable. The debt discount was recorded at the date of
each issuance and the amortization of the debt discount is
included in the determination of net loss as interest expense in
2003. The maturity date of each of the notes maturing during
2003, and up to the date of this report have been extended six
months. No additional warrants have been issued as part of the
note extensions.

F-13



---



##### Table of Contents



THE VIALINK COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |             
|-- | ------------
|7. | Common Stock

A reconciliation of the numerator and the
denominator used in the calculation of earnings (loss) per share
is as follows:

|         |                                              |                                 |            |             |       |      |             |             |       |   |             |             |       |  
|-------- | -------------------------------------------- | ------------------------------- | ---------- | ----------- | ----- | ---- | ----------- | ----------- | ----- | - | ----------- | ----------- | ----- | -
|         |                                              |                                
|         |                                              | For the Year Ended December 31,
|         |                                              |                                
|         |                                              | 2001                            |            | 2002        |       | 2003
|         |                                              |                                 |            |             |       |     
|Basic:   |                                              |                                 |            |             |       |      |             |             |       |   |             |            
|         | Net loss applicable to common stock          |                                 | $          | (41,151,419 | )     |      | $           | (17,699,465 | )     |   | $           | (11,231,779 | )    
|         | Weighted average common shares outstanding   |                                 |            | 33,805,389  |       |      |             | 103,731,119 |       |   |             | 175,432,361 |      
|         |                                              |                                 |            |             |       |      |             |             |       |   |             |            
|         |                                              | Net loss per share              |            | $           | (1.22 | )    |             | $           | (0.17 | ) |             | $           | (0.06 | )
|         |                                              |                                 |            |             |       |      |             |             |       |   |             |            
|Diluted: |                                              |                                 |            |             |       |      |             |             |       |   |             |            
|         | Net loss applicable to common stock          |                                 | $          | (41,151,419 | )     |      | $           | (17,699,465 | )     |   | $           | (11,231,779 | )    
|         | Weighted average common shares Outstanding   |                                 |            | 33,805,389  |       |      |             | 103,731,119 |       |   |             | 175,432,361 |      
|         | Add: Net effect of dilutive potential shares |                                 |            |            |       |      |             |            |       |   |             |            |      
|         |                                              |                                 |            |             |       |      |             |             |       |   |             |            
|         |                                              |                                 | 33,805,389 |             |       |      | 103,731,119 |             |       |   | 175,432,361 |            
|         |                                              | Net loss per share              |            | $           | (1.22 | )    |             | $           | (0.17 | ) |             | $           | (0.06 | )
|         |                                              |                                 |            |             |       |      |             |             |       |   |             |            

For the year ended December 31, 2003, we had
outstanding (a) options to purchase 17,800,895 shares
at a weighted average exercise price of $1.58,
(b) 83.1 million shares of common stock to be issued
upon the conversion of our Series D Preferred Stock at a
conversion price of $0.12 per share,
(c) 63.2 million shares of common stock to be issued
upon the conversion of our convertible debt and
(d) warrants to purchase common shares at exercise prices
in the following table. These securities were outstanding but
were not included in the computation of diluted earnings per
share because the effect of these outstanding options, stock
issuable upon conversion of Preferred Stock and warrants would
be antidilutive.

|                         |            |                |  |   |       | 
|------------------------ | ---------- | -------------- |  | - | ----- | 
|Underlying Common Shares |            | Exercise Price
|                         |            |               
|                         | 2,321,423  |                |  | $ | 0.001 | 
|                         | 22,125,000 |                |  |   | 0.12  | 
|                         | 100,000    |                |  |   | 0.15  | 
|                         | 50,000     |                |  |   | 0.30  | 
|                         | 59,029     |                |  |   | 10.16 | 

For the year ended December 31, 2002,
options to purchase 15,158,350 shares at a weighted average
exercise price of $2.90, 90.4 million shares of common
stock to be issued upon the conversion of our Series D
Preferred Stock at a conversion price of $0.12 per share
and warrants to purchase common shares at exercise prices in the
following table were outstanding, but were not included in the
computation of diluted earnings per share because the effect of
these outstanding options, stock issuable upon conversion of
Preferred Stock and warrants would be antidilutive.

|                         |         |                |  |   |       | 
|------------------------ | ------- | -------------- |  | - | ----- | 
|Underlying Common Shares |         | Exercise Price
|                         |         |               
|                         | 100,000 |                |  | $ | 0.15  | 
|                         | 50,000  |                |  |   | 0.30  | 
|                         | 59,029  |                |  |   | 10.16 | 

For the year ended December 31, 2001,
options to purchase 14,814,031 shares at a weighted average
exercise price of $4.23, 25.5 million shares of common
stock to be issued upon the conversion of our Series B and
Series C Preferred Stock at an effective conversion price
calculated at December 31, 2001 of $0.153 per share
and warrants to purchase common shares at exercise prices in the
following table were outstanding, but were not included in the
computation of diluted earnings per share because the effect of

F-14



---



##### Table of Contents



THE VIALINK COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

these outstanding options, stock issuable upon
conversion of Preferred Stock and warrants would be antidilutive.

|                         |           |                |  |   |       | 
|------------------------ | --------- | -------------- |  | - | ----- | 
|Underlying Common Shares |           | Exercise Price
|                         |           |               
|                         | 1,384,658 |                |  | $ | 0.10  | 
|                         | 100,000   |                |  |   | 0.15  | 
|                         | 224,500   |                |  |   | 0.16  | 
|                         | 1,605,067 |                |  |   | 0.30  | 
|                         | 9,108,000 |                |  |   | 0.40  | 
|                         | 40,000    |                |  |   | 1.50  | 
|                         | 59,029    |                |  |   | 10.16 | 
|                         | 43,164    |                |  |   | 29.19 | 
|                         | 3,943     |                |  |   | 31.23 | 



|   |                                          
|-- | -----------------------------------------
|8. | Stock Option and Stock Purchase
    Plans

Stock Purchase
Plan The viaLink Company
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. The price
will be 85 percent of the per share fair market value on
either the granting date or the exercise date, whichever market
value is lower. The number of shares of common stock authorized
and reserved for issuance under the Plan is 800,000 shares.
For the years ended December 31, 2001, 2002 and 2003:
191,250, 157,158 and 128,151 shares, respectively, of
common stock have been purchased under the stock purchase plan.

Stock Option and Grant
Plans We adopted The
viaLink Company 1999 Stock Option/ Stock Issuance Plan to
attract and retain the services of individuals essential to the
Companys long-term growth and financial success. Our
officers and other key employees, non-employee board members and
consultants and other advisors are eligible to receive option
grants under the 1999 Plan.

We have reserved 36,000,000 shares of our
common stock for issuance over the ten year term of the 1999
Plan. This share reserve will automatically increase on the
first trading day of each calendar year, beginning with the 2004
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 1,000,000 shares. 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.

F-15



---



##### Table of Contents



THE VIALINK COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A summary of our stock option activity and
related information follows for the years ended
December 31, 2001, 2002 and 2003:

|                                 |           |           |            |                |   |   |      |      | 
|-------------------------------- | --------- | --------- | ---------- | -------------- | - | - | ---- | ---- | 
|                                 |           |           |            | Weighted      
|                                 |           | Number of |            | Average       
|                                 |           | Shares    |            | Exercise price
|                                 |           |           |            |               
|Outstanding at January 1, 2001   |           |           | 11,189,720 |                |   | $ | 6.90 |     
|                                 | Granted   |           |            | 6,011,370      |   |   |      | 0.68 | 
|                                 | Exercised |           |            | (124,480       | ) |   |      | 1.57 | 
|                                 | Canceled  |           |            | (2,262,579     | ) |   |      | 9.08 | 
|                                 |           |           |            |                |   |   |      |     
|Outstanding at December 31, 2001 |           |           | 14,814,031 |                |   |   | 4.23 |     
|                                 | Granted   |           |            | 3,700,000      |   |   |      | 0.12 | 
|                                 | Exercised |           |            |               |   |   |      |     | 
|                                 | Canceled  |           |            | (3,355,681     | ) |   |      | 5.70 | 
|                                 |           |           |            |                |   |   |      |     
|Outstanding at December 31, 2002 |           |           | 15,158,350 |                |   |   | 2.90 |     
|                                 | Granted   |           |            | 6,865,000      |   |   |      | 0.10 | 
|                                 | Exercised |           |            | 25,000         |   |   |      | 0.12 | 
|                                 | Canceled  |           |            | (4,197,455     | ) |   |      | 3.94 | 
|                                 |           |           |            |                |   |   |      |     
|Outstanding at December 31, 2003 |           |           | 17,800,895 |                |   | $ | 1.58 |     
|                                 |           |           |            |                |   |   |      |     

F-16



---



##### Table of Contents



THE VIALINK COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes information about
stock options outstanding at December 31, 2003:

|                     |  |                     |            |                     |  |           |       |             |  |          |            |  |  |  |            |  |  |   |       | 
|-------------------- |  | ------------------- | ---------- | ------------------- |  | --------- | ----- | ----------- |  | -------- | ---------- |  |  |  | ---------- |  |  | - | ----- | 
|                     |  |                     |            |                    
|                     |  | Options Outstanding |            | Options Exercisable
|                     |  |                     |            |                    
|                     |  |                     |            | Weighted            |  | Weighted  |       |             |  | Weighted
|                     |  |                     |            | Average             |  | Average   |       |             |  | Average 
|Range of             |  |                     |            | Exercise            |  | Remaining |       |             |  | Exercise
|Exercise Price       |  | Outstanding         |            | Price               |  | Life      |       | Exercisable |  | Price   
|                     |  |                     |            |                     |  |           |       |             |  |         
|$0.10                |  |                     | 6,565,000  |                     |  | $         | 0.10  |             |  |          | 9.9  years |  |  |  |           |  |  |   |      | 
|$0.12                |  |                     | 2,975,000  |                     |  | $         | 0.12  |             |  |          | 8.6  years |  |  |  | 2,975,000  |  |  | $ | 0.12  | 
|$0.25 to $0.27       |  |                     | 2,595,375  |                     |  | $         | 0.26  |             |  |          | 7.6  years |  |  |  | 2,595,375  |  |  | $ | 0.26  | 
|$0.45                |  |                     | 3,936      |                     |  | $         | 0.45  |             |  |          | 2.2  years |  |  |  | 3,936      |  |  | $ | 0.45  | 
|$0.59                |  |                     | 144,000    |                     |  | $         | 0.59  |             |  |          | 7.6  years |  |  |  | 144,000    |  |  | $ | 0.59  | 
|$0.75 to $0.83       |  |                     | 2,410,234  |                     |  | $         | 0.76  |             |  |          | 5.6  years |  |  |  | 2,410,234  |  |  | $ | 0.76  | 
|$0.97 to $1.04       |  |                     | 238,600    |                     |  | $         | 1.04  |             |  |          | 6.5  years |  |  |  | 238,600    |  |  | $ | 1.04  | 
|$1.60                |  |                     | 6,000      |                     |  | $         | 1.60  |             |  |          | 7.5  years |  |  |  | 6,000      |  |  | $ | 1.60  | 
|$2.25                |  |                     | 60,000     |                     |  | $         | 2.25  |             |  |          | 5.0  years |  |  |  | 60,000     |  |  | $ | 2.25  | 
|$2.94                |  |                     | 89,000     |                     |  | $         | 2.94  |             |  |          | 6.4  years |  |  |  | 89,000     |  |  | $ | 2.94  | 
|$3.46 to $3.82       |  |                     | 1,315,250  |                     |  | $         | 3.66  |             |  |          | 5.0  years |  |  |  | 1,315,250  |  |  | $ | 3.66  | 
|$6.00                |  |                     | 240,000    |                     |  | $         | 6.00  |             |  |          | 6.0  years |  |  |  | 240,000    |  |  | $ | 6.00  | 
|$8.91                |  |                     | 279,000    |                     |  | $         | 8.91  |             |  |          | 6.7  years |  |  |  | 279,000    |  |  | $ | 8.91  | 
|$10.06               |  |                     | 37,500     |                     |  | $         | 10.06 |             |  |          | 6.4  years |  |  |  | 37,500     |  |  | $ | 10.06 | 
|$15.22               |  |                     | 574,000    |                     |  | $         | 15.22 |             |  |          | 6.0  years |  |  |  | 574,000    |  |  | $ | 15.22 | 
|$17.50               |  |                     | 210,000    |                     |  | $         | 17.50 |             |  |          | 6.0  years |  |  |  | 210,000    |  |  | $ | 17.50 | 
|$40.25               |  |                     | 58,000     |                     |  | $         | 40.25 |             |  |          | 6.2  years |  |  |  | 58,000     |  |  | $ | 40.25 | 
|                     |  |                     |            |                     |  |           |       |             |  |          |            |  |  |  |            |  |  |   |       | 
|At December 31, 2003 |  |                     | 17,800,895 |                     |  |           |       |             |  |          |            |  |  |  | 11,235,895 |  |  | $ | 2.44  | 
|                     |  |                     |            |                     |  |           |       |             |  |          |            |  |  |  |            |  |  |   |       | 
|At December 31, 2002 |  |                     | 15,158,350 |                     |  |           |       |             |  |          |            |  |  |  | 9,547,934  |  |  | $ | 2.90  | 
|                     |  |                     |            |                     |  |           |       |             |  |          |            |  |  |  |            |  |  |   |       | 
|At December 31, 2001 |  |                     | 14,814,031 |                     |  |           |       |             |  |          |            |  |  |  | 8,392,771  |  |  | $ | 4.23  | 
|                     |  |                     |            |                     |  |           |       |             |  |          |            |  |  |  |            |  |  |   |       | 



|   |             
|-- | ------------
|9. | Income Taxes

The differences in federal income taxes at the
statutory rate and the provision for income taxes for the years
ended December 31, 2001, 2002, and 2003 are as follows:

|                                                                            |  |      |            |      |  |      |            |   |  |   |            |  
|--------------------------------------------------------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                                                                            |  | 2001 |            | 2002 |  | 2003
|                                                                            |  |      |            |      |  |     
|Income tax expense (benefit) at federal statutory
    rate                  |  | $    | (8,318,788 | )    |  | $    | (2,740,354 | ) |  | $ | (3,390,405 | )
|State income taxes                                                          |  |      | (978,681   | )    |  |      | (322,395   | ) |  |   | (398,871   | )
|Reduction of valuation allowance credited to
    Additional paid-in capital |  |      | 1,296,938  |      |  |      | 267,732    |   |  |   | 1,396,041  |  
|Benefit of net operating loss carryforwards not
    Recognized              |  |      | 7,356,540  |      |  |      | 2,463,020  |   |  |   | 2,274,005  |  
|Change in valuation allowance for current year
    temporary differences    |  |      | 624,509    |      |  |      | 326,706    |   |  |   | 116,765    |  
|Other                                                                       |  |      | 19,482     |      |  |      | 5,291      |   |  |   | 2,465      |  
|                                                                            |  |      |            |      |  |      |            |   |  |   |            |  
|Provision for income taxes                                                  |  | $    |           |      |  | $    |           |   |  | $ |           |  
|                                                                            |  |      |            |      |  |      |            |   |  |   |            |  

F-17



---



##### Table of Contents



THE VIALINK COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Deferred tax assets (liabilities) are
comprised of the following:

|                                                   |                                  |              |             |            |   |   |             |            | 
|-------------------------------------------------- | -------------------------------- | ------------ | ----------- | ---------- | - | - | ----------- | ---------- | 
|                                                   |                                  |             
|                                                   |                                  | December 31,
|                                                   |                                  |             
|                                                   |                                  | 2002         |             | 2003      
|                                                   |                                  |              |             |           
|Deferred tax assets:                               |                                  |              |             |            |   |   |             |           
|                                                   | Allowance for doubtful accounts  |              | $           | 43,700     |   |   | $           | 51,300     | 
|                                                   | Compensated absences             |              |             | 81,192     |   |   |             | 53,200     | 
|                                                   | Tax credit carryforwards         |              |             | 41,133     |   |   |             | 41,133     | 
|                                                   | Depreciation and amortization    |              |             | 316,708    |   |   |             | 297,837    | 
|                                                   | Net operating loss carryforwards |              |             | 29,368,949 |   |   |             | 31,642,954 | 
|                                                   |                                  |              |             |            |   |   |             |           
|                                                   |                                  |              | 29,851,682  |            |   |   | 32,086,424  |           
|Deferred tax liabilities:                          |                                  |              |             |            |   |   |             |           
|                                                   | Deferred service fees            |              |             |           |   |   |             |           | 
|                                                   | Discount on long-term debt       |              |             |           |   |   |             |           | 
|                                                   | Software development costs       |              |             | (156,027   | ) |   |             |           | 
|                                                   | Depreciation and amortization    |              |             |           |   |   |             |           | 
|                                                   |                                  |              |             |            |   |   |             |           
|Net deferred tax asset, before valuation allowance |                                  |              | 29,695,655  |            |   |   | 32,086,424  |           
|Valuation allowance                                |                                  |              | (29,695,655 | )          |   |   | (32,086,424 | )         
|                                                   |                                  |              |             |            |   |   |             |           
|Net deferred tax asset                             |                                  | $            |            |            |   | $ |            |           
|                                                   |                                  |              |             |            |   |   |             |           

The discount and interest expense recognized in
2003 for the value of the beneficial conversion feature in the
notes payable and the value of the warrants issued were not
recognized for income tax purposes. Our tax deduction for
stock-based compensation in 2001, 2002 and 2003 exceeds the
cumulative expense for those options and warrants recognized for
financial reporting purposes by approximately $7.6 million.
This excess deduction is a component of the net operating loss
carryforwards for which a deferred tax asset and corresponding
valuation allowance of approximately $2.9 million have been
recognized at December 31, 2003. When the net operating
loss carryforwards are utilized for financial reporting
purposes, this portion of the benefit will be credited directly
to additional paid in capital.

At December 31, 2003, we had net operating
loss (NOL) carryforwards for federal and state
purposes of approximately $83.2 million and
$83.6 million, respectively. The Federal and State NOL
carryforwards begin to expire in 2011.

SFAS 109 requires that we 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 our
ability to generate sufficient taxable income in the future. We
have recognized a full valuation allowance for the amount of net
deferred tax asset at December 31, 2002 and 2003 since we
resemble a development stage company and have no history of
profitability.

Our ability to utilize the NOL carryforward to
reduce future taxable income 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. | Commitments and Contingencies

We lease our office and storage space under
operating leases. The terms range from month-to-month up to five
years. We also lease office equipment under various
non-cancelable lease agreements. Total rental expense in 2001,
2002 and 2003 for all leases was $1,705,000, $1,120,000, and
$505,000, respectively.

F-18



---



##### Table of Contents



THE VIALINK COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Future minimum lease payments under
non-cancelable operating leases at December 31, 2003
follows:

|                              |  |           |         | 
|----------------------------- |  | --------- | ------- | 
|                              |  | Operating
|                              |  | Leases   
|                              |  |          
|2004                          |  | $         | 280,000 | 
|2005                          |  |           | 273,000 | 
|2006                          |  |           | 226,000 | 
|2007                          |  |           |        | 
|2008                          |  |           |        | 
|Thereafter                    |  |           |        | 
|                              |  |           |         | 
|Future minimum lease payments |  | $         | 779,000 | 
|                              |  |           |         | 

The Company amended its lease agreement for its
Corporate Offices in January 2004. The amendment decreased the
rented area from 21,696 square feet to 12,052 square
feet within the same building. The basic monthly rent decreased
effective January 1, 2004 from $44,500.04 to $22,597.50.

We previously had a lease for our previous
corporate headquarters under a ten-year lease expiring on
June 30, 2006. We had subleases for approximately
18,000 square feet of the 30,000 square foot office
facility for monthly rental payments of approximately $18,500.
During 2001, we recognized an expense equal to our remaining
obligation for abandoning this property of approximately
$592,000. In 2002, we terminated our lease in exchange for
$100,000 in cash and $100,000 in our common stock. We removed
all obligations previously recorded related to this agreement
resulting in a gain of $391,000 recorded in 2002.



|    |                
|--- | ---------------
|11. | Retirement Plan

We have 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. Our discretionary matching percentage is up to
100% of each participants total eligible contributions for
a year. The Company made no contributions in 2001, 2002 or 2003.



|    |                
|--- | ---------------
|12. | Preferred Stock

On February 2 - 7, 2001 we entered into a
series of agreements pursuant to which investors paid us an
aggregate of $10,018,250 in consideration for (1)
3,643 shares of our Series A Convertible Participating
Preferred Stock convertible into shares of our common stock at
an initial conversion price of $2.75 per share and
(2) Series A Warrants to purchase up to
3,643,000 shares of our common stock at initial exercise
price of $3.75 per share. On March 30, 2001, we
received approval of our stockholders with respect to the
issuance as required by NASD Rule 4350. The conversion
price of the Series A Preferred Stock is subject to certain
adjustments. On September 30, 2001, the conversion price of
the Series A Preferred Stock was adjusted per the terms of
our Certificate of Designation to $1.925 per share.

After the May 29, 2001, effectiveness of the
registration statement covering the resale of the underlying
common stock, one of the investors (1) received a Series B
Warrant to purchase up to 666,667 shares of our common
stock at an initial exercise price of $3.00 per share and
(2) invested an additional $1,999,250 in consideration for
727 shares of preferred stock and a Series A Warrant
to purchase up to 727,000 shares of our common stock. In
July 2001 we entered into transactions with the holder of the
Series B Warrants pursuant to which the terms of the
Series B Warrants were modified and the outstanding
Series B Warrants were subsequently exercised. After the
above-described transaction, no Series B Warrants remain
outstanding.

F-19



---



##### Table of Contents



THE VIALINK COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Certain of our executive officers agreed to pay
us an aggregate of $761,750 in consideration for 277 shares
of preferred stock and Series A Warrants to purchase
277,000 shares of our common stock. The investment by these
officers was contingent upon approval by our stockholders of the
issuance as required by NASD Rule 4350, which was obtained
on March 30, 2001.

As compensation for services rendered to us by
our financial advisor in connection with the transaction, we
issued (1) Placement Agent Warrants to purchase
464,700 shares of our common stock at an exercise price of
$3.75 per share, (2) Placement Agent Warrants to
purchase 66,667 shares of our common stock at an exercise
price of $3.00 per share and (3) Placement Agent
Warrants to purchase 464,700 shares of our common stock at
an exercise price of $2.75 per share.

The proceeds from issuance of the Series A
Convertible Participating Preferred Stock and the Series A
Warrants were allocated to each instrument based on their
relative fair values. Additionally, the Series A
Convertible Preferred Stock includes a beneficial conversion
ratio at the issuance date. The fair value of the Warrants and
the intrinsic value of the beneficial conversion ratio, limited
to the amount of proceeds, are deemed a dividend to holders of
the Preferred Stock. The Warrants are exercisable and the
Preferred Stock is convertible immediately. The sum of the
relative fair value of the Series A Warrants and the
intrinsic value of the beneficial conversion ratio of the
Series A Convertible Participating Preferred Stock was
determined to be in excess of the total proceeds received by the
Company; therefore, the entire $12,779,250 in proceeds is
considered a non-cash dividend to the Series A Convertible
Participating Preferred Stock shareholders recorded at the date
of issuance and included in the determination of net loss
applicable to common stock for the first quarter and second
quarter of 2001. The dividend from issuance through conversion
was recorded at the stated dividend of 6.0% per year.

In October 2001, we entered into agreements with
the holders of our Series A Preferred Stock pursuant to
which the terms of the Series A Preferred Stock were
modified to include an adjustment of the conversion price from
$0.9625 to $0.82, the in-kind pre-payment of the present value
of future premiums and an adjustment of the Series A
Warrant Exercise price to $0.10 per share if such warrants
were exercised prior to October 31, 2001 and $0.30 if
exercised thereafter. During October 2001, 2.8 million
shares of our common stock were issued upon exercise of these
warrants at $0.10 per share. Warrants to purchase
1.3 million shares at $0.30 remained unexercised at
December 31, 2001. All Series A Preferred Stock was
converted into common stock during 2001.

On November 7, 2001 we filed a prospectus
supplement, pursuant to which, we offered 150 Shares of our
Series B Convertible Preferred Stock and Warrants to
purchase 2,500,000 shares of our common stock to SDS
Merchant Fund, L.P. (SDS). The Series B
Convertible Preferred Stock, par value $.001 per share, is
convertible into shares of our common stock in the manner, and
upon the terms, provisions and conditions set forth in the
Certificate of Designation of the Preferred Stock. The
conversion price of the Series B Convertible Preferred
Stock is subject to certain adjustments under the terms of the
Certificate of Designation. The proceeds from issuance of the
Series B Convertible Participating Preferred Stock and
Warrant issued to SDS have been allocated to each instrument
based on their relative fair values. Additionally, the
Series B Convertible Preferred Stock includes a beneficial
conversion ratio at the issuance date. The fair value of the
Warrants and the intrinsic value of the beneficial conversion
ratio, limited to the amount of proceeds, has been deemed a
dividend to holders of the Preferred Stock and has been
considered a non-cash dividend to the Series B Convertible
Preferred Stock shareholders recorded at the date of issuance
and is included in the determination of net loss applicable to
common stock for 2001. During 2001, SDS converted $600,000 of
Series B Preferred Stock into 3.0 million shares of
common stock. At December 31, 2001, $900,000 Series B
Convertible stock remained outstanding and immediately
convertible into common stock at the option of the holder.

On December 28, 2001 we filed a prospectus
supplement, pursuant to which, we offered 300 Shares of our
Series C Convertible Preferred Stock and Warrants to
purchase 9,000,000 shares of our common stock

F-20



---



##### Table of Contents



THE VIALINK COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

to SDS Merchant Fund, L.P. and other purchasers
(collectively the purchasers). The Series C
Convertible Preferred Stock, par value $.001 per share, is
convertible into shares of our common stock in the manner, and
upon the terms, provisions and conditions set forth in the
Certificate of Designation of the Preferred Stock. The
conversion price of the Series C Convertible Preferred
Stock is subject to certain adjustments under the terms of the
Certificate of Designation. The proceeds from issuance of the
Series C Convertible Participating Preferred Stock and
Warrant issued has been allocated to each instrument based on
their relative fair values. Additionally, the Series C
Convertible Preferred Stock includes a beneficial conversion
ratio at the issuance date. The fair value of the Warrants and
the intrinsic value of the beneficial conversion ratio has been
deemed a dividend to holders of the Preferred Stock and is
considered a non-cash dividend to the Series C Convertible
Preferred Stock shareholders recorded at the date of issuance
and has been included in the determination of net loss
applicable to common stock for 2001.

The Certificate of Designation for the
Series B and Series C Preferred stock includes certain
provisions and conditions for redemption if certain significant
events occur, including a change of control. The provisions
allow the holders to redeem the Preferred Stock for the greater
of the liquidation preference or the product of the number of
shares issuable at the current market price and the Closing Bid
Price of the Common Stock on the trading day immediately
preceding an event that causes redemption. As such we classified
the amounts as redeemable preferred stock on the balance sheet
at December 31, 2001 and the amounts were excluded from the
calculation of stockholders equity until converted into
common stock.

The Series B and Series C Preferred
Stock included provisions that in the event of the liquidation,
dissolution or winding up of the affairs of the Company, whether
voluntary or involuntary, that the holders of the Series B
and Series C Preferred Stock shall be entitled to receive,
out of the assets of the company, an amount equal to
$10,000 per share of Preferred Stock plus any accrued and
unpaid dividends. Such payment would be made prior to any
distribution to the holders of Common Stock. At
December 31, 2001, the carrying value of the Series B
and Series C Preferred stock is equal to this liquidation
preference.

On September 30, 2002, all outstanding
shares of Series B and Series C Preferred Stock and
accumulated, unpaid dividends were exchanged for 513 shares
of our Series D Preferred Stock with a face value of
$6,150,000. Additionally, in accordance with the Purchase
Agreement, the holders of the Series B and Series C
Preferred Stock were issued warrants to purchase
25.6 million shares of common stock which were exercised
immediately at a nominal exercise price of $0.001.

On September 30, 2002 we completed the first
of two closings for the sale of $4.5 million of
Series D Convertible Preferred Stock to SDS Merchant Fund,
L.P. and other purchasers. The first closing resulted in
proceeds of $3,434,850 and the issuance of 286 shares of
Series D Preferred Shares. Each share of Series D
Convertible Preferred Stock has a face value of $12,000 and is
convertible into our Common stock at $0.12 per share. At
the time of the first closing all outstanding shares of
Series B and Series C Redeemable Convertible Preferred
Stock and accumulated, unpaid dividends were exchanged for
513 shares of our Series D Convertible Preferred Stock
with a face value of $6,150,000.

Additionally, in accordance with the Purchase
Agreement, we issued warrants to purchase 50,000 shares of
our common stock for each share of Series D Convertible
Preferred Stock issued including the issuance of warrants to
purchase 25.6 million common shares to holders of the
Series B and Series C Preferred Stock. On
September 30, 2002, we issued warrants to purchase a total
39.9 million shares of common stock which were exercised
immediately at a nominal exercise price of $0.001.

The Series D Convertible Preferred Stock,
par value $.001 per share, is convertible into shares of
our common stock in the manner, and upon the terms, provisions
and conditions set forth in the Certificate of Designation of
the Preferred Stock. The conversion price of the Series D
Convertible Preferred Stock is

F-21



---



##### Table of Contents



THE VIALINK COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

subject to certain adjustments under the terms of
the Certificate of Designation. The proceeds from issuance of
the Series D Convertible Preferred Stock and Warrant issued
and the fair value of the warrants issued to the holders of the
Series B and Series C Preferred Stock has been
allocated to each instrument based on their relative fair
values. Additionally, the Series D Convertible Preferred
Stock includes a beneficial conversion ratio at the issuance
date. The fair value of the Warrants and the intrinsic value of
the beneficial conversion ratio has been deemed a dividend to
holders of the Preferred Stock and considered a non-cash
dividend to the Series D Convertible Preferred Stock
shareholders recorded during the third quarter of 2002 and has
been included in the determination of net loss applicable to
common stock for the three and nine months ended
September 30, 2002.

On February 5, 2003, we completed the second
of two closings for the sale of $4.5 million of
Series D Convertible Preferred Stock to SDS Merchant Fund,
L.P. and other purchasers. The second closing resulted in
proceeds of $1,260,000 and the issuance of 105 shares of
Series D Preferred Shares. Each share of Series D
Convertible Preferred Stock has a face value of $12,000 and is
convertible into our Common stock at $0.12 per share.

Additionally, in accordance with the Purchase
Agreement, we issued warrants to purchase 50,000 shares of
our common stock for each share of Series D Convertible
Preferred Stock issued. On February 5, 2003, we issued
warrants to purchase a total 5.3 million shares of common
stock which were exercised immediately at a nominal exercise
price of $0.001.

The fair value of the Warrants and the intrinsic
value of the beneficial conversion ratio has been deemed a
dividend to holders of the Preferred Stock and considered a
non-cash dividend to the Series D Convertible Preferred
Stock shareholders. The non-cash dividend for the second closing
was recorded during the first quarter of 2003 and has been
included in the determination of net loss applicable to common
stock in 2003.



|    |                        
|--- | -----------------------
|13. | Selected Quarterly Data

Selected unaudited quarterly data are as follows:

|                                    |                                               |           |            |          |   |               |            |              |   |   |            |       |   |   |            |       |  
|----------------------------------- | --------------------------------------------- | --------- | ---------- | -------- | - | ------------- | ---------- | ------------ | - | - | ---------- | ----- | - | - | ---------- | ----- | -
|                                    |                                               |          
|                                    |                                               | 2003     
|                                    |                                               |          
|                                    |                                               | March 31, |            | June 30, |   | September 30, |            | December 31,
|                                    |                                               |           |            |          |   |               |            |             
|Revenues                            |                                               | $         | 840,531    |          |   | $             | 953,030    |              |   | $ | 1,125,183  |       |   | $ | 1,217,575  |      
|Loss from operations                |                                               |           | (2,123,765 | )        |   |               | (1,960,376 | )            |   |   | (1,487,561 | )     |   |   | (796,753   | )    
|Net loss                            |                                               |           | (2,123,765 | )        |   |               | (2,661,925 | )            |   |   | (2,914,753 | )     |   |   | (2,271,336 | )    
|Net loss applicable to common stock |                                               |           | (3,383,765 | )        |   |               | (2,661,925 | )            |   |   | (2,914,753 | )     |   |   | (2,271,336 | )    
|                                    | Net loss applicable to common stock per share |           | $          | (0.02    | ) |               | $          | (0.02        | ) |   | $          | (0.02 | ) |   | $          | (0.01 | )

|                                    |                                               |           |            |          |   |               |            |              |   |   |            |       |   |   |            |       |  
|----------------------------------- | --------------------------------------------- | --------- | ---------- | -------- | - | ------------- | ---------- | ------------ | - | - | ---------- | ----- | - | - | ---------- | ----- | -
|                                    |                                               |          
|                                    |                                               | 2002     
|                                    |                                               |          
|                                    |                                               | March 31, |            | June 30, |   | September 30, |            | December 31,
|                                    |                                               |           |            |          |   |               |            |             
|Revenues                            |                                               | $         | 960,480    |          |   | $             | 1,103,693  |              |   | $ | 1,144,951  |       |   | $ | 1,277,123  |      
|Loss from operations                |                                               |           | (2,710,594 | )        |   |               | (2,311,173 | )            |   |   | (3,030,403 | )     |   |   | (1,636,512 | )    
|Gain on extinguishment of debt      |                                               |           |           |          |   |               |           |              |   |   | 1,628,817  |       |   |   |           |      
|Net loss                            |                                               |           | (2,710,594 | )        |   |               | (2,311,173 | )            |   |   | (1,401,586 | )     |   |   | (1,636,512 | )    
|Net loss applicable to common stock |                                               |           | (5,934,630 | )        |   |               | (2,324,488 | )            |   |   | (7,803,835 | )     |   |   | (1,636,512 | )    
|                                    | Net loss applicable to common stock per share |           | $          | (0.09    | ) |               | $          | (0.03        | ) |   | $          | (0.08 | ) |   | $          | (0.01 | )

F-22



---



##### Table of Contents



INDEX TO EXHIBITS

| |         |  |  |                                                                                                                                                              
| | ------- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.1(1)  |  |  | Form of Certificate of Common Stock                                                                                                                          
| | 4.2(2)  |  |  | Form of Series A Warrant                                                                                                                                     
| | 4.3(3)  |  |  | Form of Series D Convertible Preferred Stock                                                                                                                 
| | 4.4(4)  |  |  | Form of Purchase Agreement for Series D
    Convertible Preferred Stock                                                                                      
| | 4.5(4)  |  |  | Certificate of Designations relating to
    Series D Convertible Preferred Stock                                                                             
| | 4.6(4)  |  |  | Form of Series D Warrant                                                                                                                                     
| | 4.7(4)  |  |  | Form of Registration Rights Agreement                                                                                                                        
| | 4.8(5)  |  |  | Form of Second Global Amendment Agreement entered
    into by and between Hewlett-Packard Company and the Registrant                                         
| | 4.11(3) |  |  | Series D Convertible Preferred Stock
    Purchase Agreement Dated as of September 30, 2002, among
    the Registrant and Certain Purchasers                  
| | 4.12(3) |  |  | Series D Convertible Preferred Stock
    Purchase Agreement Dated as of September 30, 2002, among
    the Registrant and Certain Purchasers                  
| | 4.13(7) |  |  | Form of Promissory note entered into by and
    between The viaLink Company and each of the note holders                                                     
| | 4.14(7) |  |  | Form of Warrant to Purchase Shares of Common
    Stock of The viaLink Company                                                                                
| | 10.1(3) |  |  | Form of Service Agreement                                                                                                                                    
| | 10.2(3) |  |  | Release Agreement entered into between Edmond,
    Oklahoma, landlord and the Registrant ending all obligations for
    the Registrants former offices      
| | 10.3(6) |  |  | Second Amendment to Office Lease Agreement                                                                                                                   
| | 10.4*   |  |  | Amendment to Employment Agreement between Brian
    M. Carter and the Registrant                                                                             
| | 10.5*   |  |  | Amendment to Employment Agreement between Robert
    I. Noe and the Registrant                                                                               
| | 23.1    |  |  | Consent of KPMG LLP                                                                                                                                          
| | 31.1    |  |  | Certification of Chief Executive Officer                                                                                                                     
| | 31.2    |  |  | Certification of Chief Financial Officer                                                                                                                     
| | 32.1*   |  |  | Certification pursuant to 18 U.S.C. Section 1350,
    as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
    2002 by the Chief Executive Officer
| | 32.2*   |  |  | Certification pursuant to 18 U.S.C. Section 1350,
    as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
    2002 by the Chief Executive Officer



---



| |   |                  
| | - | -----------------
| | * | Previously filed.



|    |                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated herein by reference to the
    Registrants Registration Statement on Form 8-A/ A
    Amendment No. 2 filed under Section 12(g) of the
    Exchange Act on June 21, 2000.
|   
|(2) | Incorporated by reference herein to the
    Registrants Current Report on Form 8-K dated
    February 7, 2001.                                                                       
|   
|(3) | Incorporated herein by reference to the
    Registrants Registration Statement on Form S-2/ A
    Amendment No. 2 filed on January 23, 2003.                                         
|   
|(4) | Incorporated by reference herein to the
    Registrants Current Report on Form 8-K dated
    October 2, 2002.                                                                        
|   
|(5) | Incorporated by reference herein to the
    Registrants Current Report on Form 8-K dated
    September 5, 2002.                                                                      
|   
|(6) | Incorporated by reference herein to the
    Registrants Current Report on Form 8-K dated
    February 10, 2004.                                                                      
|   
|(7) | Incorporated herein by reference to the
    Registrants Current Report on Form 8-K dated
    April 10, 2003.