<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest event reported): May 1, 2000
-------------------
eMerge Interactive, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 000-29037 65-0534535
-------------------------- ------------------------ -------------------
(State or jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
10315 102nd Terrace, Sebastian, FL 32958
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(561) 589-7331
-------------------------------
(Registrant's telephone number)
This Form 8-K/A amends the current Report on Form 8-K filed by the Registrant on
May 5, 2000.
<PAGE> 2
Item 2. Acquisition or Disposition of Assets
Purchase of Assets from Eastern Livestock Co., Inc.
On May 1, 2000 eMerge Interactive, Inc. ("eMerge") closed on an
Agreement for the Purchase and Sale of Assets with Eastern Livestock Co.
("Eastern"), and its shareholders. eMerge purchased Eastern's rollover business
which engages in buying cattle for immediate or short-term resale. The purchase
of the rollover business included acquisition of all tangible and intangible
systems used in the conduct or operation of the business, all furniture and/or
equipment and systems associated with the business, and any presence on the
World Wide Web, including email addresses, maintained by or on behalf of
Eastern in connection with the rollover business. The purchase price for these
assets consisted of (i) $17,000,000 in cash, (ii) 1,215,913 shares of eMerge
common stock valued at $11.93 per share, (iii) $4,500,000 in cash to be paid
one year after the closing date or earlier upon certain events occurring, (iv)
$163,070 of transaction costs, and (v) the assumption of accrued vacation
liability of $30,821. The Agreement for the Purchase and Sale of Assets, the
related Registration Rights and Restricted Stock Agreement, Supply and Support
Agreement, and Cattle Purchase Agreement were filed as part of the Registrant's
Current Report on Form 8-K filed on May 5, 2000, and incorporated herein by
reference.
Purchase of Assets from W.P. Land and Livestock, Inc.
On June 1, 2000 eMerge closed on an Agreement for the Purchase and Sale
of Assets with W.P. Land and Livestock, Inc., and its shareholders. In
connection with this purchase, eMerge acquired all of the tangible and
intangible property of W.P. Land and Livestock relating to its business of
purchasing and reselling of cattle through auction as well as any presence on
the World Wide Web maintained by or on behalf of W.P. Land and Livestock,
including the page located at URL http://www.jordancattle.com, and any email
addresses used in connection with the business. The purchase price for these
assets was $2,864,748 in cash and transaction costs of $90,373. The Agreement
for the Purchase and Sale of Assets was filed as part of the Registrant's
Current Report on Form 8-K filed on May 5, 2000, and incorporated herein by
reference.
On June 1, 2000 eMerge closed on a Contract for Sale and Purchase of
Real Estate with the shareholders of W.P. Land and Livestock to purchase three
parcels of land and buildings used in the above described business of W.P. Land
and Livestock for a purchase price of $3,472,000 in cash. The Contract for Sale
and Purchase of Real Estate was also filed as part of the Registrant's Current
Report on Form 8-K filed on May 5, 2000, and incorporated herein by reference.
<PAGE> 3
Item 7. Financial Statements & Exhibits
<TABLE>
<S> <C> <C> <C>
Page
----
(a) Financial Statements of Businesses Acquired:
(i) Financial Statements of Eastern Livestock Company,
--------------------------------------------------
Inc.;
-----
Report of Independent Accountants F-1
Balance Sheets F-2
Statements of Operations F-3
Statements of Stockholders' Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6
(ii) Financial Statements of W.P. Land and Livestock,
------------------------------------------------
Inc.;
-----
Independent Auditors' Report F-16
Balance Sheets F-17
Statements of Operations F-18
Statements of Stockholders' Equity F-19
Statements of Cash Flows F-20
Notes to Financial Statements F-21
(b) Pro Forma Financial Information:
Unaudited Pro Forma Condensed Combined Balance Sheet as of
March 31, 2000 F-25
Unaudited Pro Forma Condensed Combined Statement of Operations
for the year ended December 31, 1999 F-26
Unaudited Pro Forma Condensed Combined Statement of Operations
for the three months ended March 31, 2000 F-27
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements F-28
(c) Exhibits:
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
</TABLE>
* Filed as part of the of the Registrant's Current Report on Form 8-K filed
May 5, 2000, and incorporated herein by reference.
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EMERGE INTERACTIVE, INC.
/s/ T. Michael Janney
-------------------------------------
T. Michael Janney,
Treasurer and Chief Financial Officer
Date: July 14, 2000
<PAGE> 5
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Eastern Livestock Company, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, stockholders' equity and cash flows present fairly, in all material
respects, the financial position of Eastern Livestock Company, Inc. at September
30, 1999 and 1998, and the results of its operations and its cash flows for each
of the three years in the period ended September 30, 1999 in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
December 21, 1999, except for the last
paragraph of Note 6, as to which the
date is January 13, 2000 and Note 12,
as to which the date is May 1, 2000
F-1
<PAGE> 6
EASTERN LIVESTOCK COMPANY INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------- MARCH 31,
1998 1999 2000
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 1,860,455 $ 5,035,042 $ --
Trade accounts receivable 18,215,316 30,410,813 20,170,476
Accounts receivable, related party 4,711,628 3,494,267 255,959
Due from brokers 1,991,452 1,206,170 2,122,875
Notes receivable, net 2,343,063 2,011,133 2,570,969
Notes receivable, related party 388,634 123,634 44,504
Inventories 38,443,631 31,150,789 34,553,873
Deposits on cattle purchases 1,868,170 3,227,510 4,824,530
Prepaid expenses and other current assets 601,728 192,587 323,649
----------- ----------- -----------
Total current assets 70,424,077 76,851,945 64,866,835
Property, plant and equipment, net 2,726,232 2,803,389 2,576,603
Long-term portion of notes receivable, net 4,855,527 4,450,238 3,486,324
Other assets 233,479 158,895 880,695
----------- ----------- -----------
$78,239,315 $84,264,467 $71,810,457
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,070,903 $10,030,104 $14,037,561
Accounts payable, related party 600,503 265,830 271,740
Advances on cattle sales 1,298,070 1,445,200 1,604,130
Accrued expenses 849,880 724,067 666,594
Accrued commissions, related party 141,020 63,667 254,875
Current portion of long-term debt 567,860 932,471 534,775
Short-term borrowings 59,832,461 60,444,357 42,013,678
----------- ----------- -----------
Total current liabilities 67,360,697 73,905,696 59,383,353
----------- ----------- -----------
Long-term debt 2,642,333 2,520,265 2,393,113
----------- ----------- -----------
Stockholders' equity:
Common stock, no par value; 1,000 shares
authorized and outstanding 50,000 50,000 50,000
Retained earnings 8,186,285 7,788,506 9,983,991
----------- ----------- -----------
8,236,285 7,838,506 10,033,991
----------- ----------- -----------
$78,239,315 $84,264,467 $71,810,457
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 7
EASTERN LIVESTOCK COMPANY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
------------------------------------------------ ------------------------------
1997 1998 1999 1999 2000
------------- ------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales $ 682,435,740 $ 731,692,817 $ 662,958,109 $ 309,105,393 $ 331,494,014
Cost of sales 669,941,774 726,067,161 655,475,177 305,230,301 325,720,838
------------- ------------- ------------- ------------- -------------
Gross profit 12,493,965 5,625,656 7,482,932 3,875,092 5,773,175
Selling, general and administrative
expenses 4,187,271 4,542,288 4,350,146 2,059,857 2,216,583
Provisions for doubtful accounts and
notes receivable, net of recoveries 233,251 687,892 1,203,662 150,000 242,309
------------- ------------- ------------- ------------- -------------
Operating income 8,073,443 395,476 1,929,124 1,665,235 3,314,283
Interest expense (4,382,868) (5,441,805) (4,251,356) (2,237,486) (1,903,170)
Interest income 639,498 600,238 973,297 270,890 379,835
Other income 159,942 193,781 951,156 452,423 404,537
------------- ------------- ------------- ------------- -------------
Net (loss) income $ 4,490,015 $ (4,252,310) $ (397,779) $ 151,062 $ 2,195,485
============= ============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 8
EASTERN LIVESTOCK COMPANY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, September 30, 1996 1,000 $ 50,000 $ 8,608,580 $ 8,658,580
Net income -- -- 4,490,015 4,490,015
Dividends paid, $660 per share -- -- (660,000) (660,000)
------ ---------- ----------- -----------
Balance, September 30, 1997 1,000 50,000 12,438,595 12,488,595
Net loss -- -- (4,252,310) (4,252,310)
------ ---------- ----------- -----------
Balance, September 30, 1998 1,000 50,000 8,186,285 8,236,285
Net loss -- -- (397,779) (397,779)
------ ---------- ----------- -----------
Balance, September 30, 1999 1,000 50,000 7,788,506 7,838,506
Net income (unaudited) -- -- 2,195,485 2,195,485
------ ---------- ----------- -----------
Balance, March 31, 2000 (unaudited) 1,000 $ 50,000 $ 9,983,991 $10,033,991
====== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 9
EASTERN LIVESTOCK COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
---------------------------------------------------- ---------------------------
1997 1998 1999 1999 2000
--------------- --------------- --------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ 4,490,015 $ (4,252,310) $ (397,779) $ 151,062 $ 2,195,485
Adjustments to reconcile net (loss) income
to net cash provided by (used in)
operating activities:
Depreciation 329,616 474,158 507,739 260,976 237,095
Provision for doubtful accounts and
notes receivable 619,349 1,138,731 1,392,620 150,000 242,309
Gain on sale of assets (155,802) (77,130) (128,624) -- (148,227)
Increase (decrease) in cash due to
changes in:
Trade accounts receivable (8,509,987) 6,847,922 (12,720,695) (1,229,408) 9,998,028
Accounts receivable, related party (2,761,197) (711,132) 1,217,559 4,356,386 3,238,308
Due from brokers 1,023,188 (1,351,840) 785,282 (152,522) (916,705)
Notes receivable 217,120 (7,771,653) (130,401) (868,373) 404,078
Notes receivable, related party 41,085 (336,500) 265,000 255,000 79,130
Inventories (5,296,868) 12,862,923 7,292,842 (6,370,510) (3,403,084)
Deposits on cattle purchases (2,311,780) 3,642,650 (1,359,340) (756,720) (1,597,020)
Prepaid expenses and other current
assets (1,942) (443,820) 409,141 (5,844) (131,062)
Other assets (160,254) 147,931 74,584 (90,869) (721,800)
Accounts payable 1,486,830 (4,144,286) 5,959,201 9,160,756 4,007,457
Accounts payable, related party 740,440 (2,993,360) (334,673) (33,415) 5,910
Advances on cattle sales 2,475,422 (2,854,440) 147,130 (20,610) 158,930
Accrued expenses 72,272 349,976 (125,813) (405,349) (57,473)
Accrued commissions, related party 922,734 (781,714) (77,353) (67,866) 191,208
--------------- --------------- --------------- ------------- -------------
Net cash provided by (used in)
operating activities (6,779,759) (253,894) 2,776,420 4,332,694 13,782,567
--------------- --------------- --------------- ------------- -------------
Cash flows from investing activities:
Proceeds from sale of equipment 396,584 94,178 153,100 -- 205,708
Purchases of property, plant and equipment (663,831) (497,173) (445,802) (180,905) (67,790)
--------------- --------------- --------------- ------------- -------------
Net cash used in investing
activities (267,247) (402,995) (292,702) (180,905) 137,918
--------------- --------------- --------------- ------------- -------------
Cash flows from financing activities:
Proceeds from short-term borrowings 1,055,388,354 1,029,441,654 1,024,687,213 484,099,349 506,634,442
Payments on short-term borrowings (1,046,035,548) (1,037,355,858) (1,024,075,317) (489,902,363) (525,462,817)
Proceeds from long-term debt and notes
payable to related parties 15,070 2,460,857 727,730 131,625 --
Payments on long-term debt and notes
payable to related parties (260,741) (674,958) (648,757) (340,855) (127,152)
Dividends paid (660,000) -- -- -- --
--------------- --------------- --------------- ------------- -------------
Net cash provided by
(used in) financing
activities 8,447,135 (6,128,305) 690,869 (6,012,244) (18,955,527)
--------------- --------------- --------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents 1,400,129 (6,785,194) 3,174,587 (1,860,455) (5,035,042)
Cash and cash equivalents, beginning of period 7,245,520 8,645,649 1,860,455 1,860,455 5,035,042
--------------- --------------- --------------- ------------- -------------
Cash and cash equivalents, end of period $ 8,645,649 $ 1,860,455 $ 5,035,042 $ -- $ --
=============== =============== =============== ============= =============
Supplemental disclosure of cash
flow information:
Cash paid during the period for interest $ 4,344,078 $ 5,744,494 $ 4,062,889 $ 2,237,486 $ 1,903,171
Supplemental schedule of noncash investing
and financing activities:
Financing for real estate and equipment
purchases $ 482,514 $ 506,415 $ 577,661 $ 156,910 --
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS
(INFORMATION INSOFAR AS IT RELATES TO THE SIX MONTHS ENDED MARCH 31, 1999 AND
2000 IS UNAUDITED)
1. NATURE OF BUSINESS:
Eastern Livestock Company, Inc. (the Company) buys stocker and feeder
cattle through its network of various branches and resells them to its
customers throughout the United States. The Company also maintains an
inventory of cattle at various locations, including grass, growyards
and feedyards. These cattle are subject to caretaker and/or feeding
agreements, under both of which title to the cattle remains with the
Company until sold. The Company operates as a single segment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. CASH AND CASH EQUIVALENTS: Cash and cash equivalents include
liquid investments purchased with an original maturity of
three months or less.
B. DUE FROM BROKERS: Due from brokers consists of margin deposits
held by various brokerages used by the Company to acquire
futures and options contracts, plus unrealized gains and less
unrealized losses.
C. INVENTORIES: The cost of feeder cattle includes feed,
veterinary, labor and yard expenses, unrealized gains and
losses on open futures contracts and other direct costs
incurred. All cattle are acquired in groups and the costs of
the cattle are accumulated by groups rather than individual
animal. Inventories are stated at the lower of cost or market.
Actual market prices could be materially different, either
above or below the carrying cost, at the time the cattle are
sold.
D. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment
and acquired software is stated at cost. The Company does not
develop software internally. Depreciation is computed using
the straight-line method over the estimated useful lives of
the assets as follows:
Buildings and improvements 20 to 25 years
Equipment and furniture 5 to 8 years
Computer software 5 years
When properties are retired or otherwise disposed of, the cost
and related accumulated depreciation are removed from the
accounts with any resulting gain or loss reflected in income.
Maintenance and repairs are expensed in the year incurred.
F-6
<PAGE> 11
\
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION INSOFAR AS IT RELATES TO THE SIX MONTHS ENDED MARCH 31, 1999 AND
2000 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
E. REVENUE RECOGNITION: The Company recognizes revenue from
stocker cattle when the cattle are shipped. Feeder cattle are
acquired in groups and the costs of such cattle are
accumulated by groups rather than individual animal. Revenue
from sale of feeder cattle and related costs are, therefore,
recognized when the entire group of cattle is sold. Proceeds
from the sale of less than the entire group of cattle are
recorded as a reduction of inventory cost. When the entire
group is sold all revenue, cost of sales and profit or loss
are recognized.
As described in Note 4, the Company has various arrangements
with caretakers in which the caretakers receive up to 70% of
the profit or loss on the sale of the cattle which the Company
entrusts to them. Upon the sale of cattle subject to these
arrangements, the Company records all revenue from the
transaction as sales and recognizes amounts paid to or
received from the caretakers as adjustments to cost of sales.
Under certain other of these arrangements, the Company
receives only a standard fee upon sale of the cattle based on
weight or number of cattle. In these instances, the Company
records only the fee received as revenue.
F. HEDGING: The Company enters into futures and options contracts
to hedge the impact of price fluctuations on its cattle
inventory. Gains and losses on these instruments are deferred
and included in income as a component of the cost of the
inventory when it is sold. Cash flows from hedging activities
are included in operating activities on the statement of cash
flows.
The Company will be subject to the provisions of Statement of
Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is
effective for the Company's year ended September 30, 2001. The
Company has not yet fully determined the effects of the new
accounting standards.
G. CONCENTRATIONS OF RISK: The Company maintains its cash and
cash equivalents with various financial institutions located
throughout the United States. At times, cash and cash
equivalent balances exceed the FDIC insurance level. During
1998 and 1999, approximately 29% and 32%, respectively, of
sales were to feed yards owned by one company, Conti Group,
Inc., formerly known as Continental Grain Company
(Continental). Approximately 6% and 7% of accounts receivable
and 29% and 33% of notes receivable are due from Continental
at September 30, 1998 and 1999, respectively. Approximately
27% of notes receivable is due from two customers at September
30, 1999.
H. USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
F-7
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION INSOFAR AS IT RELATES TO THE SIX MONTHS ENDED MARCH 31, 1999 AND
2000 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
I. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying value of
cash and cash equivalents, accounts receivable, notes
receivable, and short-term borrowings approximates fair value
due to the short maturity of those instruments. Management
believes the carrying value of long-term debt is not
significantly different than fair value as all such loans
either bear interest at a variable rate or have a relatively
short-term maturity. The fair value of futures contracts is
discussed in Note 4.
J. COMPREHENSIVE INCOME: The Company's comprehensive income
(loss) is the same as its net income (loss) for all periods.
K. RECLASSIFICATIONS: Certain reclassifications have been made to
the 1997 and 1998 financial statements in order to conform to
1999 classifications. The changes had no effect on previously
reported operations.
L. INTERIM FINANCIAL INFORMATION: The financial statements as of
March 31, 2000 and for the six months ended March 31, 1999 and
2000 are unaudited but reflect only normal and recurring
adjustments which are, in the opinion of management, necessary
for the fair presentation of financial position and results of
operation. Operating results for the periods ended March 31,
1999 and 2000 are not necessarily indicative of the results
that may be expected for the full year.
3. NOTES RECEIVABLE:
Notes receivable consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------- MARCH 31,
1998 1999 2000
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Conti Group Co., Inc., due on or before March 31, 2007 $ 2,264,659 $ 2,447,324 $ 2,447,324
Notes receivable from caretakers (interest at 8%-12.5%) 2,924,766 2,411,225 2,072,024
Other (interest at 9%-12%) 2,259,165 1,879,822 2,114,945
----------- ----------- -----------
7,448,590 6,738,371 6,634,293
Less current portion (2,343,063) (2,011,133) (2,570,969)
Less allowance for doubtful accounts (250,000) (277,000) (577,000)
----------- ----------- -----------
$ 4,855,527 $ 4,450,238 $ 3,486,324
=========== =========== ===========
</TABLE>
F-8
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION INSOFAR AS IT RELATES TO THE SIX MONTHS ENDED MARCH 31, 1999 AND
2000 IS UNAUDITED)
3. NOTES RECEIVABLE, CONTINUED:
The Company accepts promissory notes from customers who are indebted to
the Company but are unable to make immediate payment. Certain notes
receivable are collateralized by a security interest in tangible assets
of the customers. The Company has provided an allowance for doubtful
accounts, which includes both its accounts receivable and notes
receivable, of $250,000 and $277,000 at September 30, 1998 and 1999,
respectively. While the Company believes this allowance is adequate at
September 30, 1999, it is not possible to predict what impact future
cattle market conditions could have on the collectibility of notes and
accounts receivable.
On November 11, 1997, the Company entered into an incentive agreement
with Conti Group Co., Inc. ("Continental") regarding the feeding of the
Company's cattle at Hartley Feeders (Hartley), a division of
Continental. Pursuant to the terms of the agreement, the Company has
loaned to Continental the sum of $2,225,000 as evidenced by the
Promissory Note (the Promissory Note) from Continental in favor of the
Company dated November 11, 1997. The Company may, at its discretion,
make further "Incentive Contributions," for capital expenditure
purposes, to Continental in order to maintain its respective percentage
of participation. Incentive Contributions of $39,659 and $182,665 were
made during 1998 and 1999, respectively. The Company also pays to
Continental a management fee in connection with the feeding of the
Company's cattle located at Hartley.
On an annual basis, Continental pays to the Company interest on the
note at 8%, plus (minus) a percentage of Hartley's net income (loss),
exclusive of the management fee and the interest expenses related to
the Company's Promissory Note. Either party may terminate this
agreement by providing written notice three months prior to
Continental's fiscal year-end of March 31, until the note matures on
March 31, 2007. The Company recorded net earnings of $123,429 and
$733,578 under the terms of this arrangement for 1998 and 1999,
respectively. Such earnings are included in other income on the
statements of operations.
4. INVENTORIES:
Inventories consist primarily of feeder cattle which are held on feed
lots and pastures for approximately three to six months from date of
purchase before being sold. The remaining inventory represents stocker
cattle awaiting immediate sale. Inventories are summarized as follows:
SEPTEMBER 30,
---------------------------- MARCH 31,
1998 1999 2000
----------- ----------- -----------
(UNAUDITED)
Feeder cattle $36,285,618 $29,017,165 $23,776,940
Stocker cattle 2,158,013 2,133,624 10,776,933
----------- ----------- -----------
Total $38,443,631 $31,150,789 $34,553,873
=========== =========== ===========
F-9
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION INSOFAR AS IT RELATES TO THE SIX MONTHS ENDED MARCH 31, 1999 AND
2000 IS UNAUDITED)
4. INVENTORIES, CONTINUED:
Market prices exceeded carrying cost at September 30, 1998 and a
provision of $200,000 was recorded at September 30, 1998 to reduce
inventory to net realizable value.
FUTURES AND OPTIONS CONTRACTS: Market risk is managed by the Company
through an active risk management program. This program focuses on
inventory on hand, purchase commitments and committed sales, and
utilizes futures and options contracts to protect against exposures to
price risk in the cattle market. The Company acquires futures contracts
for feeder and stocker (live) cattle. The contracts are acquired
through brokers and are traded on the Chicago Mercantile Exchange
(CME). All brokers trading on the CME are regulated by the Commodity
Futures Trading Commission.
At September 30, 1998 and 1999, the Company held futures and options
contracts with a net notional value of approximately $46.3 million and
$29.2 million, respectively. Approximately 100% and 52% of the
Company's cattle and net commitments to purchase were hedged by futures
and options contracts at September 30, 1998 and 1999, respectively. Net
unrealized losses on open futures and options contracts at September
30, 1998 and 1999 were approximately $247,000 and $1,458,000,
respectively. The unrealized losses are recorded in the balance sheet
as an increase in the carrying value of inventory and as a reduction of
margin deposits due from broker. At September 30, 1998 and 1999, margin
deposits of $2,239,024 and $2,784,077, respectively, were held by the
various brokerages used by the Company. Gains and losses on these
contracts, which effectively hedge exposures, are ultimately included
in income as a component of the cost of the inventory when it is sold.
Futures and options contracts are valued at the market closing price on
the last business day of the year.
ARRANGEMENTS WITH CARETAKERS: The Company has arrangements with
individuals and entities who care for certain of the Company's cattle
(caretakers) whereby a portion or all of any realized gain (loss) from
the sale of certain designated inventory and the related futures
contracts passes through to the caretakers.
The Company receives a fee specified under the arrangement and
reimbursement for its cost of inventory at the time of the sale of the
related cattle. The Company also enters into futures contracts on
behalf of caretakers. Title to the inventory and the futures contracts
are held in the name of the Company, and the Company holds all legal
rights and obligations from the related transactions. Inventory and
futures contracts relating to these caretakers are therefore included
in the financial statements of the Company.
F-10
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION INSOFAR AS IT RELATES TO THE SIX MONTHS ENDED MARCH 31, 1999 AND
2000 IS UNAUDITED)
4. INVENTORIES, CONTINUED:
COMMITMENTS TO PURCHASE AND SELL CATTLE: At September 30, 1999, the
Company had other commitments to purchase and sell cattle totaling
$56.5 million and $22.9 million, respectively. The contract period for
these commitments is typically less than six months. The fair values of
these purchase and sales commitments are not practical to determine as
they are comprised of a large number of specific arrangements with a
variety of livestock operations.
5. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------ MARCH 31,
1998 1999 2000
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land $ 312,482 $ 680,429 $ 680,429
Building and improvements 973,944 990,545 990,545
Equipment and furniture 3,224,639 3,033,499 2,831,356
Computer software 88,348 88,350 88,350
----------- ----------- -----------
4,599,413 4,792,823 4,590,680
Less accumulated depreciation (1,873,181) (1,989,434) (2,014,077)
----------- ----------- -----------
$ 2,726,232 $ 2,803,389 $ 2,576,603
=========== =========== ===========
</TABLE>
Depreciation expense totaled $329,616, $474,158 and $507,739 for the
years ended September 30, 1997, 1998 and 1999, respectively.
F-11
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION INSOFAR AS IT RELATES TO THE SIX MONTHS ENDED MARCH 31, 1999 AND
2000 IS UNAUDITED)
6. SHORT-TERM BORROWINGS:
Short-term borrowings consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------- MARCH 31,
1998 1999 2000
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
$39,000,000 lines of credit, plus $15,000,000
additional temporary facility, due National
City Bank, Kentucky, interest payable monthly
at prime plus 1.0% (9.25% at September 30,
1999), due on demand $47,684,802 $51,002,330 $ 33,392,000
$12,000,000 line of credit, due Intrust Bank,
N.A., Wichita, Kansas, interest payable monthly
at prime plus .25% (8.50% at September 30,
1999), due October 1, 2000, collateralized by
inventory, accounts receivable and amounts due
from brokers, and personal guarantees of the
Company's majority stockholder 11,713,374 9,442,027 8,621,678
$1,200,000 line of credit, due Farmers and Merchants
State Bank, Archbold, Ohio, interest payable
quarterly at the bank's agricultural base rate
minus .5% (9% at September 30, 1998), expired
September 28, 1999, collateralized by inventory 434,285 -- --
----------- ---------- ------------
$59,832,461 $60,444,357 $ 42,013,678
=========== =========== ============
</TABLE>
Additionally, the Company had a $595,000 continuously renewing standby
letter of credit at September 30, 1997, 1998 and 1999.
The lines of credit with National City Bank, Kentucky, are
collateralized by commodity accounts, accounts receivable, inventory,
all general intangibles, a life insurance policy on the majority
stockholder, and personal guarantees of the Company's stockholders.
National City Bank, Kentucky, also made available an additional
temporary line of credit, up to a maximum of $15,000,000 at September
30, 1999. The amount outstanding on this temporary line of credit was
below the maximum borrowings and was repaid on October 1, 1999. The
agreement with National City Bank, Kentucky, was modified on October
29, 1999 to reduce the maximum borrowing under its lines of credit by
decreasing amounts from $39,000,000 to $35,000,000 from October 29,
1999 through June 30, 2000.
The line of credit agreement with Intrust Bank, N.A., was modified on
October 15, 1999 to reduce the maximum borrowings from $15,000,000 to
$12,000,000 and the due date was extended to October 1, 2000. The line
of credit is classified as a current liability because the lender can
accelerate repayment.
F-12
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION INSOFAR AS IT RELATES TO THE SIX MONTHS ENDED MARCH 31, 1999 AND
2000 IS UNAUDITED)
6. SHORT TERM BORROWINGS, CONTINUED:
The weighted average interest rates on the National City Bank,
Kentucky, lines of credit were 8.29% and 8.45% at September 30, 1998
and 1999, respectively. The weighted average interest rates on the
Intrust Bank, N.A., lines of credit were 9.18% and 9.32% at September
30, 1998 and 1999, respectively.
The line of credit agreements with National City Bank, Kentucky, and
Intrust Bank, N.A., contain various covenants pertaining to timely
reporting, debt to equity ratio, maintenance of net worth, working
capital and life insurance coverage, and limitations on the
concentration of cattle with any one caretaker, as well as loan,
investment and dividend restrictions, as defined in the agreements.
As of September 30, 1999, the Company was in violation of certain of
these covenants; however, they were waived by National City Bank,
Kentucky, on January 13, 2000 and Intrust Bank, N.A., on December 30,
1999.
7. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------- MARCH 31,
1998 1999 2000
----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to bank, due in quarterly installments of $55,625,
including interest at the prime rate plus .5% (8.75% at
September 30, 1999) maturing November 2004 $ 2,058,125 $1,835,625 $ 1,724,375
Notes payable to stockholders and relatives, due on demand,
interest ranging from 8.5% to 11% 247,340 499,204 249,204
Notes payable on trailers, vehicles and equipment, due in
varying monthly installments, including interest ranging
from 8.25% to 9.75%, maturing from May 2000 to September 2003 743,293 656,965 512,276
Mortgages payable, due in monthly and annual installments,
including interest ranging from 8% to 10%, maturing on
varying dates from October 1999 to May 2014 161,435 460,942 442,033
----------- ---------- -----------
3,210,193 3,452,736 2,927,888
Less amounts due within one year 567,860 932,471 534,775
----------- ---------- -----------
$ 2,642,333 $2,520,265 $ 2,393,113
=========== ========== ===========
</TABLE>
F-13
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION INSOFAR AS IT RELATES TO THE SIX MONTHS ENDED MARCH 31, 1999 AND
2000 IS UNAUDITED)
7. LONG-TERM DEBT, CONTINUED:
Scheduled maturities of long-term debt are as follows:
YEAR ENDING
SEPTEMBER 30,
-------------
2000 $ 932,471
2001 736,850
2002 331,389
2003 260,964
2004 245,577
Thereafter 945,485
-----------
$ 3,452,736
===========
8. EMPLOYEE BENEFIT PLAN:
The Company began a 401(k) employee benefit plan during 1997 covering
substantially all employees. The Company may make a discretionary
matching contribution. The Company expensed contributions to the plan
of $128,294 and $59,809 for the years ended September 30, 1998 and
1999, respectively. The Company did not make a discretionary matching
contribution during the year ended September 30, 1997.
9. INCOME TAXES:
The stockholders of the Company have elected to report the income of
the Company on their individual federal and state income tax returns
(Subchapter S election).
10. TRANSACTIONS WITH STOCKHOLDERS AND RELATED PARTIES:
The Company has various transactions with its two stockholders,
companies controlled by the stockholders and relatives of the
stockholders. The Company's notes receivable balance includes amounts
advanced to a stockholder and related entities owned by the
stockholders of the Company. The Company's stockholders, relatives, and
related entities purchase cattle from the Company. In addition, the
Company's stockholders purchase yardage from the Company. The Company's
accounts receivable balance includes account balances relating to these
sales to stockholders, relatives and related entities.
The Company purchases cattle, yardage and other related items from its
stockholders, relatives, and related entities.
F-14
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION INSOFAR AS IT RELATES TO THE SIX MONTHS ENDED MARCH 31, 1999 AND
2000 IS UNAUDITED)
10. TRANSACTIONS WITH STOCKHOLDERS AND RELATED PARTIES, CONTINUED:
The Company's accounts payable balance includes account balances
relating to these expenditures to stockholders, relatives, and related
entities. Stockholders and relatives are paid commissions as agents to
sell the Company's cattle. The amount of commissions paid to the
stockholders is determined totally at the discretion of the
stockholders.
The majority stockholder pays amounts due the Company weekly; the
Company also settles amounts due the stockholder weekly. The related
party transaction amounts and balances discussed above are shown below
as of and for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
ENDED SIX MONTHS
-------------------------------------------- ENDED
1997 1998 1999 2000
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Notes receivable $ 52,134 $ 388,634 $ 123,634 $ 44,504
Accounts payable 3,593,863 600,503 265,830 271,740
Sales 86,728,877 91,039,306 57,465,279 42,644,620
Purchases of cattle 49,143,704 61,972,535 31,862,077 42,870,821
Accrued commissions 922,734 141,020 63,667 254,875
Commissions expense 2,475,476 1,769,671 786,885 722,003
Notes payable 233,483 247,340 499,204 245,204
</TABLE>
11. CONTINGENCIES:
In the ordinary course of business, the Company is a party to legal
proceedings. Based upon information presently available, management
believes the ultimate resolution of all legal matters of which it is
currently aware will not have a material adverse effect on the
Company's financial statements.
12. SUBSEQUENT EVENT:
On April 20, 2000, the Company entered into a definitive agreement to
sell a significant portion of the Company to eMerge Interactive, Inc.
for cash consideration of $21,500,000 and 1,215,913 shares of stock of
eMerge Interactive, Inc. valued at $14,500,000. Except for certain
property and equipment, most of the assets and liabilities of the
Company were not transferred to eMerge Interactive, Inc. in the
transaction. Closing of the transaction occurred on May 1, 2000.
F-15
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
To the Stockholders
W P Land and Livestock, Inc.:
We have audited the accompanying balance sheet of W P Land and Livestock, Inc.
(dba Jordan Cattle Auction) as of September 30, 1999 and the related statements
of operations, stockholders' equity and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of W P Land and Livestock, Inc. at
September 30, 1999 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Orlando, Florida
March 30, 2000, except as to note 8
which is as of June 1, 2000
F-16
<PAGE> 21
W P LAND AND LIVESTOCK, INC.
(d/b/a Jordan Cattle Auction)
Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
ASSETS 1999 2000
------------- -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash $ 253,728 $ 452,546
Accounts receivable 15,097 26,432
Inventory (note 4):
Cattle 104,364 118,213
Other 58,917 96,394
Notes receivable from related parties (note 5) 42,153 24,860
Other current assets 9,766 4,766
---------- ----------
Total current assets 484,025 723,211
Notes receivable from related parties (note 5) 213,935 196,690
Property, plant and equipment, net (notes 3 and 5) 335,819 350,392
---------- ----------
Total assets $1,033,779 $1,270,293
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 75,302 $ 49,981
Advances from customers 138,444 --
Income taxes payable 5,594 141,689
---------- ----------
Total current liabilities 219,340 191,670
---------- ----------
Stockholders' equity:
Common stock $1 par value, authorized 100,000 shares, 1,000 1,000
issued and outstanding 1,000 shares
Additional paid-in capital 18,256 18,256
Retained earnings 795,183 1,059,367
---------- ----------
Total stockholders' equity 814,439 1,078,623
Commitments (notes 5, 7 and 8)
---------- ----------
Total liabilities and stockholders' equity $1,033,779 $1,270,293
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE> 22
W P LAND AND LIVESTOCK, INC.
(d/b/a Jordan Cattle Auction)
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED MARCH 31,
SEPTEMBER 30, ----------------------------
1999 1999 2000
------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cattle sales $ 7,230,501 $3,568,568 $ 968,252
Commission revenue 2,231,069 1,058,909 1,220,068
Other revenues 362,317 37,238 248,354
----------- ---------- -----------
Total revenues 9,823,887 4,664,715 2,436,674
Cost of sales 6,654,424 3,417,662 925,447
----------- ---------- -----------
Gross profit 3,169,463 1,247,053 1,511,227
Selling, general and administrative expenses (including $114,000
(unaudited) in 1999, and $57,000 (unaudited) in 2000
to related parties) (note 5) 3,141,385 1,141,030 1,117,770
Interest income (5,666) -- (6,822)
----------- ---------- -----------
Profit before income taxes 33,744 106,023 400,279
Income tax expense (note 6) 9,594 36,048 136,095
----------- ---------- -----------
Net income $ 24,150 $ 69,975 $ 264,184
=========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE> 23
W P LAND AND LIVESTOCK, INC.
(d/b/a Jordan Cattle Auction)
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
ADDITIONAL
COMMON COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS TOTAL
------ ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balances at October 1, 1998 1000 $1,000 $18,256 $ 771,033 $ 790,289
Net income -- -- -- 24,150 24,150
----- ------ ------- ---------- ----------
Balances at September 30, 1999 1,000 1,000 18,256 795,183 814,439
Net income (unaudited) -- -- -- 264,184 264,184
----- ------ ------- ---------- ----------
Balances at March 31, 2000 (unaudited) 1,000 $1,000 $18,256 $1,059,367 $1,078,623
===== ====== ======= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE> 24
W P LAND AND LIVESTOCK, INC.
(d/b/a Jordan Cattle Auction)
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED MARCH 31,
SEPTEMBER 30, --------------------------
1999 1999 2000
------------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 24,150 $ 69,975 $ 264,184
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 111,847 52,524 48,156
Operating expenses:
Changes in operating assets and liabilities:
Accounts receivable 272,146 18,701 (11,335)
Accounts payable 42,374 -- (75,302)
Inventories 44,493 260,273 (51,326)
Other current assets (6,037) (4,271) 5,000
Deferred payments 138,444 -- (88,463)
Income taxes payable 9,594 36,048 136,095
--------- --------- ---------
Net cash provided by operating activities 637,011 433,250 227,009
--------- --------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment (184,392) (42,410) (62,729)
Notes receivable (219,833) 20,220 34,538
--------- --------- ---------
Net cash used in investing activities (404,225) (22,190) (28,191)
--------- --------- ---------
Net increase in cash 232,786 411,060 198,818
Cash - beginning of period 20,942 20,942 253,728
--------- --------- ---------
Cash - end of period $ 253,728 432,002 $ 452,546
========= ========= =========
Income taxes paid $ 16,000 $ -- $ 4,000
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE> 25
W P LAND AND LIVESTOCK, INC.
(d/b/a JORDAN CATTLE AUCTION)
Notes To Financial Statements
(Information insofar as it relates to the six months ended
March 31, 1999 and 2000 is unaudited)
(1) ORGANIZATION
W P Land and Livestock, Inc. (the "Company") was formed in November 28,
1984 as a Texas corporation. The Company operates cattle auctions in
San Saba, Mason and Brownwood, Texas and acts as an order buyer for
cattle in Central Texas. The Company manages its business by cattle
location. However, each location offers similar cattle to similar
customers and has similar economic characteristics. Accordingly, the
Company reports one operating segment. On June 1, 2000, the Company was
sold to eMerge Interactive, Inc. ("eMerge").
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation
of property, plant and equipment is computed using the
straight-line method over the estimated useful lives of the
assets.
(b) INVENTORY
Inventories are stated at standard cost which approximates the
lower of first-in, first-out cost or market.
(c) REVENUE
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 the inventory
and credit risk with respect to sales of all of its cattle and
other products, which includes cattle feed and trailers. In
cattle sales transactions, the Company purchases cattle from
the seller, takes title at shipment and records the cattle as
inventory until delivered to and accepted by the buyer,
typically a 24 to 48 hour period. In cattle auction
transactions, the Company acts as a broker in purchasing
cattle from suppliers and sales to customers so that the
Company recognizes revenue equal to the net fee due to the
Company at the time of the auction.
(d) ADVANCES FROM CUSTOMERS
Advances from customers are delayed settlements with customers
which are at an individual customers' request related to sales
of cattle.
(e) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company accounts for long-lived assets in accordance with
the provisions of SFAS No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net
cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying
amounts of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of their
carrying amount or fair value less costs to sell.
(Continued)
F-21
<PAGE> 26
W P LAND AND LIVESTOCK, INC.
(d/b/a JORDAN CATTLE AUCTION)
Notes To Financial Statements
(Information insofar as it relates to the six months ended
March 31, 1999 and 2000 is unaudited)
(f) INCOME TAXES
The Company accounts for income taxes using the asset and
liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted
rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized as income in the period
that includes the enactment date.
(g) USE OF ESTIMATES
The preparation of the Company's financial statements, in
conformity with generally accepted accounting principles,
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities and the
reported amounts of revenues and expenses. Actual results
could differ from those estimates.
(h) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivable, accounts
payable and accrued liabilities reflected in the financial
statements approximates fair value due to the short-term
maturity of these instruments.
(i) INTERIM FINANCIAL INFORMATION
The financial statements as of March 31, 2000 and for the
six months ended March 31, 1999 and 2000 are unaudited but
reflect only normal and recurring adjustments which are, in
the opinion of management, necessary for the fair presentation
of financial position and results of operations. Operating
results for the six months ended March 31, 1999 and 2000 are
not necessarily indicative of the results that may be expected
for the full year.
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31, ESTIMATED
1999 2000 USEFUL LIVES
---------------- ---------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Vehicles $ 82,764 $ 82,764 5 years
Equipment 647,614 708,734 5-7 years
Leasehold improvements 541,634 543,244 7-31 years
---------------- ----------------
1,272,013 1,334,742
Less accumulated depreciation 936,194 984,350
---------------- ----------------
Property, plant and equipment, net $ 335,819 $ 350,392
================ ================
</TABLE>
Leasehold improvements have been entirely made to property of a related
party (see note 5).
(Continued)
F-22
<PAGE> 27
W P LAND AND LIVESTOCK, INC.
(d/b/a JORDAN CATTLE AUCTION)
Notes To Financial Statements
(Information insofar as it relates to the six months ended
March 31, 1999 and 2000 is unaudited)
(4) INVENTORY
Inventory consists of:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 2000
-------------- ---------------
(UNAUDITED)
<S> <C> <C>
Cattle for auction $ 39,980 $ 62,705
Cattle to fill buyer orders 64,384 55,508
-------------- ---------------
Inventory--cattle $ 104,364 $ 118,213
============== ===============
Cattle feed $ 24,670 $ 23,605
Trailers 17,238 56,313
Electronic ID tags 17,009 16,476
-------------- ---------------
Inventory--other $ 58,917 $ 96,394
============== ===============
</TABLE>
(5) RELATED PARTY TRANSACTIONS
Notes Receivable
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 2000
-------------- ---------------
(UNAUDITED)
<S> <C> <C>
10% note receivable from employee, due in semi-annual payments
of principal and interest (at 8.5%) of $22,672
due October 10, 2000 (paid in full in March 2000) $ 13,246 $ --
8.5% note receivable from shareholder, monthly payments of
principal and interest (at 10%) of $9,599, due 232,842 221,550
November 21, 2006
7.5% note receivable from employee, interest at 7.5%, due
Oct. 15, 1999 (paid in full in February 2000) 10,000 --
-------------- ---------------
256,088 221,550
Less current portion 42,153 24,860
-------------- ---------------
$ 213,935 $ 196,690
============== ===============
</TABLE>
(Continued)
F-23
<PAGE> 28
W P LAND AND LIVESTOCK, INC.
(d/b/a JORDAN CATTLE AUCTION)
Notes To Financial Statements
(Information insofar as it relates to the six months ended
March 31, 1999 and 2000 is unaudited)
Lease Obligations
The Company leases land and buildings from its shareholders under
operating leases, which expired December 31, 1999. Rent expense was
$114,000 for the year ended September 30, 1999 and $57,000 (unaudited)
for the six months ended March 31, 2000. Future minimum lease payments
were $28,500 at September 30, 1999. The Company continues to and
intends to continue to rent land and buildings on a month to month
basis.
(6) INCOME TAXES
Income tax expense for the year ended September 30, 1999, is comprised
of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------- ---------- -----------
<S> <C> <C> <C>
Federal $ 7,301 $ -- $ 7,301
State 2,293 -- 2,293
---------- ---------- -----------
Total $ 9,594 $ -- $ 9,594
========== ========== ===========
</TABLE>
The Company's effective tax rate on pretax income for the year ended
September 30, 1999, differs from the statutory Federal income tax rate
as follows:
<TABLE>
<S> <C>
Tax provision at statutory rate $ 11,473
Increase (decrease) in tax resulting from:
State income taxes, net of federal income tax benefit 1,513
Effect of graduated rates (9,247)
Other 5,855
-------------
$ 9,594
=============
</TABLE>
There were no deferred assets or liabilities as of September 30, 1999.
(7) LINES OF CREDIT
The Company has entered into two $100,000 line of credit agreements
with two banks. Interest rates on these agreements are prime and prime
plus 1%, respectively. At September 30, 1999 and March 31, 2000
(unaudited) the Company had not made any borrowings under these
agreements.
(8) SUBSEQUENT EVENT
On June 1, 2000, the Company's assets were sold to Emerge Interactive,
Inc. for cash of $2,864,748.
F-24
<PAGE> 29
eMERGE INTERACTIVE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 2000
<TABLE>
<CAPTION>
EASTERN LIVESTOCK COMPANY, INC. WP LAND & LIVESTOCK, INC.
eMERGE -------------------------------- ------------------------------
INTERACTIVE, PRO FORMA PRO FORMA PRO FORMA
ASSETS INC. HISTORICAL ADJUSTMENTS HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash............................ $ 92,743,495 $ -- $(17,000,000) 4a $ 452,546 $ (6,789,294) 4h $ 69,406,747
Short-term investments.......... 215,348 -- -- -- -- 215,348
Trade accounts receivable, net . 7,683,658 20,426,435 (20,426,435 4b 26,432 (26,432) 4i 7,683,658
Due from brokers................ 2,122,875 (2,122,875) 4b -- -- --
Inventories..................... 1,702,273 34,553,873 (34,553,873) 4b 214,607 (134,454) 4i 1,782,426
Cattle deposits ................ 1,380,714 4,824,530 (4,824,530) 4b -- -- 1,380,714
Prepaid expenses................ 498,105 22,546 (22,546) 4b -- -- 498,105
Net assets of discontinued
operations..................... 381,588 -- -- -- -- 381,588
Notes receivable, net .......... -- 2,615,473 (2,615,473) 4b 24,860 (24,860) 4i --
Other current assets............ 175,331 301,103 (301,103) 4b 4,766 (4,766) 4i 175,331
------------ ----------- ------------ ----------- ------------ -------------
Total current assets......... 104,780,512 64,866,835 (81,866,835) 723,211 (6,979,806) 81,523,917
Property, plant and equipment, net. 2,905,165 2,576,603 (2,507,946) 4b 350,392 2,121,608 4j 5,445,822
Capitalized offering costs......... -- -- -- -- -- --
Investment in Turnkey Computer
Systems, Inc. .................. 1,822,833 -- -- -- -- 1,822,833
Intangibles, net .................. 5,637,411 -- 36,125,234 4c -- 3,874,968 4k 45,637,613
Long term portion of notes
receivable, net ................ -- 3,486,324 (3,486,324) 4b 196,690 (196,690) 4i --
Other long term assets ............ -- 880,695 (880,695) 4b -- -- --
------------ ----------- ------------ ----------- ------------ -------------
Total assets ................ $115,145,921 $71,810,457 $(52,616,566) $ 1,270,293 $ (1,179,920) $ 134,430,185
============ =========== ============ =========== ============ =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of
capital leases with
related party ................ $ -- $ -- $ -- $ -- $ -- $ --
Current installments of
long term debt................ -- 534,775 (534,775) 4d --
Notes payable................... -- 42,013,678 (42,013,678) 4d -- -- --
Accounts payable................ 1,793,007 14,309,301 (14,309,301) 4d 49,981 (49,981) 4l 1,793,007
Accrued expenses:
Salaries...................... 850,044 -- -- -- -- 850,044
Other......................... 660,443 476,104 (282,213) 4d -- 90,373 4l 944,707
Commissions................... -- 445,365 (445,365) 4d -- -- --
Income taxes payable............ -- -- -- 141,689 (141,689) 4l --
Advance payments from customers. 751,630 1,604,130 (1,604,130) 4d -- -- 751,630
Due to related parties.......... 524,879 -- 4,500,000 4d -- -- 5,024,879
------------ ----------- ------------ ----------- ------------ -------------
Total current liabilities.... 4,580,003 59,383,353 (54,689,462) 191,670 (101,297) 9,364,267
Capital lease obligation with
related party, excluding
current installments............ -- -- -- -- -- --
Long term debt, excluding
current installments............ -- 2,393,113 (2,393,113) 4d -- -- --
------------ ----------- ------------ ----------- ------------ -------------
Total liabilities............ 4,580,003 61,776,466 (57,082,575) 191,670 (101,297) 9,364,267
------------ ----------- ------------ ----------- ------------ -------------
Stockholders' equity:
Preferred stock ................ -- -- -- --
Common stock ................... 264,331 50,000 (40,273) 4e 1,000 (1,000) 4m 274,058
Additional paid-in capital...... 169,956,668 -- 14,490,273 4f 18,256 (18,256) 4n 184,446,941
Accumulated deficit ............ (37,884,683) 9,983,991 (9,983,991) 4g 1,059,36 (1,059,367) 4o (37,884,683)
Subscription receivable from
Internet Capital Group, Inc. . (21,716,304) -- -- -- -- (21,716,304)
Unearned compensation .......... (54,094) -- -- -- -- (54,094)
------------ ----------- ------------ ----------- ------------ -------------
Total stockholders' equity... 110,565,918 10,033,991 4,466,009 1,078,623 (1,078,623) 125,065,918
------------ ----------- ------------ ----------- ------------ -------------
Total liabilities and
stockholders' equity..... $115,145,921 $71,810,457 $(52,616,566) $ 1,270,293 $ (1,179,920) $ 134,430,185
============ =========== ============ =========== ============ =============
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
F-25
<PAGE> 30
eMERGE INTERACTIVE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year ended December 31, 1999
<TABLE>
<CAPTION>
EASTERN LIVESTOCK COMPANY, INC.
----------------------------------------------------
HISTORICAL
-----------
FOR THE PERIOD
eMERGE OCTOBER 1, 1998
INTERACTIVE TO SEPTEMBER 30, PRO FORMA
INC. 1999 ADJUSTMENTS PRO FORMA
------------ ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
Revenue $ 43,783,124 $662,958,109 $(45,158,876) 5a $617,799,233
Cost of revenue 43,517,459 655,475,177 (46,366,795) 5a 609,108,384
------------ ------------ ------------ -----------
Gross profit (loss) . . . . . . . . 265,665 7,482,932 1,207,917 8,690,849
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and administrative 11,239,188 5,553,808 5,142,281 5b 10,696,089
Research and development. . . . . . . 4,343,783 -- -- --
------------ ------------ ------------ ------------
Total operating expenses. . . . . . 15,582,971 5,553,808 5,142,281 10,696,089
------------ ------------ ------------ ------------
Profit (loss) from
continuing operations. . . . . . (15,317,306) 1,929,124 (3,934,364) (2,005,240)
Other income . . . . . . . . . . . . . . 475,642 1,924,453 (1,116,565) 5c 807,888
Interest expense . . . . . . . . . . . . (764,042) (4,251,356) 2,645,909 5d (1,605,447)
------------ ------------ ------------ ------------
Profit (loss) from
continuing operations
before income taxes. . . . . . . (15,605,706) (397,779) (2,405,020) (2,802,799)
Income tax expense (benefit) . . . . . . -- -- -- --
------------ ------------ ------------ ------------
Profit (loss) from
continuing operations . . . . . $(15,605,706) $ (397,779) $ (2,405,020) $ (2,802,799)
============ ============ ============ ============
Profit (loss) from continuing
operations per common share -
basic and diluted . . . . . . . . . . (2.30)
============
Weighted average number of
common shares outstanding -
basic and diluted . . . . . . . . . . 6,794,755 1,215,913 5e
============ ============
</TABLE>
<TABLE>
<CAPTION>
WP LAND & LIVESTOCK, INC.
-----------------------------------------------
HISTORICAL
-----------
FOR THE PERIOD
OCTOBER 1, 1998
TO SEPTEMBER 30, PRO FORMA PRO FORMA
1999 ADJUSTMENTS PRO FORMA COMBINED
---------------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Revenue. . . . . . . . . . . . . . . . . . . $9,829,553 $ -- $9,829,553 $671,411,910
Cost of revenue. . . . . . . . . . . . . . . 6,654,424 -- 6,654,424 659,280,267
---------- --------- ---------- ------------
Gross profit (loss) . . . . . . . . . . 3,175,129 -- 3,175,129 12,131,643
---------- --------- ---------- ------------
Operating expenses:
Selling, general and administrative . . . 3,141,385 793,151 5f 3,934,536 25,869,813
Research and development. . . . . . . . . -- -- -- 4,343,783
---------- --------- ---------- ------------
Total operating expenses. . . . . . . . 3,141,385 793,151 3,934,536 30,213,596
---------- --------- ---------- ------------
Profit (loss) from
continuing operations. . . . . . . . 33,744 (793,151) (759,407) (18,081,953)
Other income . . . . . . . . . . . . . . . . -- (16,702) 5c (16,702) 1,266,828
Interest expense . . . . . . . . . . . . . . -- -- -- (2,369,489)
---------- --------- ---------- ------------
Profit (loss) from
continuing operations
before income taxes . . . . . . . . 33,744 (809,853) (776,109) (19,184,614)
Income tax expense (benefit) . . . . . . . . 9,594 (9,594) 5g -- --
---------- --------- ---------- ------------
Profit (loss) from
continuing operations . . . . . . . $ 24,150 $(800,259) $ (776,109) $(19,184,614)
========== ========= ========== ============
Profit (loss) from continuing
operations per common share -
basic and diluted . . . . . . . . . . . . (2.39) 5h
============
Weighted average number of
common shares outstanding -
basic and diluted . . . . . . . . . . . . -- 8,010,668 5e
========= ============
</TABLE>
F-26
<PAGE> 31
eMERGE INTERACTIVE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Three months ended March 31, 2000
<TABLE>
<CAPTION>
EASTERN LIVESTOCK COMPANY, INC. WP LAND & LIVESTOCK, INC.
----------------------------------------- --------------------------------------
eMERGE
INTERACTIVE, PRO FORMA PRO FORMA PRO FORMA
INC. HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA COMBINED
------------ ------------ ------------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue............ $ 38,552,899 $159,571,807 $ (1,213,184)5a $158,358,623 $ 1,091,508 $ -- $ 1,091,508 $198,003,030
Cost of revenue.... 38,291,794 157,314,472 (1,481,487)5a 155,832,985 267,297 -- 267,297 194,392,076
------------ ------------ ------------ ------------ ----------- ---------- ----------- ------------
Gross
profit
(loss)........ 261,105 2,257,335 268,303 2,525,638 824,211 -- 824,211 3,610,954
------------ ------------ ------------ ------------ ----------- ---------- ----------- ------------
Operating
expenses:
Selling,
general
and
administrative.. 5,653,733 1,164,064 1,429,315 5b 2,593,379 645,412 169,788 5f 815,200 9,062,311
Research
and
development..... 1,300,708 -- -- -- -- -- -- 1,300,708
------------ ------------ ------------ ------------ ----------- ---------- ----------- ------------
Total
operating
expenses...... 6,954,441 1,164,064 1,429,315 2,593,379 645,412 169,788 815,200 10,363,019
------------ ------------ ------------ ------------ ----------- ---------- ----------- ------------
Profit
(loss)
from
continuing
operations
before
income
taxes......... (6,693,336) 1,093,271 (1,161,012) (67,741) 178,799 (169,788) 9,011 (6,752,065)
Other income....... 1,141,551 396,893 (225,291)5c 171,602 -- (44,023)5c (44,023) 1,269,130
Interest expense... -- (763,928) 584,105 5d (179,823) -- -- -- (179,823)
------------ ------------ ------------ ------------ ----------- ---------- ----------- ------------
Profit
(loss)
from
continuing
operations.... (5,551,785) 726,236 (802,198) (75,962) 178,799 (213,811) (35,012) (5,662,758)
Income tax
expense
(benefit)......... -- -- -- 60,792 (60,792)5g -- --
------------ ------------ ------------ ------------ ----------- ---------- ----------- ------------
Profit
(loss)
from
continuing
operations.... $ (5,551,785) $ 726,236 $ (802,198) $ (75,962) $ 118,007 $ (274,603) $ (35,012) $ (5,662,758)
============ ============ ============ ============ =========== ========== =========== ============
Profit (loss)
from
continuing
operations
per common
share - basic
and diluted....... (0.24) (0.23)5h
============ ============
Weighted
average
number of
common
shares
outstanding -
basic and
diluted........... 23,248,271 1,215,913 5e -- 24,464,184 5e
============ ============ ========== ============
</TABLE>
F-27
<PAGE> 32
eMERGE INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(1) OVERVIEW
The pro forma condensed combined financial statements are unaudited and
give effect to the acquisition of the rollover business of Eastern Livestock
Company, Inc. ("Eastern") on May 1, 2000, the acquisition of WP Land and
Livestock, Inc. d/b/a Jordan Cattle Auction Company ("Jordan") on June 1, 2000,
and the acquisition of real estate related to the Jordan business on June 1,
2000, by eMerge Interactive, Inc. (the "Company").
The Company's fiscal year ends on December 31, while Eastern's and
Jordan's fiscal years end on September 30. The unaudited pro forma condensed
combined statement of operations for the year ended December 31, 1999 includes
the year ended December 31, 1999 for the Company and the year ended September
30, 1999 for each Eastern and Jordan. The pro forma condensed combined statement
of operations for the three months ended March 31, 2000 includes the three
months ended March 31, 2000 for all companies.
The unaudited pro forma condensed combined financial statements are
based on the historical financial statements of the Company, Eastern and Jordan,
giving effect to the transactions under the purchase method of accounting and
the assumptions and adjustments discussed below. The Company has made
preliminary estimates of fair value for the net assets acquired from Eastern
and Jordan and has allocated the purchase price using these estimates. The
Company is presently obtaining an appraisal on certain assets acquired in these
transactions which may cause the final purchase price allocation to differ from
these estimates.
These unaudited pro forma financial statements may not be indicative of
the financial position or results of operations that actually would have
occurred if the combinations had been in effect on January 1, 1999 or 2000 or
which may be obtained in the future. The pro forma financial statements should
be read in conjunction with the audited financial statements of the Company,
contained in the Company's Form 10-K for the year ended December 31, 1999, and
Form 10-Q for the three months ended March 31, 2000, and the financial
statements of Eastern and Jordan contained elsewhere herein.
(2) ACQUISITION OF EASTERN
On May 1, 2000, the Company acquired substantially all of the tangible
and intangible assets of Eastern's rollover business. The purchase price for the
assets consisted of (i) $17,000,000 in cash, (ii) 1,215,913 shares of the
Company's Class A common stock valued at $14,500,000 (iii) a $4,500,000 cash
payment to be made one year after the closing date or earlier upon certain the
occurrence of certain events, (iv) $163,070 of transaction costs and (v) the
assumption of accrued vacation liability of $30,821.
(3) ACQUISITION OF JORDAN
On June 1, 2000, the Company acquired substantially all of the tangible
and intangible assets of Jordan and real estate related to the Jordan business
for a cash payment of $6,336,748, and transaction costs of $90,373.
F-28
<PAGE> 33
eMERGE INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(4) PRO FORMA ADJUSTMENTS AS OF MARCH 31, 2000
The unaudited pro forma condensed combined balance sheet combines the
balance sheets of the Company, Eastern, and Jordan. In combining the
companies, the pro forma adjustments reflect the following:
(a) Record payment of cash of $17,000,000 for Eastern.
(b) Remove assets not acquired.
(c) Record excess of purchase price over estimated fair value of
net assets acquired and non-compete agreement.
(d) Remove liabilities not assumed, record transaction costs and
assumption of vacation liability in accrued expense-other
($163,070 and $30,821, respectively) and record deferred
acquisition liability in due to related party ($4,500,000).
(e) Remove historical cost of Eastern common stock ($50,000) and
record par value of eMerge common stock issued ($9,727).
(f) Record additional paid in capital of eMerge common stock
issued ($14,490,273).
(g) Remove historical amount of Eastern accumulated deficit.
(h) Remove cash not acquired of $452,546, and record cash payment
of $6,336,748 for assets and real estate related to the Jordan
business.
(i) Remove assets not acquired.
(j) Record estimated fair value of Jordan real estate acquired.
(k) Record excess of purchase price over estimated fair value of
net assets acquired.
(l) Remove liabilities not assumed and record transaction costs in
accrued expense-other ($90,373).
(m) Remove historical cost of Jordan common stock.
(n) Remove historical cost of Jordan additional paid in capital.
(o) Remove historical amount of Jordan retained earnings.
F-29
<PAGE> 34
eMERGE INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(5) PRO FORMA ADJUSTMENTS FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE
THREE MONTHS ENDED MARCH 31, 2000
The unaudited pro forma condensed combined statements of operations for
the year ended December 31, 1999 and the three months ended March 31, 2000
combines the statements of operations of the Company, Eastern and Jordan. In
combining the companies, the pro forma adjustments reflect the following:
(a) Remove revenue and costs of revenue related to Eastern's
non-rollover business not acquired.
(b) Remove selling, general and administrative expenses related to
Eastern's non-rollover business not acquired ($2,082,766 in
1999 and $376,947 in 2000) and record amortization of
intangibles ($7,225,047 in 1999 and $1,806,262 in 2000) for
Eastern over the estimated useful lives of five years.
(c) Remove other income related to Eastern's non-rollover business
not acquired ($1,071,759 in 1999 and $107,187 in 2000) and
remove investment income associated with amounts paid at
closing for Eastern ($44,806 in 1999 and $118,104 in 2000)
and Jordan ($16,702 in 1999 and $44,023 in 2000).
(d) To eliminate interest expense related to Eastern's
non-rollover business not acquired.
(e) Record eMerge common stock issued.
(f) Remove lease expense related to real estate acquired ($114,000
in 1999 and $57,000 in 2000), record depreciation ($132,157 in
1999 and $33,039 in 2000) on depreciable real estate acquired
(estimated at $1,982,358) over the estimated useful lives of
fifteen years, and record amortization of goodwill for Jordan
($774,994 in 1999 and $193,749 in 2000) over the estimated
useful life of five years.
(g) Record tax effect of Jordan pro forma adjustments. Deferred
tax assets are fully offset by an equal valuation allowance.
(h) Pro forma combined profit (loss) per share giving effect to
the pro forma adjustments.
F-30
