Prepared by R.R. Donnelley Financial -- Form 10-Q
UNITED STATES
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, 2002. |
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 (State or other jurisdiction of
incorporation or
organization) |
|
65-0534535 (I.R.S. Employer Identification No.)
|
10305 102nd Terrace Sebastian, Florida 32958
(Address of
principal executive offices)
(772) 299-8000
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 May 7, 2002, was 39,972,924.
There were 34,278,478 shares of Class A common stock outstanding and 5,694,445 shares of Class B common outstanding as of this date.
FORM 10-Q QUARTERLY REPORT
(For Three Months Ended March 31, 2002)
TABLE OF CONTENTS
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Page
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| Part I |
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3 |
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| Item 1. |
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Financial Statements: |
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3 |
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5 |
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6 |
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8 |
| Item 2. |
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18 |
| Item 3. |
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26 |
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| Part II |
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OTHER INFORMATION |
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| Item 1. |
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27 |
| Item 2. |
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27 |
| Item 4. |
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27 |
| Item 6. |
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27 |
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
eMerge Interactive, Inc.
(Unaudited)
| |
|
March 31, 2002
|
|
December 31, 2001
|
| Assets |
|
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
| Cash and cash equivalents |
|
$ |
5,874,609 |
|
$ |
8,934,348 |
| Restricted cash (note 3) |
|
|
1,690,589 |
|
|
9,801,814 |
| Trade accounts receivable, less allowance for doubtful accounts of $376,770 in 2002 and $382,512 in 2001 (including receivables from
related parties of approximately $576,000 in 2002 and $735,000 in 2001) (note 5) |
|
|
20,645,484 |
|
|
12,775,126 |
| Inventories (note 4) |
|
|
8,457,330 |
|
|
6,873,315 |
| Cattle deposits |
|
|
3,709,619 |
|
|
2,082,567 |
| Prepaid expenses |
|
|
2,011,073 |
|
|
2,189,794 |
| Other current assets |
|
|
201,516 |
|
|
182,175 |
| Due from related parties (note 5) |
|
|
406,696 |
|
|
121,004 |
| |
|
|
|
|
|
|
| Total current assets |
|
|
42,996,916 |
|
|
42,960,143 |
| Property, plant and equipment, net of accumulated depreciation of $6,971,604 in 2002 and $5,409,117 in 2001 |
|
|
14,391,854 |
|
|
15,207,829 |
| Investment in Turnkey Computer Systems, Inc. |
|
|
2,718,810 |
|
|
2,716,424 |
| Intangibles, net of accumulated amortization of $6,309,028 in 2002 and 2001 (note 6) |
|
|
7,292,263 |
|
|
6,308,659 |
| Restricted cash |
|
|
1,505,000 |
|
|
1,505,000 |
| |
|
|
|
|
|
|
| Total assets |
|
$ |
68,904,843 |
|
$ |
68,698,055 |
| |
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
3
| Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
| Current liabilities: |
|
|
|
|
|
|
|
|
| Current installments of capital lease obligation |
|
$ |
324,471 |
|
|
$ |
366,542 |
|
| Lines of credit (note 7) |
|
|
16,280,436 |
|
|
|
9,658,062 |
|
| Accounts payable (including payables to related parties of approximately $395,000 in 2002 and $3,800,000 in 2001) (note
5) |
|
|
8,973,742 |
|
|
|
12,041,661 |
|
| Accrued liabilities: |
|
|
|
|
|
|
|
|
| Salaries and benefits |
|
|
779,851 |
|
|
|
1,336,415 |
|
| Other |
|
|
1,332,086 |
|
|
|
1,228,196 |
|
| Advance payments from customers |
|
|
1,105,380 |
|
|
|
392,566 |
|
| Due to related parties (note 5) |
|
|
– |
|
|
|
10,641 |
|
| |
|
|
|
|
|
|
|
|
| Total current liabilities |
|
|
28,795,966 |
|
|
|
25,034,083 |
|
| Capital lease obligation, excluding current installments |
|
|
465,719 |
|
|
|
537,054 |
|
| |
|
|
|
|
|
|
|
|
| Total liabilities |
|
|
29,261,685 |
|
|
|
25,571,137 |
|
| |
|
|
|
|
|
|
|
|
| Minority interest |
|
|
716,214 |
|
|
|
549,309 |
|
| |
|
|
|
|
|
|
|
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| Stockholders’ equity (notes 8 and 10) |
|
|
|
|
|
|
|
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| Common stock, $.008 par value, authorized 100,000,000 shares: |
|
|
|
|
|
|
|
|
| Class A common stock, designated 92,711,110 shares, issued and outstanding 34,278,478 shares in 2002 and 33,939,725 shares in
2001 |
|
|
274,227 |
|
|
|
271,517 |
|
| Class B common stock, designated 7,288,890 shares, 5,694,445 shares issued and outstanding in 2002 and 2001 |
|
|
45,556 |
|
|
|
45,556 |
|
| Additional paid-in capital |
|
|
200,729,243 |
|
|
|
200,231,953 |
|
| Accumulated deficit |
|
|
(162,083,486 |
) |
|
|
(157,928,313 |
) |
| Unearned compensation |
|
|
(38,596 |
) |
|
|
(43,104 |
) |
| |
|
|
|
|
|
|
|
|
| Total stockholders’ equity |
|
|
38,926,944 |
|
|
|
42,577,609 |
|
| |
|
|
|
|
|
|
|
|
| Total liabilities and stockholders’ equity |
|
$ |
68,904,843 |
|
|
$ |
68,698,055 |
|
| |
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
4
eMerge Interactive, Inc.
For the Three Months Ended March 31, 2002 and 2001
(Unaudited)
| |
|
Three Months Ended March 31,
|
|
| |
|
2002
|
|
|
2001
|
|
| Revenue (including sales to related parties of approximately $31,461,000 in 2002 and $100,052,000 in 2001) (note 5)
|
|
$ |
256,791,232 |
|
|
$ |
325,208,240 |
|
| |
| Cost of revenue (including purchases from related parties of approximately $20,371,000 in 2002 and $32,922,000 in 2001) (note
5) |
|
|
253,697,631 |
|
|
|
321,490,538 |
|
| |
|
|
|
|
|
|
|
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| Gross profit |
|
|
3,093,601 |
|
|
|
3,717,702 |
|
| |
|
|
|
|
|
|
|
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| Operating expenses: |
|
|
|
|
|
|
|
|
| Selling, general and administrative |
|
|
4,861,603 |
|
|
|
7,772,999 |
|
| Technology and development |
|
|
586,162 |
|
|
|
1,430,067 |
|
| Depreciation and amortization of intangibles |
|
|
1,136,440 |
|
|
|
4,784,942 |
|
| Impairment and related charges (note 11) |
|
|
291,872 |
|
|
|
–– |
|
| |
|
|
|
|
|
|
|
|
| Total operating expenses |
|
|
6,876,077 |
|
|
|
13,988,008 |
|
| |
|
|
|
|
|
|
|
|
| Operating loss |
|
|
(3,782,476 |
) |
|
|
(10,270,306 |
) |
| |
|
|
|
|
|
|
|
|
| Interest and other income, net |
|
|
193,408 |
|
|
|
323,612 |
|
| Interest expense |
|
|
(501,475 |
) |
|
|
(3,894 |
) |
| Loss on disposal of assets |
|
|
(111 |
) |
|
|
–– |
|
| Equity in operations of unconsolidated investee |
|
|
2,386 |
|
|
|
(38,263 |
) |
| Minority interest |
|
|
(66,905 |
) |
|
|
–– |
|
| |
|
|
|
|
|
|
|
|
| Loss before income taxes |
|
|
(4,155,173 |
) |
|
|
(9,988,851 |
) |
| Income tax expense (benefit) |
|
|
–– |
|
|
|
–– |
|
| |
|
|
|
|
|
|
|
|
| Loss from operations |
|
|
(4,155,173 |
) |
|
|
(9,988,851 |
) |
| |
|
|
|
|
|
|
|
|
| Cumulative effect of a change in accounting principle |
|
|
–– |
|
|
|
(232,688 |
) |
| |
|
|
|
|
|
|
|
|
| Net loss |
|
$ |
(4,155,173 |
) |
|
$ |
(10,221,539 |
) |
| |
|
|
|
|
|
|
|
|
| Loss from operations per common share – basic and diluted |
|
$ |
(0.10 |
) |
|
$ |
(0.28 |
) |
| |
|
|
|
|
|
|
|
|
| Net loss per common share – basic and diluted |
|
$ |
(0.10 |
) |
|
$ |
(0.29 |
) |
| |
|
|
|
|
|
|
|
|
| Weighted average number of common shares outstanding—basic and diluted |
|
|
39,709,449 |
|
|
|
35,428,501 |
|
| |
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
5
eMerge Interactive, Inc.
For the Three Months Ended March 31, 2002 and 2001
(Unaudited)
| |
|
2002
|
|
|
2001
|
|
| Cash flows from operating activities: |
|
|
|
|
|
|
|
|
| Net loss |
|
$ |
(4,155,173 |
) |
|
$ |
(10,221,539 |
) |
| Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
| Cumulative effect of change in accounting principle |
|
|
–– |
|
|
|
232,688 |
|
| Depreciation and amortization |
|
|
1,136,440 |
|
|
|
4,859,629 |
|
| Loss on disposal of assets |
|
|
111 |
|
|
|
–– |
|
| Noncash compensation |
|
|
–– |
|
|
|
75,518 |
|
| Amortization of unearned compensation |
|
|
4,508 |
|
|
|
12,146 |
|
| Impairment and related charges |
|
|
233,947 |
|
|
|
2,491,486 |
|
| Equity income in unconsolidated investee |
|
|
(2,386 |
) |
|
|
(29,880 |
) |
| Fair value of financial instruments |
|
|
(2,218 |
) |
|
|
(397,751 |
) |
| Minority interest |
|
|
66,905 |
|
|
|
–– |
|
| Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
| Trade accounts receivable, net |
|
|
(7,870,358 |
) |
|
|
(5,360,021 |
) |
| Inventories |
|
|
(1,584,015 |
) |
|
|
(4,670,606 |
) |
| Cattle deposits |
|
|
(1,627,052 |
) |
|
|
(2,030,847 |
) |
| Prepaid expenses and other assets |
|
|
161,598 |
|
|
|
182,453 |
|
| Due from/to related parties, net |
|
|
(296,333 |
) |
|
|
(836,545 |
) |
| Accounts payable and accrued liabilities |
|
|
(3,550,644 |
) |
|
|
(4,090,517 |
) |
| Advance payments from customers |
|
|
712,814 |
|
|
|
479,380 |
|
| |
|
|
|
|
|
|
|
|
| Net cash used in operating activities |
|
|
(16,771,407 |
) |
|
|
(21,795,892 |
) |
| |
|
|
|
|
|
|
|
|
| |
| Cash flows from investing activities: |
|
|
|
|
|
|
|
|
| Business combinations, net of cash acquired |
|
|
(687,500 |
) |
|
|
(7,048,720 |
) |
| Purchase of property, plant and equipment |
|
|
(327,075 |
) |
|
|
(3,814,014 |
) |
| Sale of property, plant and equipment |
|
|
6,499 |
|
|
|
–– |
|
| |
|
|
|
|
|
|
|
|
| Net cash used in investing activities |
|
|
(1,008,525 |
) |
|
|
(10,862,734 |
) |
| |
|
|
|
|
|
|
|
|
| |
| Cash flows from financing activities: |
|
|
|
|
|
|
|
|
| Payments on capital lease obligations |
|
|
(113,406 |
) |
|
|
(113,349 |
) |
| Net borrowings on line of credit |
|
|
6,622,374 |
|
|
|
–– |
|
| Proceeds from minority interest |
|
|
100,000 |
|
|
|
–– |
|
| Net proceeds from issuance of common stock |
|
|
–– |
|
|
|
241,471 |
|
| |
|
|
|
|
|
|
|
|
| Net cash provided by financing activities |
|
|
6,608,968 |
|
|
|
128,122 |
|
| |
|
|
|
|
|
|
|
|
| Net change in cash |
|
|
(11,170,964 |
) |
|
|
(32,530,504 |
) |
| Cash and cash equivalents, beginning of period |
|
|
18,736,162 |
|
|
|
42,811,572 |
|
| |
|
|
|
|
|
|
|
|
| Cash and cash equivalents, end of period |
|
$ |
7,565,198 |
|
|
$ |
10,281,068 |
|
| |
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
6
eMerge Interactive, Inc.
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2002 and 2001
(Unaudited)
| |
|
2002
|
|
2001
|
| Supplemental disclosures: |
|
|
|
|
|
|
| Cash paid for interest |
|
$ |
48,542 |
|
$ |
30,155 |
| Non-cash investing and financing activities: |
|
|
|
|
|
|
| Accrued liability for Class A common stock to be issued in connection with business combination |
|
|
30,051 |
|
|
— |
| Issuance of Class A common stock in connection with business combinations |
|
|
500,000 |
|
|
687,500 |
See accompanying notes
to condensed consolidated financial statements.
7
eMerge Interactive, Inc.
(Unaudited)
(1) Description of Business and Summary of Significant Accounting Policies
(a) Overview
eMerge Interactive, Inc. (the “Company”), a Delaware
corporation, is a technology and interactive cattle-marketing company serving the $40-billion U.S. beef production industry. The Company’s technologies focus primarily on information-management and individual-animal tracking tools, as well as
other technologies designed to enhance consumer confidence in beef safety. The Company’s cattle-marketing operation, the largest in the U.S., consists of interactive livestock-marketing and order-buying facilities, a nationwide network of 80
cattle representatives and an online auction and brokerage service.
During the fourth quarter of 2001, the Company finalized
lease and operating agreements with three of its largest order buying businesses. Beginning with the effective date of each agreement, the cattle brokerage operations formerly conducted in wholly owned subsidiaries are conducted in entities owned
solely by employees of the Company. The lease and operating agreements are generally for a one year term, renewable, and provide for the Company to receive 70% of the net profits or losses (as defined in the agreements) and have certain control over
operating activities while the lessee/operators are responsible for obtaining lines of credit for working capital purposes and are responsible for the day-to-day operations of the activities, including payroll and operating expenses.
The Company operates entirely within the cattle marketplace. However, the gross margins associated with cattle sales and the related
prospects for this portion of the Company’s business differ from the rest of the Company’s cattle-related product offerings. In addition, the activities conducted under the lease and operating agreements referred to above are evaluated and
managed separately from the owned facilities. Accordingly, the Company’s reportable segments consist of cattle sales, owned and leased, and other products and services.
(b) Basis of Presentation
The accompanying
unaudited Condensed Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The
Company has continued to follow the accounting policies set forth in the consolidated financial statements included in its fiscal 2001 Annual Report on Form 10-K filed with the Securities and Exchange Commission, except for the adoption of the
provisions of Statement of Financial Accounting Standards (“SFAS”) Nos. 142 and 144, “Goodwill and Other Intangible Assets” (see Note 6 of Notes to Condensed Consolidated Financial Statements) and “Accounting for the
Impairment or Disposal of Long-Lives Assets,” respectively. In the opinion of management, the interim financial information provided herein reflects all adjustments (consisting of normal and recurring adjustments) necessary for a fair
presentation of the Company’s consolidated financial position as of March 31, 2002, and the results of operations and cash flows for the three-month periods ending March 31, 2002 and 2001. The results of operations for the three months ended
March 31, 2002 are not necessarily indicative of the results to be expected for the full year.
These condensed consolidated
financial statements and footnotes should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2001, included in the Company’s Annual Report on Form 10-K as filed with the Securities and
Exchange Commission.
8
(c) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, as well as the activities conducted under
the lease and operating agreements referred to above. The Company believes that consolidation of these activities, notwithstanding lack of technical majority ownership, is necessary to present fairly the financial position and results of operations
of the Company because of the existence of a parent-subsidiary relationship by means of the lessee/operator remaining an employee of the Company, the Company’s majority share of the profits or losses derived from the activities, certain Company
control terms of the lease and operating agreements and the relatively short-term nature of the agreements which are terminable by either party. Minority interest reflects the lessee/operators’ interest in the activities conducted under the
lease and operating agreements. All significant intercompany balances and transactions have been eliminated in consolidation.
The Company’s investment in Turnkey Computer Systems, Inc. (“Turnkey”), a private corporation, is accounted for by the equity method. Accordingly, the Company’s share of Turnkey’s earnings or losses is reflected in
the caption “equity in operations of unconsolidated investee” in the consolidated statements of operations. The Company’s carrying value of Turnkey includes the unamortized excess of the cost of the Company’s interest in Turnkey
over its equity in the underlying net assets determined at the dates of acquisition. This excess has been amortized on a straight-line basis over 10 years and the related amortization is included in “equity in operations of unconsolidated
investee” in the consolidated statements of operations through December 31, 2001. Upon adoption of SFAS No. 142, the Company ceased amortization of the goodwill and will continue to review for impairment in accordance with APB Opinion No.
18. The Company would recognize a loss when there is a loss in value of the investment that is other than a temporary decline.
(d) Revenue Recognition
The Company generates substantially all of its revenue from cattle sales
transactions where it acts as either a principal or agent in the purchase and sale of cattle. For cattle sales transactions where the Company is the principal in the arrangement, the Company purchases cattle from the seller, records the cattle as
inventory until delivered to an accepted buyer and is exposed to both the inventory and credit risk that results from the transaction. In these types of transactions, the Company records the gross revenue earned and related product costs incurred.
For cattle sales transactions in which the Company acts as an agent, the Company sells cattle consigned to it on a commission basis, where it is not subject to inventory and credit risk, or the Company sells cattle on a fee basis and records the net
revenue earned. For all other products and services offered by the Company, the Company acts as a principal to the transaction and gross revenue and related product cost are recognized as products are shipped or services are provided.
(e) Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This Statement
requires that long-lived assets be reviewed for impairment annually or 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 the future net cash flows expected to be generated by the asset.
9
If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the
asset exceeds the fair value of the asset. SFAS No. 144 requires companies to separately report discontinued operations and extends that reporting to a component of an entity that either has been disposed of (buy sale, abandonment or in a
distribution to owners) or is classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
(f) Recent Accounting Pronouncements
In June
2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. SFAS No. 143 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal
obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The Company also records a corresponding asset, which is depreciated over the life
of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the
obligation. The Company is required to adopt SFAS No. 143 on January 1, 2003. The Company does not currently have obligations subject to SFAS No. 143 and, therefore, does not currently expect adoption to have an impact on the financial statements.
(g) Reclassifications
Certain reclassifications have been made to the 2001 condensed consolidated financial statements in order to conform to 2002 classifications. The changes had no effect on previously
reported operations.
(2) Liquidity
The Company has incurred losses and negative cash flows from operations in every year since inception and has an accumulated deficit of $162.1 million as of March 31, 2002. For the three
months ended March 31, 2002, the Company incurred a net loss of approximately $4.2 million and negative cash flows from operations of $16.8 million. Management expects operating losses and negative cash flows to continue throughout 2002. However,
during the fourth quarter of 2001, the Company finalized lease and operating agreements with three of its largest order buying businesses. The lease and operating agreements require the lessee/operator to obtain a line of credit for working capital
purposes, which has reduced the Company’s need for financing relative to activities of the lease and operating agreement activities. The Company expects that cash flows generated from all operating activities and borrowing available to the
Company and lessee/operators will meet its anticipated cash requirements during 2002. In addition, the Company plans to increase its revenue related to non-cattle sales and actively control operating costs for the foreseeable future.
(3) Restricted Cash
Current restricted cash is cash held by lessee/operator entities and is related to the lease and operating agreement activities. Accordingly, this cash may only be used to satisfy the cash flow requirements of these activities and is not
available to the Company for other uses.
Non-current restricted cash consists of cash invested in certificates of deposit with
maturities of 180 days or less. These certificates of deposit are necessary to support the Company’s bond requirement with the U.S. Department of Agriculture Grain Inspection, Packers and Stockyards Administration to buy and sell cattle in the
U.S. public market.
10
(4) Inventories
Inventories consist of:
| |
|
2002
|
|
2001
|
| Cattle |
|
$ |
8,164,020 |
|
$ |
6,561,476 |
| Other |
|
|
293,310 |
|
|
311,839 |
| |
|
|
|
|
|
|
| |
|
$ |
8,457,330 |
|
$ |
6,873,315 |
| |
|
|
|
|
|
|
(5) Related Party Transactions
As of March 31, 2002 and December 31, 2001, amounts due from related parties were $406,696 and $121,004, respectively. These balances are due from
employees and shareholders’ related businesses. Included in the balance as of March 31, 2002 are two unsecured notes receivable from two officers of the Company. One note in the amount of $75,000 was originated in December 2001 and the second
note in the amount of $160,000 was originated in January 2002. Both notes bear interest at the prime rate currently available under the Company’s existing revolving line of credit and mature in December 2002 and January 2003, respectively.
As of March 31, 2002 and December 31, 2001, amounts due to related parties were $0 and $10,641, respectively.
The Company has both cattle sales and purchase transactions with Eastern Livestock, LLC., certain employees and shareholders’ related
businesses in the ordinary course of business. These sales and purchases are made on trade accounts with the same credit terms of the Company’s other customers and suppliers. Cattle sales to related parties amounted to $31.5 million and $100.1
million for the three months ended March 31, 2002 and 2001, respectively. Related accounts receivable amounted to $576,000 as of March 31, 2002 and $735,000 as of December 31, 2001. Cattle purchases from related parties amounted to $20.4 million and
$32.9 million for the three months ended March 31, 2002 and 2001, respectively. Related accounts payable amounted to $395,000 as of March 31, 2002 and $3.8 million as of December 31, 2001.
(6) Intangibles
On January 1, 2002, we adopted
Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). SFAS 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Under SFAS 142, goodwill will
be tested annually and whenever events or circumstances occur indicating that goodwill might be impaired. As a result of this adoption, the Company ceased to amortize approximately $7.3 million of goodwill. The Company recorded approximately $3.5
million of amortization on these amounts during the quarter ended March 31, 2001 and would have recorded approximately $503,000 of amortization during the quarter ended March 31, 2002. In lieu of amortization, the Company performed an initial
impairment review of goodwill as of January 1, 2002. Based upon the initial step of this review and as a result of the SFAS No. 121 impairment charges recorded during the year ended December 31, 2001, the Company determined there was no
material impairment charge relating to goodwill. The future annual impairment tests will be performed in the fourth quarter of each year.
Net loss was $4.2 million ($0.10 per share) for the quarter ended March 31, 2002 and $10.2 million ($0.29 share) for the quarter ended March 31, 2001. The net loss for the quarter ended March 31, 2001 would have
been $6.7 million ($0.19 per share) if SFAS No. 142 had been effective January 1, 2001.
(7) Lines of Credit
In August 2001, the Company entered into a $30 million revolving line of credit agreement (the “LOC”) from The CIT Group/Business
Credit, Inc. (“CIT”). The LOC is secured primarily by receivables, inventories and $9.0 million of irrevocable letters of credit, and bears interest at the Company’s option of Prime or LIBOR plus 300 basis points, payable monthly. The
LOC may be utilized for working capital purposes and matures in 24 months. The loan agreement includes various loan covenants and restrictions of a customary nature, which may, under certain circumstances, limit our ability to
11
undertake additional acquisitions, make certain changes in management, or otherwise limit obligations undertaken by, or operations of, the Company. One of the
loan covenants requires the Company achieve quarterly EBITDA of a loss no greater than $1.5 million. The Company did not comply with this covenant for the quarters ended September 30, 2001, December 31, 2001 or March 31, 2002 as it had an EBITDA
loss of $3.1 million, $4.6 million and $2.6 million, respectively. In addition, the Company is in violation of the loan covenant prohibiting the making of loans. As of March 31, 2002, the Company had a note receivable (eliminated in consolidation)
of $3.2 million from one of the lessees/operators in compliance with the terms of the lease and operating agreement. As of March 31, 2002, there were no borrowings outstanding under this arrangement with CIT. The Company has continued to make
additional borrowings under this facility and to date has not been required to obtain a waiver in order to access this facility. There are no assurances that these borrowings will be able to continue, or that, if requested, a waiver can be obtained.
The lease and operating agreements provide for the lessee/operators to obtain lines of credit to fund working capital
requirements of the lease and operating activities. These lines of credit are nonrecourse to the Company. Each of the lessee/operators have lines of credit that provide for advances generally up to 85% of eligible receivables and 85% of eligible
inventories. The lines of credit are collateralized by the related receivables and inventories owned by the lessee/operators. The total amount outstanding under all lines of credit was $16,280,436 as of March 31, 2002 and $9,658,062 as of December
31, 2001. The weighted average interest rate was 4.55% as of March 31, 2002. The lessee/operators are in compliance with all material covenants.
(8) Stock Purchase Warrants
In connection with the LOC agreement, the Company entered
into a warrant purchase agreement with certain stockholders who are providing, in the aggregate, $9 million in standby letters of credit on the Company’s behalf as additional collateral for the LOC. As part of this agreement, the Company issued
764,328 stock purchase warrants to these stockholders as consideration for providing and maintaining the letters of credit. The warrants are exercisable at $1.55 per share and expire on August 24, 2004. The warrants were valued using the
Black-Scholes model with the following assumptions: expected term – 3 years, risk free interest rate – 4.25% and volatility – 135.0%. These assumptions yielded a value of $914,376, which was charged to debt issue costs and is being
amortized on a straight line basis to interest expense over the two year term of the LOC.
In addition to the warrants issued
with the closing of the LOC agreement, these certain stockholders are eligible to receive additional stock purchase warrants under the following schedule: February 28, 2002 – 764,328 shares; August 31, 2002 – 764,328 shares; February 28,
2003 – 764,328 shares, if the letters of credit remain in place as of these dates. The number of shares into which these additional warrants may be exercised will be reduced on a pro rata basis in conjunction with a reduction in the amount
covered by the standby letters of credit. Additional warrants of 764,328 shares of eMerge common stock could be issued if the lender draws upon the letters of credit. In addition to the stock purchase warrants, the Company is required to reimburse
each of these certain stockholders for their expenses associated with the letters of credit plus 1%.
The maximum term of the
warrant purchase agreement is not to exceed 24 months and ends simultaneously with the loan agreement. In the event the letters of credit are drawn upon by the lender and the drawn principal amount remains unpaid by the Company for 30 days, the
stockholders will have the right to convert the outstanding amounts under the letters of credit into shares of common stock up until the principal amount is repaid. However, the maximum amount of common shares issuable in connection with the
agreement is 3,821,640. Common shares that would otherwise be issuable but for this restriction, will require approval by a majority of our stockholders.
On February 27, 2002, the Company reached an agreement with the providers of the irrevocable letters of credit, which enhance the collateral for the CIT LOC. Under the original agreement these certain stockholders
were eligible to receive additional warrants on February 28, 2002, if the letters of credit were still outstanding. Due to the Company’s reduced reliance on the LOC following the implementation of the lease and operating agreements (See Note
1(c)), the warrant issuance date was extended to March 31, 2002, pending further discussions with CIT regarding the release of these letters of credit. On March 29, 2002, the
12
Company reached a second agreement with the providers of the irrevocable letters of credit, whereby the warrant issuance date was been extended to April 30,
2002, pending further discussions with CIT regarding the release of these letters of credit. See Note 12.
(9) Segment
Information
For the three months ended March 31, 2002, the Company has three reportable segments consisting of cattle
sales, owned and leased, and other products and services. The owned cattle sales and other products and services segments are managed separately because each offers different products and expected contribution margins. The leased facilities products
and markets are similar to the owned cattle sales segment, but they are evaluated and managed separately from the owned cattle operations.
The following tables present certain financial information by operating segments:
| |
|
Three Months Ended March 31, 2002
|
|
| |
|
Owned Operations
|
|
|
Leased Operations
|
|
|
Eliminations
|
|
|
Consolidated Operations
|
|
| Cattle revenue |
|
$ |
60,688,958 |
|
|
$ |
195,672,563 |
|
|
$ |
— |
|
|
$ |
256,361,521 |
|
| Other revenue |
|
|
429,711 |
|
|
|
— |
|
|
|
— |
|
|
|
429,711 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total revenue |
|
|
61,118,669 |
|
|
|
195,672,563 |
|
|
|
— |
|
|
|
256,791,232 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of cattle revenue |
|
|
59,152,700 |
|
|
|
194,277,263 |
|
|
|
— |
|
|
|
253,429,963 |
|
| Cost of other revenue |
|
|
267,668 |
|
|
|
— |
|
|
|
— |
|
|
|
267,668 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total cost of revenue |
|
|
59,420,368 |
|
|
|
194,277,263 |
|
|
|
— |
|
|
|
253,697,631 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cattle gross profit |
|
|
1,536,258 |
|
|
|
1,395,300 |
|
|
|
— |
|
|
|
2,931,558 |
|
| Other gross profit |
|
|
162,043 |
|
|
|
— |
|
|
|
— |
|
|
|
162,043 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross profit |
|
|
1,698,301 |
|
|
|
1,395,300 |
|
|
|
— |
|
|
|
3,093,601 |
|
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Selling, general and administrative |
|
|
3,790,060 |
|
|
|
1,071,543 |
|
|
|
— |
|
|
|
4,861,603 |
|
| Technology and development |
|
|
586,162 |
|
|
|
— |
|
|
|
— |
|
|
|
586,162 |
|
| Depreciation |
|
|
951,038 |
|
|
|
— |
|
|
|
— |
|
|
|
951,038 |
|
| Depreciation of leased assets |
|
|
185,402 |
|
|
|
— |
|
|
|
— |
|
|
|
185,402 |
|
| Impairment and related charges |
|
|
291,872 |
|
|
|
— |
|
|
|
— |
|
|
|
291,872 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating income (loss) |
|
|
(4,106,233 |
) |
|
|
323,757 |
|
|
|
— |
|
|
|
(3,782,476 |
) |
| Interest and other income, net |
|
|
101,267 |
|
|
|
92,141 |
|
|
|
— |
|
|
|
193,408 |
|
| Interest expense |
|
|
(308,592 |
) |
|
|
(192,883 |
) |
|
|
— |
|
|
|
(501,475 |
) |
| Loss on disposal of assets |
|
|
(111 |
) |
|
|
— |
|
|
|
— |
|
|
|
(111 |
) |
| Equity in operations of unconsolidated investee |
|
|
2,386 |
|
|
|
— |
|
|
|
— |
|
|
|
2,386 |
|
| Minority interest |
|
|
— |
|
|
|
— |
|
|
|
(66,905 |
) |
|
|
(66,905 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income (loss) |
|
$ |
(4,311,283 |
) |
|
$ |
223,015 |
|
|
$ |
(66,905 |
) |
|
$ |
(4,155,173 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
| |
|
As of March 31, 2002
|
| |
|
Owned Operations
|
|
Leased Operations
|
|
Eliminations
|
|
|
Consolidated Operations
|
| Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
$ |
5,874,609 |
|
$ |
— |
|
$ |
— |
|
|
$ |
5,874,609 |
| Restricted cash |
|
|
— |
|
|
1,690,589 |
|
|
— |
|
|
|
1,690,589 |
| Trade accounts receivable |
|
|
5,495,204 |
|
|
18,605,317 |
|
|
(3,455,037 |
) |
|
|
20,645,484 |
| Inventories |
|
|
1,187,014 |
|
|
7,270,316 |
|
|
— |
|
|
|
8,457,330 |
| Other current assets |
|
|
5,108,985 |
|
|
1,219,919 |
|
|
— |
|
|
|
6,328,904 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total current assets |
|
|
17,665,812 |
|
|
28,786,141 |
|
|
(3,455,037 |
) |
|
|
42,996,916 |
| Property and equipment, net |
|
|
13,868,770 |
|
|
— |
|
|
— |
|
|
|
13,868,770 |
| Leased property and equipment, net |
|
|
523,084 |
|
|
— |
|
|
— |
|
|
|
523,084 |
| Other assets |
|
|
8,336,276 |
|
|
604,738 |
|
|
(604,738 |
) |
|
|
8,336,276 |
| Leased other assets |
|
|
3,179,797 |
|
|
— |
|
|
— |
|
|
|
3,179,797 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total assets |
|
$ |
43,573,739 |
|
$ |
29,390,879 |
|
$ |
(4,059,775 |
) |
|
$ |
68,904,843 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Lines of credit |
|
$ |
— |
|
$ |
19,480,436 |
|
$ |
(3,200,000 |
) |
|
$ |
16,280,436 |
| Accounts payable |
|
|
2,657,964 |
|
|
6,315,778 |
|
|
— |
|
|
|
8,973,742 |
| Other current liabilities |
|
|
1,997,597 |
|
|
1,544,191 |
|
|
— |
|
|
|
3,541,788 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total current liabilities |
|
|
4,655,561 |
|
|
27,340,405 |
|
|
(3,200,000 |
) |
|
|
28,795,966 |
| Capital lease obligation, excluding current installments |
|
|
465,719 |
|
|
— |
|
|
— |
|
|
|
465,719 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total liabilities |
|
|
5,121,280 |
|
|
27,340,405 |
|
|
(3,200,000 |
) |
|
|
29,261,685 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Minority interest |
|
|
— |
|
|
1,372,638 |
|
|
(656,424 |
) |
|
|
716,214 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stockholders’ equity |
|
|
38,452,459 |
|
|
677,836 |
|
|
(203,351 |
) |
|
|
38,926,944 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total liabilities and stockholders’ equity |
|
$ |
43,573,739 |
|
$ |
29,390,879 |
|
$ |
(4,059,775 |
) |
|
$ |
68,904,843 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
14
For the three months ended March 31, 2001, the Company had no leased operations and the
reportable segments consisted only of cattle sales and other products and services. The following summarizes revenue, cost of revenue and gross profit (loss) information related to these two segments for the three months ended March 31, 2001:
| Revenue: |
|
|
|
|
| Cattle |
|
$ |
324,528,919 |
|
| Other |
|
|
679,321 |
|
| |
|
|
|
|
| Total |
|
$ |
325,208,240 |
|
| |
|
|
|
|
| Cost of revenue |
|
|
|
|
| Cattle |
|
$ |
320,543,421 |
|
| Other |
|
|
947,117 |
|
| |
|
|
|
|
| Total |
|
$ |
321,490,538 |
|
| |
|
|
|
|
| Gross profit (loss): |
|
|
|
|
| Cattle |
|
$ |
3,958,498 |
|
| Other |
|
|
(267,796 |
) |
| |
|
|
|
|
| Total |
|
$ |
3,717,702 |
|
| |
|
|
|
|
The Company’s assets and other statement of operations data for this period
was allocated to the owned operations segment.
(10) Stock Plan
A summary of stock option transactions for the three months ended March 31, 2002, follows:
| |
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life (in years)
|
| Balance outstanding, December 31, 2001 |
|
4,748,140 |
|
|
$ |
3.69 |
|
8.56 |
| |
|
|
|
|
|
|
|
|
| Granted |
|
156,875 |
|
|
|
1.09 |
|
|
| Exercised |
|
— |
|
|
|
— |
|
|
| Cancelled |
|
(200,877 |
) |
|
|
6.29 |
|
|
| |
|
|
|
|
|
|
|
|
| Balance outstanding March 31, 2002 |
|
4,704,138 |
|
|
$ |
3.54 |
|
8.35 |
| |
|
|
|
|
|
|
|
|
For the three months ended March 31, 2002 and 2001, the Company recognized $0 and
$87,664, respectively, of unearned compensation expense resulting from the accelerated vesting of stock options. These amounts are included in selling, general and administrative expenses, respectively, within the condensed consolidated statements
of operations.
15
(11) Impairment, Restructuring and Related Charges
From May 2000 through January 2, 2001, we made twelve acquisitions consisting of cattle order buying or livestock marketing facilities, for
approximately $72.5 million. Approximately 89.4% of the purchase price was allocated to intangible assets, primarily goodwill. In September 2001, the Company determined that it needs to continue its focus on opportunities that have significant,
sustainable revenues with meaningful gross margins. The Company also determined that this focus is not best served by owning and operating these businesses. Accordingly, the Company entered into lease and operating agreements for three of its cattle
brokerage operations with several key individuals that currently manage these businesses. The expected net effect of these transactions to ongoing operating cash flow, before interest, taxes, depreciation and amortization, is neutral.
In connection with these transactions and pursuant to SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of,” the Company evaluated the recoverability of the long-lived assets, including intangibles of its cattle order buying and livestock marketing businesses. Since the acquisition of these businesses the cattle
industry has experienced difficulties due to an extended drought in the southern plains and the southeast which led to a decrease in the availability of feeder cattle for sale, which led to a significantly reduced number of head sold in each quarter
of 2001. As a result of this evaluation, the Company determined that many of these acquired facilities estimated future undiscounted cash flows were below the carrying value of the associated long-lived assets. Accordingly, in the third quarter of
2001 (and updated in the fourth quarter of 2001), the Company reviewed these assets and their related cash flows and adjusted the carrying value of the acquired facilities long-lived assets, primarily intangible assets to their estimated fair value
of approximately $6.3 million, resulting in a noncash impairment loss of approximately $42.5 million. The estimated fair value was based on anticipated future cash flows discounted at a rate of 10%. Anticipated cash flows were estimated based on
actual operating results during 2001, projected over the remaining period of the non-compete agreements associated with the key employees related to the businesses.
In an effort to reset the Company’s cost structure to the current business level, and focus on those products and services that have the most potential to add to its gross margin
and help achieve its near-term profitability goals, the Company announced plans on May 15, 2001, approved by the Company’s Board of Directors’, to reduce its workforce by approximately 60 personnel and write-down to fair value the value of
non-strategic assets. Pursuant to these plans, the Company recorded restructuring and related charges of approximately $14.2 million in the second quarter of 2001. The charge included approximately $12.4 million for asset write-downs, primarily
associated with discontinued product lines and a facility closing, an accrual for involuntary employee termination benefits and contract termination fees of $1.6 million and stock compensation charges of $226,000 associated with the accelerated
vesting of stock options for certain terminated employees. During the remainder of 2001, an additional workforce reduction was determined necessary to carry out the Company’s restructuring plan and the Company further reduced its workforce by
approximately 15 personnel. Based on final cost determinations for additional involuntary employee termination benefits, contract termination fees and costs to exit unused facilities, additional restructuring charges of approximately $597,000 were
recorded in September and December of 2001.
16
A summary of activity in the restructuring liability (included in accrued salaries and benefits
in the accompanying condensed consolidated balance sheets) for the year ended December 31, 2001 and the three months ended March 31, 2002, follows:
| Balance at December 31, 2000 |
|
$ |
— |
|
| |
| New charges |
|
|
2,216,000 |
|
| Cash payments |
|
|
(1,764,000 |
) |
| |
|
|
|
|
| |
| Balance at December 31, 2001 |
|
$ |
452,000 |
|
| |
|
|
|
|
| |
| New charges |
|
|
58,000 |
|
| Cash payments |
|
|
(255,000 |
) |
| |
|
|
|
|
| |
| Balance at March 31, 2002 |
|
$ |
255,000 |
|
| |
|
|
|
|
In March 2002, the Company determined that McMahan Order Buying Company and
Hefley Order Buying Company, which were purchased in August 2000 and November 2000, respectively, were not performing as expected and decided the best course of action was to terminate these facilities and sever the associated employees. With the
termination of these facilities, the Company recorded impairment of the goodwill in the amount of $234,000.
(12) Subsequent
Events
The Company has completed discussions with CIT and as of May 1, 2002, has terminated the LOC and have agreed to pay
a termination fee of $425,000. In addition, the $9.0 million in irrevocable letters of credit have been released by CIT as of May 1, 2002 and the unissued stock purchase warrants discussed in Note 8 will not be issued. As a result of the
termination, the Company will record a charge of $1.8 million in the second quarter of 2002, related to the write off of unamortized financing costs and the termination fee.
The unsecured note receivable in the amount of $160,000 from an officer of the Company, which originated in January 2002, was paid in full on May 1, 2002.
17
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read together with the condensed consolidated financial statements and the related notes included elsewhere in this report.
Company Overview
We are
a technology and interactive cattle-marketing company serving the $40-billion U.S. beef production industry. Our technologies focus primarily on information-management and individual-animal tracking tools, as well as other food-safety technologies
designed to enhance consumer confidence in beef safety. Our cattle-marketing operation, the largest in the U.S., consists of livestock-marketing and order-buying facilities, a nationwide network of 80 cattle representatives and an online auction and
brokerage service.
Our goal is to develop broad industry adoption of our information management system, subsequently
establishing it as the standard for individual-animal tracking and procurement in order to facilitate the safe, timely flow of source- and process-verified cattle and beef products within the beef-production supply chain. We believe that by
accomplishing our goal, we can improve the industry’s productivity and profitability and help its participants enhance beef quality, safety and market share. Thus, our mission is to assist in the delivery of a large, brandable supply of beef
that 1) differentiates the beef products, 2) opens new markets for beef and 3) creates new value for the industry and consumers.
We offer our products and services to cattle industry participants through our proprietary information management applications, our direct sales force and our web-based business network. Our current and planned products and services
include:
| |
• |
|
CattleLog™, our individual-animal
data-collection and reporting system. Using the eMerge network as its backbone, CattleLog allows owners to electronically document the histories of individual animals from conception through harvest—and therefore to sell them based on detailed
specifications, in order to earn higher than market per-pound averages. It also allows buyers to capitalize on the predictable performance needed for efficient feeding and for producing beef products of consistent quality.
|
| |
• |
|
Our Cattle Marketing and Procurement services. These services include the largest real-time Internet Auction and Brokerage Service, some of the nation’s largest and most
progressive livestock markets, a leading video auction service, and a network of more than 80 professional cattle order buyers, providing eMerge customers the marketing options they need anywhere in the United States.
|
| |
• |
|
VerifEYE™, our development stage meat
inspection system that is based on technology developed and patented by scientists at Iowa State University and the Agricultural Research Service of the USDA for which we hold exclusive rights to its commercialization. While we are currently
determining the final specifications for commercialization, this technology promises to help meat processors detect contamination and verify extensive safeguards already in place to minimize the possibility of outbreaks of such bacterial infections
as E. coli 0157:H7. We have not yet begun to commercialize this technology and cannot be sure that we will be able to create an economically viable product from this technology. |
Our business strategy is to utilize our $20 million technology infrastructure investment to drive industry adoption of our technologies and solutions to
provide branded value-added alternatives. Our livestock marketing facilities, Internet auction and supply chain management services are integral components of this strategy as they provide a means to introduce our tracking technologies.
Additionally, we will pursue expanding our relationships with those entities in the beef industry that have been the innovators and early adapters of technologies that enable individual animal management and the systems that provide source and
process verification.
18
Results of Operations
Three months ended March 31, 2002 and March 31, 2001
Revenue
Revenue decreased to $256.8 million for the quarter ended March 31, 2002 from $325.2 million for the quarter ended March 31, 2001. Revenue from cattle sales decreased to $256.4 million
for the quarter ended March 31, 2002 from $324.5 million for the quarter ended March 31, 2001. This decrease reflects a lower volume of cattle sales transactions brought about primarily by a decrease in feeder cattle available for sale. During the
quarter ended March 31, 2002, we sold approximately 592,000 head of cattle, of which, 337,000 head are attributable to the leased operations, versus 659,000 head sold in the comparable prior year period. Revenue from other products and services
decreased by 37% to $430,000 for the quarter ended March 31, 2002 from $679,000 for the quarter ended March 31, 2001. This decrease is due primarily to discontinuation of a pre-conditioning program in the second quarter of 2001, which contributed
revenues of approximately $300,000 in the three months ended March 31, 2001. We expect that cattle revenue, whether direct or through the lease and operating agreements, will continue to account for the majority of our revenue base for the
foreseeable future, while revenue from other products and services are expected to remain flat.
Cost of Revenue
Cost of revenue consists primarily of the direct cost to acquire cattle and cattle-related products. In addition, cost of revenue also includes the
indirect overhead costs, such as support personnel, facilities costs, telecommunication charges and material purchases that are primarily associated with supporting our information management and individual-animal tracking products and services.
Cost of revenue attributed to cattle sales decreased to $253.4 million for the quarter ended March 31, 2002 from $320.5 million for the quarter ended March 31, 2001, corresponding with the decreased cattle sales activity. Cost of revenue attributed
to other products and services decreased by 72% to $268,000 for the quarter ended March 31, 2002 from $947,000 for the quarter ended March 31, 2001. This decrease is due principally to the discontinuation of a pre-conditioning program in the second
quarter of 2001, which contributed costs of approximately $400,000 in the three months ended March 31, 2001. In addition, we incurred lower production costs due to the discontinuation of support for certain on-line product and service offerings,
such as Interactive manager and our on-line storefront. We generated a gross profit of $3.1 million and $3.7 million for the quarters ended March 31, 2002 and 2001, respectively. The decrease in gross profit is due primarily to the decrease in
cattle revenue and a comparable decrease in cost of goods, principally direct cost to acquire cattle. We expect that cost of revenue, in particular the direct costs to acquire cattle, will continue to account for the majority of our total costs of
revenue for the foreseeable future and will fluctuate proportionately with the changes in volume of cattle sales.
Selling, General and Administrative
Expenses
Selling, general and administrative expenses decreased 37% to $4.9 million for the quarter ended March 31, 2002
from $7.8 million for the quarter ended March 31, 2001.
Our selling expenses consist primarily of sales and marketing
personnel, material and supply purchases, telephone, travel, consulting and advertising and media expenses. Selling expenses decreased by 54% to $2.5 million for the quarter ended March 31, 2002 from $5.4 million for the quarter ended March 31,
2001. The decrease in selling expenses was primarily associated with the impacts of cost saving initiatives begun during the second quarter of 2001, which included workforce reductions. We anticipate selling expenses to continue to decline slightly
in the foreseeable future as the impacts of these cost saving initiatives become fully realized.
Our general and administrative
expenses consist primarily of salaries and related benefit costs for executive, administrative, and finance personnel, insurance program charges, public company expenses, telephone, travel costs and professional service fees. General and
administrative expenses were $2.4 million for both the quarter ended March 31, 2002 and the quarter ended March 31, 2001.
19
Technology and Development
Our technology and development expenses consist primarily of salaries and related benefit costs, payments to outside consultants, maintenance charges and project material costs. Our
expenses decreased by 59% to $586,000 for the quarter ended March 31, 2002 from $1.4 million for the quarter ended March 31, 2001. The decrease was primarily associated with the impacts of cost saving initiatives begun during the second quarter of
2001, which included workforce reductions. In addition, approximately $201,000 of restructuring and related charges were incurred in the three months ended March 31, 2001 and included in technology and development expenses. These charges, primarily
related to employee severance and related benefit costs, were associated with a realignment of our corporate operations in connection with our decision to discontimue support of Nutricharge and infrared imaging products. Furthermore, the Company has
fewer products under development and products such as CattleLog, our exclusive individual-animal data collection and reporting system, is essentially complete. The primary focus of our development team is our meat inspection system, VerifEYE. We
expect to continue to incur costs to develop and commercialize new products, expand our offerings and adapt our technologies to new markets. However, we anticipate that our technology and development expenses will continue to decline in 2002.
Impairment and Related Charges
In March 2002, we determined that McMahan Order Buying Company and Hefley Order Buying Company, which we had purchased in August 2000 and November 2000, respectively, were not performing as expected and decided the best course of action was
to terminate these facilities and sever the associated employees. With the termination of these facilities, we recorded impairment of the associated goodwill in the amount of $234,000. The remaining $58,000 consists of costs to exit a lease.
Depreciation and Amortization
Depreciation and amortization expense decreased 77% to $1.1 million for the quarter ended March 31, 2002 from $4.8 million for the quarter ended March 31, 2001. The decrease is primarily due to the adoption of SFAS 142, which changes
the accounting for goodwill from an amortization method to an impairment-only approach. Amortization charges of $3.5 million are included in the three months ended March 31, 2001 compared to $0 in the three months ended March 31, 2002. If we had not
adopted SFAS 142 we would have recorded $503,000 in amortization expense for the current quarter. The decrease between actual amortization for the period ended March 31, 2001 and the expense that would have been recorded for the period ended March
31, 2002 without SFAS 142 is due to the impairment of intangibles recorded during 2001.
Other Income and Expense
Interest and other income, net decreased to $193,000 for the quarter ended March 31, 2002 from $324,000 for the quarter ended March 31, 2001. This
decrease was primarily due to a reduction in interest income generated by short-term investments. Currently, we invest the majority of our cash balances in debt instruments of high-quality corporate issuers. As of March 31, 2002, we had short term
investments of approximately $102,000 whereas as of March 31, 2001 the short term investment balance was approximately $3.7 million.
Interest expense increased to $501,000 for the quarter ended March 31, 2002 from $4,000 for the quarter ended March 31, 2001. This increase is due primarily to interest expense incurred on the balance outstanding on our lines of credit. The
owned line of credit was entered into on August 27, 2001 and the leased operations each entered into lines of credit in the fourth quarter of 2001.
On January 1, 2001, we adopted the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended, and recorded a charge to operations of $232,688, which is included
as a cumulative effect of a change in accounting principle in the condensed consolidated financial statements.
20
Due to the losses incurred, we did not recognize income tax expense for the quarter ended March
31, 2002 or the quarter ended March 31, 2001.
Liquidity and Capital Resources
As of March 31, 2002, our principle sources of liquidity are existing cash balances and working capital, borrowings available directly to us under our line of credit (until termination)
and borrowings available from lessee/operators’ lines of credit used to support the activities under the lease and operating agreements.
Non-current restricted cash consists of cash invested in certificates of deposit with maturities of 180 days or less. These certificates of deposit are necessary to support our bond requirement with the U.S.
Department of Agriculture Grain Inspection, Packers and Stockyards Administration to buy and sell cattle in the U.S. public market. The leased operations are required to post their own bonds. Accordingly, we expect our bond requirement to be reduced
during the second quarter of 2002, thus increasing our owned unrestricted cash balance.
We continue to explore other debt or
equity financing alternatives to meet our working capital requirements. If additional funds are raised through the issuance of equity securities or through alternative debt financing that provides for the issuance of equity securities, our
stockholders may experience significant dilution. Furthermore, there can be no assurance that any additional funding will be available when needed, or that if available, such financing will include favorable terms. See also “Factors Affecting
Our Business, Financial Condition and Results of Operations” below.
As of March 31, 2002, we had cash and cash equivalents
totaling $7.6 million compared to $18.7 million at December 31, 2001. As of March 31, 2002, $1.7 million of our cash and cash equivalents were held by our leased facilities compared to $9.8 million as of December 31, 2001 and are classified as
restricted. Our working capital balance as of March 31, 2002 was $14.2 million compared to $17.9 million as of December 31, 2001.
In August 2001, the Company entered into a $30 million revolving line of credit agreement (the “LOC”) from The CIT Group/Business Credit, Inc (“CIT”). The LOC is secured primarily by receivables, inventories and $9.0
million in irrevocable letters of credit, provided largely, by our affiliates, Safeguard Delaware, Inc and ICG Holding, Inc., and bears interest at our option of Prime or LIBOR plus 300 basis points, payable monthly. The LOC may be utilized for
working capital purposes and matures in 24 months. The loan agreement includes various loan covenants and restrictions of a customary nature, which may, under certain circumstances, limit our ability to undertake additional acquisitions, make
certain changes in management, or otherwise limit obligations undertaken by, or operations of, eMerge. One of the loan covenants requires the Company achieve quarterly EBITDA of a loss no greater than $1.5 million. The Company did not comply with
this covenant for the quarters ended September 30, 2001, December 31, 2001 or March 31, 2002 as it had an EBITDA loss of $3.1 million, $4.6 million and $2.6 million, respectively. In addition, we are in violation of the loan covenant prohibiting the
making of loans. As of March 31, 2002, we had a note receivable (eliminated in consolidation) of $3.2 million from one of the lessees/operators in compliance with the terms of the lease and operating agreement. As of March 31, 2002, there were no
borrowings outstanding under this arrangement with CIT. We have continued to make additional borrowings under this facility as needed for working capital purposes, and to date, have not been required to obtain a waiver in order to access this
facility.
Our various restructuring activities have significantly reduced our need for seasonal working capital and we
determined we do not require a $30 million line of credit. Therefore, we completed discussions with CIT and as of May 1, 2002, we terminated the LOC and have agreed to pay a termination fee of $425,000. In addition, the $9.0 million in irrevocable
letters of credit have been released by CIT as of May 1, 2002 and the unissued stock purchase warrants will not be issued. As a result of the termination, we will record a charge of $1.8 million in the second quarter of 2002 related to the write off
of unamortized financing costs and the termination fee.
We have had significant negative cash flows from operating activities
for each fiscal and quarterly period to date. For the three months ended March 31, 2002, net cash used in operating activities was $16.8 million and primarily consisted of
21
net operating losses, increases in trade accounts receivable, inventories and cattle deposits and decrease in accounts payable and accrued liabilities. Of the
$16.8 million net cash used in operating activities, $2.0 million was used by our owned operations and $14.8 million was used by the leased operations. The decrease in working capital requirements corresponded with a decrease in cattle sales
activity and a reduction in the net operating loss.
Net cash used in investing activities was $1.0 million for the three months
ended March 31, 2002. Our investing activities include additional acquisition costs paid in compliance with earn-out agreements in the asset purchase agreements executed in January 2001 for Runnells-Peters Stockyards, and Pennell Order Buying for a
combined cash payment of $688,000. In addition, we had capital expenditures of $327,000. All of the cash used in investing activities was used by the owned operations.
Net cash provided by financing activities was $6.6 million for the three months ended March 31, 2002. Of the $6.6 million of net cash provided by financing activities, $6.7 million was
provided by the leased operations, principally due to net borrowings on the lines of credit held by these leased operations. The owned operations used $100,000 to repay capital lease obligations.
Our future working capital requirements will depend on a variety of factors including our ability to successfully implement our current business plan, reduce our net cash outflow
and manage the working capital required by seasonal fluctuations in cattle sales.
Cattle Order Buying Lease and Operating Agreements
We completed lease and operating agreements with three of our largest order buying facilities during the fourth quarter of
2001. With the completion of these lease and operating agreements, the working capital requirements of our owned operations were reduced, which in turn, reduced our need to draw on the CIT line of credit.
Other Matters
There were no changes in the
components of the Company’s critical accounting policies and no significant changes in the components of commercial and contractual commitments during the quarter ended March 31, 2002.
We are not engaged in off-balance sheet arrangements or trading activities that involve non-exchange traded contracts. We do engage in a limited number of cattle futures contracts. As of
March 31, 2002, we held $18,000 in open cattle future positions. We also engage in both cattle purchase and sale transactions with certain related parties, primarily entities related to or owned by acquired companies. These sales are made on the
same credit terms as our other customers and suppliers. We generally purchase from or sell to related parties in order to satisfy sales commitments or balance our inventory position. Purchase and sales prices are negotiated based on current market
conditions in the cattle industry.
During the fourth quarter of 2001, we finalized lease and operating agreements with three of
our largest order buying businesses. Beginning with the effective date of each agreement, the cattle brokerage operations formerly conducted in wholly-owned facilities are conducted in entities owned solely by employees of eMerge. The lease and
operating agreements are generally for a one year term, renewable, and provide for us to receive 70% of the net profits or losses (as defined in the agreements) and have certain control over operating activities while the lessee/operators are
responsible for obtaining lines of credit for working capital purposes and are responsible for the day-to-day operations of the facilities, including payroll and operating expenses.
Factors Affecting Our Business, Financial Condition and Results of Operations
Cautionary Statement
This Quarterly Report on Form 10-Q contains statements that constitute
“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the use of predictive, future tense or forward-looking terminology, such as
“anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “will” and words of similar meaning. These statements include statements regarding, among other things, our
electronic
22
commerce strategy, acquisition and expansion strategy, product and service development, projected capital expenditures, liquidity and capital, development of
additional revenue sources, expansion into new market segments, technological advancement, ability to develop “brand” awareness and the market acceptance of the Internet as a medium of commerce. These 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, including the acceptance by our customers
of electronic commerce as a means of conducting business, our ability to grow revenue, our ability to increase margins, our ability to implement our acquisition and expansion strategy, the impact of competition on pricing, general economic
conditions, employee turnover, the impact of litigation and other factors. Other factors that may cause such a difference include, but are not limited to, those discussed in this “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” as well as those discussed elsewhere in this report and as set forth from time to time in our other public filings and public statements. Readers of this report are cautioned to consider these risks and uncertainties
and to not place undue reliance on these forward-looking statements.
In addition to the other information included in this
report and our other public filings and releases, the following factors should be considered while evaluating our business, financial condition, results of operations and prospects:
We have an unproven business model. As a result, we may not be able to accurately predict future results and our business strategy may not be successful.
While we commenced operations in 1994 and commercially released our initial product in November 1997, our business model and strategy continued to
change significantly. This change makes predicting our future results of operations difficult. Our new business model has been tested over a limited period of time 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:
| |
• |
|
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 strategies. |
Historically, we have funded our operating and investing cash requirements principally through private equity financings and through borrowings from XL Vision and Safeguard Scientifics. During February 2000, we
completed our initial public offering of 7,175,000 common shares and a private placement of 500,000 common shares, which generated net proceeds of $107.1 million. 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 continue to expand our business, take advantage of
business opportunities or respond to competitive pressures.
We have a history of net losses and expect to continue to incur
net losses for next two years. If we continue to incur net losses, our business may not ultimately be financially viable.
We have incurred significant net losses since inception. We reported a net loss of approximately $92.4 million for the year ended December 31, 2001, or 8% of total revenue, and a net loss of approximately $4.1 million for the
three months ended March 31, 2002, or 2% of total revenue. As of March 31, 2002, we had accumulated net losses totaling approximately $162 million. Our operating expenses for the quarter ended March 31, 2002 declined, reflecting our recent cost
reduction and restructuring initiatives and we anticipate such expenses to remain relatively flat under our current business strategy. 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.
23
To achieve profitability, we must successfully address the following risks:
| |
• |
|
lack of wide-scale commercial acceptance of our products and services; |
| |
• |
|
failure to expand the number of livestock industry participants currently using our network; |
| |
• |
|
inability to respond promptly to competitive and industry developments; |
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• |
|
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.
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 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. 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.
Our ability to develop new products is uncertain and our products may not develop as we
anticipate.
The outcome of the lengthy and complex process of developing new products is inherently uncertain. Prospective
products, such as our meat inspection system, require time and resources to develop, may not ultimately be commercially viable, may not achieve commercial acceptance in the marketplace and may fail to receive regulatory approval, if required. In
addition, new products by competitors could adversely affect the realization of products that are commercially successful.
Our stock price has been trading below $1 for more than 30 days and we are currently not in compliance with the NASDAQ’s listing requirements.
While we believe this to be an interim situation, we are currently evaluating our options, including moving from the NASDAQ National Market to the NASDAQ SmallCap Market, which would
extend our bid price grace period for up to 360 days, if we are in compliance with certain listing criteria. If we elect to make this move, the extended bid price grace period offered by the SmallCap market will provide us with more flexibility and
additional time to regain compliance and to execute our plan while being able to maintain NASDAQ listing status.
24
An important point to make is that if we elect to pursue this transition it will not impact the
method in which our securities are bought and sold. You will still be able to access stock information through Yahoo, NASDAQ Online, etc. and the NASDAQ SmallCap listing in the newspaper.
We typically assume the ownership of cattle sold through our cattle brokerage business 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. As a result, our business may be harmed.
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:
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• |
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our ability to retain existing customers and attract new customers; |
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• |
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our ability to develop and market new and enhanced products and services on a timely basis; |
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• |
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the introduction of new or enhanced Web sites, products and services by us; and |
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• |
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continued purchases by our existing customers. |
In addition, a number of factors that are beyond our control will also affect our quarterly operating results, such as:
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• |
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demand for our products and services; |
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• |
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product and price competition; |
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the introduction of new or enhanced Web sites, products and services by our competitors; and |
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significant downturns in our targeted markets. |
Our quarterly results could fluctuate as a result of seasonal fluctuations in the cattle industry.
The cattle industry has historically experienced, and continues to experience, seasonal fluctuations. These seasonal patterns may cause quarterly fluctuations in our operating results. Generally, a higher number of
cattle are sold to feedlots during the third and fourth quarters as compared to the first and second 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.
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
25
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.
Internet Capital Group and Safeguard 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. Internet Capital Group and Safeguard together have the power to vote approximately 51% (as of March 31, 2002) of the aggregate number of votes to which
the holders of our common stock are entitled. As a result, these stockholders will be able to control all matters requiring stockholder approval.
In addition, currently four of the nine members of our board of directors also serve as directors and/or officers of Internet Capital Group and Safeguard. Internet Capital Group has the right to elect two directors to
our board. 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. Internet Capital Group and
Safeguard will therefore have the ability to significantly influence our management.
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. These fluctuations may be caused by factors such as:
| |
• |
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actual or anticipated variations in quarterly operating results; |
| |
• |
|
announcements of technological innovations; |
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• |
|
conditions or trends in the cattle industry; |
| |
• |
|
new sales formats of new products or services; |
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• |
|
changes in or failure by us to meet financial estimates of securities analysts; |
| |
• |
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conditions or trends in the Internet industry; |
| |
• |
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announcements by us or our competitors of significant acquisitions, strategic partnerships or joint ventures; |
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• |
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additions or departures of key personnel; and |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk
relates to changes in interest rates and their potential impact on our investment portfolio and debt structure. 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. As of March 31, 2002, our investments consisted of $102,000 in cash equivalents with maturities of less than three months and $1.5 million in certificates of deposit with a maturity of less than six months. 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 our investments.
The interest rate
on our debt floats based on the index rate. Accordingly, increases or decreases in the index rate would increase or decrease our interest expense. A 10% increase or decrease in interest rates would have increased or decreased our interest expense
approximately $13,000 for the three months ended March 31, 2002.
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In the ordinary course of business, we enter into purchase and sale contracts for cattle that
require delivery at a future date. We also enter into a limited number of cattle futures transactions. The contract lives are generally less than six months. As of March 31, 2002, there was $18,000 in open positions.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments in the legal
proceedings previously reported.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Stock Option Exchange Program
On June 29, 2001, we commenced a voluntary offer to eligible employees to exchange currently outstanding stock options for new options. The offer
expired on August 6, 2001 and, effective on that date, we accepted for exchange options to purchase an aggregate of 197,125 shares of our Class A common stock. The stock options accepted for exchange were cancelled on August 6, 2001, and new options
were granted on February 11, 2002.
Warrant Purchase Agreement
On August 24, 2001, we issued 764,328 stock purchase warrants to certain stockholders as consideration for providing and maintaining $9 million in standby letters of credit. The warrants
are exerciseable at $1.55 per share and expire on August 24, 2004.
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 first quarter of 2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
| Exhibit Number
|
|
Description
|
|
Reference
|
| 10.50 |
|
Termination of Financing Agreement (‘Loan Agreement”), dated August 24, 2001, among emerge Interactive, Inc. (“Borrower”), The CIT Group/Business Credit,
Inc. in its capacity as agent (“Agent”) and as a lender |
|
* |
| |
| 10.51 |
|
February 27, 2002 Extension Agreement to Financing and Warrant Purchase Agreement Dated as of August 24, 2001 |
|
* |
| |
| 10.52 |
|
March 29, 2002 Extension Agreement to Financing and Warrant Purchase Agreement Dated as of August 24, 2001. |
|
* |
| |
| 10.53 |
|
Promissory Note dated January 7, 2003 between eMerge Interactive, Inc. and David C. Warren |
|
* |
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* Filed herewith.
There were no
reports filed on Form 8-K for the quarter ended March 31, 2002.
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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 10, 2002
| EMERGE INTERACTIVE. INC. |
| |
| By: |
|
/s/ DAVID C. WARREN
|
| |
|
David C. Warren President, Chief
Executive Officer and Director (Principal Executive Officer) |
| |
| By: |
|
/s/ REID JOHNSON
|
| |
|
Reid Johnson Vice President and
Chief Financial Officer (Principal Financial and Accounting Officer) |
29