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 September 30, 2003.
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 |
10305 102nd Terrace Sebastian, Florida 32958
(Address of principal executive offices)
(772) 581-9700
(Registrants 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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares of the registrants common stock, $0.008 par value, outstanding as of November 10, 2003, was 39,064,587. There were 33,370,142 shares of Class A common stock outstanding and 5,694,445 shares of Class B common outstanding as of this date.
eMerge Interactive, Inc.
FORM 10-Q QUARTERLY REPORT
(For Three and Nine Months Ended September 30, 2003)
2
PART I. FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS |
eMerge Interactive, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, 2003 |
December 31, 2002 | |||||
Assets |
||||||
Current assets: |
||||||
Cash and cash equivalents |
$ | 1,665,950 | $ | 5,278,449 | ||
Trade accounts receivable, less allowance for doubtful accounts of $726,719 in 2003 and $929,299 in 2002 |
135,041 | 413,875 | ||||
Inventories (note 3) |
492,500 | 36,428 | ||||
Prepaid expenses |
451,701 | 484,476 | ||||
Due from related parties (note 4) |
192,284 | 2,281,630 | ||||
Assets held for sale |
87,000 | | ||||
Total current assets |
3,024,476 | 8,494,858 | ||||
Property, plant and equipment, net of accumulated depreciation of $8,493,013 in 2003 and $6,600,235 in 2002 |
3,817,619 | 5,347,511 | ||||
Food safety systems installed at customers, net of accumulated depreciation of $5,438 in 2003 |
289,705 | | ||||
Other assets |
75,000 | | ||||
Due from related parties (note 4) |
| 217,074 | ||||
Total assets |
$ | 7,206,800 | $ | 14,059,443 | ||
Liabilities and Stockholders Equity | ||||||||
Current liabilities: |
||||||||
Current installments of capital lease obligation |
$ | 519,278 | $ | 315,406 | ||||
Accounts payable |
449,462 | 568,394 | ||||||
Accrued liabilities: |
||||||||
Salaries and benefits (note 5) |
328,801 | 469,847 | ||||||
Legal and professional |
174,532 | 165,985 | ||||||
Other |
178,491 | 122,121 | ||||||
Advance payments from customers |
216,674 | 101,500 | ||||||
Total current liabilities |
1,867,238 | 1,743,253 | ||||||
Capital lease obligation, excluding current installments |
| 196,967 | ||||||
Total liabilities |
1,867,238 | 1,940,220 | ||||||
Stockholders equity (note 6) |
||||||||
Common stock, $.008 par value, authorized 100,000,000 shares: |
||||||||
Class A common stock, designated 92,711,110 shares, issued 34,583,995 shares in 2003 and 34,329,847 shares in 2002; outstanding 33,340,140 shares in 2003 and 33,085,992 shares in 2002 |
276,672 | 274,638 | ||||||
Class B common stock, designated 7,288,890 shares, 5,694,445 shares issued and outstanding in 2003 and 2002 |
45,556 | 45,556 | ||||||
Additional paid-in capital |
201,055,523 | 200,729,576 | ||||||
Accumulated deficit |
(195,610,152 | ) | (188,502,401 | ) | ||||
Treasury stock, 1,243,855 shares, at cost |
(428,037 | ) | (428,037 | ) | ||||
Unearned compensation |
| (109 | ) | |||||
Total stockholders equity |
|
5,339,562 |
|
|
12,119,223 |
| ||
Total liabilities and stockholders equity |
$ | 7,206,800 | $ | 14,059,443 | ||||
See accompanying notes to condensed consolidated financial statements.
3
Condensed Consolidated Statements of Operations
For the Three Months Ended September 30, 2003 and 2002
(Unaudited)
Three Months Ended September 30, |
||||||||
2003 |
2002 |
|||||||
Revenue |
$ | 254,060 | $ | 133,078 | ||||
Cost of revenue |
76,491 | 65,163 | ||||||
Gross profit |
177,569 | 67,915 | ||||||
Operating expenses: |
||||||||
Selling, general and administrative |
1,432,729 | 1,388,007 | ||||||
Technology and development |
440,423 | 823,847 | ||||||
Impairment, restructuring and related charges (note 5) |
| 856,443 | ||||||
Depreciation |
608,074 | 946,816 | ||||||
Total operating expenses |
2,481,226 | 4,015,113 | ||||||
Operating loss |
(2,303,657 | ) | (3,947,198 | ) | ||||
Interest and other income, net |
2,694 | 1,342,235 | ||||||
Interest expense |
(6,253 | ) | (9,454 | ) | ||||
Gain on disposal of assets |
3,130 | 13,732 | ||||||
Equity in operations of unconsolidated investee |
| 21,554 | ||||||
Impairment of investment in unconsolidated investee |
| (2,398,935 | ) | |||||
Loss from continuing operations before income taxes |
(2,304,086 | ) | (4,978,066 | ) | ||||
Income tax expense (benefit) |
| | ||||||
Loss from continuing operations |
(2,304,086 | ) | (4,978,066 | ) | ||||
Discontinued operations (note 8): |
||||||||
Gain (loss) from discontinued cattle operations, net of income taxes of $0 in 2003 and 2002 |
298,362 | (907,081 | ) | |||||
Gain on disposition of discontinued cattle operations, net of income taxes of $0 in 2002 |
| 143,442 | ||||||
Minority interest |
| 9,791 | ||||||
Net loss |
$ | (2,005,724 | ) | $ | (5,731,914 | ) | ||
Basic and diluted earnings (loss) per share: |
||||||||
Loss from continuing operations |
$ | (0.06 | ) | $ | (0.13 | ) | ||
Gain (loss) from discontinued operations |
0.01 | (0.02 | ) | |||||
Net loss per common share basic and diluted |
$ | (0.05 | ) | $ | (0.15 | ) | ||
Weighted average number of common shares outstanding basic and diluted |
39,002,215 | 39,236,131 | ||||||
See accompanying notes to condensed consolidated financial statements.
4
Condensed Consolidated Statements of Operations
For the Nine Months Ended September 30, 2003 and 2002
(Unaudited)
Nine Months Ended September 30, |
||||||||
2003 |
2002 |
|||||||
Revenue |
$ | 738,648 | $ | 458,190 | ||||
Cost of revenue |
239,720 | 287,542 | ||||||
Gross profit |
498,928 | 170,648 | ||||||
Operating expenses: |
||||||||
Selling, general and administrative |
4,449,623 | 5,671,777 | ||||||
Technology and development |
1,364,462 | 2,214,281 | ||||||
Impairment, restructuring and related charges (note 5) |
| 1,259,247 | ||||||
Depreciation |
1,901,084 | 2,982,090 | ||||||
Total operating expenses |
7,715,169 | 12,127,395 | ||||||
Operating loss |
(7,216,241 | ) | (11,956,747 | ) | ||||
Interest and other (expense) income, net |
(13,252 | ) | 1,508,145 | |||||
Interest expense |
(19,204 | ) | (441,718 | ) | ||||
Gain (loss) on disposal of assets |
6,643 | (35,673 | ) | |||||
Loss on early extinguishment of debt (note 7) |
| (1,813,547 | ) | |||||
Equity in operations of unconsolidated investee |
| 4,066 | ||||||
Impairment of investment in unconsolidated investee |
| (2,398,935 | ) | |||||
Loss from continuing operations before income taxes |
(7,242,054 | ) | (15,134,409 | ) | ||||
Income tax expense (benefit) |
| | ||||||
Loss from continuing operations |
(7,242,054 | ) | (15,134,409 | ) | ||||
Discontinued operations (notes 5 and 8): |
||||||||
Gain (loss) from discontinued cattle operations, net of income taxes of $0 in 2003 and 2002 |
134,303 | (10,531,527 | ) | |||||
Loss on disposition of discontinued cattle operations, net of income taxes of $0 in 2002 |
| (1,294,398 | ) | |||||
Minority interest |
| 187,573 | ||||||
Net loss |
$ | (7,107,751 | ) | $ | (26,772,761 | ) | ||
Basic and diluted earnings (loss) per share: |
||||||||
Loss from continuing operations |
$ | (0.19 | ) | $ | (0.39 | ) | ||
Gain (loss) from discontinued operations |
0.01 | (0.29 | ) | |||||
Net loss per common share basic and diluted |
$ | (0.18 | ) | $ | (0.68 | ) | ||
Weighted average number of common shares outstanding basic and diluted |
38,867,435 | 39,637,767 | ||||||
See accompanying notes to condensed consolidated financial statements.
5
eMerge Interactive, Inc.
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2003 and 2002
(Unaudited)
2003 |
2002 |
|||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (7,107,751 | ) | $ | (26,772,761 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used for) operating activities: |
||||||||
Write-off of deferred debt issue costs |
| 1,358,126 | ||||||
Depreciation |
1,906,522 | 3,089,082 | ||||||
(Gain) loss on disposal of assets |
(6,643 | ) | 52,138 | |||||
Impairment of assets held and used |
| 856,443 | ||||||
Impairment of assets held for sale |
| 8,780,747 | ||||||
Equity in operations of unconsolidated investee |
| (4,066 | ) | |||||
Impairment of assets of unconsolidated investee |
| 2,398,935 | ||||||
Stock compensation |
84,308 | | ||||||
Amortization of unearned compensation |
109 | 13,523 | ||||||
Issuance of common stock for services |
30,000 | | ||||||
Change in fair value of financial instruments |
| (64,238 | ) | |||||
Minority interest |
| (136,447 | ) | |||||
Changes in operating assets and liabilities: |
||||||||
Trade accounts receivable, net |
191,833 | 12,403,915 | ||||||
Inventories |
(456,072 | ) | 6,785,218 | |||||
Prepaid expenses and other assets |
32,775 | 2,057,254 | ||||||
Restricted cash |
| 355,000 | ||||||
Due from related parties, net |
47,163 | (213,955 | ) | |||||
Accounts payable and accrued liabilities |
(87,689 | ) | (12,727,708 | ) | ||||
Advance payments from customers |
115,174 | (257,746 | ) | |||||
Net cash used for operating activities |
(5,250,271 | ) | (2,026,540 | ) | ||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(667,618 | ) | (536,469 | ) | ||||
Proceeds from sale of property, plant and equipment |
7,927 | 6,499 | ||||||
Collections from (advances to) related parties |
2,259,257 | (3,200,000 | ) | |||||
Purchase of certificate of deposit |
(75,000 | ) | | |||||
Business combinations, net of cash acquired |
| (687,500 | ) | |||||
Proceeds from sale of assets held for sale |
| 2,723,550 | ||||||
Net cash provided by (used for) investing activities |
1,524,566 | (1,693,920 | ) | |||||
Cash flows from financing activities: |
||||||||
Net proceeds from issuance of common stock |
113,206 | | ||||||
Net payments on line of credit |
| (9,658,062 | ) | |||||
Payments on capital lease obligation |
| (314,693 | ) | |||||
Capital contributed by lessee/operator to lessee/operator activity |
| 100,000 | ||||||
Distributions to minority interest |
| (512,862 | ) | |||||
Net cash provided by (used for) financing activities |
113,206 | (10,385,617 | ) | |||||
Net change in cash |
(3,612,499 | ) | (14,106,077 | ) | ||||
Cash and cash equivalents, beginning of period |
5,278,449 | 18,736,162 | ||||||
Cash and cash equivalents, end of period |
$ | 1,665,950 | $ | 4,630,085 | ||||
Supplemental disclosures: |
||||||||
Cash paid for interest |
$ | 12,299 | $ | 568,449 | ||||
Non-cash investing and financing activities: |
||||||||
Receipt of land in connection with settlement of open trade receivables |
87,000 | | ||||||
Issuance of Class A common stock in satisfaction of a liability |
100,467 | | ||||||
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 | ||||||
Receipt of Class A common stock in connection with business divestiture |
| (428,037 | ) | |||||
Reclass of property, plant and equipment to assets held for sale |
| 5,398,044 | ||||||
Reclass of intangible assets to assets held for sale |
| 4,911,632 |
See accompanying notes to condensed consolidated financial statements.
6
eMerge Interactive, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Description of Business and Summary of Significant Accounting Policies
(a) Overview
eMerge Interactive, Inc. (the Company), a Delaware corporation, is a technology company providing VerifEYE food safety systems, individual animal tracking and database management services to the beef industry. The Companys technologies focus primarily on information-management and individual-animal tracking tools, as well as innovative food safety technologies.
During the second quarter of 2002, the Company announced that it was divesting its cattle operations and planned to either sell or dispose of these operations. Accordingly, operating results for all periods presented exclude the cattle operations that have been sold or disposed and are classified as discontinued operations in the accompanying financial statements.
(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 2002 Annual Report on Form 10-K filed with the Securities and Exchange Commission. 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 Companys consolidated financial position as of September 30, 2003, and the results of operations and cash flows for the three and nine-month periods ended September 30, 2003 and 2002. The results of operations for the nine months ended September 30, 2003 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 Companys audited financial statements for the year ended December 31, 2002, included in the Companys Annual Report on Form 10-K as filed with the Securities and Exchange Commission.
(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. 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 Companys majority share of the profits or losses derived from the activities, certain control terms of the lease and operating agreements and the relatively short-term nature of the agreements which are terminable by either party. The results of operations of the activities conducted under the lease and operating agreements are included in discontinued operations. As of July 31, 2002, all lease and operating agreements were no longer effective and the related assets had been sold. With the completion of the divestiture of all of the cattle operations, the Company dissolved all of its wholly owned subsidiaries during the last quarter of 2002. All significant intercompany balances and transactions have been eliminated in consolidation.
During 2002, the Companys investment in Turnkey Computer Systems, Inc. (Turnkey), a private corporation, was accounted for by the equity method. Accordingly, the Companys share of Turnkeys earnings or losses is reflected under the caption equity in operations of unconsolidated investee in the consolidated statements of operations. In December 2002, the Company sold the investment for $322,000 of cash.
7
(d) Revenue Recognition
Revenues from the sale of all Animal Information Solutions products and services are recognized as products are shipped or services are provided.
Revenues from the sale of hand-held VerifEYE Solo units are recognized using the revenue recognition principles of EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. These principles provide that revenue arrangements with multiple deliverables should be divided into separate units of accounting if the deliverables in the arrangements meet the following criteria:
| The delivered item(s) has value to the customer on a stand-alone basis; |
| There is objective and reliable evidence of the fair value of the undelivered item(s); and |
| If the arrangement includes a right of return, delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the vendor. |
In addition, these principles provide that arrangement consideration should be allocated among the separate units of accounting based on their relative fair values. The amount allocated to the delivered item(s) is limited to that amount that is not contingent upon the delivery of additional items or meeting specified performance conditions. Finally, these principles provide that applicable revenue recognition criteria should be considered separately for separate units of accounting. Food Safety product sales are reviewed by management to determine the separate units of accounting and the allocation of revenues among these units of accounting. Revenue allocated to each unit of accounting is recognized as products are shipped or services are provided.
Revenues from operating leases of VerifEYE Carcass Inspection Systems (CIS) are reported on a straight-line basis over the life of the lease. Upfront, nonrefundable deposits are recognized on a straight-line basis over the minimum lease term.
(e) Stock-Based Compensation
In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based Compensation Transition and Disclosure. This statement amends SFAS No. 123, Accounting for Stock Based Compensation, to provide alternative methods of transition to SFAS No. 123s fair value method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS No. 123 to require prominent disclosure in the summary of significant accounting policies of the effect of an entitys accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual financial statements. SFAS No. 148s amendment of the transition and annual disclosure requirements are effective for fiscal years ending after December 15, 2002.
As of September 30, 2003, the Company has one stock-based employee compensation plan. The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25 issued in March 2000, to account for its fixed plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123 established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123 and SFAS No. 148, the Company has elected to continue to apply the intrinsic value-based method of accounting described above, and has adopted the disclosure requirements of SFAS No. 148.
8
If the Company had elected to adopt the fair value-based recognition provisions of SFAS No. 123 for its stock option plans, net loss and net loss per share would have been changed to the pro forma amounts indicated below:
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2003 |
2002 |
2003 |
2002 |
|||||||||||||
Net loss as reported |
$ | (2,005,724 | ) | $ | (5,731,914 | ) | $ | (7,107,751 | ) | $ | (26,772,761 | ) | ||||
Add: Stock-based employee compensation expense included in reported net loss |
| 4,507 | 84,417 | 13,523 | ||||||||||||
Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards |
(474,902 | ) | (375,727 | ) | (1,534,988 | ) | (1,815,961 | ) | ||||||||
Pro forma net loss |
$ | (2,480,626 | ) | $ | (6,103,134 | ) | $ | (8,558,322 | ) | $ | (28,575,199 | ) | ||||
Net loss per share as reported basic and diluted |
$ | (0.05 | ) | $ | (0.15 | ) | $ | (0.18 | ) | $ | (0.68 | ) | ||||
Pro forma net loss per share basic and diluted |
$ | (0.06 | ) | $ | (0.16 | ) | $ | (0.22 | ) | $ | (0.72 | ) | ||||
(f) Recent Accounting Pronouncements
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 establishes accounting standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. It requires certain financial instruments that were previously classified as equity to be classified as assets or liabilities. The provisions are effective for transactions entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material effect on the Companys consolidated financial statements. In the future, management may find it desirable or necessary to seek external financing and may enter into an agreement that would be governed by SFAS No. 150 whereby the financing received cannot be classified as equity in the consolidated balance sheet.
(2) Liquidity
The Company has incurred losses and negative cash flows from operations in every year since inception and has an accumulated deficit of $195.6 million as of September 30, 2003. For the nine months ended September 30, 2003, the Company incurred a net loss of approximately $7.1 million and negative cash flows from operations of $5.3 million. Cash and cash equivalents at September 30, 2003 and November 3, 2003 were $1.7 million and $909,000 respectively. Based on current revenue and expense projections, the Company will need to obtain additional working capital in the near term. As noted last quarter, the Company is in the process of seeking additional sources of liquidity to fund near term working capital requirements. The Company has formed an independent committee of the board, which is in the process of reviewing financing proposals. A financing may include the issuance by the Company of debt, equity securities, including equity securities that may be issued at a discount to the Companys market price, or warrants. In the event equity securities are issued at a discount to the market price or warrants are issued, the Companys stockholders will experience dilution, which may be significant. The Companys goal is to complete a transaction that meets its
9
near term capital needs in the current fourth quarter. However, there can be no assurance that such a transaction will be secured, and if it is secured there can be no assurance that it will be on favorable terms. To the extent the Company is not able to secure adequate funding, the financial condition, results of operations and future prospects of the Company will be materially adversely affected.
(3) Inventories
Inventories consist of:
2003 |
2002 | |||||
Cattle |
$ | | $ | 29,348 | ||
Raw materials |
481,202 | | ||||
Finished goods |
5,118 | 5,180 | ||||
Other |
6,180 | 1,900 | ||||
$ | 492,500 | $ | 36,428 | |||
(4) Related Party Transactions
As of September 30, 2003 and December 31, 2002, amounts due from related parties were $192,000 and $2.5 million, respectively. These balances are due from shareholders related businesses. As of September 30, 2003, due from related parties consists of a non-interest bearing receivable from Eastern Livestock, LLC (Eastern) in the amount of $200,000 to be paid in one installment on August 5, 2004, in compliance with the asset purchase agreement for the assets of Eastern Livestock, Inc. Interest, at 4.75%, has been imputed on this receivable.
Prior to the divestiture of the cattle operations in 2002, the Company had both cattle sales and purchase transactions with Eastern, certain employees and shareholders related businesses in the ordinary course of business. These sales and purchases were made on trade accounts with the same credit terms as the Companys other customers and suppliers. Cattle sales to related parties amounted to $0 and $125,000 for the three months ended September 30, 2003 and 2002, respectively and $0 and $59.0 million for the nine months ended September 30, 2003 and 2002, respectively.
Cattle purchases from related parties amounted to $0 for each of the three months ended September 30, 2003 and 2002 and $0 and $49.3 million for the nine months ended September 30, 2003 and 2002, respectively.
The Company leases office facilities in Sebastian, Florida from an affiliated entity, XL Realty Corp. Rent paid to XL Realty Corp. was approximately $171,000 and $325,000 for the nine months ended September 30, 2003 and 2002, respectively. XL Realty Corp. is owned by Safeguard Scientifics, Inc. (Safeguard), which owns 7,524,577 shares of the Companys Class A common stock, or 19.3% of the outstanding shares as of September 30, 2003. In addition, Safeguard has a joint venture agreement with Internet Capital Group (ICG), an affiliated entity. Safeguard and ICG together have the power to vote approximately 49.6% (as of September 30, 2003) of the aggregate number of votes to which the shareholders of the Companys common stock are entitled.
The Company leases office facilities in Weatherford, Oklahoma from a director of the Company. Rent expense was $13,500 for each of the nine-month periods ended September 30, 2003 and 2002.
The Company regularly conducts business with Allflex USA, Inc. (Allflex), a subsidiary of Allflex Holdings, Inc., which owns 4,000,000 shares of the Companys Class A common stock or 10.2% of outstanding shares as of September 30, 2003. Allflex is a supplier of electronic identification tags for the cattle industry. Material purchases from Allflex amounted to approximately $16,000 and $86,000 for the nine months ended September 30, 2003 and 2002, respectively. An officer and director of the Company holds a less than 2% equity interest in Allflex Holdings, Inc. as of September 30, 2003.
10
(5) Impairment, Restructuring and Related Charges
A summary of activity in the restructuring liability (included in accrued salaries and benefits in the accompanying condensed consolidated balance sheets) for the nine months ended September 30, 2003 and 2002 follows:
Balance at December 31, 2001 |
$ | 452,000 | ||
New charges |
||||
Three months ended March 31, 2002 |
58,000 | |||
Three months ended June 30, 2002 |
345,000 | |||
Three months ended September 30, 2002 |
| |||
Cash payments |
||||
Three months ended March 31, 2002 |
(255,000 | ) | ||
Three months ended June 30, 2002 |
(112,000 | ) | ||
Three months ended September 30, 2002 |
(337,000 | ) | ||
Balance at September 30, 2002 |
$ | 151,000 | ||
Balance at December 31, 2002 |
61,000 | |||
New charges |
||||
Three months ended March 31, 2003 |
| |||
Three months ended June 30, 2003 |
| |||
Three months ended September 30, 2003 |
| |||
Cash payments |
||||
Three months ended March 31, 2003 |
(55,000 | ) | ||
Three months ended June 30, 2003 |
(2,000 | ) | ||
Three months ended September 30, 2003 |
| |||
Balance at September 30, 2003 |
$ | 4,000 | ||
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 associated goodwill in the amount of $234,000, which is included in loss from discontinued cattle operations in the accompanying condensed consolidated statement of operations.
In April 2002, the Company determined that it would sell or close all the remaining cattle operations, which were purchased between May 2000 and January 2001, in order to improve the Companys productivity and use of working capital. In connection with the determination to divest these facilities and in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets, the Company recorded impairment of the associated goodwill in the amount of $8.2 million, which is included in loss from discontinued cattle operations in the accompanying condensed consolidated statement of operations.
In August 2002, the Company determined it would discontinue its interactive website, replacing it with a less expensive, standard corporate website. This resulted in an adjustment to the carrying value of the website assets to their estimated fair market value of $34,000, resulting in a noncash impairment loss of approximately $812,000. The estimated fair value was based on anticipated cash flows, which were based on anticipated web advertising revenues during the fourth quarter of 2002. In addition, the Company recorded a noncash impairment charge of $44,000 to write-down the intangible assets related to the purchase of Cyberstockyard, Inc. in March 1999 to its estimated fair value of $0.
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(6) Stock Plan
A summary of stock option transactions for the nine months ended September 30, 2003 follows:
Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (in years) | ||||||
Balance outstanding, December 31, 2002 |
4,728,776 | $ | 2.48 | 8.12 | ||||
Granted |
1,169,850 | 0.41 | ||||||
Exercised |
(144,357 | ) | 0.78 | |||||
Cancelled |
(304,388 | ) | 1.91 | |||||
Balance outstanding, September 30, 2003 |
5,449,881 | $ | 2.11 | 7.82 | ||||
In June 2003 the Company extended the expiration date of 547,643 stock options for one year, with a 60-day exercise restriction and recognized expense of $84,308. This amount is included in selling, general and administrative expenses in the consolidated statement of operations.
(7) Early Extinguishment of Debt
In May 2002, the Company retired a $30 million revolving line of credit agreement from the CIT Group/Business Credit, Inc. A loss of $1.8 million was incurred as a result of the early retirement of debt, consisting of a $425,000 pre-payment penalty and approximately $1.4 million of debt issue costs.
(8) Discontinued Operations
SFAS No. 144 requires that in a period in which a component of an entity has been disposed of or is classified as held for sale, the income statement of the Company for current and prior periods shall report the results of operations of the component, including any loss recognized for the initial or subsequent write-down to fair value less cost to sell of assets held for sale, in discontinued operations. In April 2002, the Company determined that the Companys long term goals and interests were best served by divesting all remaining cattle operations, including the leased cattle operations, through sale or disposal. Therefore, the Company has classified the results of operations of all the cattle operations sold or disposed of, for both the current and prior periods, as discontinued operations. The loss from discontinued operations includes revenues of $0 and $15.1 million for the three months ended September 30, 2003 and 2002, respectively and $20,000 and $464.9 million for the nine months ended September 30, 2003 and 2002, respectively. The pre-tax income/(loss) included in gain (loss) from discontinued operations for the three months ended September 30, 2003 and 2002 are $298,000 and $(907,000), respectively and $134,000 and $(10.5 million) for the nine months ended September 30, 2003 and 2002, respectively. The gain from discontinued operations in the three and nine months ended September 30, 2003 relates to the collection of receivables, previously considered uncollectible, in excess of expenses relating to previously closed cattle operations.
For the three and nine months ended September 30, 2002, losses attributed to the lessee/operators noncontrolling interest in the results of operations of the leased cattle operations is reflected in minority interest in discontinued operations.
(9) Segment Information
The Companys reportable segments consist of Animal Information Solutions (AIS) products and services and Food Safety Technology (FST) products. AIS consists of animal tracking, data management and supply procurement services. FST consists of the VerifEYE inspection systems.
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The following summarizes revenue, cost of revenue and gross profit information related to these two segments for the three and nine months ended September 30, 2003 and 2002:
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||
2003 |
2002 |
2003 |
2002 | |||||||||
Revenue: |
||||||||||||
Animal information solutions |
$ | 63,283 | $ | 133,078 | $ | 236,352 | $ | 458,190 | ||||
Food safety technology |
190,777 | | 502,296 | | ||||||||
Total |
$ | 254,060 | $ | 133,078 | $ | 738,648 | $ | 458,190 | ||||
Cost of revenue: |
||||||||||||
Animal information solutions |
$ | 11,289 | $ | 65,163 | $ | 38,795 | $ | 287,542 | ||||
Food safety technology |
65,202 | | 200,925 | | ||||||||
Total |
$ | 76,491 | $ | 65,163 | $ | 239,720 | $ | 287,542 | ||||
Gross Profit: |
||||||||||||
Animal information solutions |
$ | 51,994 | $ | 67,915 | $ | 197,557 | $ | 170,648 | ||||
Food safety technology |
125,575 | | 301,371 | | ||||||||
Total |
$ | 177,569 | $ | 67,915 | $ | 498,928 | $ | 170,648 | ||||
The Companys assets and other statement of operations data are not allocated to a segment. During the three months ended September 30, 2003, approximately 65% of total revenues were from four FST customers and during the nine months ended September 30, 2003, approximately 12% of total revenues were from one FST customer. During the three months ended September 30, 2002, approximately 41% of total revenues were from two AIS customers and during the nine months ended September 30, 2002, approximately 33% of total revenues were from one AIS customer.
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ITEM 2. | MANAGEMENTS 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 company providing food-safety, individual-animal tracking and supply-management services to the beef production industry. The Company is structured into two operating groups, the Food Safety Technology Group and the Animal Information Solutions Group.
The Food Safety Technology Groups patented VerifEYE Food Safety Technology is a unique machine vision technology, which instantly detects microscopic levels of organic contamination that can harbor deadly pathogens. The VerifEYE technology is available in several applications for the meat processing, food processing and food services industries.
The Animal Information Solutions Group is comprised of two inter-related products and services, all designed to allow cattle producers, meat packers and retailers to better manage their product supply chains:
| CattleLog a suite of products and services providing individual animal data-collection and reporting tools; and |
| eDS Electronic Data Services provides individual animal data-collection and reporting services to our smaller customers. |
Management has implemented significant restructuring efforts over the last two years to resize the business to focus on the Food Safety Technology and Animal Information Solutions business models. As a result of this change in focus, historical operations have limited relevance in assessing both the Companys current results of operations and future prospects.
Results of Operations
Three months ended September 30, 2003 and September 30, 2002
Revenue
Revenue increased by 91% to $254,000 for the quarter ended September 30, 2003 from $133,000 for the quarter ended September 30, 2002. This increase is due primarily to an increase in revenues from the sale of VerifEYE Solo units and the introduction of revenues from the lease of a VerifEYE Cattle Inspection System (CIS) for the period from September 15, 2003 through September 30, 2003. These increases were partially offset by the discontinuation of the sale of web advertising at the end of 2002, which contributed revenues of $32,000 during the three months ended September 30, 2002 as well as a decrease in revenues from CattleLog.
Cost of Revenue
Cost of revenue increased by 17% to $76,000 for the quarter ended September 30, 2003 from $65,000 for the quarter ended September 30, 2002. This increase is due principally to the increase in costs associated with the sale of VerifEYE Solo units and depreciation on the VerifEYE CIS unit in the current quarter. The VerifEYE costs are offset by the reduction in indirect overhead costs, such as support personnel, facilities costs, telecommunication charges and material purchases, by approximately $41,000 in the current quarter. We generated a gross profit of $178,000 and $68,000 for the quarters ended September 30, 2003 and 2002, respectively. The increase in gross profit is due primarily to the increase in both VerifEYE Solo and VerifEYE CIS revenues, which consist of higher margin technology products and services, as well as the decrease in indirect overhead costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses remained unchanged at $1.4 million for both the quarter ended September 30, 2003 and the quarter ended September 30, 2002. Selling, general and administrative expenses consist primarily of
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salaries and wages, telephone, professional services, advertising and media expenses. We anticipate selling, general and administrative expenses to remain fairly stable over the coming year.
Technology and Development
Our technology and development expenses decreased 47% to $440,000 for the quarter ended September 30, 2003 from $824,000 for the quarter ended September 30, 2002. This decrease was primarily associated with the reduction of workforce implemented in 2002 and decreases in materials, supplies and consulting expenses. Furthermore, we have fewer products under development and products such as CattleLog, our exclusive individual-animal data collection and reporting system and VerifEYE Solo, our handheld meat inspection system, are essentially complete. During the current quarter, the primary focus of our development team has been our VerifEYE Carcass Inspection System (CIS) and other derivative VerifEye products. We expect to continue to incur costs to develop and commercialize new products, expand our offerings and adapt our technologies to new markets. As we continue to develop human/health applications, these costs are expected to increase.
Impairment, Restructuring and Related Charges
The impairment, restructuring and related charges incurred in the quarter ended September 30, 2002 consist of an impairment of $812,000 to write-down to fair value the capitalized software expenses incurred to establish our interactive website, which was replaced with a less expensive website design, and an impairment of $44,000 to write-off the unamortized goodwill associated with our acquisition of Cyberstockyard, Inc.
Depreciation
Depreciation expense decreased 36% to $608,000 for the quarter ended September 30, 2003 from $947,000 for the quarter ended September 30, 2002. The decrease is primarily due to the disposal of approximately $459,000 of property, plant and equipment and noncash impairment of approximately $812,000 of property, plant and equipment during the last three quarters of 2002.
Other Income and Expense
Interest and other income, net decreased to $3,000 for the quarter ended September 30, 2003 from $1.3 million for the quarter ended September 30, 2002. This decrease was primarily due to a decrease in miscellaneous income in the third quarter of 2003 to $11,000 from $1.3 million in the third quarter of 2002, relating to the favorable settlement of certain consulting and litigation fees, which had been previously accrued. In addition, interest income in the third quarter of 2003 decreased to $7,000 from $51,000 in the third quarter of 2002, generated principally by notes receivable from related parties outstanding during 2002. This income was offset in the current quarter by miscellaneous rental expense of $15,000.
Interest expense decreased to $6,000 for the quarter ended September 30, 2003 from $9,000 for the quarter ended September 30, 2002. This decrease is due primarily to the reduction in interest incurred on the remaining balance of our capital lease obligation.
Due to the losses incurred, we did not recognize income tax expense for the quarter ended September 30, 2003 or the quarter ended September 30, 2002.
Discontinued Operations
During the second quarter of 2002, we determined that in order to improve our productivity and our use of working capital we would sell or dispose of all of our previously acquired cattle operations. Through the subsequent divestitures, we significantly changed our market focus and revenue source. As of January 24, 2003, the divestiture of all cattle operations was complete. The results of operations of the acquired, and subsequently disposed, entities are included in our consolidated statements of operations under discontinued operations for all periods presented.
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The assets sold included only property and equipment. All associated goodwill was previously reduced to zero. There were no liabilities in the disposal group. The impairment loss, revenue and pretax loss related to assets sold or disposed amounted to:
Three Months ended September 30, | |||||||
2003 |
2002 | ||||||
Impairment loss |
$ | | $ | 285,000 | |||
Revenue |
$ | | $ | 15,113,000 | |||
Pretax (gain) loss |
$ | (298,000 | ) | $ | 907,000 |
The gain from discontinued operations in the three months ended September 30, 2003 relates to the collection of receivables, previously considered uncollectible, in excess of expenses relating to previously closed cattle operations.
Minority interest represents the lessee/operators share of activities conducted under the lease and operating agreements that were entered into during the fourth quarter of 2001.
Nine months ended September 30, 2003 and September 30, 2002
Revenue
Revenue increased by 61% to $739,000 for the nine months ended September 30, 2003 from $458,000 for the nine months ended September 30, 2002. This increase is due primarily to an increase in revenues from the sale of VerifEYE Solo units and the introduction of revenues from the lease of a VerifEYE CIS unit for the period from September 15, 2003 through September 30, 2003. This increase is partially offset by a change in marketing strategy for electronic identification (EID) tags in the second quarter of 2002, the nonrenewal of a feedyard data management service contract in the first quarter of 2002 and the discontinuation of the sale of web advertising at the end of 2002, which contributed revenues of $109,000, $37,500 and $86,000, respectively during the nine months ended September 30, 2002.
Cost of Revenue
Cost of revenue decreased by 17% to $240,000 for the nine months ended September 30, 2003 from $288,000 for the nine months ended September 30, 2002. This decrease is due principally to the reduction in costs for EID tags from the prior year, which contributed costs of approximately $88,000 during the nine months ended September 30, 2002. In addition, indirect overhead costs, such as support personnel, facilities costs, telecommunication charges and material purchases were reduced by approximately $117,000 in the current nine months. These decreases in cost of revenues were offset by the costs associated with the sale of VerifEYE Solo units and depreciation on the VerifEYE CIS unit in the current quarter. We generated a gross profit of $499,000 and $171,000 for the nine months ended September 30, 2003 and 2002, respectively. The increase in gross profit is due primarily to the increase in both VerifEYE Solo and VerifEYE CIS revenues, which consist of higher margin technology products and services and a decrease in sales of EID tags, which typically generate lower profit margins, as well as the decrease in indirect overhead costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 22% to $4.4 million for the nine months ended September 30, 2003 from $5.7 million for the nine months ended September 30, 2002. The decrease in selling, general and administrative expenses was primarily associated with the cost savings initiatives that have been implemented over the last two years and include decreases in salaries and wages, communications, professional services, advertising and media expenses. We anticipate selling, general and administrative expenses to continue to be reduced, in 2003 as compared to 2002, as the impact of our cost saving initiatives continue to become fully realized.
Technology and Development
Our technology and development expenses decreased 38% to $1.4 million for the nine months ended September 30, 2003 from $2.2 million for the nine months ended September 30, 2002. This decrease was primarily associated with the reduction of workforce and decreases in materials, supplies, consulting and facilities expenses. Furthermore, the Company has fewer products under development and products such as CattleLog, our exclusive individual-animal data collection and
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reporting system and VerifEYE Solo, our handheld meat inspection system, are essentially complete. During the current quarter, the primary focus of our development team was our VerifEYE CIS and other derivative VerifEye products. We expect to continue to incur costs to develop and commercialize new products, expand our offerings and adapt our technologies to new markets. As we continue to develop human/health applications, these costs are expected to increase.
Impairment, Restructuring and Related Charges
The impairment, restructuring and related charges incurred in the nine months ended September 30, 2002 consist of severance and related outplacement benefits for 16 employees who were terminated during the second quarter of 2002, costs to exit a lease, an impairment of $812,000 to write-down to fair value the capitalized software expenses incurred to establish our interactive website, which was replaced with a less expensive website design, and an impairment of $44,000 to write-off the unamortized goodwill associated with our acquisition of Cyberstockyard, Inc.
Depreciation
Depreciation expense decreased 36% to $1.9 million for the nine months ended September 30, 2003 from $3.0 million for the nine months ended September 30, 2002. The decrease is primarily due to the disposal of approximately $459,000 of property, plant and equipment and noncash impairment of approximately $812,000 of property, plant and equipment during the last three quarters of 2002.
Other Income and Expense
Interest and other (expense) income, net decreased to $(13,000) for the nine months ended September 30, 2003 from $1.5 million for the nine months ended September 30, 2002. This decrease was primarily due to a decrease in miscellaneous income in the third quarter of 2003 to $15,000 from $1.3 million in the third quarter of 2002, relating primarily to the settlement of certain consulting and litigation fees, which had been previously accrued. In addition, interest income in the nine months ended September 30, 2003 decreased to $41,000 from $145,000 in the nine months ended September 30, 2002, generated principally by notes receivable from related parties outstanding in 2002. This income was offset in the current year by miscellaneous rental expense of $29,000, a miscellaneous expense in the first quarter of 2003 of approximately $34,000 related to the settlement of disputed consulting fees incurred in a prior period and an additional $6,000 of miscellaneous expense from several sources. In 2002, the interest income was enhanced by the receipt of miscellaneous rental income of approximately $62,000 and miscellaneous income received for the sale of infrared technologies and products of $17,000.
Interest expense decreased to $19,000 for the nine months ended September 30, 2003 from $442,000 for the nine months ended September 30, 2002. This decrease is due primarily to the termination of a line of credit on May 1, 2002.
Due to the losses incurred, we did not recognize income tax expense for the nine months ended September 30, 2003 or the nine months ended September 30, 2002.
Discontinued Operations
During the second quarter of 2002, we determined that in order to improve our productivity and our use of working capital we would sell or dispose of all of our previously acquired cattle operations. Through the subsequent divestitures, we significantly changed our market focus and revenue source. As of January 24, 2003, the divestiture of all cattle operations was complete. The results of operations of the acquired, and subsequently disposed, entities are included in our consolidated statements of operations under discontinued operations for all periods presented.
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The assets sold included only property and equipment. All associated goodwill was previously reduced to zero. There were no liabilities in the disposal group. The impairment loss, revenue and pretax loss related to assets sold or disposed amounted to:
Nine Months ended September 30, | |||||||
2003 |
2002 | ||||||
Impairment loss |
$ | | $ | 8,774,000 | |||
Revenue |
$ | 20,000 | $ | 464,934,000 | |||
Pretax (gain) loss |
$ | (134,000 | ) | $ | 10,532,000 |
The gain from discontinued operations in the nine months ended September 30, 2003 relates to the collection of receivables, previously considered uncollectible, in excess of expenses relating to previously closed cattle operations.
Minority interest represents the lessee/operators share of activities conducted under the lease and operating agreements that were entered into during the fourth quarter of 2001.
Liquidity and Capital Resources
As of September 30, 2003, our principal sources of liquidity are existing cash balances, working capital and expected sales from our VerifEYE and CattleLog products. As a result of our restructuring efforts, excluding the discontinued cattle operations, we have reduced our quarterly loss from continuing operations to approximately $2.3 million, which includes $608,000 of depreciation for the three months ended September 30, 2003. Cash and cash equivalents at September 30, 2003 and November 3, 2003 were $1.7 million and $909,000, respectively compared to $5.3 million at December 31, 2002. Our working capital balance as of September 30, 2003, including cash, was $1.2 million compared to $6.8 million as of December 31, 2002. Based on current revenue and expense projections, we will need to obtain additional working capital in the near term. As noted last quarter, the Company is in the process of seeking additional sources of liquidity to fund near term working capital requirements. We have formed an independent committee of the board, which is in the process of reviewing financing proposals. A financing may include the issuance by the Company of debt, equity securities, including equity securities that may be issued at a discount to our market price, or warrants. In the event equity securities are issued at a discount to the market price or warrants are issued, our stockholders will experience dilution, which may be significant. Our goal is to complete a transaction that meets our near term capital needs in the current fourth quarter. However, there can be no assurance that such a transaction will be secured, and if it is secured there can be no assurance that it will be on favorable terms. To the extent we are not able to secure adequate funding, our financial condition, results of operations and future prospects will be materially adversely affected. See also Factors Affecting Our Business, Financial Condition and Results of Operations below.
As of September 30, 2003, we have a receivable from Eastern Livestock, LLC in the amount of $200,000 to be paid in one installment on August 5, 2004 in compliance with the asset purchase agreement for the assets of Eastern.
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We have had significant negative cash flows from operating activities for each fiscal and quarterly period to date. For the nine months ended September 30, 2003, net cash used in operating activities was $5.3 million, primarily consisting of operating losses, net of depreciation.
Net cash provided by investing activities was $1.5 million for the nine months ended September 30, 2003. Our investing activities consist primarily of capital expenditures incurred primarily in producing VerifEYE CIS units for lease or demonstration purposes offset by the collection of receivables due from related parties.
Net cash provided by financing activities was $113,000 for the nine months ended September 30, 2003 and consists of proceeds from the exercise of stock options.
Our future working capital requirements will depend on a variety of factors including our ability to successfully implement our current business plan and reduce our net cash outflow.
Other Matters
There were no changes in the components of the Companys critical accounting policies and no significant changes in the components of commercial and contractual commitments during the nine months ended September 30, 2003.
We are not engaged in off-balance sheet arrangements or trading activities that involve non-exchange traded contracts.
We were successful in regaining compliance for continued listing on the NASDAQ Small Cap Market, including the minimum $1.00 bid requirement during the quarter ended September 30, 2003. As such, our ticker symbol reverted back to EMRG on September 25, 2003.
Critical Accounting Policies
In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51. This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. For public enterprises, such as the Company, with a variable interest in a variable interest entity created before February 1, 2003, the Interpretation is applied to the enterprise no later than the end of the first interim or annual reporting period beginning after June 15, 2003. The Interpretation requires certain disclosures in financial statements issued after January 31, 2003 if it is reasonably possible that we will consolidate or disclose information about variable interest entities when the Interpretation becomes effective. We adopted Interpretation No. 46 in July 2003 and do not expect its provisions to have a material effect on our financial statements.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 establishes accounting standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. It requires certain financial instruments that were previously classified as equity to be classified as assets or liabilities. The provisions are effective for transactions entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material effect on our consolidated financial statements. In the future, we may find it desirable or necessary to seek external financing and we may enter into an agreement that would be governed by SFAS No. 150 whereby the financing we receive cannot be classified as equity in our consolidated balance sheet.
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 product and
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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 market acceptance of our products. These statements are based on managements 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 our products, the use of the Internet in connection with our beef supply chain management services, our ability to grow revenue, our ability to increase margins, 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 Managements Discussion and Analysis of Financial Condition and Results of Operations and in Factors Affecting Our Business, Financial Condition and Results of Operation, 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, a discussion of factors affecting our business is included in our December 31, 2002 Form 10-K Annual Report and should be considered while evaluating our business, financial condition, results of operations and prospects.
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. 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 September 30, 2003, our investments consisted of $100,000 in cash equivalents with maturities of less than three months and a $75,000 certificate of deposit with a maturity of two years. Due to the 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 of a 10% increase or decrease in interest rates on our future results of operations and the future value of our portfolio will depend largely on the gross amount of our investments.
ITEM 4. | CONTROLS AND PROCEDURES |
As of September 30, 2003, an evaluation was carried out under the supervision and with the participation of the Companys management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(c)). Based on that evaluation, the CEO and CFO have concluded that the Companys disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
Subsequent to the date of their evaluation, there were no significant changes in the Companys internal controls or in other factors that could significantly affect the disclosure controls, including any corrective actions with regard to significant deficiencies and material weaknesses.
PART II. OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
There have been no material developments in the legal proceedings previously reported.
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 third quarter of 2003
ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K |
(a) Exhibits
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Exhibit Number |
Description |
Reference | ||
31.1 | Certificate of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | * | ||
31.2 | Certificate of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | * | ||
32.1 | Certification by David C. Warren Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | * | ||
32.2 | Certification by Juris Pagrabs Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | * |
* | Filed herewith. |
(b) Reports on Form 8-K
We filed the following report on Form 8-K during the quarter ended September 30, 2003:
On July 24, 2003 we furnished the press release of our financial results for the three months and six months ended June 30, 2003.
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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: November 14, 2003 |
eMerge Interactive. Inc. | |||||
By: | /s/ David C. Warren | |||||
David C. Warren President, Chief Executive Officer and Director (Principal Executive Officer) |
/s/ Juris Pagrabs | ||||||
Juris Pagrabs Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
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eMerge Interactive, Inc.
Index to Exhibits filed with Form 10-Q dated November 14, 2003
Exhibit |
Description of Exhibit | |
31.1 | Certificate of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certificate of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification by David C. Warren Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification by Juris Pagrabs Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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