<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 2000.
Or
[ ] Transition Report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______ to ______
Commission File Number: 000-29037
eMerge INTERACTIVE, INC.
------------------------
(Exact name of registrant as specified in its charter)
Delaware 65-0534535
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10315 102nd Terrace Sebastian, Florida 32958
--------------------------------------------
(Address of principal executive offices)
(561) 589-7331
--------------
Registrant's telephone number, including area code:
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days: YES [ X ] NO [ ]
The number of shares of the registrant's common stock, $0.008 par value,
outstanding as of April 30, 2000 was 33,077,270. There were 27,382,825 shares
of Class A common stock outstanding and 5,694,445 shares of Class B common
outstanding as of this date.
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<PAGE> 2
eMerge INTERACTIVE, INC.
FORM 10-Q QUARTERLY REPORT
(For Three Months Ended March 31, 2000)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of December 31, 1999 and March 31,
2000........................................................................................ 3
Condensed Consolidated Statements of Operations for the three months ended March 31,
1999 and 2000............................................................................... 5
Condensed Consolidated Statement of Stockholders' Equity as of March 31, 2000............... 6
Condensed Consolidated Statements of Cash Flows for the three months ended March 31,
1999 and 2000............................................................................... 7
Notes to Condensed Consolidated Financial Statements........................................ 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................................. 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................. 26
Part II OTHER INFORMATION
Item 1. Legal Proceedings........................................................................... 26
Item 2. Changes in Securities and Use of Proceeds................................................... 26
Item 4. Submission of Matters to a Vote of Security Holders......................................... 27
Item 6. Exhibits and Reports on Form 8-K............................................................ 27
</TABLE>
This Report contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. These forward-looking
statements include statements regarding, among other things, electronic
commerce strategy, acquisition and expansion strategy, development of services,
projected capital expenditures, the sufficiency of our liquidity and capital,
development of additional revenue sources, market acceptance of the Internet,
expansion into new market segments, technological advancement, ability to
develop "brand" awareness and global expansion. Such statements are based on
management's current expectations and are subject to a number of uncertainties
and risks that could cause actual results to differ significantly from those
described in the forward-looking statements. Factors that may cause such a
difference include, but are not limited to, those discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations," as
well as those discussed elsewhere in this Report.
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
eMERGE INTERACTIVE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
ASSETS 1999 2000
------------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 12,316,497 $ 92,743,495
Short term investments -- 215,348
Trade accounts receivable 1,144,133 7,683,658
Inventories (note 3) 1,201,203 1,702,273
Cattle deposits 473,859 1,380,714
Prepaid expenses 71,078 498,105
Net assets of discontinued operations 297,003 381,588
Other current assets 136,349 175,331
TOTAL CURRENT ASSETS 15,640,122 104,780,512
Property and equipment, net 1,895,754 2,905,165
Capitalized offering costs 447,644 --
Investment in Turnkey Computer Systems, Inc. 1,822,833 1,822,833
Intangibles, net 5,955,360 5,637,411
------------- -------------
TOTAL ASSETS $ 25,761,713 $ 115,145,921
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of capital lease obligation with related
party $ 82,320 $ --
Note payable 500,000 --
Accounts payable 1,187,900 1,793,007
Accrued liabilities:
Salaries and benefits 967,749 850,044
Other 818,041 660,443
Advance payments from customers 222,750 751,630
Due to related parties (note 5) 12,053,715 524,879
TOTAL CURRENT LIABILITIES 15,832,475 4,580,003
Capital lease obligation with related party, excluding current
installments 224,068 --
Note payable 400,000 --
------------- -------------
TOTAL LIABILITIES 16,456,543 4,580,003
------------- -------------
Commitments and contingencies -- --
Redeemable Class A common stock, issued and outstanding
62,500 shares in 1999 and -0- shares in 2000 414,339 --
</TABLE>
3
<PAGE> 4
STOCKHOLDERS' EQUITY (NOTE 4):
<TABLE>
<S> <C> <C>
Preferred stock, $.01 par value, authorized 15,000,000 shares:
Series A preferred stock, (aggregate involuntary liquidation
preference of $8,030,675 in 1999 and $0 in 2000),
designated 6,500,000 shares, issued and outstanding
6,443,606 shares in 1999 and -0- shares in 2000 64,436 --
Series B junior preferred stock, (aggregate involuntary
liquidation preference of $5,281,316 in 1999 and $0 in
2000), designated 2,400,000 shares, issued and outstanding
2,400,000 shares in 1999 and -0- shares in 2000 24,000 --
Series C preferred stock, (aggregate liquidation preference
of $5,891,781 in 1999 and $0 in 2000), designated
1,300,000 shares; issued and outstanding 1,100,000 shares
in 1999 and -0- shares in 2000 11,000 --
Series D preferred stock, (aggregate liquidation preference
of $41,823,749 in 1999 and $0 in 2000), designated
4,555,556 shares, issued and outstanding 4,555,556 shares
in 1999 and -0- shares in 2000 45,556 --
Common stock, $.008 par value, authorized 100,000,000 shares:
Class A common stock, designated 92,711,110 shares, issued
and outstanding 7,046,444 shares in 1999 and
27,346,819 shares in 2000 56,372 218,775
Class B common stock, designated 7,288,890 shares; no
shares issued and outstanding in 1999; 5,694,445 shares
issued and outstanding in 2000 -- 45,556
Additional paid-in capital 62,312,315 169,956,668
Accumulated deficit (32,375,926) (37,884,683)
Subscription receivable from Internet Capital Group, Inc. (21,188,320) (21,716,304)
Unearned compensation (58,602) (54,094)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 8,890,831 110,565,918
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,761,713 $ 115,145,921
============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
eMERGE INTERACTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1999 2000
-------------- --------------
<S> <C> <C>
Revenue $ 605,467 $ 38,552,899
Cost of revenue 454,807 38,291,794
Gross profit 150,660 261,105
Operating expenses:
Selling, general and administrative 1,613,136 5,653,733
Research and development 441,346 1,300,708
Total operating expenses 2,054,482 6,954,441
Profit (loss) from continuing operations (1,903,822) (6,693,336)
Interest and other income (expense), net (120,130) 1,141,551
Profit (loss) from continuing operations
before income taxes (2,023,952) (5,551,785)
Income tax expense (benefit) -- --
------------- -------------
Profit (loss) from continuing operations (2,023,952) (5,551,785)
Discontinued operations:
Income from operations of discontinued
transportation segment 10,420 43,028
------------- -------------
Net profit (loss) $ (2,013,532) $ (5,508,757)
============= =============
Net profit (loss) from continuing operations per
common share-- basic and diluted $ (0.33) $ (0.24)
Net profit (loss) per common share-- basic and diluted $ (0.33) $ (0.24)
Weighted average number of common shares
outstanding-- basic and diluted 6,161,704 23,248,271
============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 6
<TABLE>
<CAPTION>
eMERGE INTERACTIVE, INC.
CONDENSED CONSOLIDATED
STATEMENT OF
STOCKHOLDERS' EQUITY
(UNAUDITED)
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
SERIES A SERIES B SERIES C
-------------------- --------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1999 6,443,606 64,436 2,400,000 24,000 1,100,000 11,000
Conversion of Series A preferred stock for 8,054,508 (6,443,606) (64,436) -- -- -- --
shares of Class A common stock
Conversion of Series B preferred stock for 3,000,000 -- -- (2,400,000) (24,000) -- --
shares of Class A common stock
Conversion of Series C preferred stock for 1,375,000 -- -- -- -- (1,100,000) (11,000)
shares of Class A common stock
Conversion of Series D preferred stock for 5,694,445 -- -- -- -- -- --
shares of Class B common stock
Sale of Class A common stock in connection with initial -- -- -- -- -- --
public offering
Exercise of stock options -- -- -- -- -- --
Exercise of Turnkey's put right for 62,500 shares of -- -- -- -- -- --
Class A common stock
Accretion to redemption value of note receivable -- -- -- -- -- --
from Internet Capital Group, Inc.
Net profit (loss) -- -- -- -- -- --
Amortization of unearned compensation -- -- -- -- -- --
---------- -------- ---------- -------- ---------- ----------
Balances at March 31, 2000 -- -- -- -- -- --
========== ======== ========== ======== ========== ==========
<CAPTION>
PREFERRED STOCK COMMON STOCK COMMON STOCK
Series D Class A Class B
---------------------- --------------------- -------------------
Shares Amount Shares Amount Shares Amount
----------- -------- ----------- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1999 4,555,556 45,556 7,046,444 56,372 -- --
Conversion of Series A preferred stock for 8,054,508 -- -- 8,054,508 64,436 -- --
shares of Class A common stock
Conversion of Series B preferred stock for 3,000,000 -- -- 3,000,000 24,000 -- --
shares of Class A common stock
Conversion of Series C preferred stock for 1,375,000 -- -- 1,375,000 11,000 -- --
shares of Class A common stock
Conversion of Series D preferred stock for 5,694,445 (4,555,556) (45,556) 5,694,445 45,556
shares of Class B common stock
Sale of Class A common stock in connection with initial -- -- 7,675,000 61,400 -- --
public offering
Exercise of stock options -- -- 133,367 1,067 -- --
Exercise of Turnkey's put right for 62,500 shares of -- -- 62,500 500 -- --
Class A common stock
Accretion to redemption value of note receivable -- -- -- -- -- --
from Internet Capital Group, Inc.
Net profit (loss) -- -- -- -- -- --
Amortization of unearned compensation -- -- -- -- -- --
---------- ------- ---------- ------- --------- ------
Balances at March 31, 2000 -- -- 27,346,819 218,775 5,694,445 45,556
========== ======= ========== ======= ========= ======
<CAPTION>
ADDITIONAL NOTE RECEIVABLE
PAID-IN ACCUMULATED FROM INTERNET UNEARNED
CAPITAL DEFICIT CAPITAL GROUP, INC. COMPENSATION TOTAL
----------- ------------ ------------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1999 62,312,315 (32,375,926) (21,188,320) (58,602) 8,890,831
Conversion of Series A preferred stock for -- -- -- -- --
8,054,508 shares of Class A common stock
Conversion of Series B preferred stock for -- -- -- -- --
3,000,000 shares of Class A common stock
Conversion of Series C preferred stock for -- -- -- -- --
1,375,000 shares of Class A common stock
Conversion of Series D preferred stock for -- -- -- -- --
5,694,445 shares of Class B common stock
Sale of Class A common stock in connection with 107,098,612 -- -- -- 107,160,012
initial public offering
Exercise of stock options 131,902 -- -- -- 132,969
Exercise of Turnkey's put right for 62,500 413,839 -- -- -- 414,339
shares of Class A common stock
Accretion to redemption value of note -- -- (527,984) -- (527,984)
receivable from Internet Capital Group, Inc.
Net profit (loss) -- (5,508,757) -- -- (5,508,757)
Amortization of unearned compensation -- -- -- 4,508 4,508
----------- ----------- ----------- ------------ -----------
Balances at March 31, 2000 169,956,668 (37,884,683) (21,716,304) (54,094) 110,565,918
=========== =========== =========== ============ ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE> 7
eMERGE INTERACTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 2000
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net profit (loss) $ (2,013,532) $ (5,508,757)
Adjustments to reconcile net profit (loss) to net cash used in
operating activities:
Depreciation and amortization 222,667 579,393
Accretion to redemption value of note receivable -- (527,984)
Amortization of unearned compensation -- 4,508
Changes in operating assets and liabilities:
Short term investments -- (215,348)
Trade accounts receivable, net 7,201 (6,539,525)
Inventories 65,377 (501,070)
Cattle deposits -- (906,855)
Prepaid expenses and other assets (30,533) (466,009)
Net assets of discontinued operations 47,067 (84,585)
Accounts payable 445,179 605,107
Accrued liabilities 1,009,366 (275,303)
Advance payments from customers -- 528,880
------------- -------------
Net cash used by operating activities (247,208) (13,307,548)
------------- -------------
Cash flows from investing activities:
Purchases of property and equipment (405,579) (1,270,855)
Business combinations, net of cash acquired of $737 (1,537,065) --
------------- -------------
Net cash used by investing activities (1,942,644) (1,270,855)
Cash flows from financing activities:
Net borrowings (payments) from (to) related parties 2,178,607 (11,528,836)
Payment on Turnkey note payable -- (900,000)
Payments on capital lease obligations (15,441) (306,388)
Sale of common stock, net of offering costs 27,281 107,740,625
------------- -------------
Net cash provided by financing activities 2,190,447 95,005,401
------------- -------------
Net increase (decrease) in cash 595 80,426,998
------------- -------------
Cash and cash equivalents - beginning of period 268 12,316,497
------------- -------------
Cash and cash equivalents - end of period $ 863 $ 92,743,495
============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
7
<PAGE> 8
eMERGE INTERACTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended March 31, 1999 and 2000
(Unaudited)
<TABLE>
<CAPTION>
1999 2000
------------- -------------
<S> <C> <C>
Supplemental disclosures:
Issuance of Class A common stock in connection with CIN
transaction $ 720,000 $ --
Issuance of Class A common stock with Cyberstockyard
transaction 450,000 --
Conversion of Series A, B, and C preferred stock and -- 513,775
redeemable Class A common stock into Class A common stock
Conversion of Series D preferred stock into Class B
common stock -- 45,556
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
8
<PAGE> 9
eMerge INTERACTIVE, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) ORGANIZATION
(A) BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts
of eMerge Interactive, Inc. and its wholly-owned subsidiaries, STS
Agriventures, Ltd. ("STS"), a Canadian corporation, and
Cyberstockyard, Inc. ("Cyberstockyard"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
The Company's condensed consolidated balance sheet as of December 31,
1999, has been derived from the Company's audited balance sheet as of
that date. The Company's condensed consolidated financial statements
as of and for the three months ended March 31, 1999 and 2000, have not
been audited. In the opinion of management, the unaudited condensed
consolidated financial statements include all adjustments and accruals
(consisting of normal recurring adjustments) necessary to present
fairly the Company's financial position as of March 31, 2000, and the
results of its operations and cash flows for the three months ended
March 31, 1999 and 2000.
Results of interim periods are not necessarily indicative of the
results to be expected during the remainder of the current year or for
any future period. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted or
condensed. The accounting policies used in preparing these
consolidated financial statements are the same as those described in
our Form 10-K and the consolidated financial statements incorporated
by reference therein.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue Recognition
The Company recognizes revenue in accordance with the terms of the
sale or contract, generally as products are shipped or services are
provided. The Company bears both inventory and credit risk with
respect to sales of all its products. In cattle sales transactions,
the Company purchases cattle from the seller, takes title at shipment
and records the cattle as inventory until delivered to an accepted
buyer, typically a 24 to 48 hour period. In both cattle auction and
resale transactions, the Company acts as a principal in purchasing
cattle from suppliers and sales to customers so that the Company
recognizes revenue equal to the amount paid by customers for the
cattle.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" (SAB 101). The bulletin draws on existing accounting rules
and provides specific guidance on how those accounting rules should be
applied. SAB 101 was to be effective for the Company's quarter ended
March 31, 2000. However, in March 2000, the Securities and Exchange
Commission issued SAB 101A which delays the effective date to the
Company's quarter ended June 30, 2000. Recently, the Securities and
Exchange Commission indicated it would be providing further written
guidance with respect to the adoption of specific issues addressed by
SAB 101. Based on what is currently known by the Company, management
does not believe that adoption of SAB 101 will have a material impact
on its financial position or results of operations.
(b) Net Profit (Loss) Per Share
Net profit (loss) per share is computed in accordance with SFAS No.
128, "Earnings Per Share," by dividing the net profit (loss) allocable
to common stockholders (net profit (loss) less accretion related to
redeemable Class A common stock) by the weighted average number of
shares of common stock outstanding less the shares of redeemable Class
A common stock. The Company's stock options (1,955,274 at March 31,
1999 and 3,497,375 at March 31, 2000) and convertible preferred stock
(8,843,606 at March 31, 1999 and 0 at March 31, 2000), have not been
used in the calculation of diluted net profit (loss) per share because
to do so would be anti-dilutive. As such, the numerator and the
denominator used in computing both basic and diluted net profit (loss)
per share allocable to common stockholders are equal.
Pursuant to Securities and Exchange Commission ("SEC") Staff
Accounting Bulletin No. 98 and SEC staff policy, all common stock and
common stock equivalents issued for nominal consideration during the
periods presented herein and through the filing of the registration
statement for the IPO are to be reflected in a manner similar to a
stock split or stock dividend for which retroactive treatment is
required in the calculation of net profit (loss) per share; the
Company did not have any such issuances.
(c) Capitalized Software Costs
The Company accounts for the software components of its websites in
accordance with the American Institute of Certified Public
Accountants' Statement of Position ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use".
Accordingly, certain costs to develop internal-use computer software
are capitalized after the Company has completed a preliminary project
assessment and management, with relevant authority, commits to funding
the related software project and it is probable that the project will
be completed and the software will be used to perform the function
intended. As of March 31, 2000, $446,434 has been capitalized and is
included in property and equipment in the accompanying condensed
consolidated balance sheets. These costs related to the Company's
internet site development and will be amortized to operations over the
assets' useful life upon completion of the application development
stage.
(d) Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
short term investments with a purchase to maturity of three months or
less to be cash equivalents.
As of March 31, 2000, the Company has approximately $92.2 million of
highly liquid debt instruments with maturities of less than three
months included in cash equivalents and approximately $215,000 of
highly liquid debt instruments with maturities of less than six months
included in short term investments. The Company accounts for all of
these investments in accordance with SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". As of March 31,
2000, all of the Company's cash equivalents and short term investments
are classified as held-to-maturity and their amortized cost
approximates fair value due to their short term nature.
9
<PAGE> 10
(3) INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
1999 2000
----------- -----------
<S> <C> <C>
Raw materials $ 658,454 $ 636,555
Work-in-process 139,187 142,105
Cattle 403,562 923,613
----------- -----------
$ 1,201,203 $ 1,702,273
=========== ===========
</TABLE>
(4) EQUITY
COMMON STOCK
As of March 31, 2000, the Company had authorized the issuance of
100,000,000 shares of common stock.
CLASS A -- The Company has designated 92,711,110 shares as Class A common
stock. Holders of Class A common stock are entitled to one vote for each
share.
CLASS B -- The Company has designated 7,288,890 shares as Class B common
stock. Holders of Class B common stock are entitled to two and one-half
votes for each share. The shares of Class A and Class B are identical in
all other respects.
PREFERRED STOCK
On February 4, 2000, the Company commenced its initial public offering and
concurrent private placement of common stock which resulted in the
conversion of 14,499,162 shares of outstanding preferred stock into
12,429,508 shares of Class A common stock and 5,694,445 shares of Class B
common stock. As of March 31, 2000, there remained 56,394 unissued shares
of Series A preferred stock and 200,000 unissued shares of Series C
preferred stock.
INITIAL PUBLIC OFFERING
On February 17, 2000, the Company completed an initial public offering and
private placement of 7,675,000 shares of common stock which generated net
proceeds of $107.2 million, after deducting approximately $8 million for
underwriting discounts, commissions and other offering costs.
10
<PAGE> 11
(5) RELATED PARTY TRANSACTIONS
DUE TO RELATED PARTIES
Due to related parties consist of:
<TABLE>
<CAPTION>
1999 2000
------------ -----------
<S> <C> <C>
XL Vision $ 1,668,317 $ 508,901
Safeguard Scientifics, Inc. and Safeguard Delaware,
Inc. 10,385,398 15,978
------------ -----------
$ 12,053,715 $ 524,879
============ ===========
</TABLE>
During February 2000, the Company repaid certain related party balances
with the proceeds received from its initial public offering. The Company
paid approximately $10.5 million to Safeguard Delaware, Inc. in full
settlement of a demand note signed in October 1999 and paid to XL Vision,
Inc. approximately $1.5 million for amounts due in connection with the July
1997 transfer of infrared technology to the Company.
(6) SEGMENT INFORMATION
In 1998, the Company adopted SFAS No. 131, which requires the reporting of
segment information using the "management approach" versus the "industry
approach" previously required. The management approach requires the Company
to report certain financial information related to continuing operations
that is provided to the Company's chief operating decision-maker. The
Company's chief operating decision-maker receives revenue and contribution
margin (revenue less direct costs and excluding overhead) by source, and
all other statement of operations data and balance sheet data on a
consolidated basis. The Company's reportable segments consist of cattle
sales and animal sciences products and services. While the Company operates
entirely in the animal science marketplace, the contribution margin
associated with cattle sales and the related prospects for this portion of
the Company's business differ from the rest of the Company's product
offerings.
11
<PAGE> 12
The following summarizes revenue and contribution margin information
related to the Company's two operating segments:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
----------------------------------
1999 2000
------------- -------------
<S> <C> <C>
Revenue:
Cattle $ -- $ 38,011,084
Animal sciences 605,467 541,815
------------- -------------
Total $ 605,467 $ 38,552,899
============= =============
Cost of revenue:
Direct costs:
Cattle $ -- $ 37,811,902
Animal sciences 241,083 105,498
------------- -------------
Total direct costs 241,083 37,917,400
Unallocated overhead 213,724 374,394
------------- -------------
Total $ 454,807 $ 38,291,794
============= =============
Gross profit (loss):
Contribution margin:
Cattle $ -- $ 199,182
Animal sciences 364,384 436,317
------------- -------------
Total 364,384 635,499
Unallocated overhead (213,724) (374,394)
------------- -------------
Gross profit (loss) $ 150,660 $ 261,105
============= =============
</TABLE>
The Company's assets and other statement of operations data are not allocated
to a segment.
(7) STOCK PLAN
In January 1996, the Company adopted an equity compensation plan (the "1996
Plan") pursuant to which the Company's Board of Directors may grant shares
of common stock or options to acquire common stock to certain directors,
advisors and employees. The Plan authorizes grants of shares or options to
purchase up to 2,168,750 shares of authorized but unissued common stock.
Stock options granted have a maximum term of ten years and have vesting
schedules which are at the discretion of the Compensation Committee of the
Board of Directors and determined on the effective date of the grant.
In May 1999, the Company's stockholders approved the 1999 Equity
Compensation Plan (the "1999 Plan"). Under the 1999 plan, an additional
1,250,000 shares of authorized, unissued shares of common stock of the
Company are reserved for issuance to employees, advisors and for non-exempt
members of the Board of Directors. Option terms under the 1999 Plan may not
exceed 10 years.
12
<PAGE> 13
A summary of option transactions for the quarter ended March 31, 2000,
follows:
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF WEIGHTED AVERAGE
EXERCISE AVERAGE REMAINING
PRICE PER EXERCISE CONTRACTUAL
SHARES SHARE PRICE LIFE (IN YEARS)
----------- ---------------- -------- ---------------
<S> <C> <C> <C> <C>
Balance outstanding, December 31,
1999 2,769,116 $ 0.80 - 11.20 $ 2.93 9.01
Granted 862,876 $ 11.20 - 62.38 $ 16.81
Exercised (133,367) $ 0.80 - 1.60 $ 1.00
Cancelled (1,250) $ 7.20 $ 7.20
----------- ---------------- -------- ------------
Balance outstanding, March 31, 2000
3,497,375 $ 0.80 - 62.38 $ 6.42 9.05
=========== ================ ======== ============
</TABLE>
(8) SUBSEQUENT EVENTS
On April 20, 2000, the Company entered into an asset purchase agreement with
Eastern Livestock Co., to purchase Eastern's rollover business. The
acquisition closed on May 1, 2000. Eastern Livestock's rollover business
engages in the buying of cattle for immediate or short-term resale. The
purchase of the business includes acquisition of all tangible and intangible
assets used in the conduct or operation of the rollover business. The
purchase price for the assets consisted of (i) $17,000,000 in cash, (ii)
1,215,913 shares of eMerge's common stock valued at $11.93 per share, and
(iii) $4,500,000 in cash to be paid one year after the closing date or
earlier based upon the occurrence of certain events. The transaction will be
accounted for as a purchase and the results of the acquired operations will
be included in the Company's financial statements after April 20, 2000.
On April 21, 2000, the Company entered into an asset purchase agreement with
W.P. Land and Livestock, Inc. for the purchase of all tangible and
intangible assets. The purchase is scheduled to close on or before May 15,
2000, or on such other date as agreed to by both parties. W.P. Land and
Livestock engages in the buying and reselling of cattle through its auction
facilities. The purchase price for these assets consisted of $2,784,595 in
cash, plus the value of certain inventory. Concurrent with the asset
purchase agreement, the Company also entered into a contract for the
purchase of three parcels of real estate from the shareholders of W.P. Land
and Livestock at a purchase price of $3,472,000 in cash. The transaction
will be accounted for as a purchase and the results of the acquired
operations will be included in the Company's financial statements after
April 21, 2000.
(9) COMMITMENTS AND CONTINGENCIES
The Company has been named as a defendant in a lawsuit filed by Central
Biotech, Inc. on January 12, 2000 in the Queen's Bench Judicial Centre of
Regina, Province of Saskatchewan, Canada. The complaint alleges that eMerge
and E-Y Laboratories Inc. were each subject to confidentiality agreements
with the plaintiff, and subsequently engaged in discussions concerning a
potential business arrangement allegedly in violation of these agreements.
The complaint asserts damages, including punitive damages, from the
defendants in the aggregate amount of $18,000,000 (Canadian dollars), as
well as injunctive relief. Although the Company has not yet completed its
assessment of these claims, the Company believes that there are a number of
substantive and procedural defenses that exist and intends to defend these
claims vigorously.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
The following discussion of our financial condition and results of
operations should be read together with the consolidated financial statements
and the related notes included elsewhere in this document and which are deemed
to be incorporated into this section. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in those forward-looking statements as a
result of certain factors, including but not limited to, those set forth under
and included in other portions of this document.
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REVENUE RECOGNITION
We recognize revenue in accordance with the terms of the sale or contract,
generally as products are shipped or services are provided. In cattle sales
transactions we act as principal when purchasing cattle from suppliers and
reselling them to customers. We take title when the supplier delivers the
cattle to us, arrange for shipment to our customer, and own as inventory until
delivered to and accepted by the buyer, typically a 24 to 48 hour period. We
are responsible for the resale of the cattle, bear all risk associated with the
cattle until resold, and bear the credit risk until full payment is received
from our customers. We recognize revenue when cattle are shipped to the
customer equal to the purchase price paid by the customer. Gross profit on
cattle sale transactions is determined by the mark-up that we add to the price
that we pay to purchase the cattle. Revenue from the sale of livestock health
management and quality enhancement products, equine imaging cameras and
NutriCharge, is recognized on shipment to the customer. Revenue from our
advertising and information management products is recognized in the period in
which the information or analysis is delivered to the customer, normally on a
monthly basis.
RESULTS OF OPERATIONS
YEAR ENDED MARCH 31, 2000 COMPARED TO YEAR ENDED MARCH 31, 1999
Revenue increased from $605,000 for the quarter ended March 31, 1999 to
$38.6 million for the quarter ended March 31, 2000. Revenue from cattle sales
increased to $38.0 million during the quarter ended March 31, 2000. There was no
revenue from cattle sales during the quarter ended March 31, 1999. Revenue from
animal science products decreased by 10% from $605,000 for the quarter ended
March 31, 1999 to $542,000 for the quarter ended March 31, 2000. This decrease
is due primarily to lower revenue from sales of our equine imaging system
reflecting primarily a decline in units sold. Increased revenue derived from
subscriptions to our comparative feedlot analysis and market information
services as well as the addition of advertising revenue partially offset the
decline in revenue from equine camera sales.
Cost of revenue consists primarily of the direct cost to acquire cattle,
NutriCharge, and equine imaging systems components. In addition, cost of
revenue also includes the indirect manufacturing overhead costs, such as
support personnel, facilities costs, supplies and depreciation, that are
primarily associated with the production of the equine imaging system. Direct
costs attributed to cattle sales were $37.8 million for the quarter ended March
31, 2000. There were no direct costs incurred from cattle sales for the quarter
ended March 31, 1999. Direct costs attributed to animal science products
decreased by 57% from $241,000 for the quarter ended March 31, 1999 to $105,000
for the quarter ended March 31, 2000. This decrease is due principally to the
decline in unit sales of equine imaging systems. We generated a gross profit of
$151,000 for the quarter ended March 31, 1999 and a gross profit of $261,000
for the quarter ended March 31, 2000. The increase in gross profit is due
primarily to the increase in cattle revenue, while cost of goods, principally
manufacturing overhead, did not increase in proportion to the increase in
revenue.
Selling, general and administrative expenses increased 356% from $1.6
million for the quarter ended March 31, 1999 to $5.7 million for the quarter
ended March 31, 2000.
Sales and marketing expenses consist primarily of salaries and related
costs for sales and marketing personnel, recruiting and relocation charges,
consulting fees, travel, advertising and trade shows. Sales and marketing
expenses increased 393% from $971,000 for the quarter ended March 31, 1999 to
$3.8 million for the quarter ended March 31, 2000. The increase is due
primarily to expenses associated with expanding the number of personnel within
the organization, such as salaries and related costs, recruiting and relocation
fees, as well as consulting, travel and advertising costs, all of which were
incurred to effect our business strategy. We expect these costs to continue to
increase significantly as we continue to pursue additional sales and marketing
opportunities.
Our general and administrative expenses consist primarily of salaries and
related costs for executive, administrative, and finance personnel,
amortization of intangibles and professional service fees. General and
administrative expenses increased 286% from $642,000 for the quarter ended
March 31, 1999 to $1.8 million for the quarter ended March 31, 2000. The
increase
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was primarily due to increased amortization of intangibles, higher expenses
associated with expanding the number of personnel within the organization, such
as salaries and related costs and recruiting and relocation fees, and increased
legal and travel expenses required to support and grow our business. We expect
these expenses to continue to increase as additional personnel are hired and
additional expenses are incurred to support future growth.
Our research and development expenses consist of salaries and related
costs, payments to outside consultants, material costs for prototype imaging
systems and, to a lesser extent, depreciation on equipment used for
development. Our expenses increased 295% from $441,000 for the quarter ended
March 31, 1999 to $1.3 million for the quarter ended March 31, 2000. This
increase in expenses was primarily due to increased consulting costs, an
increase in personnel which caused higher salaries and related costs, and
increased spending for materials and supplies. The increase in expenses was
required to integrate and expand our product lines such as our online cattle
sales and auction software, Feedlot Information System software, and continued
development efforts on imaging systems. We expect these costs to increase
significantly as we plan to invest heavily to develop and commercialize new
products, expand our offerings and adapt our technologies to new markets.
During the quarter ended March 31, 2000, we capitalized certain internal
software development costs as required by Statement of Position 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use.
Interest and other income (expense), net rose from ($120,000) for the
quarter ended March 31, 1999 to $1.1 million for the quarter ended March 31,
2000. This increase was primarily due to increased interest income generated by
short-term investments and a reduction in interest expense following the
initial public offering and repayment of related party debt.
Due to the losses incurred, we did not have any income tax expense for the
quarter ended March 31, 1999 or the quarter ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company's primary source of liquidity consisted
of cash and highly liquid, high quality debt instruments. Our intent is to make
such funds, which have maturities of less than one year, readily available for
operating purposes. At March 31, 2000, the Company had cash and short term
investments, primarily investments in marketable debt securities, totaling
$92.7 million compared to $12.3 million at December 31, 1999.
On February 17, 2000, we completed our initial public offering and private
placement of 7,675,000 shares of common stock which generated net proceeds,
after deducting underwriting discounts, commissions and other offering costs,
of $107.2 million. Subsequent to the offering, approximately $12.8 million of
the proceeds were used to pay amounts due to related parties and Turnkey
Computer Systems. We believe that the net proceeds from the offering, together
with our existing cash and short term investments, will be sufficient to meet
our working capital and capital expenditure requirements for at least the next
24 months under our current business plan, which may change. To the extent we
are required to raise additional capital, we may need to issue additional
equity securities or incur additional debt. If additional funds are raised
through the issuance of equity securities, our existing shareholders may
experience significant dilution. Furthermore, additional financing may not be
available when needed or, if available, such financing may not be on terms
favorable to us. If such financing is not available when required or is not
available on acceptable terms, we may be unable to develop or enhance our
products and services. In addition, we may be unable to take advantage of
business opportunities or to respond to competitive pressures. Any of these
events could have a material adverse effect on our business, financial
condition or results of operations.
We have had significant negative cash flows from operating activities for
each fiscal and quarterly period to date. For the quarter ended March 31, 2000,
net cash used in operating activities was $13.3 million and primarily consisted
of net operating losses and increases in accounts receivable, inventories,
cattle deposits and prepaid expenses. These amounts were offset in part by
increases in accounts payable and customer advances.
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Net cash used in investing activities was $1.3 million for the quarter
ended March 31, 2000. Net cash used in investing activities during the quarter
consisted of capital expenditures. The Company expects a continued increase in
capital expenditures as we continue to effect our business strategy.
Net cash provided by financing activities was $95.0 million for the quarter
ended March 31, 2000. Cash provided by financing activities was primarily due to
our initial public offering and private placement, which raised net proceeds of
$107.2 million, as well as the exercise of stock options. These amounts were
partially offset by related party payments of $10 million to Safeguard and $1.5
million to XL Vision, the repayment of a $900,000 note payable due to Turnkey
Computer Systems and a $306,000 principal payment on the Company's capital lease
obligation.
FACTORS AFFECTING OUR BUSINESS, FINANCIAL CONDITION, AND RESULTS OF OPERATIONS
In addition to the other information included in this report, the following
factors should be considered while evaluating the Company and its future
prospects: our business, financial condition and results of operations.
We commenced operations in 1994 and commercially released our initial
product in November 1997. Accordingly, we have only a limited operating history
upon which to evaluate our business. In addition, our business strategy and
revenue model have changed significantly during the past year. Prior to this
change, we generated revenue primarily from the sale and licensing of our
AMIRIS product, a maritime navigational thermal imaging system, which we no
longer sell, and our equine imaging system, an infrared product used to detect
injuries in horses, which we continue to sell. We have sold the AMIRIS product
line and have changed our business strategy to focus on business-to-business
Internet commerce for the livestock industry. We only recently launched our
commercial Web site for our initial target market, the cattle industry, in
August 1999. Our limited operating history, combined with our recent shift in
business strategy, makes predicting our future results of operations difficult.
Our new business model has not been tested and, accordingly, we cannot be
certain that our business strategy will be successful.
Specific uncertainties relating to our new business model include our
ability to:
- Achieve acceptance of our Web site as a marketplace for electronic
commerce;
- Expand the number of cattle producers, feedlots and packers that
utilize our services;
- Develop and upgrade our products and technologies more effectively and
rapidly than our competitors; and
- Successfully implement our sales and marketing strategy.
We have a history of net losses and expect to continue to incur losses for
the foreseeable future. If we continue to incur losses, our business may not
ultimately be financially viable.
We have incurred significant net losses since inception. We reported a net
loss of approximately $2.0 million for the quarter ended March 31, 1999, or 333%
of total revenue, and a net loss of approximately $5.5 million for the quarter
ended March 31, 2000, or 14% of total revenue. As of March 31, 2000, we had
accumulated net losses totaling approximately $37.9 million. Our operating
expenses have increased significantly in each year of our operation, and we
anticipate that such expenses will continue to increase over the next several
years as we expand our operations. Our revenue may not grow or may not even
continue at its current level and, as a result, our financial condition and
results of our operations may be harmed and our business may not be financially
viable in the future. To achieve profitability, we must successfully address
the following risks:
- Lack of commercial acceptance of our online cattle sales and auction
services;
- Failure to expand the number of livestock industry participants using
our network;
- Failure to obtain access to data from feedlots to adequately address
the information needs of our customers;
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- Inability to respond to competitive developments;
- Failure to achieve brand recognition;
- Failure to introduce new products and services; and
- Failure to upgrade and enhance our technologies to accommodate expanded
product and service offerings and increased customer traffic.
If we are unable to successfully address any of these risks, our business
may be harmed.
The Internet livestock products and services market, including, in
particular, the online cattle sales and auction market, is new and uncertain
and our business may not develop as we anticipate.
The Internet market for livestock products and services, including, in
particular, the online cattle sales and auction market, has only recently
developed, and its continued development is subject to substantial uncertainty.
To date, we have not realized adequate revenues from this market to achieve
profitability. We cannot be assured that this market will continue to develop
as we expect, if at all. Our revenue model depends on the commercial acceptance
of our Internet-based products and services. We do not know if our target
customers will use the Internet as a means of purchasing products and services.
Even if potential customers choose to purchase livestock products and services
over the Internet, they may not choose our online services to do so. If the
market for livestock products and services over the Internet does not develop
as we anticipate, our business and the results of our operations will be
harmed.
For the quarter ended March 31, 2000, we relied on cattle sales and auction
services for over 99% of our revenue and we expect to rely on the success of
our cattle sales and auction services for a significant majority of our revenue
for the foreseeable future. As a result, our ability to achieve commercial
acceptance of our cattle sales and auction services is critical to our ability
to obtain future revenue. To date, we have not achieved revenues from cattle
sales and auction services over the Internet that are sufficient for us to
determine whether these services will achieve commercial acceptance. Any
failure to successfully gain commercial acceptance of these services would harm
our business and the results of our operations.
We recently completed significant acquisitions of businesses and
technologies and we may make other business acquisitions in the future, which
may be difficult to integrate into our business and may disrupt or negatively
impact our business.
We recently made, and will continue to make, investments in and
acquisitions of complementary companies, technologies and assets that
constitute critical aspects of our current and future business operations. If
we fail to successfully integrate the operations of these companies,
technologies or assets into our business, we may not be able to successfully
execute our business strategy. We acquired substantially all of the assets of
CIN, LLC in February 1999, and Professional Cattle Consultants, L.L.C. in May
1999. In connection with our acquisition of CIN, we hired Scott Crain, one of
our key employees. We also acquired all of the issued and outstanding stock of
Cyberstockyard, Inc. in March 1999. Each of these acquired businesses is
critical to our current business operations and growth strategy.
These and any future acquisitions may result in:
- Difficulties in assimilating technologies, products, personnel and
operations;
- Diversion of our management's attention;
- Entering markets in which we have no or limited prior experience;
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- Loss of key employees of acquired organizations; and
- Capital requirements in excess of what we anticipate.
In the future, acquiring companies, assets or technologies may also require
us to make cash payments, assume debt, incur large write-offs related to
intangible assets and issue equity, which will dilute ownership interest.
If we fail to generate sufficient cash flows in the future, we may be
unable to recover the carrying amount of our intangible assets, which would
harm our results of operations and financial condition.
As a result of our recent acquisitions of companies, technologies and
assets, we have recorded $5.6 million of intangible assets on our balance sheet
as of March 31, 2000. If we are unable to generate sufficient cash flows that
are attributable to these intangible assets, we may be unable to recover all or
a portion of the carrying amount of such assets. Therefore, we may be required
to reduce the value of these assets as recorded on our balance sheet. This
would require us to record an expense in our statement of operations. This
would also reduce our net assets and increase our losses, or reduce our
profits, as the case may be. Any negative impact on our results of operations
or balance sheet could reduce the price of our common stock.
For the quarter ended March 31, 2000, we derived over 99% of our revenue
from products and services relating to the sale of cattle. If the demand for
beef declines, the demand for our products and services would likely decline,
and our results of operations would be harmed.
If we are unable to manage our growth effectively, our business may be
harmed.
We cannot assure that we will be able to effectively or successfully manage
our growth. If we are unable to manage our growth effectively, our business
operations would suffer. We seek to grow by increasing transaction and
subscription volume, adding new products and services and by hiring additional
employees. Our growth is likely to place a significant strain on our resources
and systems. As we continue to increase the scope of our operations, we will
need an effective planning and management process to implement our business
strategy successfully and we will need to implement new and improve existing
systems, procedures and controls. We will also need to expand, train and manage
our workforce.
If we are unable to protect our intellectual property rights, our business
and competitive position will be harmed.
Proprietary rights are important to our success and our competitive
position. We protect our intellectual property through a combination of patent,
copyright, trade secret and trademark law and confidentiality agreements with
third parties. We currently have three pending U.S. patent applications, which
relate to (i) the early detection of inflammation using our infrared imaging
camera, (ii) feedlot information systems and methods and (iii) the cattle
transaction process. We also have 31 pending U.S. trademark applications
relating to our corporate identity, products and services. We cannot guarantee
that any of our pending patent or trademark applications will be approved. Even
if they are approved, the patents or trademarks may be challenged by other
parties or invalidated. Because brand recognition is an important component of
our business strategy, the protection of our trademarks is critical to our
success. We also depend upon patents licensed to us by the Canadian government
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and trade secret law to protect the proprietary nature of our NutriCharge
products. In addition, we depend upon our proprietary database of industry and
client information to provide our clients with our information services.
Despite our efforts to protect our proprietary rights, unauthorized parties may
copy aspects of our products and technology or obtain access to our
confidential proprietary database. Other parties may also breach
confidentiality agreements and other protective contracts. We may not become
aware of these breaches or have adequate remedies available. In addition,
effective copyright, patent and trademark protection may be unavailable in
certain countries to which we might expand our operations.
In technology markets, there is generally frequent and substantial
intellectual property litigation. We may be subject to legal proceedings and
claims, including claims that we infringe third-party proprietary rights. While
we are not aware of any patents, copyrights or other rights that would prevent
us from manufacturing and commercializing our products or services in the
United States and abroad, there can be no assurance that other parties will not
assert infringement claims against us. There also can be no assurance that
former employers of our present and future employees will not claim that our
employees have improperly disclosed confidential or proprietary information to
us. Any of these claims, with or without merit, could subject us to costly
litigation and divert the attention of our personnel.
We have filed an application to register eMerge Interactive and related
service marks with the U.S. Patent and Trademark Office. We have received
notice from a third party claiming superior rights to these marks and
indicating an intent to oppose our registration of the marks in Patent and
Trademark Office proceedings as well as oppose our commercial use of the marks.
If we are unsuccessful in defending any such opposition, we may be required to
cease using the eMerge marks at a future date, which may cause us to change our
name. A change in our name may be costly and may result in customer confusion,
which could harm our business.
We typically assume the ownership of cattle sold through our Internet
cattle marketplace and are subject to the risk of loss while we hold title and
market risk.
In the sales transactions conducted through our Internet cattle sales and
auction services network, we typically contract to purchase cattle from a
seller, identify a buyer for the cattle, take title to the cattle from the
seller and then resell the cattle to the buyer. In this process, we enter into
a contract to purchase cattle in advance of entering into a contract to sell
the cattle. Therefore, until we actually complete a sale transaction, we are
subject to the risk that we may be unable to sell cattle that we are
contractually obligated to purchase. In addition, once we purchase the cattle,
we assume title to the cattle for generally up to 48 hours. As a result, we
assume the risk of liability, loss and deterioration in value of the cattle
during that period. Although we review the background and credit history of our
customers, we cannot assure that we will receive full and timely payment in
each instance. If the buyer does not accept the cattle, we may not be able to
sell the cattle to other buyers on the same terms, and our profitability may be
harmed. If the cattle suffer from health deterioration or weight loss while in
our ownership, the purchasers may assert claims against us. Our business and
financial condition may be harmed if we have to defend any claims or pay any
refunds. If the cattle are destroyed while we have ownership, we may be held
responsible for the loss or may be obligated to purchase additional cattle to
fulfill our delivery commitments. As a result, our business may be harmed.
We depend on our key employees for our success. The loss of any of these
persons could harm our ability to compete.
Our success depends on the continued services of the following executive
officers and key employees:
- Charles L. Abraham;
- T. Michael Janney;
- Scott L. Mathews;
- Marvin L. Slosman;
- Arvind Subramanian;
- J. Tom Brink;
- Scott Crain, D.V.M.; and
- Jim Gibb, Ph.D.
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The loss of the services of any of these persons could harm our business,
including our ability to compete effectively. Our performance also depends on
our ability to attract, retain and motivate additional key officers and
employees. We may be unable to retain our employees or to attract, assimilate
and retain other qualified employees with relevant livestock and electronic
commerce industry skills in the future. If we fail to attract, retain and
motivate qualified employees, our business will be harmed.
We may face costly product liability claims that could result in
significant awards against us or impair our ability to market and sell our
products and services.
A successful product liability claim brought against us could harm our
financial condition and reputation in the industry. We may face product
liability claims in connection with our cattle sales and auction services,
feedlot operations analysis, comparative cattle industry analysis and
benchmarking studies, cattle inventory management tools and NutriCharge, as
well as future products and services. Even if unsuccessful, a product liability
claim could result in costly litigation and divert management's attention and
resources. We do not maintain product liability insurance.
We expect our quarterly operating results to fluctuate. If we fail to meet
the expectations of public market analysts and investors, the market price of
our common stock could decline.
We expect that our revenue and operating results will vary in the future as
a result of a number of factors. Our quarterly results of operations may not
meet the expectations of securities analysts and investors, which could cause
the price of our common stock to decline. Our operating results in the future
may not follow any prior trends and should not be relied upon as an indication
of future results. The factors that affect our quarterly operating results
include:
- Our ability to retain existing customers and attract new customers;
- Our ability to develop and market new and enhanced products and
services on a timely basis;
- The introduction of new or enhanced Web sites, products and services by
us;
- Continued purchases by our existing customers; and
- Future revenues from our equine imaging system, a decline in which may
result in disproportionate fluctuations in our results of operations,
since related manufacturing costs to a large extent remain fixed
regardless of the number of units sold.
In addition, a number of factors that are beyond our control will also
affect our quarterly operating results, such as:
- Demand for our products and services;
- Product and price competition;
- The introduction of new or enhanced Web sites, products and services by
our competitors; and
- Significant downturns in our targeted markets.
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Our quarterly results could fluctuate as a result of seasonal fluctuations
in the cattle industry.
The cattle industry has historically experienced, and may continue to
experience, seasonal fluctuations. These seasonal patterns may cause quarterly
fluctuations in our operating results. In particular, a disproportionate number
of cattle are sold to feedlots during the third and fourth quarters of each
calendar year. Therefore, a greater number of sales transactions occur during
these two calendar quarters. Due to our limited operating history and the
recent changes in our business as a result of acquisitions, it is difficult to
predict the effect that this seasonal pattern will have on our revenue and
quarterly operating results.
Our back-up mechanisms are unproven, and therefore are vulnerable to damage
or interruption which would harm our ability to reliably service our customers.
Our network server, satellites, computers and facilities are vulnerable to
damage or interruption from a number of sources, including fire, flood, power
loss, earthquakes, telecommunications failures, system failures, Internet
brownouts, computer viruses, electronic break-ins and similar disruptions. We
depend on these systems to provide our customers with online cattle sales and
auction services, feedlot and cattle industry analyses, cattle inventory
management tools and the sale of NutriCharge. During the past year, we
experienced a system interruption caused by adverse weather conditions, which
resulted in our system shutting down for approximately 24 hours. We may
experience such an interruption in the future. Any substantial interruptions
could result in the loss of data and could impair our ability to provide our
products and services to customers and to generate revenues. Presently, we do
not have a formal disaster recovery plan in effect. Moreover, our business
interruption insurance may not be sufficient to compensate us for losses that
may occur if any of our Internet-based services are interrupted.
We intend to expand our business to international markets. The additional
expenses and risks relating to our international expansion may harm our
business, financial condition and results of operations.
As part of our business strategy, we intend to expand internationally by
offering our products and services in markets within North and South America,
Asia/Pacific and Europe, although we have not yet completed the development of
our plan for international expansion. International expansion may require
significant management attention, which could negatively impact our business.
We may also incur significant costs in order to enter new international
markets, which could harm our results of operations. Our business would be
harmed if:
- We experience difficulty expanding as a result of foreign laws and
regulations, including export and import regulations applicable to
commerce conducted across borders within regions;
- We experience difficulty in tailoring our products and services to
international markets; and
- We experience difficulty in enforcing contractual obligations and
intellectual property rights in foreign countries.
If we successfully expand into foreign markets, our international business
and our results of operations could be harmed as the result of:
- Fluctuations in foreign exchange rates or rates of inflation;
- Recessions in foreign countries;
- Adverse U.S. and foreign tax laws; and
- Political and economic instability.
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If electronic commerce does not continue to grow as expected, our business,
financial condition and results of operations will be harmed.
Our long-term success depends on widespread market acceptance of the
Internet and online commercial services as a medium for commerce. If the
Internet commerce market does not grow or grows more slowly than anticipated,
our business, financial condition and results of operations will be harmed. A
number of factors could prevent such acceptance, including:
- The early stage of the Internet;
- The lack of continued development of the Internet's technological
infrastructure; and
- Consumer concern about the security of electronic commerce
transactions.
If the Internet or our Web sites and systems cannot support the growth in
electronic commerce, our business, financial condition and results of
operations will be harmed.
If the Internet fails to evolve to support growth in electronic commerce,
our business, financial condition and results of operations will be harmed.
Specifically, we would be harmed if:
- The infrastructure of the Internet does not evolve to sufficiently
support the substantial growth in usage of the Internet and therefore
cannot process a growing number of transactions; and
- The availability of telecommunication services is insufficient or
telecommunication services do not evolve promptly to support real-time
interactions with customers.
If we do not continue to develop our Web sites and systems to sufficiently
support growth in the demand for our services, our business will also be
harmed. Specifically, we would be harmed if:
- We fail to expand our infrastructure, including our Web sites, internet
software and servers to accommodate an increased number of users; and
- We fail to adapt our products and services to be compatible with new
technology, and are therefore unable to provide our services to users
of the new technology.
We may also need to devote substantial resources to updating our Web sites
and online services to support the growth of online commerce.
Risks associated with the security of transactions and transmitting
confidential information over the Internet may negatively impact our electronic
commerce business.
We believe that concern regarding the security of confidential information
transmitted over the Internet, such as credit card numbers and proprietary
data, may prevent many potential customers from engaging in online transactions
and may harm our business. We intend to use authentication technology, which
requires passwords and other information to prevent unauthorized persons from
accessing a customer's information, or encryption, which transforms information
into a code designed to be unreadable by third parties, to protect confidential
information. In addition, despite the measures we intend to take, our
infrastructure is potentially vulnerable to physical or electronic break-ins,
viruses or similar problems. If our security measures are circumvented,
proprietary information could be misappropriated or our operations could be
interrupted. Security breaches that result in access to confidential
information could expose us to a risk of loss or liability. If we do not
adequately address these
22
<PAGE> 23
concerns or face any claims in connection with a breach of security, our
business, financial condition and operating results could be harmed.
We could face liability for information retrieved from or transmitted
through our Web sites, which could result in high litigation or insurance
costs.
As a publisher and distributor of online content, we face potential
liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature and content of the materials
that we publish or distribute on our Web sites. Any imposition of liability
could negatively impact our reputation and result in increased insurance costs.
Claims have been successfully brought against online services. Although we
carry general liability insurance, our insurance may not cover claims of these
types or may not be adequate to cover us for all liability that may be imposed.
Government regulation and legal uncertainties could result in additional
burdens to doing business on the Internet.
The laws governing the Internet remain largely unsettled, even in areas
where there has been some legislative action. It may take years to determine
whether and how existing laws including those governing intellectual property,
privacy, libel and taxation apply to the Internet. Our business, results of
operations and financial condition could be harmed by the adoption or
modification of laws or regulations relating to the Internet that result in the
imposition of additional costs on conducting business over the Internet or
impose additional restrictions on our ability to conduct our business
operations.
In 1998, the Internet Tax Freedom Act placed a three-year moratorium on
state and local taxes on Internet access, except for taxes imposed prior to
October 1, 1998, and on taxes that discriminate against online commerce.
However, Congress may not renew this legislation in 2001 and state and local
governments would be able to impose Internet-specific taxes on goods purchased
electronically, in addition to taxes that are otherwise imposed on sales
transactions.
Laws and regulations that apply to Internet communications, commerce and
advertising could increase the costs of communicating on the Web and adversely
affect the demand for our products and services and thereby harm our business,
results of operations and financial conditions. In addition, as a general
matter, laws and regulations may also be adopted in the future covering
e-commerce issues such as user privacy, pricing, content, copyrights,
distribution, antitrust matters, taxation and quality of products and services
that may increase the cost of e-commerce. Several telecommunications carriers
have asked the Federal Communications Commission to regulate telecommunications
connections to the Internet, which could result in higher costs of doing
business over the Internet. Legislation of these areas could hinder growth in
the use of the Internet and decrease the acceptance of the Internet as a
communications and commercial medium.
Due to the global nature of the Internet, it is possible that governments
of foreign countries might attempt to regulate our transmissions or levy sales
or other taxes relating to our activities and we may incur significant costs to
comply with foreign laws. Furthermore, the European Union recently adopted a
directive addressing data privacy that may result in limits on the collection
and use of user information. In addition, the growth and development of the
market for Internet commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad, that may impose
additional burdens on companies conducting business over the Internet.
There is intense competition for Internet products and services, which
could reduce our market share and harm our financial performance.
Competition for Internet products and services and electronic commerce is
intense. We expect that competition will continue to intensify. Barriers to
entry are minimal, and competitors can launch new Web sites at a relatively low
cost. Our competitors, such as traditional cattle auction services, video
cattle auction providers, online cattle auction services, cattle and livestock
information services and cattle industry product manufacturers, may develop
Internet products or services that are superior to, or have greater market
acceptance, than our products and services. If we are unable to compete
successfully against our competitors, our business, financial condition and
operating results will be harmed.
23
<PAGE> 24
Internet Capital Group, Safeguard and XL Vision will be able to control
matters requiring stockholder approval.
The concentration of ownership of our common stock may delay, deter or
prevent acts that would result in a change of control, which could reduce the
market price of our common stock. Internet Capital Group and Safeguard are
affiliated entities and Safeguard and XL Vision are affiliated entities.
Internet Capital Group, Safeguard and XL Vision together have the power to vote
approximately 64.3% (as of March 31, 2000) of the aggregate number of votes to
which the holders of our common stock are entitled. In addition, Safeguard and
Internet Capital Group are parties to a joint venture agreement under which
they have agreed to use their best efforts to vote together on matters
submitted to stockholders for approval. As a result, these stockholders will be
able to control all matters requiring stockholder approval. Matters that
typically require stockholder approval include:
- Election of directors;
- Approval of a merger or consolidation; and
- Approval of a sale of all or substantially all of our assets.
Of the seven members of our board of directors, the following four
directors also serve as directors and/or officers of Internet Capital Group,
Safeguard or XL Vision:
- John S. Scott, Chairman of our board of directors, is the Chief
Executive Officer and the Chairman of the board of directors of XL
Vision;
- Douglas A. Alexander, a member of our board of directors, is the
Managing Director of Internet Capital Group;
- Anthony A. Ibarguen, a member of our board of directors, is a Managing
Director of Internet Capital Group; and
- John W. Poduska, Sr., Ph.D., a member of our board of directors, is a
member of the board of directors of Safeguard and a member of the board
of directors of XL Vision.
In addition, Internet Capital Group has the right to elect two directors to
our board, one of which has not yet been designated. Under the joint venture
agreement, Safeguard and Internet Capital Group have agreed to vote for two
designees of Safeguard and two designees of Internet Capital Group in all
future elections of directors. Safeguard, XL Vision and Internet Capital Group
will therefore have the ability to significantly influence our management.
The sale of outstanding shares in the market by our existing stockholders
in the future may adversely affect our stock price.
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, then the
market price of our common stock could fall. Based upon the 33,041,269 shares
outstanding as of March 31, 2000:
- 8,675,000 shares are freely tradeable in the public market;
- 24,007,080 shares may be sold subject to compliance with Rule 144, of
which 11,312,633 shares may be sold without restriction under Rule
144(k) if they are not held by our affiliates; and
- 349,315 shares may be sold 90 days after February 4, 2000, subject to
compliance with Rule 701.
24
<PAGE> 25
Although 23,131,956 of the shares described above are subject to lock-up
agreements, such shares may become tradeable, subject to compliance with Rule
144 or Rule 701, beginning 180 days after February 4, 2000. In addition, as of
March 31, 2000, there are options to purchase 3,497,375 shares of class A
common stock outstanding that were granted under our equity compensation plans.
We intend to file a registration statement on Form S-8 to register the shares
issued pursuant to the exercise of options granted under our equity
compensation plans. There is also a warrant to purchase 1,138,889 shares of
class B common stock outstanding.
Our common stock price is likely to be highly volatile.
The market price of our common stock, like the market for Internet-related
and technology companies in general, has been and will likely continue to be
highly volatile. Any significant fluctuations in the future might result in a
material decline in the market price of our common stock.
The price at which our common stock trades is likely to be highly volatile
and may fluctuate substantially due to factors such as:
- Actual or anticipated variations in quarterly operating results;
- Announcements of technological innovations;
- Conditions or trends in the cattle industry;
- New sales formats of new products or services;
- Changes in or failure by us to meet financial estimates of securities
analysts;
- Conditions or trends in the Internet industry;
- Announcements by us or our competitors of significant acquisitions,
strategic partnerships or joint ventures;
- Capital commitments;
- Additions or departures of key personnel; and
- Sales of common stock.
In addition, the U.S. stock markets have from time to time experienced
significant price and volume fluctuations that have affected the market prices
for the common stock of technology companies, particularly Internet companies.
In the past, these broad market fluctuations have been unrelated or
disproportionate to the operating performance of these companies. In the past,
following periods of volatility in the market price of a particular company's
securities, securities class action litigation has often been brought against
that company. We may become involved in this type of litigation in the future.
Litigation is often expensive and diverts the attention and resources of
management, which could harm our business and operating results.
Our undesignated preferred stock may deter potential acquisition bids for
our business.
Our board of directors may issue up to 15,000,000 shares of preferred stock
in one or more series. The board of directors can fix the number of shares of
each class and the voting rights, preferences, limitations and special rights,
if any, without any further vote or action by our stockholders. The issuance of
shares of preferred stock without further action by our stockholders may delay
or prevent a change
25
<PAGE> 26
in control transaction. The issuance of shares of preferred stock may adversely
affect your relative voting and other rights relating to your shares of common
stock.
Delaware law may deter potential bids for our business. We are subject to
the anti-takeover provisions of the Delaware General Corporation Law, which
regulates corporate acquisitions. Delaware law prevents us from engaging in a
business combination with any interested stockholder for three years following
the date that the stockholder became an interested stockholder. For purposes of
Delaware law, a business combination includes a merger or consolidation
involving us and the interested stockholder and the sale of more than 10% of
our assets. In general, Delaware law defines an interested stockholder as any
entity or person beneficially owning 15% or more of the outstanding voting
stock of a corporation and any entity or person affiliated with or controlling
or controlled by such entity or person. Under Delaware law, a Delaware
corporation may opt out of the anti-takeover provisions. We do not intend to
opt out of these anti-takeover provisions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We held no derivative securities as of March 31, 2000. Our exposure to
market risk relates to changes in interest rates and their potential impact on
our investment portfolio. We invest in marketable debt securities that meet
high credit quality standards and limit our credit exposure to any one issue,
issuer and type of investment. At March 31, 2000, our investments consisted of
$92.7 million in cash equivalents with maturities of less than three months and
$215,000 in debt securities with a maturity of less than one year. Due to the
short-term, conservative nature of our investment portfolio, a 10% increase or
decrease in interest rates would not have a material effect on our results of
operations or the fair value of our portfolio. The impact on our future results
of operations and the future value of our portfolio will depend largely on the
gross amount of the Company's investments.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We have been named as a defendant in a lawsuit filed by Central Biotech,
Inc. on January 12, 2000 in the Queen's Bench Judicial Centre of Regina,
Province of Saskatchewan, Canada. The complaint alleges that eMerge and E-Y
Laboratories Inc. were each subject to confidentiality agreements with the
plaintiff, and subsequently engaged in discussions concerning a potential
business arrangement allegedly in violation of these agreements. The complaint
asserts damages, including punitive damages, from the defendants in the
aggregate amount of $18 million (Canadian dollars), as well as injunctive
relief. Although we have not yet completed our assessment of these claims, we
believe that there are a number of substantive and procedural defenses that
exist and intend to defend these claims vigorously.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Pursuant to eMerge Interactive's 1999 Equity Compensation Plan, eMerge
Interactive granted options to purchase a total of 862,876 shares of common
stock to its employees and certain other individuals in the quarter ended March
31, 2000, at a weighted average exercise price of $16.81 per share. In the
quarter ended March 31, 2000, 133,367 shares were purchased pursuant to the
exercise of options at an average exercise price of $1.00. In granting the
options and selling the underlying securities upon exercise of the options,
eMerge Interactive is relying upon exemptions from registration set forth in
Rule 701 and Section 4(2) of the Act.
On February 4, 2000, we commenced an initial public offering of our common
stock. The Company's registration statement on Form S-1 (File No. 333-89815)
was declared effective on February 3, 2000. Adams, Harkness & Hill, Inc., First
Union Securities, Inc., and FAC Equities were the managing underwriters of the
offering. As part of the offering, we sold 2,806,000 shares of our class A
common stock at the public offering price to shareholders of Safeguard
Scientifics, Inc., one of
26
<PAGE> 27
our principal stockholders, that owned at least 100 shares of common stock of
Safeguard as of October 20, 1999, and Safeguard sold 694,000 of its eMerge
Interactive shares to its shareholders.
The number of shares registered, the aggregate price of the offering amount
registered, the amount of shares sold and the aggregate offering price of the
shares sold were as follows:
<TABLE>
<CAPTION>
Shares of
Common Aggregate Price of Amount of Shares Aggregate Price
Registered Shares Registered Sold of Shares Sold
---------- ------------------ ---------------- ---------------
<S> <C> <C> <C>
7,175,000 $107,625,000 7,175,000 $107,625,000
</TABLE>
We incurred the following expenses with respect to the offering during the
period from July 1998 through February 2000:
<TABLE>
<CAPTION>
Underwriting
Discounts and Management Underwriters'
Commissions Fee Finders' Fees Expenses Other Expenses Total Expenses
------------- ---------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$4,587,450 $1,178,520 $0 $0 $2,199,018 $7,964,988
</TABLE>
In addition, we issued 500,000 shares of class A common stock at $15.00 per
share in a private placement that was completed simultaneously with the
offering.
The net proceeds from the offering and the private placement after
deducting the foregoing discounts, commissions, management fees, finders fees
and expenses were $107.2 million. None of the foregoing expenses constituted
direct or indirect payments to our directors, officers, general partners or
their associates or to persons owning 10% or more of any class of our equity
securities or to our affiliates. We have used the proceeds from this offering
for payments to related parties and Turnkey Computer Systems, Inc. and for
general working capital purposes.
Also concurrent with the offering, the Company issued 18,123,953 shares of
common stock in connection with the conversion of Series A, Series B, Series C,
and Series D preferred stock. As of December 31, 1999, the Company had
authorized the issuance of 15,000,000 shares of preferred stock and had
designated 6,500,000 as Series A shares, 2,400,000 as Series B shares,
1,300,000 as Series C shares and 4,555,556 as Series D shares. Each share of
preferred stock outstanding converted into 1.25 shares of Class A common stock
at the completion of our initial public offering, except for Series D shares
which converted into 1.25 shares of Class B common stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended March 31, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION REFERENCE
------ ----------- ---------
<S> <C> <C>
2.1 Agreement for the Purchase and Sale of Assets, dated April 20, 2000 ****
2.2 Registration Rights and Restricted Stock Agreement, dated May 1, 2000 ****
2.3 Supply and Support Agreement, dated May 1, 2000 ****
2.4 Cattle Purchase Contract Agreement, dated May 1, 2000 ****
2.5 Agreement for the Purchase and Sale of Assets, dated April 21, 2000 ****
2.6 Contract for Sale and Purchase of Real Estate, dated April 21, 2000 ****
3.1 Second Amended and Restated Certificate of Incorporation of eMerge Interactive. *
3.2 Amended and Restated Bylaws of eMerge Interactive. *
10.1 Amended and Restated 1996 Equity Compensation Plan. *
10.2 1999 Equity Compensation Plan. *
10.3 Master License Agreement dated July 29, 1998 between eMerge Interactive and Her
Majesty the Queen of Canada, as represented by the Minister of Agriculture and
Agri-Food Canada. **
10.4 Administrative Services Agreement dated December 15, 1997 between eMerge Interactive,
Safeguard Scientifics, Inc. and XL Vision, Inc., as amended
on August 17, 1999. *
10.5 Direct Charge Administrative Services Agreement dated April 15, 1997 between eMerge
Interactive and XL Vision, Inc. *
10.6 Asset Purchase Agreement dated February 24, 1999 between eMerge Interactive, CIN, LLC
and Dr. Scott Crain. *
10.7 Stock Purchase Agreement dated March 22, 1999 between eMerge Interactive, Cyberstockyard,
Inc. and J. Scott Sanders, David Sanders, Scott Calhoun and
Dr. Duane Pankratz. *
10.8 Stockholders Agreement dated July 29, 1998 among eMerge Interactive, and individuals
designated as the former shareholders of STS Agriventures, Ltd. *
10.9 Purchase Agreement dated July 29, 1998 among eMerge Interactive, NutriCharge, J
Technologies, LLC, and the Biegert Family Irrevocable Trust. *
10.10 Asset Purchase Agreement dated January 15, 1999 between eMerge Interactive and Sperry
Marine, Inc. *
10.11 Purchase and License Agreement dated January 15, 1999 between eMerge Interactive and
Sperry Marine, Inc. *
10.12 Asset Purchase Agreement dated May 19, 1999 between eMerge Interactive and Professional
Cattle Consultants, L.L.C. *
10.13 Letter of Agreement dated January 12, 2000 between eMerge Interactive and Southern States.
Cooperative, Inc. *
10.14 Subscription Agreement letter for purchase of Series B Junior Preferred Stock. *
10.15 Preferred Stock Purchase Agreement dated April 1, 1999 (Series C Preferred Stock). *
10.16 Common Stock Purchase Agreement dated August 16, 1999 between eMerge Interactive and
Turnkey Computer Systems, Inc. *
10.17 Registration Rights Agreement dated July 18, 1997. *
10.17 Real Property Sublease between XL Vision and eMerge Interactive, dated December 1999. *
</TABLE>
28
<PAGE> 29
<TABLE>
<S> <C> <C>
10.19 Stockholders' and Registration Rights Agreement dated February 24, 1999. *
10.20 Joinder and Correction to Stockholders and Registration Rights Agreement dated
March 29, 1999. *
10.21 (a) Revolving Note dated July 21, 1999 from eMerge Interactive to Safeguard
Delaware, Inc., Amended Revolving Note dated August 3, 1999, *
(b) Second Amended Revolving Note dated October 25, 1999, *
(c) Third Amended Revolving Note dated December 6, 1999 and *
(d) Fourth Amended Revolving Note dated January 31, 2000. *
10.22 Revolving Note dated January 1, 1999 from XL Vision and eMerge Interactive. *
10.22 Promissory Note dated August 31, 1999 from eMerge Interactive to Safeguard
Delaware, Inc. (cancelled) *
10.24 Term Note dated October 25, 1999 from eMerge Interactive to Safeguard. *
10.25 Promissory Note dated October 6, 1999 from eMerge Interactive to Safeguard
Delaware, Inc. (cancelled) *
10.26 Stockholders Agreement dated July 17, 1997 and Joinder to Stockholder's Agreement. *
Subordinated Purchase Money Note from eMerge Interactive to XL Vision dated
July 15, 1997. *
10.28 Toll Processing Agreement dated August 16, 1999 between eMerge Interactive and
ADM Animal Health & Nutrition, a division of Archer-Daniels-Midland Company. *
10.29 Term Note dated October 25, 1999 from eMerge Interactive to Safeguard Delaware, Inc.
Securities Purchase Agreement dated October 27, 1999 between eMerge Interactive
Technologies, LLC and Internet Capital Group, Inc. *
10.31 Registration Rights Agreement dated October 27, 1999 between eMerge Interactive
and Internet Capital Group, Inc. *
10.32 Cooperative Research and Development Agreement between USDA's Agricultural
Research Service, eMerge and Iowa State University of Science and Technology
concerning Methods for Detecting Fecal and Ingesta Contamination on Meat dated
August 4, 1999. *
10.33 Exclusive License Agreement between Iowa State University Research Foundation, Inc.,
and eMerge dated August 3, 1999. *
10.34 Term Note and Pledge Agreement dated January 28, 2000 between eMerge and Charles
Abraham. *
21.1 Subsidiaries of the Registrant. *
27.1 Financial Data Schedule (for SEC use only). ***
99.1 Form letter from eMerge Interactive, Inc. to holders of more than 100 shares of
Safeguard Scientifics, Inc. describing the Safeguard Subscription Program. *
99.2 Form of letter from Adams, Harkness & Hill, Inc. to Safeguard Scientifics, Inc.
shareholders. *
99.3 Form of letter from eMerge Interactive, Inc. to Brokers describing the Safeguard
Subscription Program. *
99.4 Form of Subscription Form for Safeguard Subscription Program. *
</TABLE>
* Exhibit and exhibit number incorporated by reference to Registration
Statement No. 333-89815, dated February 4, 2000.
** Exhibit and exhibit number incorporated by reference to Form 10-K filed
April 3, 2000.
*** Filed herewith.
**** Exhibit and exhibit number incorporated by reference to Form 8-K filed
May 5, 2000.
(b) Reports on Form 8-K
The were no reports filed by the Company on Form 8-K for the quarter ended
March 31, 2000.
29
<PAGE> 30
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: May 15, 2000 eMerge Interactive. Inc.
By:
President, Chief Executive
/s/ Charles L. Abraham Officer and Director (Principal
------------------------- Executive Officer)
Charles L. Abraham
Vice President and Chief Financial
/s/ T. Michael Janney Officer (principal financial and
------------------------- accounting officer)
T. Michael Janney
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
Name Capacity Date
---- -------- -----
<S> <C> <C>
President, Chief Executive May 15, 2000
/s/ Charles L. Abraham Officer and Director (principal
- -------------------------- executive officer)
Charles L. Abraham
Vice President and Chief Financial
/s/ T. Michael Janney Officer (principal financial and
- -------------------------- accounting officer) May 15, 2000
T. Michael Janney
/s/ John S. Scott Chairman of the Board
- --------------------------
John S. Scott May 15, 2000
/s/ Douglas A. Alexander Director
- --------------------------
Douglas A Alexander May 15, 2000
/s/ Thomas C. Lynch Director
- --------------------------
Thomas C. Lynch May 15, 2000
/s/ Christopher Moller Director
- --------------------------
Christopher Moller May 15, 2000
/s/ John W. Poduska Director
- --------------------------
John W. Poduska May 15, 2000
/s/ Anthony A. Ibarguen Director
- --------------------------
Anthony A. Ibarguen May 15, 2000
</TABLE>
30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EMERGE
INTERACTIVE'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 92,743,495
<SECURITIES> 215,348
<RECEIVABLES> 7,683,658
<ALLOWANCES> 82,153
<INVENTORY> 1,702,273
<CURRENT-ASSETS> 104,780,512
<PP&E> 4,088,646
<DEPRECIATION> 1,183,481
<TOTAL-ASSETS> 115,145,921
<CURRENT-LIABILITIES> 4,580,003
<BONDS> 0
0
0
<COMMON> 264,331
<OTHER-SE> 110,301,587
<TOTAL-LIABILITY-AND-EQUITY> 115,145,921
<SALES> 38,552,899
<TOTAL-REVENUES> 38,552,899
<CGS> 38,291,794
<TOTAL-COSTS> 6,954,441
<OTHER-EXPENSES> (1,141,551)
<LOSS-PROVISION> 10,500
<INTEREST-EXPENSE> 142,950
<INCOME-PRETAX> (5,551,785)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,551,785)
<DISCONTINUED> 43,028
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,508,757)
<EPS-BASIC> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
